Document:

stbernard_8k-ex0402.htm

     

    EXHIBIT
4.2

    
WARRANT
PURCHASE AGREEMENT

     

    Mr. John
Burke

    Chief
Financial Officer 

    St.
Bernard Software, Inc. 

    15015
Avenue of Science 

    San
Diego, CA 92128

     

    Ladies
& Gentlemen:

     

    This
Warrant Purchase Agreement (the "Agreement") is made as of July 21, 2008 (the
"Closing Date") by and between St. Bernard Software, Inc., a Delaware
corporation, with its principal place of business at 15015 Avenue of Science,
San Diego, CA 92128 (the "Company"), and Partners For Growth II, L.P., a
Delaware limited partnership ("Purchaser").

     

    1.    Authorization
and Purchase of the Warrant.

     

    (A)
Authorization
of the Warrant. As of the Closing Date, the Company's Board of Directors
has authorized the issuance by the Company and the sale to the Purchaser of a
warrant (the "Warrant") to purchase Four Hundred Fifty Thousand (450,000) shares
of the Company's Common Stock, all as more fully described, and subject to the
conditions set forth below and in the form of Warrant annexed hereto as Exhibit
1. The Common Stock issuable upon exercise of the Warrant are herein
referred to as the "Warrant Stock," and the Warrant and the Warrant Stock are
sometimes together referred to as the "Securities."

     

    (B)
Purchase
of Warrant. Subject to the terms and conditions set forth below and in
the Warrant, the Company shall issue to Purchaser the Warrant in consideration
of the payment of $1,353, which the parties agree is fair consideration for the
Warrant.

     

    2.    The
Closing. The closing of the purchase and sale of the Warrant to
Purchaser
(the "Closing") shall be held at the offices of Partners for Growth II, L.P.,
180 Pacific Avenue, San Francisco, CA 94111, or at such other location as may be
mutually agreed upon by the parties hereto. On the Closing Date, the Company
shall deliver to Purchaser the Warrant registered in the name of
Purchaser.

     

    3.    Representations,
Warranties and Covenants of the Company. The Company
represents and warrants to, and covenants with, the Purchaser that, except to
the extent disclosed with particularity in Schedule
A hereto:

     

    (A) Corporate
Power; Authorization. The Company has all requisite corporate power and
has taken all requisite corporate action to execute and deliver each of this
Agreement and the Warrant, to sell and issue the Securities and to carry out and
perform all of its obligations hereunder and thereunder. Each of this Agreement
and the Warrant has been duly authorized, executed and delivered on behalf of
the Company and constitutes
the valid and binding agreement of the Company, enforceable in accordance with
its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally and (ii) as limited by equitable principles
generally. The person executing this Agreement and the Warrant is a duly
authorized officer of the Company with all necessary legal authority to bind the
Company generally and with the specific legal authority to cause the Company to
enter into this Agreement and to execute and deliver the Warrant.

     

    
      
        
        

      

      
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    (B) Validity
of Securities. The Warrant, when sold against the consideration therefor
as provided therein, will be validly authorized, issued and fully paid. The
issuance and delivery of the Warrant is not subject to preemptive or any similar
rights of the stockholders of the Company (which have not been duly waived) or
any liens or encumbrances except for restrictions on transfer provided for
herein or under applicable federal and state securities laws; and when the
Warrant Stock is issued upon exercise and in accordance with the terms of the
Warrant, and such Warrant Stock is converted into Common Stock, such securities
will be, at each such issuance, validly issued and outstanding, fully paid and
nonassessable and free of any liens or encumbrances except for restrictions on
transfer provided for herein or under applicable federal and state securities
laws.

     

    (C)
Capitalization.
The capitalization of the Company is materially as set forth in Borrower's 10Q
as filed with the Securities and Exchange Commission for the period ending March
31, 2008. All issued and outstanding shares have been duly authorized and
validly issued and are fully paid and nonassessable. A true, correct and current
copy of the Company's Certificate of Incorporation as amended through the date
hereof ("Certificate") is set forth in Schedule
B hereto. Except as specified in this Agreement, there are no other
options, warrants, conversion privileges or other contractual rights presently
outstanding to purchase or otherwise acquire any authorized but unissued shares
of the Company's capital stock or other securities.

     

    (D)
No
Conflict. The execution and delivery of this Agreement and the Warrant do
not, and the consummation of the transactions contemplated hereby and thereby
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or to a loss of a
material benefit, under, any provision of the Certificate or Bylaws, as amended,
or any mortgage, indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company, its properties or
assets, the effect of which would have a material adverse effect on the Company
or materially impair or restrict its power to perform its obligations as
contemplated hereby or thereby.

     

    (E) Governmental
and other Consents. No consent, approval, order or authorization of, or
registration,
qualification, designation, declaration or filing with, any governmental
authority or other person or entity is required on the part of the Company in
connection with the execution, delivery and performance of this Agreement and
the Warrant or the offer, issuance, sale and delivery of the Warrant and the
Warrant Stock, except
such filings as shall have been made prior to and shall be effective on and as
of the Closing and except any notices of sale required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities Act or
such post-closing filings as may be required under applicable state securities
laws, all of which will be filed within applicable periods therefor. Based upon
the representations made by the Purchaser in Section 4 of this Agreement, the
offer and sale of the Warrant and the Warrant Stock to the Purchaser will be
exempt from the registration requirements of the Securities Act and from the
qualification requirements of any applicable state securities laws.

     

    
      
        
        

      

      
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    (F)
Authorized
and Unissued Shares of Common Stock. During the period within
which the Warrant may be exercised, the Company will at all times have
authorized and reserved, for the purpose of issue or transfer upon exercise of
the Warrant, a sufficient number of authorized but unissued shares of Common
Stock when and as required to provide for the exercise of the rights represented
by the Warrant.

     

    (G)
Delivery
of Information; Accuracy. The Company acknowledges its delivery of
certain Representations and Warranties dated July 10, 2008 (the "Representation
Letter"), to the Purchaser, which Representations and Warranties form the basis
for the Purchaser purchasing the Warrant. The information contained in Part B of
the Representation Letter and all documents, instruments and other information
delivered to the Purchaser in connection therewith are true, correct, accurate
and complete in all material respects.

     

    (H) Reporting.
With a view to making available to the Purchaser the benefits of Rule 144 and
other rules or regulations of the SEC that may permit the Purchaser to sell
Warrant Stock to the public without registration, the Company shall, to the
extent it is or becomes subject to reporting requirements under the Securities
Exchange Act of 1934 (the "Exchange Act"), as a continuing obligation: (a) make
and keep public information available, as those terms are understood and defined
in Rule 144, at all times after the Closing; (b) file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act of 1933 (the "Securities Act") and the Exchange Act; and (c)
furnish to the Purchaser, so long as the Purchaser owns any Securities forthwith
upon request, (i) a written statement by the Company that it has complied with
the reporting requirements of Rule 144 and the Exchange Act, (ii) such other
information as may be reasonably requested in order to avail
the Purchaser of any rule or regulation of the SEC that permits the selling of
any such Securities without registration. Without limiting the foregoing and
regardless of the Company's obligation to file
reports under the Exchange Act, the Company shall
from time to time promptly provide a copy of its most recent annual, quarterly
and other interim reports to Purchaser.

     

    4.  Representations
and Warranties of Purchaser. Purchaser hereby represents and
warrants to the Company as of the Closing Date as follows:

     

    (A) Investment
Experience. Purchaser is an "accredited investor" within the meaning of
Rule 501 under the Securities Act, and was not organized for the specific
purpose of acquiring the Securities. Purchaser is aware of the Company's
business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities.
Purchaser has such business and financial experience as is required to give it
the capacity to protect its own interests in connection with the purchase of the
Securities.

     

    
      
        
        

      

      
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    (B)
Investment
Intent. Purchaser is purchasing the Warrant for investment for its own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act. Purchaser
understands that the Warrant has not been registered under the Securities Act or
registered or qualified under any state securities law in reliance on specific
exemptions therefrom, which exemptions may depend upon, among other things,
the bona fide nature of Purchaser's investment intent as expressed
herein.

     

    (C)
Authorization.
Purchaser has all requisite power and has taken all requisite action to execute
and deliver each of this Agreement and to carry out and perform all of its
obligations hereunder. This Agreement has been duly authorized, executed and
delivered on behalf of Purchaser and constitutes the valid and binding agreement
of Purchaser, enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization or similar laws relating to or
affecting the enforcement of creditors' rights generally and (ii) as limited by
equitable principles generally. The consummation of the transactions
contemplated herein and the fulfillment of the terms herein will not result in a
breach of any of the terms or provisions of Purchaser's partnership agreement or
other relevant organizational documents.

     

    5.  Restrictions
on Transfer of Securities; Registrable Securities. The restrictions on
transfer of the Securities are as set forth in the Warrant.

     

    6.  Miscellaneous.

     

    (A)
Waivers
and Amendments. This Agreement and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.

     

    (B)
Governing
Law; Venue. This Agreement and the Warrant shall each be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of California without regard to conflict of laws. The
parties each irrevocably submit to the exclusive jurisdiction of the U.S. state
and federal courts located in San Francisco, California in connection with any
dispute arising under this Agreement or the Warrant.

     

    (C) Survival.
The representations, warranties, covenants and agreements made herein shall
survive any investigation made by the Company or Purchaser and the
Closing.

     

    
      
        
        

      

      
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    (D)
Successors
and Assigns. The provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto (specifically including any person that becomes a holder of
the Warrant through transfer thereof from the Purchaser, and any other
successors in interest to the Securities). In the event of any merger,
consolidation or acquisition involving the Company in which the Company is not
the surviving entity, the Company's obligations hereunder and under the Warrant
shall be expressly or by operation of law assumed by the surviving
entity.

     

    (E)
Entire
Agreement; Construction. This Agreement and the Warrant constitute the
full and entire understanding and agreement between the parties with regard to
the subject hereof. In the event of any conflict between the terms of this
Agreement and the temis of the Warrant (including any Schedule attached
thereto), the terms of the Warrant shall prevail. The term "$" or "dollars"
means United States dollars; the term "including" means "including without
limitation"; "days" means business days in the United States. Any rule of
construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in
the construction or interpretation of this Agreement or the
Warrant.

     

    (F) Notices,
etc. Any notice or other communication given under this Agreement shall
be sufficient if in writing and sent by personal service, facsimile, courier
service promising overnight delivery or registered or certified mail, return
receipt requested, postage prepaid, to a party at its address set forth below
(or at such other address as shall be designated for such purpose by such party
in a written notice to the other party hereto):

     

    if to
Purchaser, at

     

    Partners
for Growth II, L.P. 

    180
Pacific Avenue

    San
Francisco, California 94111 

    Attention:
Lorraine Nield

    Fax:
(415) 781-0510

     

    with a
copy to

     

    Benjamin
Greenspan

    Greenspan
Law Corporation 

    620
Laguna Road

    Mill
Valley, CA 94941

    Fax:
(415) 738-5371

    Email:
ben@greenspan-law.com

     

    or

     

    if to the
Company, at

     

    
      
        
        

      

      
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    Mr. John
Burke

    Chief
Financial Officer 

    St.
Bernard Software, Inc. 

    15015
Avenue of Science 

    San
Diego, CA 92128 

    Fax:
(858) 676-3678

    Email: JBurke@stbernard.com

     

    with a
copy (not constituting notice) to:

     

    Mintz
Levin

    3580
Carmel Mountain Road 

    Suite
300

    San
Diego, CA 92130

    Attn:
Jeremy Glaser

    Fax:
(858) 320-3001

    Email:
JGlaser@Mintz.com

     

    or in any
case at such other address as Purchaser or the Company shall have furnished to
the other in writing. The term "notify" means to give notice in writing as
specified above.

     

    (G)
Severability
of this Agreement. If any provision of this Agreement shall be judicially
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

     

    (H)
Titles
and Subtitles. The titles of the paragraphs and subparagraphs of this
Agreement are for convenience of reference and shall not, by themselves,
determine the construction of this Agreement.

     

    (I) Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one
instrument.

     

     

    
      
        
        

      

      
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    Please
confirm that the foregoing correctly sets forth the agreement between us by
signing in the space provided below for that purpose.

     

     

    
      	PARTNERS FOR GROWTH
      II, L.P. 
	 
	 
	  /s/ Andrew W.
      Kahn                                 
      
	By:  Andrew
      W. Kahn, Manager of   
	Partners for Growth
      II, LLC, its General  
	Partner 

    

     

     

    AGREED
AND ACCEPTED, 

    as of the
date first above written:

     

    ST.
BERNARD SOFTWARE, INC.

     

    By:  /s/ Vincent A.
Rossi                     

    Its:  
Chief Executive Officer

     

     

     

    
      
        
        

      

      
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    SCHEDULE
A - EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES

     

    
 

    
      
        
        

      

      
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    SCHEDULE
B -CERTIFICATE

     

     

     

     

    
      
        
        

      

      
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    EXHIBIT 1
- FORM OF WARRANT

     

    
 

    10stbernard_8k-ex1001.htm

    EXHIBIT 10.1

     

    Partners
for Growth

     

    Loan
and Security Agreement

     

    
       

      
        	Borrower:	St. Bernard
      software, Inc.
	 	 
	Address:	15015 Avenue of
      Science, San Diego, CA 92128
	 	 
	Date:	July 21,
      2008

      

       

    

    THIS LOAN
AND SECURITY AGREEMENT is entered into on'the above date between PARTNERS
FOR GROWTH II, L.P. ("PFG"), whose address is 180 Pacific Avenue, San Francisco,
CA 94111
and the borrower(s) named above (jointly and severally, the "Borrower"),
whose chief executive office is located at the above address ("Borrower's
Address"). The Schedule to this Agreement (the "Schedule") being signed by the
parties concurrently, is an integral part of this Agreement. (Definitions of
certain terms used in this Agreement are set forth in Section 8
below.)

     

    1.
LOANS.

     

    1.1 Loans. PFG will make loans to
Borrower (the "Loans") up to the amounts (the "Credit Limit") shown on the
Schedule, provided no Default or Event of Default has occurred and is
continuing, and subject to deduction of Reserves for accrued interest and such
other Reserves as PFG may establish in accordance with the definition
thereof.

     

    1.2 Interest. All Loans and all other
monetary Obligations shall bear interest at the rate shown on the Schedule,
except where expressly set forth to the contrary in this Agreement. Interest
shall be payable monthly, on the first day of each month for interest accrued
during the prior month. Interest may, in PFG's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Regardless of the amount of the Obligations that may be
outstanding from time to time, Borrower shall pay PFG minimum monthly interest
during the term of this Agreement in the amount set forth on the Schedule (the
"Minimum Monthly Interest").

     

    1.3 Overadvances. If, at any time or for
any reason, the total of all outstanding Loans and all other monetary
Obligations exceeds the Credit Limit (an "Overadvance"), Borrower shall
immediately pay the amount of the excess to PFG, without notice or demand.
Without limiting Borrower's obligation to repay to PFG the amount of any
Overadvance, Borrower agrees to pay PFG interest on the outstanding amount of
any Overadvance, on demand, at the Default Rate.

     

    1.4
Fees. Borrower shall pay PFG the fees shown on the Schedule, which are in
addition to all interest and other sums payable to PFG and are not
refundable.

     

    1.5 Loan Requests. To obtain a Loan,
Borrower shall make a request to PFG by facsimile or telephone. Loan requests
may also be made by Borrower by email, but the same shall not be deemed made
until PFG acknowledges receipt of the same by email or otherwise in writing.
PFG's obligation to consider a Loan request shall be subject to its receipt of
such reports, certificates and other information as may be set forth in the
Schedule. Loan requests received after 12:00 Noon Pacific time will not be
deemed received by PFG until the next Business Day. PFG may rely on any
telephone request for a Loan given by a person whom PFG believes in good faith
is an authorized representative of Borrower, and Borrower will indemnify PFG for
any loss PFG suffers as a result of that reliance, except for any loss caused by
the gross negligence or willful misconduct of PFG.

     

    1.6 Late Fee. If any payment of accrued
interest for any month is not made within three business days after the date a
bill therefor is sent by PFG to Borrower, or if any payment of principal or any
other payment is not made within three Business Days after the date due,
Borrower shall pay PFG a late payment fee equal to 5% of the amount of such late
payment. The provisions of this paragraph shall not be construed as PFG's
consent to Borrower's failure to pay any amounts when due, and PFG's acceptance
of any such late payments shall not restrict PFG's exercise of any remedies
arising out of any such failure.

     

    
      
        
        

      

      
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      2. SECURITY
INTEREST.

    

     

    2.1
Grant of Security Interest. To secure the payment and performance of all
of the Obligations when due, Borrower hereby grants to PFG a security interest
in all of the following (collectively, the "Collateral"): all right, title and
interest of Borrower in and to all of the following, whether now owned or
hereafter arising or acquired and wherever located: all Accounts; all Inventory;
all Equipment; all Deposit Accounts; all General Intangibles (including without
limitation all Intellectual Property); all Investment Property; all Other
Property; and any and all claims, rights and interests in any of the above, and
all guaranties and security for any of the above, and all substitutions and
replacements for, additions, accessions, attachments, accessories, and
improvements to, and proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties) of, any and all of the
above, and all Borrower's books relating to any and all of the above. Collateral
shall not include any equipment that now or hereafter is purchase-money financed
by a Permitted Lien. Borrower hereby authorizes PFG to file financing
statements, without notice to Borrower, with all appropriate jurisdictions in
order to perfect or protect PFG's interests or rights hereunder, which financing
statements may show the Collateral as "all assets of Debtor" or words of similar
effect, or as being of equal or lesser scope, or with greater detail, all in
PFG's discretion.

     

    3. REPRESENTATIONS,
WARRANTIES AND COVENANTS OF BORROWER.

     

    In order
to induce PFG to enter into this Agreement and to make Loans, Borrower
represents and warrants to PFG as follows, and Borrower covenants that the
following representations will continue to be true, and that Borrower will at
all times comply with all of the following covenants, throughout the term of
this Agreement and until all Obligations have been paid and performed in
full:

     

    3.1
Corporate Existence and Authority. Borrower is and will continue to be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would result in a Material Adverse Change. The execution, delivery and
performance by Borrower of this Agreement, and all other documents contemplated
hereby (i) have been duly and validly authorized, (ii) are enforceable against
Borrower in accordance with their terms (except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors' rights generally), (iii) do not violate
Borrower's articles or certificate of incorporation, or Borrower's by-laws, or
any law or any material agreement or instrument which is binding upon Borrower
or its property, and (iv) do not constitute grounds for acceleration of any
material indebtedness or obligation under any agreement or instrument which is
binding upon Borrower or its property.

     

    3.2
Name; Trade Names and Styles. As of the date hereof, the name of Borrower
set forth in the heading to this Agreement is its correct name, as set forth in
its Articles or Certificate of Incorporation. Listed in the Representations are
all prior names of Borrower and all of Borrower's present and prior trade names
as of the date hereof. Borrower shall give PFG 30 days' prior written notice
before changing its name or doing business under any other name Borrower has
complied, and will in the future comply, in all material respects, with all laws
relating to the conduct of business under a fictitious business name, if
applicable to Borrower.

     

    3.3
Place of Business; Location of Collateral. As of the date hereof, the
address set forth in the heading to this Agreement is Borrower's chief executive
office. In addition, as of the date hereof,Borrower
has places of business and Collateral is located only at the locations set forth
in the Representations. Borrower will give PFG at least 30 days prior written
notice before opening any additional place of business, changing its chief
executive office, or moving any of the Collateral to a location other than
Borrower's Address or the locations set forth in the Representations, except
that Borrower may maintain sales
offices in the ordinary course of business at which not more than a total of
$25,000 fair market value of Equipment is located.

     

    3.4
Title to Collateral; Perfection; Permitted Liens.

     

    (a) Borrower
is now, and will at all times in the future be, the sole owner of all the
Collateral, except for items of Equipment which are leased to Borrower. The
Collateral now is and will remain free and clear of any and all liens, charges,
security interests, encumbrances and adverse claims, except for Permitted Liens.
PFG now has, and will continue to have, a first-priority perfected and
enforceable security interest in all of the Collateral, subject only to the
Permitted Liens, and Borrower will at all times defend PFG and the Collateral
against all claims of others.

     

    (b) Borrower
has set forth in the Representations all of Borrower's Deposit Accounts, and
Borrower will give PFG five Business Days advance written notice before
establishing any new Deposit Accounts and will cause the institution where any
such new Deposit Account is maintained to execute and deliver to PFG a control
agreement in form sufficient to perfect PFG's security interest in the Deposit
Account and otherwise satisfactory to PFG in its good faith business
judgment.

     

    
      
        
        

      

      
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    (c) In the
event that Borrower shall at any time after the date hereof have any commercial
tort claims against others, which it is asserting, and in which the potential
recovery exceeds $100,000, Borrower shall promptly notify PFG thereof in writing
and provide PFG with such information regarding the same as PFG shall request
(unless providing such information would waive the Borrower's attorney-client
privilege). Such notification to PFG shall constitute a grant of a security
interest in the commercial tort claim and all proceeds thereof to PFG, and
Borrower shall execute and deliver all such documents and take all such actions
as PFG shall request in connection therewith.

     

    (d) None of
the Collateral now is or will be affixed to any real property in such a manner,
or with such intent, as to become a fixture. Borrower is not and will not become
a lessee under any real property lease pursuant to which the lessor may obtain
any rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral in excess of
$10,000 is located upon premises in which any third party has an interest,
Borrower shall, whenever requested by PFG, use commercially reasonable efforts
to cause such third party to execute and deliver to PFG, in form acceptable to
PFG, such waivers and subordination as PFG shall specify in its good faith
business judgment. Borrower will keep in full force and effect, and will comply
with all material terms of, any lease of real property where any of the
Collateral now or in the future may be located.

     

    3.5
Maintenance of Collateral. Borrower will maintain the Collateral in good
working condition (ordinary wear and tear excepted), and Borrower will not use
the Collateral for any unlawful purpose. Borrower will promptly advise PFG in
writing of any material loss or damage to the Collateral.

     

    3.6
Books and Records. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.

     

    3.7
Financial Condition, Statements and Reports. All financial statements now
or in the future delivered to PFG have been, and will be, prepared in conformity
with GAAP and now and in the future will fairly present the results of
operations and financial condition of Borrower in all material respects, in
accordance with GAAP, at the times and for the periods therein stated. All
financial projections that have been provided by or on behalf of the Borrower to
PFG were prepared in good faith based on reasonable assumptions (it being
understood that such projections are subject to significant uncertainties and
contingencies beyond the Borrower's control, and that no assurance can be given
that the projections will be realized). Between the June 30, 2008 financial
statement provided to PFG and the date hereof,there has
been no Material Adverse Change.

     

    3.8
Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all required tax returns and reports, and Borrower
has
timely paid, and will timely pay, all foreign, federal, state and local taxes,
assessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer payment of any of the foregoing which are contested
by Borrower in good faith, provided that Borrower (i) contests the same by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies PFG in writing of the commencement of, and any material development in,
the proceedings, and (iii) posts bonds or takes any other steps reasonably
required to keep the same from becoming a lien upon any of the Collateral.
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, and shall continue to pay all amounts necessary
to fund all present and future pension, profit sharing and deferred
com­pensation plans in accordance with their terms, and Borrower has not and
will not withdraw from participation in, permit partial or complete termination
of, or permit 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.

     

    3.9
Compliance with Law. Borrower has, to the best of its knowledge,
complied, and will comply, in all material respects, with all provisions of all
foreign, federal, state and local laws and regulations applicable to Borrower,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.

     

    3.10
Litigation. There is no claim, suit, litigation, proceeding or
investigation pending or (to best of Borrower's knowledge) threatened against or
affecting Borrower in any court or before any governmental agency, other then
disclosed within the Representations, (or any basis therefor known to Borrower)
which could reasonably be expected to result, either separately or in the
aggregate, in any Material Adverse Change. Borrower will promptly inform PFG in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted against Borrower involving any single claim of $50,000
or more, or involving $100,000 or more in the aggregate.

     

    3.11
Use of Proceeds. All
proceeds of all Loans shall be used solely for lawful business purposes.
Borrower is not purchasing or carrying any "margin stock" (as defined in
Regulation U of the Board of Governors of the Federal Reserve System)
and no part of the proceeds of any Loan will be used to purchase or carry any
"margin stock" or to extend credit to others for the purpose of purchasing or
carrying any "margin stock."

     

    
      
        
        

      

      
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    3.12
No Default. At the date hereof, no Default or Event of Default has
occurred, and no Default or Event of Default will have occurred after giving
effect to any Loans being made concurrently herewith.

     

    3.13 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 PFG 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 PFG's written consent. If Borrower decides to register any copyrights or
mask works in the United States Copyright Office, Borrower shall: (x) provide
PFG 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 PFG may reasonably request to maintain the perfection and priority
of PFG'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 PFG 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 PFG to maintain the perfection and priority of its security
interest in such copyrights or mask works. Borrower shall provide written notice
to PFG of any application filed by Borrower in the United States Patent and
Trademark Office for a patent or to register a trademark or service mark within
30 days after any such filing.

     

    3.14
Domain Rights and Related Matters. Borrower (a) is the sole record, legal
and beneficial owner of all domain names and domain name rights used in
connection with its business and that of its Subsidiaries, free and clear of any
rights or claims of any third party; (b) represents and warrants that the
information provided in the Representations with respect to domain names and
ownership thereof, domain registry, domain servers, location and administrative
contact information, web hosting and related services and facilities
(collectively, "Domain Rights") is true, accurate and complete and Borrower
shall promptly notify PFG of any changes to such information; (c) shall maintain
all Domain Rights in full force and effect so long as any Obligations remain
outstanding; (d) shall, upon request of PFG, notify such third parties
(including domain registrars, hosting companies and internet service providers)
of PFG's security interest in Borrower's Domain Rights; and (e) promptly advise
PFG in writing of any disputes or infringements of its Domain
Rights.

     

    4.
ACCOUNTS.

     

    4.1
Representations Relating to Accounts. Borrower represents and warrants to
PFG as follows: Each Account with respect to which Loans are requested by
Borrower shall, on the date each Loan is requested and made, (i) represent an
undisputed bona fide existing unconditional obligation of the Account Debtor
created by the sale, delivery, and acceptance of goods or the rendition of
services, or the non-exclusive licensing of Intellectual Property, in the
ordinary course of Borrower's business, and (ii) meet the Minimum Eligibility
Requirements set forth in Section 8 below.

     

    4.2
Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to PFG as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Accounts are and shall be true and correct in all material respects and all
such invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be.
All sales and other transactions underlying or giving rise to each Account shall
comply in all material respects with all applicable laws and governmental rules
and regulations. To the best of Borrower's knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating to all
Accounts are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their
terms.

     

    4.3
Documents Relating to Accounts. If requested by PFG, Borrower shall
furnish PFG with copies (or, at PFG's request, originals) of all contracts,
orders, invoices, and other similar documents, and all shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Accounts, and Borrower
warrants the genuineness of all of the foregoing. Borrower shall also furnish to
PFG an aged accounts receivable trial balance as provided in the Schedule. In
addition, subject to the rights of the Senior Lender, Borrower shall deliver to
PFG, on its request, the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Accounts, in the same form as received, with all necessary endorsements, and
copies of all credit memos.

     

    4.4
Collection of Accounts. Borrower shall have the right to collect all
Accounts, unless and until a Default or an Event of Default has occurred and is
continuing. Subject to the rights of the Senior Lender, PFG may, in its good
faith business judgment, require that all proceeds of Collathral be deposited by
Borrower into a lockbox account, or such other "blocked account"
as PFG may specify, pursuant to a blocked account agreement in such form as PFG
may specify in its good faith business judgment.

     

    
      
        
        

      

      
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    4.5.
Remittance of Proceeds. Subject to the rights of the Senior Lender, all
proceeds arising from the disposition of any Collateral shall be delivered, in
kind, by Borrower to PFG in the original form in which received by Borrower not
later than the following Business Day after receipt by Borrower, to be applied
to the Obligations in such order as PFG shall determine; provided that, if no
Default or Event of Default has occurred and is continuing, Borrower shall not
be obligated to remit to PFG (i) the proceeds of Accounts arising in the
ordinary course of business, or (ii) the proceeds of the sale of worn out or
obsolete Equipment disposed of by Borrower in good faith in an arm's length
transaction for an aggregate purchase price of $100,000 or less (for all such
transactions in any fiscal year). Borrower agrees that it will not commingle
proceeds of Collateral (other than those described in subclauses (i) and (ii),
above) with any of Borrower's other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express
trust for PFG, except as set forth above, and subject to the rights of the
Senior Lender. Nothing in this Section limits the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.

     

    4.6
Disputes. Borrower shall notify PFG promptly of all disputes or claims in
excess of $25,000 relating to Accounts. Borrower shall not forgive (completely
or partially), compromise or settle any Account for less th
n payment in full, or agree to do any of the foregoing, except that
Borrower may do so, provided that: (i) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, and in arm's
length transactions, which are reported to PFG on the regular reports provided
to PFG; (ii) no Default or Event of Default has occurred and is continuing; and
(iii) taking into account all such discounts, settlements and forgiveness, the
total outstanding Loans will not exceed the Credit Limit.

     

    4.7
Returns. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower, Borrower shall promptly
determine the reason for such return and promptly issue a credit memorandum to
the Account Debtor in the appropriate amount. In the event any attempted return
occurs after the occurrence and during the continuance of any Event of Default,
Borrower shall hold the returned Inventory in trust for PFG, and promptly notify
PFG of the return of the Inventory.

     

    4.8
Verification. PFG may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Accounts, by means of mail, telephone or otherwise, either in the name of
Borrower or PFG or such other name as PFG may choose. PFG will use reasonable
efforts to provide advance notice of any such verification efforts.

     

    4.9
No Liability. PFG shall not be responsible or liable for any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or
other disposition of which gives rise to an Account, or for any error, act,
omission, or delay of any kind occurring in the settlement, failure to settle,
collection or failure to collect any Account, or for settling any Account in
good faith for less than
the full amount thereof nor shall PFG be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to an
Account. Nothing herein shall, however, relieve PFG from liability for its own
gross negligence or willful misconduct.

     

    5.
ADDITIONAL DUTIES AND COVENANTS OF BORROWER

     

    5.1
Financial and Other Covenants. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.

     

    5.2
Insurance. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to PFG, in such form and amounts as PFG may
reasonably require and as are customary and in accordance with standard
practices for Borrower's industry and locations, and Borrower shall provide
evidence of such insurance to PFG. All such insurance policies shall name PFG as
an additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to PFG. Upon receipt of the proceeds of any such
insurance, subject to the rights of the Senior Lender, PFG shall apply such
proceeds in reduction of the Obligations as PFG shall determine in its good
faith business judgment, except that, provided no Default or Event of Default
has occurred and is continuing, PFG shall release to Borrower insurance proceeds
with respect to Equipment totaling less than $100,000, which shall be utilized
by Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid. PFG may require reasonable assurance that the
insurance proceeds so released will be so used. If Borrower fails to provide or
pay for any insurance, PFG may, but is not obligated to, obtain the same at
Borrower's expense. Borrower shall promptly de­liver to PFG copies of all
material reports made to insurance companies.

     

    
      
        
        

      

      
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    5.3
Reports. Borrower, at its expense, shall provide PFG with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, projections, operating plans and other financial
documentation), as PFG shall from time to time specify in its good faith
business judgment.

     

    5.4
Access to Collateral, Books and Records. At reasonable times, and on
three Business Day's notice, PFG, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records. So
long as no Default or Event of Default has occurred and is continuing, PFG may
audit Borrower's books and records only once per calendar year. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $750 per person per day (or such higher amount as shall represent PFG's
then current standard charge for the same), plus reasonable out-of-pocket
expenses. Notwithstanding the foregoing, if no Default or Event of Default has
occurred and is continuing, Borrower shall not be required to disclose to PFG
any document or information (i) where disclosure is prohibited by applicable law
or any agreement binding on Borrower, or (ii) is subject to attorney-client or
similar privilege or constitutes attorney work product. If Borrower is
withholding any information under the preceding sentence, it shall so advise PFG
in writing, giving PFG a general description of the nature of the information
withheld.

     

    5.5
Negative Covenants. Except as may be permitted in the Schedule, Borrower
shall not, without PFG's prior written consent (which shall be a matter of its
good faith business judgment and shall be conditioned on Borrower then being in
compliance with the terms of this Agreement), do any of the
following:

     

    (i) permit or
suffer any Change in Control;

     

    (ii) acquire
any assets in excess of $100,000, except in the ordinary course of business, or
make any Investments other than Permitted Investments;

     

    (iii) enter
into any other transaction in excess of $100,000 outside the ordinary course of
business;

     

    (iv) sell or
transfer any Collateral (including without limitation and sale or transfer of
Collateral which is then leased back by Borrower), except for (A) the sale of
finished Inventory in the ordinary course of Borrower's business, and except for
the sale of obsolete or unneeded Equipment in the ordinary course of business,
(B) the making of Permitted Investments, (C) the granting of Permitted Liens,
and (D) the non-exclusive licensing of Intellectual Property in the ordinary
course of business;

     

    (v) store any
Inventory or other Collateral with any warehouseman or other third party in
excess of $100,000 unless there is in place a bailee agreement in such form as
PFG shall specify in its good faith business judgment;

     

    (vi) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis, provided that Borrower shall be entitled to sell Inventory on an
evaluation basis in the ordinary course of its business as historically
conducted;

     

    (vii) make any
loans of any money or other assets, other than Permitted
Investments;

     

    (viii) incur any
Indebtedness, other than Permitted Indebtedness with the exception of the
deferred compensation of the board of directors accrued currently and hereafter
deferred for services rendered but unpaid, up to a maximum of $200,000 per
year;

     

    (ix) guarantee
or otherwise become liable with respect to the obligations of another party or
entity (other than Permitted Indebtedness);

     

    (x) pay or
declare any dividends on Borrower's stock (except for dividends payable solely
in stock of Borrower);

     

    (xi)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's stock, except as required in the ordinary course of business and
consistent with past practice in connection with redeeming or purchasing stock
of departing employees, up to a maximum aggregate of $50,000 in any fiscal
year;

     

    (xi) engage,
directly or indirectly, in any business other than the businesses currently
engaged in by Borrower or reasonably related thereto;

     

    (xii) without
at least ten (10)
Business Days prior written notice to PFG: (1) add any new offices or
business locations, including warehouses (unless such new offices or business
locations contain less than $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;

     

    (xiii) transfer
any Collateral by loan or otherwise to any Foreign Subsidiary; or

     

    (xiv) liquidate
or dissolve or elect to liquidate or dissolve.

     

    
      
        
        

      

      
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    Transactions
permitted by the foregoing provisions of this Section are only permitted if no
Default or Event of Default would occur as a result of such
transaction.

     

    5.6
Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against PFG with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to PFG, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that PFG may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.

     

    5.7
Changes. Borrower agrees to promptly notify PFG in writing of any changes
in the information set forth in the Representations.

     

    5.8
Further Assurances. Borrower agrees, at its expense, on request by PFG,
to execute all documents and take all actions, as PFG, may, in its good faith
business judgment, deem necessary or useful in order to perfect and maintain
PFG's perfected first-priority security interest in the Collateral (subject to
Permitted Liens), and in order to fully consummate the transactions contemplated
by this Agreement.

     

    6. TERM.

     

    6.1
Maturity Date. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the "Maturity Date"), subject to Sections 6.2
and 6.3 below.

     

    6.2
Early Termination. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three Business Days after written
notice of termination is given to PFG; or (ii) by PFG at any time after the
occurrence and during the continuance of an Event of Default, without notice,
effective immediately.

     

    6.3
Payment of Obligations. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Notwithstanding
any termination of this Agreement, all of PFG's security interests in all of the
Collateral and all of the terms and provisions of this Agreement shall continue
in full force and effect until all Obligations (other than inchoate indemnity
obligations) have been paid and performed in full; provided that PFG may, in its
sole discretion, refuse to make any further Loans after termination. No
termination shall in any way affect or impair any right or remedy of PFG, nor
shall any such termination relieve Borrower of any Obligation to PFG, until all
of the Obligations have been paid and performed in full. Upon payment and
performance in full of all the Obligations and termination of this Agreement,
PFG shall promptly terminate its financing statements with respect to the
Borrower and deliver to Borrower such other documents as may be required to
fully terminate PFG's security interests.

     

    7. EVENTS
OF DEFAULT AND REMEDIES.

     

    7.1
Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
PFG immediate written notice thereof:

     

    (a) Any
warranty, representation, statement, report or certificate made or delivered to
PFG by Borrower or any of Borrower's officers, employees or agents, now or in
the future, shall be untrue or misleading in a material respect when made or
deemed to be made; or

     

    (b) Borrower
shall fail to pay any Loan or any interest thereon or any other monetary
Obligation within three Business Days after the date due; or

     

    (c) the total
Loans and other Obligations outstanding at any time shall exceed the Credit
Limit; or

     

    (d) Borrower
shall fail to comply with any of the financial covenants set forth in the
Schedule, or shall breach any of the provisions of Section 5.5 hereof, or shall
fail to perform any other non-monetary Obligation which by its nature cannot be
cured, or shall fail to permit PFG to conduct an inspection or audit as provided
in Section 5.4 hereof or shall fail to provide PFG with a borrowing base report
under Section 6 of the Schedule within one Business Day after the date due;
or

     

    (e) Borrower
shall fail to perform any other non-monetary Obligation, which failure is not
cured within fifteen (15) Business Days after the date due; or

     

    (f) any levy,
assessment, attachment, seizure, lien or encumbrance (other than a Permitted
Lien) is made on all or any part of the Collateral in excess of $100,000 which
is not cured within 15 calendar days after the occurrence of the same;
or

     

    (g) any
default or event of default occurs under any obligation secured by a Permitted
Lien, which is not cured within any applicable cure period or waived in writing
by the holder of the Permitted Lien; or

     

    
      
        
        

      

      
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    (h) Borrower
breaches any material contract or obligation, which has resulted or may
reasonably be expected to result in a Material Adverse Change; or

     

    (i) Dissolution,
termination of existence, insolvency or business failure of Borrower; or
appointment of a receiver, trustee or custodian, for all or any part of the
property of, assignment for the benefit of creditors by, or the commencement of
any proceeding by Borrower under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, or Borrower shall generally
not pay its debts as they become due, or Borrower shall conceal, remove or
transfer any part of its property, with intent to hinder, delay or defraud its
creditors, or make or suffer any transfer of any of its property which may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law;
or

     

    (j) the
commencement of any proceeding against Borrower or any guarantor of any of the
Obligations under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 45 days after the date commenced; or

     

    (k) revocation
or termination of or limitation or denial of liability upon, any guaranty of the
Obligations or any attempt to do any of the foregoing, or commencement of
proceedings by any guarantor of any of the Obligations under any bankruptcy or
insolvency law; or

     

    (1)
revocation or termination of, or limitation or denial of liability upon, any
pledge of any certificate of deposit, securities or other property or asset of
any kind pledged by any third party to secure any or all of the Obligations, or
any attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law;
or

     

    (m) Borrower
makes any payment on account of any indebtedness or obligation which has
been subordinated to the Obligations (other than as permitted in the applicable
subordination agreement), or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or

     

    (n) a
Material Adverse Change shall occur.

     

    PFG may
cease making any Loans hereunder during any of the cure periods provided above,
and thereafter if an Event of Default has
occurred and is continuing.

     

    7.2
Remedies. Upon the occurrence and during the continuance of any Event of
Default, and at any time thereafter, PFG, at its option, and without notice or
demand of any kind (all of which are hereby expressly waived by Borrower), may
do any one or more of the following: (a) Cease making Loans or otherwise
extending credit to Borrower under this Agreement or any other Loan Document;
(b) Accelerate and declare all or any part of the Obligations to be immediately
due, payable, and performable, notwithstanding any deferred or installment
payments allowed by any instrument evidencing or relating to any Obligation; (c)
Take possession of any or all of the Collateral wherever it may be found, and
for that purpose Borrower hereby authorizes PFG without judicial process to
enter onto any of Borrower's premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain on the
premises or cause a custodian to remain on the premises in exclusive control
thereof, without charge for so long as PFG deems it necessary, in its good faith
business judgment, in order to complete the enforcement of its rights under this
Agreement or any other agreement; provided, however, that should PFG seek to
take possession of any of the Collateral by court process, Borrower hereby
irrevocably waives: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and (iii) any requirement that PFG
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to PFG
at places designated by PFG which are reasonably convenient to PFG and Borrower,
and to remove the Collateral to such locations as PFG may deem advisable;
(e) Complete
the processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, PFG shall have the
right to use Borrower's premises, vehicles, hoists, lifts, cranes, and other
Equipment and all other property without charge; (f) Sell, lease or otherwise
dispose of any of the Collateral, in its condition at the time PFG obtains
possession of it or after further manufacturing, processing or repair, at one or
more public and/or private sales, in lots or in bulk, for cash, exchange or
other property, or on credit, and to adjourn any such sale from time to time
without notice other than oral announcement at the time scheduled for sale. PFG
shall have the right to conduct such disposition on Borrower's premises without
charge, for such time or times as PFG deems reasonable, or on PFG's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
PFG may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under

     

    
      
        
        

      

      
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    applicable
law, at any private disposition. Any sale or other disposition of Collateral
shall not relieve Borrower of any liability Borrower may have if any Collateral
is defective as to title or
physical condition or otherwise at the time of sale; (g) Demand payment of, and
collect
any Accounts and General Intangibles comprising Collateral and, in connection
therewith, Borrower irrevocably authorizes PFG to endorse or sign Borrower's
name on all collections, receipts, instruments and other documents, to take
possession of and open mail addressed to Borrower and remove therefrom payments
made with respect to any item of the Collateral or proceeds thereof, and, in
PFG's good faith business judgment, to grant extensions of time to pay,
compromise claims and settle Accounts and the like for less than face value; (h)
Exercise any and all rights under any present or future control agreements
relating to Deposit Accounts or Investment Property; and (i) Demand and receive
possession of any of Borrower's federal and state income tax returns and the
books and records utilized in the preparation thereof or referring thereto. All
reasonable attorneys' fees, expenses, costs, liabilities and obligations
incurred by PFG with respect to the foregoing shall be added to and become part
of the Obligations, shall be due on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any of
the Obligations. Without limiting any of PFG's rights and remedies, from and
after the occurrence and during the continuance of any Event of Default, the
interest rate applicable to the Obligations shall be the Default
Rate.

     

    7.3
Standards for Determining Commercial Reasonableness. Borrower and PFG
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
ten days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least five days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by PFG, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a m and 6:00 p.m.; (v)
Payment of the purchase price in cash or by cashier's check or wire transfer is
required; (vi) With respect to any sale of any of the Collateral, PFG may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. PFG shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.

     

    7.4
Power
of Attorney. Upon the occurrence and during the continuance of any Event
of Default, without limiting PFG's other rights and remedies, Borrower grants to
PFG an irrevocable power of attorney coupled with an interest, authorizing and
permitting PFG (acting through any of its employees, attorneys or agents) at any
time, at its option, but without obligation, with or without notice to Borrower,
and at Borrower's expense, to do any or all of the following, in Borrower's name
or otherwise, but PFG agrees that if it exercises any right hereunder, it will
do so in good faith and in a commercially reasonable manner: (a) Execute on
behalf of Borrower any documents that PFG may, in its good faith business
judgment, deem advis­able in order to perfect and maintain PFG's security
interest in the Collateral, or in order to exercise a right of Borrower or PFG,
or in order to fully consummate all the transactions contemplated under this
Agreement, and all other Loan Documents; (b) Execute on behalf of Borrower, any
invoices relating to any Account, any draft against any Account Debtor and any
notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of
Lien, claim of mechanic's, materialman's or other lien, or assignment or
satisfaction of mechanic's, materialman's or other lien; (c) Take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral;
endorse the name of Borrower upon any instruments, or documents, evidence of
payment or Collateral that may come into PFG's possession; (d) Endorse all
checks and other forms of remittances received by PFG; (e) Pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (0 Grant extensions of time to pay,
compromise claims and settle Accounts and General Intangibles for less than face
value and execute all releases and other documents in connection therewith; (g)
Pay any slims required on account of Borrower's taxes or to secure the release
of any liens therefor, or both; (h) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (i) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give PFG the same rights of
access and other rights with respect thereto as PFG has
under this Agreement; (j) Execute on behalf of Borrower and file in Borrower's
name such documents and instruments as may be necessary or appropriate to effect
the transfer of Domain Rights, domain names, domain registry administrative
contacts and domain and website hosting services into the name of PFG or its
designees, and (k) Take any action or pay any sum required of Borrower pursuant
to this Agreement and any other Loan Documents. Any and all reasonable sums paid
and any and all reasonable costs, expenses, liabilities, obligations and
attorneys' fees incurred by PFG with respect to the foregoing shall be added to
and become part of the Obligations, shall be payable on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. In no event shall PFG's rights under the foregoing power of
attorney or any of PFG's other rights under this Agreement be deemed to indicate
that PFG is in control of the business, management or properties of
Borrower.

     

    7.5
Application of Proceeds. All proceeds realized as the result of any sale
of the Collateral shall be applied by PFG first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by PFG 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, in such order
as PFG shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto;
Borrower shall remain liable to PFG for any deficiency. If, PFG, 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, PFG
shall have the option, exercisable at any time, in its good faith business
judgment, of either reducing the Obligations by the principal amount of purchase
price or deferring the reduction of the Obligations until the actual receipt by
PFG of the cash therefor.

     

    
      
        
        

      

      
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    7.6
Remedies Cumulative. In addition to the rights and remedies set forth in
this Agreement, PFG shall have all the other rights and remedies accorded a
secured party under the Code and under all other applicable laws, and under any
other instrument or agreement now or in the future entered into between PFG and
Borrower, and all of such rights and remedies are cumulative and none is
exclusive. Exercise or partial exercise by PFG of one or more of its rights or
remedies shall not be deemed an election, nor bar PFG from subsequent exercise
or partial exercise of any other rights or remedies. The failure or delay of PFG
to exercise any rights or remedies shall not operate as a waiver thereof, but
all rights and remedies shall continue in full force and effect until all of the
Obligations have been fully paid and performed.

     

    
      8.
DEFINITIONS. As used in this Agreement, the following terms have the
following meanings: "Account Debtor"
means the obligor on an Account.

       

      "Accounts" means all
present and future "accounts" as defined in the California Uniform Commercial
Code in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation all accounts receivable and
other sums owing to Borrower.

       

      "Affiliate" means,
with respect to any Person, a relative, partner, shareholder, director, officer,
or employee of such Person, or any parent or Subsidiary of such Person, or any
Person controlling, controlled by or under common control with such
Person.

       

      "Business Day" means
a day on which PFG is open for business.

       

      "Change in Control"
means any event, transaction, or occurrence as a result of which 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 fifty percent (50%) or more of the combined voting power
of Borrower's then outstanding securities.

       

      "Code" means the
Uniform Commercial Code as adopted and in effect in the State of California from
time to time. "Collateral" has the
meaning set forth in Section 2 above.

       

      "continuing" and
"during the
continuance of when used with reference to a Default or Event of Default
means that the Default or Event of Default has occurred and has not been either waived in
writing by PFG or cured within any applicable cure period.

       

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

       

      "Default Rate" means
the lesser of eighteen percent (18%) per annum and the maximum rate of interest
that may lawfully be charged to a commercial borrower under applicable usury
laws.

       

      "Deposit Accounts"
means all present and future "deposit accounts" as defined in the California
Uniform Commercial Code in effect on the date hereof with such additions to such
term as may hereafter be made, and includes without limitation all general and
special bank accounts, demand accounts, checking accounts, savings accounts and
certificates of deposit.

       

      "Eligible Billings"
means invoices sent to Borrower's customers arising in the ordinary course of
Borrower's business from the sale of goods or the rendition of services, or the
non-exclusive licensing of Intellectual Property. Without limiting the fact that
the determination of which invoices are eligible for borrowing is a matter of
PFG's good faith business judgment, the following (the "Minimum Eligibility
Requirements") are the minimum requirements for an invoice to be an
Eligible Billing:

       

      (i) the
invoice must not be dated a date more than 90 days from the date an advance in
respect of such invoice is requested by Borrower (the "Eligibility
Period"),

       

      (ii) invoice
must not be subject to any material contingencies,

       

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

       

      (v) the
invoice must not be owing from an Affiliate of Borrower,

       

      
        
          
          

        

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

       

      (vii) the
invoice must not be owing from the United States or any department, agency or
instrumentality thereof (unless there has been compliance, to PFG's
satisfaction, with the United States Assignment of Claims Act), and

       

      (viii)
the invoice must not be owing from an Account Debtor to whom Borrower is liable
for goods purchased from such Account Debtor or otherwise (but, in such case,
the invoice will be deemed not eligible only to the extent of any amounts owed
by Borrower to such Account Debtor).

    

     

    "Equipment"
means all present and future "equipment" as defined in the California Uniform
Commercial Code in effect on the date hereof 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.

     

    "Event
of Default" means any of the events set forth in Section 7.1 of this
Agreement.

     

    "Foreign
Subsidiaries" means St. Bernard Software UK Ltd., a United Kingdom
company, and St. Bernard Software Australia Pty. Ltd., an Australian corporation
and any other non-U.S.-domiciled Subsidiaries of the Company.

     

    "GAAP"
means generally accepted accounting principles consistently
applied.

     

    "General
Intangibles" means all present and future "general intangibles" as
defined in the California Uniform Commercial Code in effect on the date hereof
with such additions to such term as may hereafter be made, and includes without
limitation all Intellectual Property, payment intangibles, royalties, contract
rights, goodwill, franchise agreements, purchase orders, customer lists, route
lists, telephone numbers, domain names, claims, income 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.

     

    "good
faith business judgment" means honesty in fact and good faith (as defined
in Section 1201 of the Code) in the exercise of PFG's business
judgment.

     

    "including"
means including (but not limited to).

     

    "Indebtedness"
means (a) indebtedness for borrowed money or the deferred purchase price of
property or services (other than trade payables arising in the ordinary course
of business), (b) obligations evidenced by bonds, notes, debentures or other
similar
instruments, (c) reimbursement obligations in connection with letters of
credit, and (d) capital lease obligations.

     

    "Intellectual
Property" means all present and future: (a) copyrights, copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work thereof, whether published or
unpublished, (b) trade secret rights, including all rights to unpatented
inventions and know-how, and confidential information; (c) mask work or similar
rights available for the protection of semiconductor chips; (d) patents, patent
applications and like protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; (e) trademarks, servicemarks, trade styles,
and trade names, whether or not any of the foregoing are registered, and all
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Borrower connected with and symbolized by
any such trademarks; (f) computer software and computer software products; (g)
designs and design rights; (h) technology; (i) all claims for damages by way of
past, present and future infringement of any of the rights included above; and
(j) all licenses or other rights to use any property or rights of a type
described above.

     

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

     

    "Investment"
means any beneficial ownership interest in any Person (including any stock,
partnership interest or other equity or debt securities issued by any Person),
and any loan, advance or capital contribution to any Person.

     

    "Investment
Property" means all present and future investment property, securities,
stocks, bonds, debentures, debt securities, partnership interests, limited
liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets held
in any securities account or otherwise, and all options and warrants to purchase
any of the foregoing, wherever located, and all other securities of every kind,
whether certificated or uncertificated.

     

    
      
        
        

      

      
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    "Loan Documents"
means, collectively, this Agreement, the Representations, and all other present
and future documents, instruments and agreements between PFG and Borrower,
including, but not limited to those relating to this Agreement, and all
amendments and modifications thereto and replacements therefor.

     

    "Material Adverse
Change" means any of the following: (i) a material adverse change in the
business, operations, or financial or other condition of the Borrower, or (ii) a
material impairment of the prospect of repayment of any portion of the
Obligations; or (iii) a material impairment of the value or priority of PFG's
security interests in the Collateral.

     

    "Minimum Eligibility
Requirements" is defined in the definition of "Eligible Billings"
above.

     

    "Obligations" means
all present and future Loans, advances, debts, liabilities, obligations,
guaranties, covenants, duties and indebtedness at any time owing by Borrower to
PFG, whether evidenced by this Agreement or any note or other instrument or
document, or otherwise, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by PFG in Borrower's debts owing to
others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney's fees, expert
witness fees, audit fees, collateral monitoring fees, closing fees, facility
fees, termination fees, minimum interest charges and any other sums chargeable
to Borrower under this Agreement or under any other Loan Documents.

     

    "Other Property"
means the following as defined in the California Uniform Commercial Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and all rights relating thereto: all present and future "commercial tort
claims" (including without limitation any commercial tort claims identified in
the Representations), "documents", "instruments", "promissory notes", "chattel
paper", "letters of credit", "letter-of-credit rights", "fixtures", "farm
products" and "money"; and all other goods and personal property of every kind,
tangible and intangible, whether or not governed by the California Uniform
Commercial Code.

     

    "Payment" means all
checks, wire transfers and other items of payment received by PFG for credit to
Borrower's outstanding Obligations.

     

    "Permitted
Indebtedness" means

     

    (i) the Loans
and other Obligations; and

     

    (ii) Indebtedness
existing on the date hereof and shown on Exhibit A hereto;

     

    (iii) Subordinated
Debt;

     

    (iv) Indebtedness
owing to Senior Lender not to exceed the Senior Debt Limit specified in the
Schedule;

     

    (v) other
Indebtedness secured by Permitted Liens;

     

    (vi) reimbursement
obligations in respect of letters of credit in an aggregate face amount
outstanding not to exceed $300,000 at any time outstanding, which has been
reported to PFG in writing, and, in the case of reimbursement obligations to the
Senior Lender in respect of letters of credit which do not exceed the Senior
Debt Limit (taking into account all other Indebtedness to Senior
Lender).

     

    "Permitted
Investments" are:

     

    (i) Investments
(if any) shown on the Exhibit A and existing on the date hereof;

     

    (ii) marketable
direct obligations issued or unconditionally guaranteed by the United States or
its agency or any State maturing within 1
year from its acquisition;

     

    (iii) commercial
paper maturing no more than 1 year after its creation and having the highest
rating from either Standard & Poor's Corporation or Moody's Investors
Service, Inc; and

     

    (iv) bank
certificates of deposit issued maturing no more than 1 year after
issue.

     

    "Permitted Liens"
means the following:

     

    (i) purchase
money security interests in specific items of Equipment;

     

    (ii) leases of
specific items of Equipment;

     

    (iii)
liens for taxes not yet payable;

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    (iv) additional
security interests and liens consented to in writing by PFG, which consent may
be withheld in its good faith business judgment. PFG will have the right to
require, as a condition to its consent under this subparagraph (iv), that the
holder of the additional security interest or lien sign an intercreditor
agreement on PFG's then standard form, acknowledge that the security interest is
subordinate to the security interest in favor of PFG, and agree not to take any
action to enforce its subordinate security interest so long as any Obligations
remain outstanding, and that Borrower agrees that any uncured default in any
obligation secured by the subordinate security interest shall also constitute an
Event of Default under this Agreement;

     

    (v) security
interests being terminated substantially concurrently with this
Agreement;

     

    (vi) liens of
materialmen, mechanics, warehousemen, carriers, or other similar liens arising
in the ordinary course of business and securing obligations which are not
delinquent;

     

    (vii) liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described above in clauses (i) or (ii)
above, provided that any extension, renewal or replacement lien is limited to
the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not
increase;

     

    (viii) liens in
favor of customs and revenue authorities which secure payment of customs duties
in connection with the importation of goods;

     

    (ix) statutory,
common law or contractual liens of depository institutions or institutions
holding securities account (including rights of set-off) securing only customary
charges and fees in connection with such accounts; and

     

    (x) liens
in favor of Senior Lender securing an amount not in excess of the Senior Debt
Limit.

     

    "Person" means any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, government, or any agency
or political division thereof, or any other entity.

     

    "Prime Rate" means
the rate quoted by Silicon Valley Bank as its Prime Rate from time to time and,
failing such quote at any time, the rate quoted by the U.S. West Coast edition
of the Wall Street Journal as the prime lending rate.

     

    "Representations"
means the written Representations and Warranties provided by Borrower to PFG
referred to in the Schedule.

     

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

     

    "Senior Lender" has
the meaning set forth in Section 8 of the Schedule.

     

    "Subordinated Debt"
means debt incurred by Borrower subordinated to Borrower's debt to PFG (pursuant
to a subordination agreement entered into between PFG, Borrower and the
subordinated creditor), on terms acceptable to PFG in its absolute
discretion.

     

    "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.

     

    Other Terms. All
accounting terms used in this Agreement, unless otherwise indicated, shall have
the meanings given to such terms in accordance with GAAP, consistently applied.
All other terms contained in this Agreement, unless otherwise indicated, shall
have the meanings provided by the Code, to the extent such terms are defined
therein.

     

    9.
GENERAL PROVISIONS.

     

    9.1
Confidentiality. PFG agrees to use the same degree of care that it
exercises with respect to its own proprietary information, to maintain the
confidentiality of any and all proprietary, trade secret or confidential
information provided to or received by PFG from the Borrower, which indicates
that it is confidential, including business plans and forecasts, non-public
financial information, confidential or secret processes, formulae, devices and
contractual information, customer lists, and employee
relation matters, provided that PFG may disclose such information (i) to its
officers, directors, employees, attorneys, accountants, affiliates,
participants, prospective participants, assignees and prospective assignees, and
such other Persons to whom PFG shall at any time be required to make such
disclosure in accordance with applicable law or legal process, and (ii) in its
good faith business judgment in connection with the enforcement of its rights or
remedies after an Event of Default, or in connection with any dispute with
Borrower or any other Person relating to Borrower. The confidentiality agreement
in this Section supersedes any prior confidentiality agreement of PFG relating
to Borrower.

     

    
      
        
        

      

      
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    9.2
Interest Computation. In computing interest on the Obligations, all
Payments received after 12:00 Noon, Pacific Time, on any day shall be deemed
received on the next Business Day.

     

    9.3
Payments. All Payments may be applied, and in PFG's good faith business
judgment and in accordance with this Agreement, reversed and re-applied, to the
Obligations, in such order and manner as PFG shall determine in its good faith
business judgment.

     

    9.4
Charges to Accounts. PFG may, in its discretion, require that Borrower
pay monetary Obligations in cash to PFG, or charge them to Borrower's Loan
account, in which event they will bear interest at the same rate applicable to
the Loans.

     

    9.5
Monthly Accountings. PFG shall provide Borrower monthly with an account
of advances, charges, expenses and payments made pursuant to this Agreement.
Such account shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by PFG), unless Borrower notifies PFG in
writing to the contrary within 60 days after such account is rendered,
describing the nature of any alleged errors or omissions.

     

    9.6
Notices. All
notices to be given under this Agreement shall be in writing and shall be
given either personally, or by reputable private delivery service, or by regular
first-class mail, or certified mail return receipt requested, or by fax to the
most recent fax number a party has for the other party (and if by fax, sent
concurrently by one of the other methods provided herein), or by electronic mail
to the most recent electronic mail address for Borrower provided for the chief
financial officer or financial controller executing the Representations (and if
by electronic mail, with an electronic delivery and/or read receipt), addressed
to PFG or Borrower at the addresses shown in the heading to this Agreement, in
the Representations or at any other address designated in writing by one party
to the other party. All notices shall be deemed to have been given upon delivery
in the case of notices personally delivered, or at the expiration of one
Business Day following delivery to the private delivery service, or two Business
Days following the deposit thereof in the United States mail, with postage
prepaid, or on the first business day of receipt during business hours in the
case of notices sent by fax or electronic mail, as provided herein.

     

    9.7
Severability. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.

     

    9.8
Integration. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between
Borrower and PFG and supersede all prior and contemporaneous negotiations
and oral representations and agreements, all of which are merged and integrated
in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in  this Agreement or in other
written agreements signed by the parties in connection
herewith.

     

    9.9
Waivers; Indemnity. The failure of PFG at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Document shall not waive or diminish any right of PFG later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of PFG or its agents
or employees, but only by a specific written waiver signed by an authorized
officer of PFG and delivered to Borrower. Borrower waives the benefit of all
statutes of limitations relating to any of the Obligations or this Agreement or
any other Loan Document, and Borrower waives demand, protest, notice of protest
and notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by PFG on which Borrower is or may in any way be liable, and notice of any
action taken by PFG, finless expressly required by this Agreement. Borrower
hereby agrees to indemnify PFG and its affiliates, subsidiaries, parent,
directors, officers, employees, agents, and attorneys, and to hold them harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including reasonable
attorneys' fees), of every kind, which they may sustain or incur based upon or
arising out of any of the Obligations, or any relationship or agreement between
PFG and Borrower, or any other matter, relating to Borrower or the Obligations;
provided that this indemnity shall not extend to damages proximately caused by
the indemnitee's own gross negligence or willful misconduct. Notwithstanding any
provision in this Agreement to the contrary, the indemnity agreement set forth
in this Section shall survive any termination of this Agreement and shall for
all'purposes continue in full force and effect.

     

    
      
        
        

      

      
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    9.10
No Liability for Ordinary Negligence. Neither PFG, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing PFG shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of PFG, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing PFG, but nothing herein shall relieve PFG from liability
for its own gross negligence or willful misconduct.

     

    9.11
Amendment. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of PFG.

     

    9.12
Time of Essence. Time is of the essence in the performance by Borrower of
each and every obligation under this Agreement.

     

    9.13
Attorneys Fees and Costs. Borrower shall reimburse PFG for all reasonable
attorneys' fees and all filing, recording, search, appraisal, audit, and other
reasonable costs incurred by PFG, pursuant to, or in connection with, or
relating to this Agreement (whether or not a lawsuit is filed), including, but
not limited to, any reasonable attorneys' fees and costs PFG incurs in order to
do the following: prepare and negotiate this Agreement and all present and
future documents relating to this Agreement; obtain legal advice in connection
with this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceed­ing; initiate any complaint to
be relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of or otherwise enforce PFG's
security interest in, the Collateral; and otherwise represent PFG in any
litigation relating to Borrower. If either PFG or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. All attorneys' fees and costs to which PFG may be entitled
pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.

     

    9.14
Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and PFG; provided, however, that
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of PFG, and any prohibited assignment shall be
void. No consent by PFG to any assignment shall release Borrower from its
liability for the Obligations.

     

    9.15
Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.

     

    9.16
Limitation of Actions. Any claim or cause of action by Borrower against
PFG, its directors, officers, employees, agents, accountants or attorneys, 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, incurred,
done, omitted or suffered to be done by PFG, 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 after the earlier to occur of
(i) the first act, 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 PFG,
or on any other person authorized to accept service on behalf of PFG, 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 PFG in its sole
discretion. This provision shall sutvive any termination of this Loan Agreement
or any other Loan Document.

     

    9.17
Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Borrower and PFG acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. This Agreement has been fully
reviewed and negotiated between the parties and no uncertainty or ambiguity in
any term or provision of this Agreement shall be construed strictly against PFG
or Borrower under any rule of construction or otherwise.

     

    9.18
Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of PFG and Borrower shall
be governed by the laws of the State of California. As a material part of the
consideration to PFG to enter into this Agreement, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly
to this Agreement shall, at PFG's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be San Francisco County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

     

    9.19
Mutual Waiver of Jury Trial. BORROWER AND PFG EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN PFG AND BORROWER, OR ANY
CONDUCT, ACTS OR OMISSIONS OF PFG OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH PFG OR BORROWER, IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
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 San Francisco 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 San Francisco County, California; and the parties hereby submit to
the jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the San
Francisco 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.

     

     

    [SIGNATURE
PAGE FOLLOWS]

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

    
      
        	Borrower:	PFG:
	 	 
	ST. BERNARD SOFTWARE
      INC.	PARTNERS FOR GROWTH II,
      L.P.
	 	 
	By  /s/ Vincent A.
      Rossi                              
      	By  /s/ Andrew W.
      Kahn                             
      
	
                President or Vice
      President

              	 
	 	Name  Andrew W.
      Kahn
	By  /s/ Vincent A.
      Rossi                                 
      	 
	
                Secretary or Ass't
      Secretary

              	
                Title:  Manager, Partners
      for Growth II, LLC

                Its General
      Partner

              

      

       

       

       

       

    

    Signature
Page to Loan and Security Agreement

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

     

    
      Schedule
to

      Loan
and Security Agreement

    

     

     

    
      
        
          	Borrower:	St. Bernard
      software, Inc.
	 	 
	Address:	15015 Avenue of
      Science, San Diego, CA 92128
	 	 
	Date:	July 21,
      2008

        

      

    

    
This Schedule forms an integral part of the Loan and Security
Agreement between PARTNERS FOR GROWTH II, L.P. and the above-borrower of even
date.

     

    
      
        

      

       

    

    
      	
              1.
      CREDIT LIMIT

              (Section
      1.1):

            	
               

              An
      amount not to exceed the lesser of (a) $1,500,000
      (the "Dollar Credit Limit") at any one time outstanding, or (b) up
      to 30%
      (an "Advance Rate") of the amount of Borrower's aggregate Eligible
      Billings (as defined in Section 8 above) over a rolling three month period
      calculated monthly.

               

              
                PFG
      may, from time to time, modify the Advance Rates, in its good faith
      business judgment, upon notice to the Borrower, based on changes in
      collection experience with respect to Eligible Billings and its evaluation
      of factors relating to Collateral.

              

            
	 	 
	
              Repayment:

            	
              Subject
      to "Mandatory Borrowings", below, Loans may be repaid and re-borrowed at
      any time. All Obligations are due on the Maturity Date.

            
	 	 
	
              Mandatory
      Borrowings: 

            	
              Without
      prejudice to Borrower's right to terminate the Loan Agreement under
      Section 6.2, Borrower shall at all times have outstanding principal
      borrowings under the Loan Agreement at least equal to at least $750,000
      (the "Mandatory Borrowings"). The failure to have such minimum principal
      borrowings outstanding shall not be deemed an Event of Default, so long as
      Borrower pays PFG that portion of the Minimum Interest Amount on a monthly
      basis that would have fallen due during such month had the Mandatory
      Borrowings been outstanding. The "Minimum Interest Amount" is an amount
      equal to $750,000, times
      Applicable Rate, times the number of
      days (based on a 360-day year) from the date of such failure to the
      Maturity Date.

            

    

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

     

    
      	
              2.
      INTEREST. 

            	
               

            
	 	 
	
              Interest
      Rate (Section
      1.2):

            	
              A
      per annum rate equal to the Prime Rate from time to time, plus 3.0% (the
      "Applicable Rate"). Interest shall be calculated on the basis of a 360-day
      year and a year of twelve months of 30 days each for the actual number of
      days elapsed. Accrued interest for each month shall be payable monthly, on
      the first day of each month for interest accrued during the prior
      month.

            
	
              3. FEES (Section
      1.4):

            	 
	 	 
	
              Commitment
      Fee: 

            	
              $30,000,
      payable concurrently herewith, less any non-refundable diligence
      fees paid to PFG prior to the date hereof. PFG may deduct the Commitment
      Fee from Loan proceeds remitted to Borrower.

            
	 	 
	
              4. MATURITY
      DATE

            	(Section
      6.1):July 20, 2010, on which date all principal, interest and other outstanding
      monetary Obligations shall be repaid to PFG.
	 	 
	
              5. FINANCIAL
      COVENANTS

              (Section
      5.1):

            	
              Borrower
      shall comply with the following financial covenant. Compliance shall be
      tested
      as of the end of each month, on a rolling three-month
      basis, except as otherwise specifically provided
    below:

            
	 	 
	
              Modified Net Income:

            	Borrower
      shall
      maintain minimum Modified Net Income, tested monthly, as
  follows:
	 	 
	 	(a) At
      closing, Modified Net Income of greater than $0.
	 	 
	 	(b) July
      through December 2008, Modified Net Income of greater than
      $0.
	 	 
	 	
              (c)
      January, February and March 2009, Modified Net Income of ($500,000). For
      example only, for the one month ended January 2009, Borrower could have a
      Modified Net Income loss of up to $500,000; for the two months ended
      February 2009, Borrower could have a Modified Net Income loss of up to
      $500,000; and for the three months ended
      March 2009, Borrower could have a Modified Net Income loss of to
      $500,000.

            

    

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (d)
      April 2009 through the Maturity Date, Modified Net Income of greater than
      $0.

            
	 	 
	 	
              The
      minimum Modified Net Income requirements of clauses (a) through (d) may be
      modified as follows: Twenty-five percent (25%) of Modified Net Income from
      the calendar quarter immediately prior to the calendar quarter being
      measured may be applied towards meeting the minimum
      Modified Net Income requirement in the currently- measured calendar
      quarter, up to a maximum $500,000 loss for such quarter. For example only,
      if Borrower generates $1,000,000 in Modified Net Income for the calendar
      quarter of April, May and June, then Borrower could apply $250,000 [25% x
      $1,000,000] towards meeting the minimum Modified Net requirement covenant
      in the July, August and September quarter. July, August and September
      would still be measured on a rolling three month basis, but each rolling
      three month test could not produce a Modified Net Loss of greater than
      $250,000 for each month the covenant is measured.

            
	 	 
	
              Definitions.

            	For
      purposes of the foregoing financial
      covenants, the following term shall have the following
  meaning:
	 	 
	 	
              "Modified
      Net Income" means total Billings less GAAP expenses of COGS, operating
      expenses, plus amortization of stock based compensation, depreciation,
      estimates for bad debt and other non-cash accounting charges such as
      impairment of goodwill or long lived assets. As long as the calculation
      above is greater than $0, Borrower is in compliance.

            
	 	 
	
              6. REPORTING. (Section 5.3):

            	Borrower
      shall provide PFG with the following:
	 	 
	 	
              (a) Monthly
      borrowing base certificates, in such form as PFG shall specify,
      within 10 days after the end of each month, and borrowing base reports at
      such other times as PFG shall from time to time request in its good faith
      business judgment.

            
	 	 
	 	
              (b) Monthly
      accounts receivable and accounts payable agings, aged
      by invoice date, within 10 days after the end of each
      month.

            

    

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (c) Monthly
      deferred revenue schedules, within 20 days after the end
      of each month.

            
	 	 
	 	
              (d) Monthly
      unaudited financial statements, as soon as available, and
      in any event within 20 days after the end of each
      month.

            
	 	 
	 	
              (e) Monthly
      Compliance Certificates, within 20 days after the end of
      each month, in such form as PFG shall reasonably specify, signed by the
      Chief Financial Officer of Borrower, certifying that as of the end of such
      month Borrower was in full compliance with all of the terms and conditions
      of this Agreement, and setting forth calculations showing compliance with
      the financial covenants set forth in this Agreement and such other
      information as PFG shall reasonably request.

            
	 	 
	 	
              (f) Annual
      financial statements, as soon as available, and in any event
      within 120 days following the end of Borrower's fiscal year, certified by,
      and with an unqualified opinion of, independent certified public
      accountants acceptable to PFG. If Borrower files a foul]. 10-K with the
      Securities and Exchange Commission and the same is available within said
      period through EDGAR, this requirement will be deemed
      satisfied.

            
	 	 
	 	
              (g) Upon
      PFG request, copies of any and all reports and statements provided
      by Borrower to the Senior Lender.

            
	 	 
	 	
              (h) From
      time to time, Borrower's annual financial plan as approved
      by its Board of Directors, as soon as such plan is available, but not
      later than January 31 of each year.

            
	 	 
	
              7.  BORROWER
      INFORMATION:

            	
              Borrower
      represents and warrants that the information set forth in the
      Representations and Warranties of the Borrower dated July 10, 2008,
      previously submitted to PFG (the "Representations") is true and correct as
      of the date hereof.

            
	 	 
	
              8. ADDITIONAL PROVISIONS

            	 
	 	 
	 	(a)  Senior Lender.
	 	 
	 	
              (1)  Senior
      Lender. As used herein, "Senior Lender" means Silicon
      Valley Bank, and "Senior Loan Documents" means a formula accounts
      receivable line of credit in a maximum principal amount of $2,000,000 and,
      subject to the foregoing dollar limitation, all present and future
      documents instruments and agreements entered into between
      Borrower and Senior Lender or by third parties relating to Borrower and
      Senior Lender.

            

    

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (2)  Senior
      Debt Limit. Borrower shall not permit the total principal
      Indebtedness of Borrower to Senior Lender to exceed $2,000,000 at any time
      outstanding under the Senior Loan Documents (the "Senior Debt Limit"),
      including, but not limited to, monies borrowed by Borrower, interest on
      loans due from Borrower, fees and expenses for which Borrower is
      obligated, sums due from Borrower in connection with issuance of
      commercial letters of credit, issuance of forward contracts for foreign
      exchange reserve, and any other direct or indirect financial accommodation
      Senior Lender may provide to Borrower).

               

              (3)  Senior
      Loan Documents. Borrower represents and warrants
      that it has provided PFG with true and complete copies of all existing
      Senior Loan Documents, and Borrower covenants that it will, in the future,
      provide PFG with true and complete copies of any future Senior Loan
      Documents, including without limitation any amendments to any existing
      Senior Loan Documents.

               

              
                (b)  Deposit
      Accounts. Concurrently, Borrower shall cause the
      banks
      and other institutions where its Deposit Accounts are maintained to enter
      into control agreements with PFG, in form and substance satisfactory to
      PFG in its good faith business judgment and sufficient to perfect PFG's
      security interest in said Deposit Accounts, subject to the security
      interest of the Senior Lender. Said control agreements shall permit PFG,
      in its discretion, to withdraw from said Deposit Accounts accrued interest
      on the Obligations monthly (subject to the rights of the Senior Lender).
      While reserving the right to require Borrower to do so in the future,
      Borrower shall not be required to procure account control agreements (or
      similar perfection mechanisms) in the Deposit Accounts of Foreign
      Subsidiaries.

                 

                (c)  Subordination
      of Inside Debt. All present and future indebtedness
      of Borrower to its officers, directors and shareholders ("Inside Debt")
      shall, at all times, be subordinated to the Obligations pursuant to a
      subordination agreement on PFG's standard form. Borrower represents and
      warrants that there is no Inside Debt presently outstanding. Prior to
      incurring any Inside Debt in the future, Borrower shall cause the person
      to whom such Inside Debt will be owed to execute and
      deliver to PFG a subordination agreement on PFG's standard form, with the
      exception of any currently-accruing deferred compensation of the board of
      directors for services rendered payment for which is currently being
      deferred by Borrower, up to a maximum annual aggregate of
      $200,000.

              

            

    

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (d)  Use
      of Proceeds. Proceeds of Borrower's initial Loans shall
      be
      used to pay all indebtedness to Agility Capital LLC, with the remaining
      amount to be used for working capital.

               

              (e)  Foreign
      Subsidiaries. Borrower shall not transfer any Collateral
      to its Foreign Subsidiaries and shall wind-down and close such Foreign
      Subsidiaries within 12 months from the date hereof, unless PFG shall
      otherwise agree, which agreement may be subject to such conditions as PFG
      may determine at such time.

            
	 	 
	
              9. CONDITIONS

            	
              In
      addition to any other conditions to the Loan set out in this Agreement,
      PFG will not make the Loan until PFG shall have received, in form and
      substance satisfactory to PFG, such documents, and completion of such
      other matters, as PFG may reasonably deem necessary or appropriate,
      including that there shall be no discovery of any facts or circumstances
      which would, as determined by PFG in its sole discretion, negatively
      affect or be reasonably expected to negatively affect the collectability
      of the Obligations, PFG's security interest in Borrower's Collateral or
      the value thereof, including, without limitation:

               

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

               

              (b) Borrower's
      respective constitutional 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
      date hereof, together with a foreign qualification certificate from the
      State of California;

               

              (c) duly
      executed original signatures to borrowing resolutions for Borrower;

               

              (d) account
      control agreements as required by Section 8(b) of this Schedule,
      duly executed by Borrower and each relevant depositary institution in
      favor of PFG;

               

              (e)
      certified copies, dated as of a recent date, of fmancing statement
      searches, as PFG 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 Loan, will be terminated or
      released; 

            

    

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (f) the
      Representations, duly executed by Borrower,

               

              (g) landlord
      consent(s) executed in favor of PFG by the Borrower's principal office
      lessor in respect of Borrower's premises;

               

              (h) a
      bailee waiver executed in favor of PFG by AMAX in relation to Borrower's
      Collateral located in Fremont, CA;

               

              (i) a
      duly executed warrant purchase agreement and warrant in favor of PFG to
      purchase 450,000 shares of Borrower's common stock in agreed form (the
      "PFG Warrant");

               

              (j) certificates
      of insurance required pursuant to Section 5.2;

               

              (k) payment
      of the Fee specified in Section 3 of this Schedule and PFG's expenses
      incurred in connection with the Loan;

               

              (l) a
      duly executed Compliance Certificate dated the date hereof;

               

              (m) a
      pay-off letter from Agility Capital, LLC and, at PFG's discretion, direct
      payment of the Agility Capital, LLC obligations and release of all Agility
      Capital, LLC liens of record;

               

              (n) [IN
      I ENTIONALLY LEFT BLANK]

               

              (o) the
      closing of the loan of the Senior Lender under the Senior Loan
      Documents;

               

              (p)
      Senior Lender and PFG shall have entered into a subordination agreement in
      respect of the relative priorities of their liens and
      repayment.

            

    

     

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

     

    
      
        	Borrower:	PFG:
	 	 
	ST. BERNARD SOFTWARE
      INC.	PARTNERS FOR GROWTH II,
      L.P.
	 	 
	By  /s/ Vincent A.
      Rossi                            
      	By  /s/ Andrew W.
      Kahn                                   
      
	
                President or Vice
      President

              	 
	 	Name  Andrew W.
      Kahn
	By  /s/ Vincent A.
      Rossi                            	 
	
                Secretary or Ass't
      Secretary

              	
                Title:  Manager, Partners
      for Growth II, LLC

                Its General
      Partner

              

      

       

    

     

     

     

     

    Signature
Page to Schedule to Loan and Security Agreement

     

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

     

    Exhibit A
to Loan and Security Agreement

     

    Section
8—"Permitted Indebtedness"—Other Existing Permitted Indebtedness:

     

    Section
8—"Permitted Investments"Other Existing Permitted Investments:

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