Document:

Exhibit
10.1

 

LOAN AND SECURITY AGREEMENT

INTRAWARE, INC.

 

 

 

LOAN AND SECURITY AGREEMENT

TABLE OF CONTENTS

	
  Heading

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  ACCOUNTING AND OTHER
  TERMS

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  LOAN AND TERMS OF PAYMENT

  	
  1

  
	
   

  	
  2.1

  	
  Promise to Pay

  	
  1

  
	
   

  	
   

  	
  2.1.1

  	
  Equipment
  Advances

  	
  1

  
	
   

  	
   

  	
  2.1.2

  	
  Term Loan

  	
  2

  
	
   

  	
  2.2

  	
  Interest Rate, Payments

  	
  2

  
	
   

  	
   

  	
  2.2.1

  	
  Equipment
  Advances

  	
  2

  
	
   

  	
   

  	
  2.2.2

  	
  Term Loan

  	
  3

  
	
   

  	
  2.3

  	
  Fees

  	
  3

  
	
   

  	
   

  	
  2.3.1

  	
  Bank Expenses

  	
  3

  
	
   

  	
   

  	
  2.3.2

  	
  Loan Fee

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  CONDITIONS
  OF LOANS

  	
  3

  
	
   

  	
  3.1

  	
  Conditions
  Precedent to Initial Credit Extension

  	
  3

  
	
   

  	
  3.2

  	
  Conditions
  Precedent to all Credit Extensions

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  GRANT OF SECURITY
  INTEREST

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  REPRESENTATIONS AND
  WARRANTIES

  	
  4

  
	
   

  	
  5.1

  	
  Due
  Organization and Authorization

  	
  4

  
	
   

  	
  5.2

  	
  Collateral

  	
  5

  
	
   

  	
  5.3

  	
  Litigation

  	
  5

  
	
   

  	
  5.4

  	
  No
  Material Adverse Change in Financial Statements

  	
  5

  
	
   

  	
  5.5

  	
  Solvency

  	
  5

  
	
   

  	
  5.6

  	
  Regulatory
  Compliance

  	
  5

  
	
   

  	
  5.7

  	
  Investments

  	
  6

  
	
   

  	
  5.8

  	
  Full
  Disclosure

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  AFFIRMATIVE
  COVENANTS

  	
  6

  
	
   

  	
  6.1

  	
  Government
  Compliance

  	
  6

  
	
   

  	
  6.2

  	
  Financial
  Statements, Reports, Certificates

  	
  6

  
	
   

  	
  6.3

  	
  Inventory;
  Returns

  	
  7

  
	
   

  	
  6.4

  	
  Taxes

  	
  7

  
	
   

  	
  6.5

  	
  Insurance

  	
  7

  
	
   

  	
  6.6

  	
  Deposits

  	
  7

  
	
   

  	
  6.7

  	
  Financial
  Covenants

  	
  7

  
	
   

  	
  6.8

  	
  Further
  Assurances Regarding Collateral

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  NEGATIVE
  COVENANTS

  	
  8

  
	
   

  	
  7.1

  	
  Dispositions

  	
  8

  
	
   

  	
  7.2

  	
  Changes
  in Business, Ownership, Management or Business Locations

  	
  8

  
	
   

  	
  7.3

  	
  Mergers or Acquisitions

  	
  8

  
	
   

  	
  7.4

  	
  Indebtedness

  	
  9

  
	
   

  	
  7.5

  	
  Encumbrances

  	
  9

  
	
   

  	
  7.6

  	
  Distributions;
  Investments

  	
  9

  
	
   

  	
  7.7

  	
  Transactions with
  Affiliates

  	
  9

  

 

i

 

	
   

  	
  7.8

  	
  Subordinated
  Debt

  	
  9

  
	
   

  	
  7.9

  	
  Compliance

  	
  9

  
	
   

  	
  7.10

  	
  Registration
  of Intellectual Property Rights

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  EVENTS OF
  DEFAULT

  	
  10

  
	
   

  	
  8.1

  	
  Payment
  Default

  	
  10

  
	
   

  	
  8.2

  	
  Covenant
  Default

  	
  10

  
	
   

  	
  8.3

  	
  Material Adverse Change

  	
  10

  
	
   

  	
  8.4

  	
  Attachment

  	
  10

  
	
   

  	
  8.5

  	
  Insolvency

  	
  10

  
	
   

  	
  8.6

  	
  Other
  Agreements

  	
  10

  
	
   

  	
  8.7

  	
  Judgments

  	
  11

  
	
   

  	
  8.8

  	
  Misrepresentations

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  BANK’S RIGHTS AND
  REMEDIES

  	
  11

  
	
   

  	
  9.1

  	
  Rights
  and Remedies

  	
  11

  
	
   

  	
  9.2

  	
  Power of
  Attorney

  	
  11

  
	
   

  	
  9.3

  	
  Accounts
  Collection

  	
  12

  
	
   

  	
  9.4

  	
  Bank Expenses

  	
  12

  
	
   

  	
  9.5

  	
  Bank’s Liability
  for Collateral

  	
  12

  
	
   

  	
  9.6

  	
  Remedies
  Cumulative

  	
  12

  
	
   

  	
  9.7

  	
  Demand Waiver

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  NOTICES

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  CHOICE
  OF LAW, VENUE AND JURY TRIAL WAIVER

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  GENERAL
  PROVISIONS

  	
  13

  
	
   

  	
  12.1

  	
  Successors and Assigns

  	
  13

  
	
   

  	
  12.2

  	
  Indemnification

  	
  13

  
	
   

  	
  12.3

  	
  Time of
  Essence

  	
  13

  
	
   

  	
  12.4

  	
  Severability of
  Provisions

  	
  13

  
	
   

  	
  12.5

  	
  Amendments in
  Writing, Integration

  	
  13

  
	
   

  	
  12.6

  	
  Counterparts

  	
  14

  
	
   

  	
  12.7

  	
  Survival

  	
  14

  
	
   

  	
  12.8

  	
  Confidentiality

  	
  14

  
	
   

  	
  12.9

  	
  Attorneys’
  Fees, Costs and Expenses

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  DEFINITIONS

  	
  14

  

 

ii

 

EXHIBITS

EXHIBIT A  — DESCRIPTION OF COLLATERAL

EXHIBIT B  — LOAN PAYMENT/ADVANCE REQUEST FORM

EXHIBIT C  — FORM OF LOAN AGREEMENT SUPPLEMENT

EXHIBIT D  — COMPLIANCE CERTIFICATE

iii

 

LOAN AND SECURITY AGREEMENT

                This LOAN AND SECURITY AGREEMENT
dated as of the Effective Date between SILICON VALLEY BANK, a
California-chartered bank (“Bank”) whose address is 3003 Tasman Drive, Santa
Clara, California 95054, and INTRAWARE, INC., a Delaware corporation
(“Borrower”) whose address is 25 Orinda Way, Orinda, California 94563,
provides the terms on which Bank will lend to Borrower and Borrower will borrow
from Bank. The parties agree as follows:

1.             ACCOUNTING
AND OTHER TERMS.

                Accounting terms not defined in this
Agreement will be construed in accordance with GAAP, and all calculations and
determinations shall be made in accordance with GAAP.  The term “financial statements” includes the notes and
schedules.  The terms “including” and
“includes” always mean “including (or includes) without limitation,” in this or
any other Loan Document.  Capitalized
terms in this Agreement shall have the respective meanings set forth in Section
13.

2.             LOAN
AND TERMS OF PAYMENT.

2.1          Promise
to Pay.

                Borrower will pay Bank the unpaid principal amount of
all Credit Extensions and interest on the unpaid principal amount of all Credit
Extensions.

2.1.1       Equipment
Advances.

(a)           Subject to the terms and conditions
of this Agreement, Bank agrees to lend to Borrower equipment advances (the
“Equipment Advances”) in an aggregate amount not to exceed the Committed
Equipment Line.  The Equipment Advances
may only be used to purchase Eligible Equipment purchased after the Effective
Date.  Each Equipment Advance, when
repaid, may not be re-borrowed.  Bank’s
obligation to make Equipment Advances shall terminate on the earlier of
(i) the occurrence and continuance of an Event of Default, or
(ii) the Commitment Termination Date. 
Each Equipment Advance shall be for an amount greater than or equal to
$50,000.  The Equipment Advances shall
be made during the twelve-month period commencing on the Effective Date and
ending on the Commitment Termination Date, and the proceeds thereof shall be
used to reimburse Borrower for 100% of the Book Value of Eligible Equipment
purchased by Borrower during such twelve-month period.

(b)           To obtain an Equipment Advance,
Borrower will deliver to Bank, by 3:00 p.m., Pacific Time, at least one
(1) Business Day before the proposed Funding Date, a completed supplement in
the form attached hereto as Exhibit C (“Loan Supplement”) signed by a
Responsible Officer or his or her designee, copies of invoices for the Financed
Equipment and such additional information as Bank may request.  On the Funding Date, Bank will specify in the
Loan Supplement the interest rate and the Payment Dates.  If Borrower satisfies the conditions
precedent for the making of the Equipment Advances specified herein, Bank will
disburse such Equipment Advance by internal transfer to Borrower’s deposit
account with Bank.  The Loan Supplement
for each Equipment Advance shall be considered a promissory note evidencing the
amounts due under such Equipment Advance.

(c)           Bank’s obligation to make the
Equipment Advances will terminate if, in Bank’s sole discretion, there has been
a Material Adverse Change or there has occurred any material adverse deviation
from the most recent business plan of Borrower presented to and accepted by
Bank prior to the execution of this Agreement.

1

 

2.1.2       Term Loan.

(a)           Subject to the terms and conditions
of this Agreement, Bank agrees to make a Term Loan to the Borrower.  The proceeds of the Term Loan shall only be
used to pay off the outstanding amounts owing by Borrower on the GATX
Debt.  The Term Loan shall be made
during the one-month period immediately following the Effective Date.

(b)           To obtain the Term Loan, Borrower
will deliver to Bank, by 3:00 p.m., Pacific Time, at least one (1) Business
Day prior to the proposed Funding Date, a completed Loan Payment/Advance
Request (in the form attached hereto as Exhibit B) and such additional
information as Bank may reasonably request. 
If Borrower satisfies the conditions precedent for the making of the
Term Loan specified herein, Bank will disburse the proceeds of the Term Loan on
the Funding Date (not to be unreasonably delayed) by internal transfer to
Borrower’s deposit account with Bank.

2.2          Interest
Rate, Payments.

2.2.1       Equipment
Advances.

                (a)           Borrower
will repay each of the Equipment Advances in accordance with this
Section 2.2.1.  Each Equipment
Advance shall amortize and be payable in equal monthly payments (each, a
“Scheduled Payment”) of principal over the Repayment Period for the Equipment
Advances, plus accrued and unpaid interest thereon, commencing on the first day
of the calendar month following the Commitment Termination Date and continuing
thereafter during the Repayment Period on the first day of each calendar month
(each, a “Payment Date”) until the Equipment Maturity Date for the Equipment
Advances, at which time all unpaid principal and accrued interest shall be due
and payable in full.  In addition,
Borrower will pay accrued and unpaid interest only on each Equipment Advance on
the first day of each month, commencing in the month following the Funding Date
of such Equipment Advance, until Scheduled Payments commence on such Equipment
Advance.  When a payment is due on a day
that is not a Business Day, the payment shall be due on the next Business Day
and additional interest and fees shall accrue to such date.  Payments received after 12:00 noon, Pacific
Time, are considered received at the opening of business on the next Business
Day.  Each Equipment Advance may be
prepaid at any time without premium or penalty.

                (b)           Each
Equipment Advance will bear interest at the per annum rate of interest equal to
the greater of (i) Prime Rate plus one percent (1.00%) or (ii) five
and one-quarter percent (5.25%).  Any
amounts outstanding during the continuance of an Event of Default shall bear
interest at a per annum rate equal to five percent (5.00%) in excess of the
rate otherwise from time to time in effect but for the occurrence of the Event
of Default.  If any change in the law
increases Bank’s expenses or decreases its return from the Equipment Advances
(other than a change in law that results in such increase or decrease solely
because such change increases the taxes payable by Bank upon its net revenues),
Borrower will pay Bank upon request the amount of such increase of expenses or
an amount equal to the difference between Bank’s anticipated return from the
Equipment Advances and the decreased return actually received by Bank (as the
case may be).

                (c)           If
the Equipment Advances are accelerated following the occurrence of an Event of
Default, then Borrower will immediately pay to Bank, without duplication,
(i) all unpaid Scheduled Payments (including principal and interest), (ii)
the principal amount of all remaining Scheduled Payments, (iii) all
accrued and unpaid interest, including the default rate of interest, to the
date of the prepayment, and (iv) all other sums, if any, that shall have
become due and payable with respect to the Equipment Advances.

2

 

2.2.2       Term Loan.

                (a)           Borrower
will repay the Term Loan in accordance with this Section 2.2.2.  The Term Loan shall amortize and be payable
in equal monthly payments (each, a “Scheduled Payment”) of principal over the
Repayment Period for the Term Loan, plus accrued and unpaid interest thereon,
commencing on the first day of the calendar month following the Funding Date of
the Term Loan and continuing thereafter during the Repayment Period for the
Term Loan on the first day of each calendar month (each, a “Payment Date”)
until the Term Loan Maturity Date, at which time all unpaid principal and
accrued interest shall be due and payable in full.  When a payment is due on a day that is not a Business Day, the
payment shall be due on the next Business Day and additional interest and fees
shall accrue to such date.  Payments
received after 12:00 noon, Pacific Time, are considered received at the opening
of business on the next Business Day. 
The Term Loan may be prepaid at any time without premium or penalty.

                (b)           The
Term Loan will bear interest at the per annum rate of interest equal to the
greater of (i) Prime Rate plus one percent (1.00%) or (ii) five and
one-quarter percent (5.25%).  Any
amounts outstanding during the continuance of an Event of Default shall bear
interest at a per annum rate equal to five percent (5.00%) in excess of the
rate otherwise from time to time in effect but for the occurrence of the Event
of Default.  If any change in the law
increases Bank’s expenses or decreases its return from the Term Loan (other
than a change in law that results in such increase or decrease solely because
such change increases the taxes payable by Bank upon its net revenues),
Borrower will pay Bank upon request the amount of such increase of expenses or
an amount equal to the difference between Bank’s anticipated return from the
Term Loan and the decreased return actually received by Bank (as the case may
be).

                (c)           If
the Term Loan is accelerated following the occurrence of an Event of Default,
then Borrower will immediately pay to Bank, without duplication, (i) all
unpaid Scheduled Payments (including principal and interest), (ii) the
principal amount of all remaining Scheduled Payments, (iii) all accrued
and unpaid interest, including the default rate of interest, to the date of the
prepayment, and (iv) all other sums, if any, that shall have become due
and payable with respect to the Term Loan.

2.3          Fees.

2.3.1       Bank
Expenses.

                Borrower will pay all Bank Expenses (including
reasonable attorneys’ fees and reasonable expenses) incurred through and after
the date of this Agreement; provided, however, that Borrower’s obligations to
pay attorneys’ fees incurred by Bank up to the Effective Date shall be limited
to $8000.00.  All Bank Expenses are due
and payable upon demand from Bank.

2.3.2       Loan Fee.

                Borrower will pay Bank the Loan Fee on or before the
Effective Date.

3.             CONDITIONS
OF LOANS.

3.1          Conditions Precedent to Initial Credit Extension.

                Bank’s obligation to make the first Credit Extension
is, in addition to the other applicable conditions precedent set forth in this
Section 3, subject to the satisfaction of the following conditions precedent:

(i)    Bank shall have received the agreements,
documents and fees that it requires;

3

 

(ii)   Bank shall have received from Borrower
evidence satisfactory to Bank showing Bank as loss payee on all of Borrower’s
insurance policies pursuant to Section 6.5 hereof;

(iii)  Borrower shall have granted to Bank a warrant
to purchase that number of shares of Borrower’s preferred stock at an exercise
price per share as more fully set forth in the Warrant; and

(iv)  Borrower shall have opened investment and
depository accounts with Bank or an Affiliate of Bank such that Borrower is in
compliance with Section 6.6 hereof.

3.2          Conditions
Precedent to all Credit Extensions.

                Bank’s obligations to make each Credit Extension,
including the initial Credit Extension, is subject to the satisfaction of the
following conditions precedent:

(i)    Bank shall have timely received any Loan
Payment/Advance Request Form;

(ii)   Bank shall have timely received any Loan
Supplement; and

(iii)  The representations and warranties in
Section 5 shall be true in all material respects on the date of the Loan
Payment/Advance Request Form and the Loan Supplement, and on the effective date
of each Credit Extension, and no Event of Default shall have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension
constitutes Borrower’s representation and warranty on that date that the
representations and warranties of Section 5 remain true in all material
respects; provided, however, that as to each Credit Extension after the
Effective Date any representation and warranty expressly referring to a specific
date shall be true and correct in all material respects as of such specified
date only.

4.             GRANT
OF SECURITY INTEREST.

                Borrower grants Bank a
continuing security interest in all presently existing and later acquired
Collateral to secure all Obligations and the performance of each of Borrower’s
duties under the Loan Documents.  Except
for Permitted Liens, any security interest will be a first priority security
interest in the Collateral.  Upon the
occurrence of an Event of Default, Bank may place a “hold” on any deposit
account pledged as Collateral. Bank may also deliver a notice of exclusive
control, entitlement order or other instructions pursuant to a control
agreement, but only after an Event of Default has occurred and is continuing.  If this Agreement is terminated, Bank’s lien
and security interest in the Collateral will continue until Borrower fully
satisfies its Obligations.

5.             REPRESENTATIONS
AND WARRANTIES.

                Borrower represents and warrants as follows:

5.1          Due
Organization and Authorization.

(a)           Borrower and each Subsidiary is duly
existing and in good standing in its jurisdiction of formation and is qualified
and licensed to do business in, and in good standing in, each jurisdiction in
which the conduct of its business or its ownership of property requires that it
be qualified, except where the failure to do so could not reasonably be
expected to cause a Material Adverse Change. 
Borrower is a Delaware corporation.

(b)           The execution, delivery and
performance by Borrower of the Loan Documents have been duly authorized and do
not conflict with Borrower’s formation documents or constitute an event of
default under any material agreement by which Borrower is bound. Borrower is
not in default under any 

4

 

agreement to which or by which it is bound in which
the default could reasonably be expected to cause a Material Adverse Change.

5.2          Collateral.

                Borrower has good title to its Collateral, free of
Liens except Permitted Liens.  The
Accounts are bona fide, existing obligations, and the service or property that
is the subject of each Account has been performed or delivered to the account
debtor or its agent for immediate shipment to and unconditional acceptance by
the account debtor.  Borrower has no notice
of any actual or imminent Insolvency Proceeding of any account debtor.  All Inventory is in all material respects of
good and marketable quality, free from material defects.  Borrower owns or possesses adequate rights
to use all of its respective Intellectual Property, except for non-exclusive
licenses granted to its respective customers in the ordinary course of
business.  To the best of Borrower’s
knowledge, each Patent is valid and enforceable, no part of the Intellectual
Property has been judged invalid or unenforceable (in whole or in part), and
Borrower has no knowledge that any claim has been made that any part of the
Intellectual Property violates the rights of any third party, except to the
extent such claim, if the subject of an unfavorable decision, ruling or
finding, could not reasonably be expected to cause a Material Adverse Change.

5.3          Litigation.

                Except as shown in the
Disclosure Letter, there are no actions or proceedings pending or, to the
knowledge of Borrower’s Responsible Officers, threatened by or against Borrower
or any Subsidiary in which an adverse decision could reasonably be expected to
cause a Material Adverse Change.

5.4          No
Material Adverse Change in Financial Statements.

                All separate or consolidated
financial statements for Borrower and any Subsidiary delivered to Bank fairly
present in all material respects such entity’s separate and consolidated
financial condition and separate and consolidated results of operations.  There has not been any material
deterioration in Borrower’s consolidated financial condition since the date of
the most recent financial statements submitted to Bank.

5.5          Solvency.

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

5.6          Regulatory
Compliance.

                Neither Borrower nor any Subsidiary is an “investment
company” or a company “controlled” by an “investment company” under the
Investment Company Act.  Neither
Borrower nor any Subsidiary is engaged, as one of its material activities, in
extending credit for margin stock (under Regulations T and U promulgated
by the Board of Governors of the Federal Reserve System).  Borrower has complied in all material
respects with the Federal Fair Labor Standards Act.  Borrower has not violated any laws, ordinances or rules, the
violation of which could reasonably be expected to cause a Material Adverse
Change.  None of Borrower’s or any
Subsidiary’s properties or assets has been used by Borrower or any Subsidiary
or, to the best of Borrower’s knowledge, by previous Persons, in disposing,
producing, storing, treating or transporting any hazardous substance other than
in a legal manner in compliance with all environmental laws and
regulations.  Each of Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made adequate
provision to pay, all material taxes, except those being contested in good
faith with adequate reserves under GAAP. 
Each of Borrower and each Subsidiary has obtained 

5

 

all consents, approvals
and authorizations of, made all declarations or filings with, and given all
notices to, all government authorities that are necessary to continue its
business as currently conducted, except where the failure to do so would not
reasonably be expected to cause a Material Adverse Change.

5.7          Investments.

                Borrower owns no stock, partnership interest or other
equity securities except for Permitted Investments.

5.8          Full
Disclosure.

                No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank
(taken together with all such written certificates and written statements to
Bank) contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in the certificates or
statements not misleading, it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period
or periods covered by such projections and forecasts may differ from the
projected and forecasted results.

6.             AFFIRMATIVE
COVENANTS.

                Borrower will do all of the
following for so long as Bank has an obligation to lend, or there are
outstanding Obligations:

6.1          Government
Compliance.

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

6.2          Financial
Statements, Reports, Certificates.

(a)           Borrower will deliver to Bank:  (i) as soon as available, but no later than
30 days after the last day of each month, company-prepared unaudited balance
sheets and income statements covering the operations of Borrower and its
Subsidiaries during the period, certified by a Responsible Officer and in a
form acceptable to Bank; (ii) as soon as available but no later than
180 days after the last day of Borrower’s fiscal year, audited financial
statements for Borrower and its Subsidiaries prepared under GAAP, consistently
applied, together with an  opinion which is unqualified (other than a
“going concern” qualification) on the financial statements from an
independent certified public accounting firm reasonably acceptable to Bank;
(iii) a prompt report of any legal actions pending or, to the knowledge of
Borrower, threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of $250,000 or more;
(iv) as soon as available, but at least annually after the end of each
fiscal year of Borrower and in all cases no later than 15 days following
board approval, a copy of Borrower’s board-approved projections for the
following year, and (v) prompt notice of any material change in the
composition of the Intellectual Property, including any subsequent ownership
right of Borrower or any Subsidiary in or to any Copyright, Patent or Trademark
not shown in any intellectual property security agreement between Borrower and
Bank or knowledge of an event that could reasonably be expected to materially
adversely affect the value of the Intellectual Property.

6

 

(b)           Within 30 days after the last day of
each month, Borrower will deliver to Bank a Compliance Certificate in the form
attached hereto as Exhibit D, along with aged listings by invoice date of
accounts receivable, all signed by a Responsible Officer.

(c)           Bank may audit the Collateral at
Borrower’s expense at any time after an Event of Default has occurred and is
continuing.

6.3          Inventory;
Returns.

                Borrower will keep all Inventory
in good and marketable condition, free from material defects.  Returns and allowances between Borrower and
its account debtors will follow Borrower’s customary practices as they exist at
execution of this Agreement.  Borrower
must promptly notify Bank when the aggregate value of all returns, recoveries,
disputes and claims with respect to a single customer involves more than
$200,000.

6.4          Taxes.

                Borrower will make, and cause each Subsidiary to
make, timely payment of all material federal, state and local taxes or
assessments (other than taxes and assessments which Borrower is contesting in
good faith, with adequate reserves maintained in accordance with GAAP) and will
deliver to Bank, on demand, appropriate certificates attesting to the payment.

6.5          Insurance.

                Borrower will keep its business and the Collateral
insured for risks and in amounts as Bank may reasonably request.  Insurance policies will be in forms, with
companies, and in amounts that are reasonably satisfactory to Bank.  All property policies will have a lender’s
loss payable endorsement showing Bank as an additional loss payee, all liability
policies will show the Bank as an additional insured, and all policies will
provide that the insurer must give Bank at least 20 days notice before
canceling its policy.  At Bank’s
request, Borrower will deliver certified copies of policies and evidence of all
premium payments. So long as no Event of Default has occurred and is
continuing, Borrower shall have the option of applying the proceeds of any
casualty policy to the replacement or repair of destroyed or damaged property;
provided that, at the occurrence and during the continuance of an Event of
Default, all proceeds payable under any such casualty policy shall, at the
option of Bank, be payable to Bank on account of the Obligations.

6.6          Deposits.

                Borrower shall at all times maintain its primary
operating and investment accounts with the Bank.  Borrower shall maintain at least 75% of its total Unrestricted
Cash and mutual funds accounts in accounts with Bank or an Affiliate of Bank.

6.7          Financial
Covenants.

                (a)  Borrower
will maintain, as of the last day of each month, a Modified Quick Ratio of at
least 1.50 to 1.00.

                (b)  Borrower
will maintain, as of the last day of each fiscal quarter and based on
Borrower’s 2003 FYE, maximum Loss from Operations through the end of such
period in an amount not greater than the following:

7

 

	
   

  	
  Period

  	
   

  	
  Maximum Loss From Operations

  
	
   

  	
  05/29/03 - 08/28/03

  	
   

  	
  <$1,500,000>

  
	
   

  	
  08/29/03 - 11/28/03

  	
   

  	
  <$900,000>

  
	
   

  	
  11/29/03 - 02/29/04

  	
   

  	
  <$200,000>

  

 

For each period
thereafter, Bank shall reset the levels for maximum Loss from Operations, using
the same or similar methodology as was utilized by Bank to set the levels for
maximum Loss from Operations set forth above, based upon the new projections
for Borrower’s fiscal year 2005 as approved by Borrower’s board of directors;
provided, that if such new projections are not acceptable to Bank, Bank may
reset the levels for maximum Loss from Operations based upon such other
criteria as Bank may reasonably select.

6.8          Further Assurances Regarding Collateral.

                Borrower will execute all further instruments and
take all further actions as Bank reasonably requests to perfect or continue
Bank’s security interest in the Collateral and to effect the purposes of this
Agreement, including without limitation providing Bank with control agreements,
in form and substance acceptable to Bank, for any and all deposit and
securities accounts maintained by Borrower.

7.             NEGATIVE
COVENANTS.

                For so long as Bank has an
obligation to lend or there are any outstanding Obligations, Borrower will not
do any of the following without Bank’s prior written consent, which will not be
unreasonably withheld:

7.1          Dispositions.

                Borrower will not convey, sell, lease, transfer or
otherwise dispose of (collectively “Transfer”), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, except
for Transfers  of:  (i) Inventory in the ordinary course of
business; (ii) non-exclusive licenses, exclusive licenses for territories
outside of the United States or for specified fields of use  and similar arrangements for the use of the
property of Borrower or its Subsidiaries in the ordinary course of business;
(iii) worn-out or obsolete Equipment; (iv) cash or cash equivalents
that otherwise comply with all terms of the Loan Documents; or
(v) Transfers otherwise permitted by this Section 7.

7.2          Changes
in Business, Ownership, Management or Business Locations.

                Borrower will not engage in, or permit any of its
Subsidiaries to engage in, any business other than the businesses currently
engaged in by Borrower and its Subsidiaries, or businesses reasonably related
thereto.  There shall not be a Change of
Control.  Borrower will not, without at
least 30 days prior written notice, relocate its chief executive office or add
any new offices or business locations in which Borrower maintains or stores
over $100,000 in Borrower’s assets or property.

7.3          Mergers or Acquisitions.

                Borrower will not merge or consolidate,
or permit any of its Subsidiaries to merge or consolidate, with any other
Person unless Borrower ( or such Subsidiary, as the case may be) is the
surviving entity, or acquire, or permit any of its Subsidiaries to acquire, all
or substantially all of the capital stock or property of another Person except
where the cash consideration to be paid by Borrower in all such transactions
does not exceed $150,000.00 in the aggregate and no Event of Default has
occurred and is continuing or would exist after giving effect to the
transaction.  A Subsidiary may merge or
consolidate into another Subsidiary or into Borrower, so long as Borrower
remains the obligor of all Obligations.

8

 

7.4          Indebtedness.

                Borrower will not create, incur, assume or be liable
for any Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.

7.5          Encumbrances.

                Borrower will not create, incur or allow to exist any
Lien on any of its properties, or assign or convey any right to receive income
(including the sale of any Accounts), or permit any of its Subsidiaries to do
so, except for Permitted Liens, or permit any Collateral not to be subject to
the first priority security interest herein granted to Bank, subject to
Permitted Liens.

7.6          Distributions;
Investments.

                Borrower will not: 
(i) directly or indirectly acquire or own any Person, or make any
Investment in any Person (other than Permitted Investments or Investments
permitted by Section 7.3 hereof), or permit any of its Subsidiaries to do so;
or (ii) except for Permitted Distributions, pay any dividends or make any
distribution or payment related to, or redeem, retire or purchase any of, its
capital stock.

7.7          Transactions
with Affiliates.

                Borrower will not directly or indirectly enter into
or permit any material transaction with any Affiliate on terms less favorable
to Borrower than would be obtained in an arm’s length transaction with a
non-affiliated Person, except transactions that are in the ordinary course of
Borrower’s business.

7.8          Subordinated
Debt.

                Borrower will not make or permit any payment on any
Subordinated Debt except under the express terms of the Subordinated Debt, or
amend any provision in any document relating to the Subordinated Debt, without
Bank’s prior written consent.

7.9          Compliance.

                Borrower will not, or permit any of its Subsidiaries
to: (i) become an “investment company” or a company controlled by an
“investment company,” under the Investment Company Act of 1940, or undertake as
one of its material activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; (ii) fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction (as defined in ERISA) to occur; or (iii) fail to comply
with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower’s business or operations or would reasonably be
expected to cause a Material Adverse Change.

7.10        Registration of Intellectual Property Rights.

                Borrower shall not register any Copyrights or Mask
Works with the United States Copyright Office unless it has given at least
fifteen (15) days’ prior notice to Bank of its intent to register such Copyrights
or Mask Works and has provided Bank with a copy of the application it intends
to file with the United States Copyright Office (excluding exhibits
thereto).  Borrower shall promptly
provide to Bank a copy of the Copyright application(s) filed with the United
States Copyright Office.  Borrower shall
provide written notice to Bank of any application filed by Borrower in the
United States Patent and Trademark Office for a patent, or to register a
trademark or service mark, within 30 days of any such filing.

9

 

8.             EVENTS
OF DEFAULT.

8.1          Payment
Default.

                Borrower fails to pay any of the Obligations within
four Business Days after their due date. 
During the four Business-Day period, the failure to cure the default is
not itself an Event of Default (but Bank shall have no obligation to make a
Credit Extension during the four Business-Day period).

8.2          Covenant
Default.

                (a)           Borrower
fails to perform any obligation under Section 6.6 or Section 6.7, or violates
any of the covenants in Article 7 of this Agreement, or

                (b)           Borrower
fails or neglects to perform, keep or observe any other material term,
provision, condition, covenant or agreement in this Agreement, in any other
Loan Documents or in any other present or future agreement between Borrower and
Bank and, as to any default under such other term, provision, condition,
agreement or covenant that can be cured, has failed to cure the default within
ten (10) days after the occurrence thereof; provided, however, that if the
default cannot by its nature be cured within the ten-day period, and such
default is likely to be cured within a reasonable time thereafter, then
Borrower shall have an additional reasonable time period (which shall not in
any case exceed ten additional days) to cure such default.  During the ten-day period and (if
applicable) the additional ten-day period, the failure to cure the default is
not itself an Event of Default (but Bank shall have no obligation to make a
Credit Extension during such periods).

8.3          Material
Adverse Change.

                There occurs (i) a material adverse change in the
business, operations or condition (financial or otherwise) of the Borrower,
(ii) a material impairment of the prospect of repayment of any portion of the
Obligations, or (iii) a material impairment to the value or priority of
Bank’s security interest in the Collateral (or any material portion thereof).

8.4          Attachment.

                Any material portion of Borrower’s assets is
attached, seized or levied on, or comes into possession of a trustee or
receiver, and the attachment, seizure or levy is not removed, or the possession
by a trustee or receiver is not terminated, in 15 days; or Borrower is
enjoined, restrained or prevented by court order from conducting a material
part of its respective businesses; or one or more judgments or other claims for
more than $250,000 in the aggregate becomes a Lien on all or any portion of
Borrower’s assets; or a notice of lien, levy or assessment is filed against any
of Borrower’s assets by any government agency and not paid within 15 days after
Borrower receives notice thereof.  None
of the foregoing is an Event of Default if stayed or if a bond is posted
pending contest by Borrower (but Bank shall have no obligation to make a Credit
Extension during such stay period or pending contest).

8.5          Insolvency.

                Borrower becomes insolvent or
begins an Insolvency Proceeding, or an Insolvency Proceeding is begun against
Borrower and is not dismissed or stayed within 45 days (but Bank shall
have no obligation to make a Credit Extension before any Insolvency Proceeding
is dismissed).

8.6          Other
Agreements.

                There is a default in any agreement between Borrower
and a third party that gives the third party the right to accelerate any
Indebtedness exceeding $250,000 or that could reasonably be expected to cause a
Material Adverse Change.

10

 

8.7          Judgments.

                A money judgment(s) in the aggregate of at least
$250,000 is rendered against Borrower and is unsatisfied and unstayed for 15
days (but Bank shall have no obligation to make a Credit Extension before the
judgment is stayed or satisfied).

8.8          Misrepresentations.

                Borrower or any Person acting for Borrower, makes any
material misrepresentation or material misstatement now or later in any
warranty or representation in this Agreement or in any writing delivered to
Bank or in order to induce Bank to enter this Agreement or any Loan Document.

9.             BANK’S
RIGHTS AND REMEDIES.

9.1          Rights
and Remedies.

                When an Event of Default occurs and is continuing and
any period for cure has expired Bank may, without notice or demand, do any or
all of the following:

(a)           Declare all Obligations immediately
due and payable (but if an Event of Default described in Section 8.5
occurs all Obligations are immediately due and payable without any action by
Bank);

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

(c)           Settle or adjust disputes and claims
directly with account debtors for amounts, on terms and in any order that Bank
considers advisable;

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

(e)           Apply to the Obligations any
(i) balances and deposits of Borrower that Bank holds, and
(ii) amounts held by Bank owing to or for the credit or the account of
Borrower;

(f)            Ship, reclaim, recover, store,
finish, maintain, repair, prepare for sale, advertise for sale and sell the
Collateral, and in furtherance thereof: (i) Bank is granted a non-exclusive,
royalty-free license or other right to use, without charge, Borrower’s labels,
Patents, Copyrights, Mask Works, rights of use of any name, trade secrets,
trade names, Trademarks, service marks and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of,
advertising for sale and selling any Collateral; and (ii) Borrower’s rights
under all licenses and all franchise agreements inure to Bank’s benefit in
connection with the foregoing; and

(g)           Dispose of the Collateral according
to the Code.

9.2          Power
of Attorney.

                Borrower irrevocably appoints and constitutes Bank as
its lawful attorney-in-fact, with full power and in the name of Borrower, to do
all of the following upon the occurrence and continuation of an Event 

11

 

of Default:  (i)  endorse Borrower’s name on any
checks or other forms of payment or security; (ii) sign Borrower’s name on any
invoice or bill of lading for any Account or drafts against account debtors,
(iii) make, settle and adjust all claims under Borrower’s insurance
policies; (iv) settle and adjust disputes and claims about the Accounts
directly with account debtors, for amounts and on terms Bank determines
reasonable; and (v) transfer the Collateral into the name of Bank or a third
party as the Code permits. 
Notwithstanding the foregoing, Bank may exercise the power of attorney
to sign Borrower’s name on any documents necessary to perfect or continue the
perfection of any security interest regardless of whether an Event of Default
has occurred.  Bank’s appointment as
Borrower’s attorney-in-fact, and all of Bank’s rights and powers, are coupled
with an interest and irrevocable until all Obligations have been fully repaid
and performed and Bank’s obligation to provide Credit Extensions terminates.

9.3          Accounts
Collection.

                When an Event of Default occurs and continues, Bank
may notify any Person owing Borrower money of Bank’s security interest in the
funds and verify the amount of the Account. 
Borrower must collect all payments in trust for Bank and, if requested
by Bank, immediately deliver the payments to Bank in the form received from the
account debtor, with proper endorsements for deposit.

9.4          Bank
Expenses.

                If Borrower fails to pay any amount or furnish any
required proof of payment to third persons, Bank may make all or part of the
payment or obtain insurance policies required in Section 6.5, and take any
action under the policies that Bank deems prudent.  Any amounts paid by Bank are Bank Expenses and immediately due
and payable, bearing interest at the then-applicable rate and secured by the
Collateral.  No payments by Bank are
deemed an agreement to make similar payments in the future or constitute Bank’s
waiver of any Event of Default.

9.5          Bank’s
Liability for Collateral.

                If Bank complies with reasonable banking practices
and the Code, it shall not be liable for: (i) the safekeeping of the
Collateral; (ii) any loss or damage to the Collateral; (iii) any
diminution in the value of the Collateral; or (iv) any act or default of any
carrier, warehouseman, bailee, or other person.  Borrower bears all risk of loss, damage or destruction of the
Collateral.

9.6          Remedies
Cumulative.

                Bank’s rights and remedies under this Agreement, the
other Loan Documents and all other agreements are cumulative.  Bank has all rights and remedies provided
under the Code, by law and in equity. Bank’s exercise of one right or remedy is
not an election, and Bank’s waiver of any Event of Default is not a continuing
waiver. Bank’s delay is not a waiver, election or acquiescence. No waiver is
effective unless signed by Bank, and then is only effective for the specific instance
and purpose for which it was given.

9.7          Demand
Waiver.

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

12

 

10.          NOTICES.

                All notices or demands by any party about this
Agreement or any other related agreement must be in writing and be personally
delivered or sent by an overnight delivery service, by certified mail, (postage
prepaid, return receipt requested) or by telefacsimile to the addresses set
forth at the beginning of this Agreement. 
A party may change its notice address by giving the other party written
notice thereof.

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

                California law governs the Loan Documents without
regard to principles of conflicts of law. 
Borrower and Bank each submit to the exclusive jurisdiction of the State
and Federal courts in Santa Clara County, California.

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

12.          GENERAL
PROVISIONS.

12.1        Successors
and Assigns.

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

12.2        Indemnification.

                Borrower will indemnify, defend and hold harmless
Bank and its officers, employees, and agents against:  (i) all obligations, demands, claims and liabilities asserted by
any other party in connection with the transactions contemplated by the Loan
Documents, except to the extent they are caused by the gross negligence or
willful misconduct of Bank; and (ii) all losses and Bank Expenses incurred or
paid by Bank from, following or consequential to transactions between Bank and
Borrower (including reasonable attorneys’ fees and expenses), except to the
extent such losses and Bank Expenses are caused by the gross negligence or
willful misconduct of Bank.

12.3        Time
of Essence.

                Time is of the essence for the performance of all
obligations in this Agreement.

12.4        Severability
of Provisions.

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

12.5        Amendments
in Writing, Integration.

                All amendments to this Agreement must be in writing
and signed by Borrower and Bank.  This
Agreement represents the entire agreement about this subject matter, and
supersedes prior negotiations or agreements. 
All prior agreements, understandings, representations, warranties and
negotiations 

13

 

between the parties about
the subject matter of this Agreement merge into this Agreement and the other
Loan Documents.

12.6        Counterparts.

                This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, are an original, and all of which, taken together,
constitute one Agreement.

12.7        Survival.

                All covenants, representations and warranties made in
this Agreement continue in full force while 
any Obligations remain outstanding. 
The obligations of Borrower in Section 12.2 to indemnify Bank will
survive until all statutes of limitations for actions that may be brought
against Bank have run.

12.8        Confidentiality.

                In handling any confidential information, Bank will
exercise the same degree of care that it exercises for its own proprietary
information, and disclosure of information may be made by Bank: (i) to
Bank’s subsidiaries or Affiliates in connection with their business with
Borrower; (ii) to prospective transferees or purchasers of any interest in
the Loan Documents; (iii) as required by law, regulation, subpoena or
other order; (iv) as required in connection with Bank’s examination or
audit; and (v) as Bank considers appropriate in exercising remedies under
this Agreement.  All information (other
than that contained in any periodic reports filed by Borrower with the SEC)
disclosed by Borrower to  Bank in
writing or through inspection pursuant to this Agreement shall be considered
confidential.  Notwithstanding the
foregoing, however, confidential information shall not include information that
either:  (i) is in the public domain or
in Bank’s possession when disclosed to Bank, or becomes part of the public
domain after disclosure to Bank; or (ii) is disclosed to Bank by a third party,
if Bank does not know that the third party is prohibited from disclosing the
information.

12.9        Attorneys’
Fees, Costs and Expenses.

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

13.          DEFINITIONS.

                In this Agreement:

                “Accounts” are all existing and later
arising accounts, contract rights and other obligations owed to Borrower in
connection with its sale or lease of goods (including the licensing of software
and other technology) or provision of services,  all credit insurance,
guaranties, other security and  all
merchandise returned or reclaimed by Borrower, and Borrower’s Books relating to
any of the foregoing.

                “Advances” are the aggregate of (i) the
then-outstanding principal balance of the Term Loan and (ii) the
then-outstanding principal balance of the Equipment Advances.

                “Affiliate” of a Person is a Person that
owns or directly or indirectly controls the Person, any Person that controls or
is controlled by or is under common control with the Person, and each of that
Person’s senior executive officers, directors, partners and, for any Person
that is a limited liability company, that Person’s managers and members.

14

 

                “Bank Expenses” are all audit fees and
expenses and reasonable costs and expenses (including reasonable attorneys’
fees and expenses) for preparing, negotiating, administering, defending and
enforcing the Loan Documents (including appeals and Insolvency Proceedings).

                “Book Value” means the difference between
the Original Stated Cost of an asset and its related accumulated depreciation.

                “Borrower’s Books” are all of Borrower’s
books and records, including ledgers, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition and all
computer programs or discs or any equipment containing the information.

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

                “Change of Control”
is an event or series of events by which any Person or group of Persons (within
the meaning of Section 13 or Section 14 of the Securities Exchange Act of 1934)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the SEC under said Act), directly or indirectly, of 40% or more
of the outstanding shares of capital stock of Borrower.

                “Closing Date” is the Effective Date.

                “Code” is the Uniform Commercial Code, as
applicable.

                “Collateral” is the property described on
Exhibit A attached hereto.

                “Committed Equipment Line” is $500,000 of Equipment
Advances.

                “Commitment Termination Date” is the
one-year anniversary of the Effective Date.

                “Compliance
Certificate” is attached hereto as Exhibit D.

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

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

                “Credit Extension” is each Equipment
Advance, the Term Loan and any other extension of credit made by Bank to
Borrower or for Borrower’s benefit.

                “Disclosure Letter”
means the disclosure letter delivered by Borrower to Bank concurrently with the
execution and delivery by Borrower of this Agreement.

15

 

                “Dollars” and “$” is United States dollars.

                “Effective Date” is August 1, 2003.

                “Eligible Equipment” is new or
used general purpose computer equipment, office equipment, test and laboratory
equipment and furnishings that are located within the United States, as well as
Other Equipment, that complies with all of Borrower’s representations and
warranties to Bank, that is located within the United States and that is
acceptable to Bank in all respects.

                “Equipment” is all present and future
machinery, equipment, tenant improvements, furniture, fixtures, vehicles,
tools, parts and attachments in which Borrower has any interest.

                “Equipment Advance” is defined in
Section 2.1.1.

                “Equipment Maturity Date” is, as to each
Equipment Advance, the last day of the Repayment Period for the Equipment
Advances or, if earlier, the date of acceleration of the Equipment Advance by
Bank following an Event of Default.

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

                “Event of Default” is the occurrence of any
event described in Article 8 and the expiration of the cure period (if any)
provided for such event.

                “Financed Equipment” is Equipment financed
with the proceeds of an Equipment Advance or the Term Loan.

                “Funding Date” of an Equipment Advance or
the Term Loan is the date on which the proceeds of the respective Equipment
Advance or the Term Loan are made available to or for the account of Borrower.

                “GAAP” is generally accepted accounting
principles, consistently applied over the period(s) in question.

                “GATX Debt” is the sum of $1,982,945.00,
which is the negotiated amount to be paid by Borrower to GATX Technology
Services Corporation for termination of Master Lease Agreement No. 2029
dated May 9, 2000, the Lease Schedule thereto dated November 1, 2001
and all related schedules, amendments, documents and instruments between GATX
Technology Services Corporation and Borrower, inclusive of sales tax.

                “Indebtedness” is (i)
indebtedness for borrowed money or the deferred price of property or services,
such as reimbursement and other obligations for surety bonds and letters of
credit, (ii) obligations evidenced by notes, bonds, debentures or similar
instruments, (iii) capital lease obligations and (iv) Contingent
Obligations.

                “Insolvency Proceedings” are
proceedings by or against any Person under the United States Bankruptcy Code or
any other bankruptcy or insolvency law, including assignments for the benefit
of creditors, compositions, extensions generally with its creditors, or
proceedings seeking reorganization, arrangement or other relief.

16

 

                “Intellectual  Property” is:

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

(ii)           Any trade secrets and any
intellectual property rights in computer software and computer software
products now or later existing, created, acquired or held;

(iii)          All design rights which may be
available to Borrower now or later created, acquired or held;

(iv)          Any claims for damages (past, present
or future) for infringement of any of the rights above, with the right, but not
the obligation, to sue and collect damages for use or infringement of the
intellectual property rights above; and

(v)           All proceeds and products of the
foregoing, including all insurance, indemnity and warranty payments.

                “Inventory” is present and future inventory
in which Borrower has any interest, including merchandise, raw materials,
parts, supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or later owned by or in the custody
or possession, actual or constructive, of Borrower, including inventory
temporarily out of its custody or possession or in transit and including
returns on any accounts or other proceeds (including insurance proceeds) from
the sale or disposition of any of the foregoing and any documents of title.

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

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

                “Loan Documents” are, collectively, this
Agreement, any note or notes and any other present or future agreement between
Borrower to or for the benefit of Bank in connection with this Agreement, all
as amended, extended or restated from time to time.

                “Loan Fee”
is an amount equal to $6,250.

                “Loan Supplement” is attached hereto as
Exhibit C.

                “Loss from Operations” shall be the amount
reported by Borrower in the “Loss from operations” line of its consolidated
statements of operations contained in its Quarterly Report on Form 10-Q as
filed with the SEC for each of its second and third fiscal quarters, and in its
Annual Report on Form 10-K as filed with the SEC for its fourth fiscal
quarter.  This amount shall equal
Borrower’s total revenues, less total cost of revenues, less total operating
expenses, as those items are reported in such consolidated statements of
operations.  It shall exclude
below-the-line items, including without limitation interest expense, interest
and other income and expenses, discontinued operations, extraordinary items,
cumulative changes in accounting principles and taxes.

                “Mask Works” are all mask works or similar
rights available for the protection of semiconductor chips, now owned or later
acquired.

                “Material Adverse Change” is described in
Section 8.3.

17

 

                “Modified Quick
Ratio” is the ratio equal to a fraction, the numerator of which is
the sum of Unrestricted Cash and cash equivalents plus fifty percent (50%) of
the net Accounts of Borrower (as reflected on Borrower’s balance sheet) and the
denominator of which is the then-outstanding principal balance of the Term Loan
and all Equipment Advances.

                “Obligations” are debts, principal,
interest, Bank Expenses and other amounts that Borrower owes to Bank now or
later, including cash management services, letters of credit and foreign
exchange contracts (if any) and including interest accruing after Insolvency
Proceedings begin, and debts, liabilities or obligations of Borrower assigned
to Bank.

                “Original Stated Cost” is (i), the original
cost to the Borrower of the item of new Eligible Equipment net of any and all
freight, installation, tax (except to the extent Eligible Equipment constitutes
Other Equipment) or  (ii) the fair market
value assigned to such item of used Eligible Equipment by mutual agreement of
Borrower and Bank at the time of making of an Equipment Advance.

                “Other Equipment” is leasehold
improvements, taxes, freight, installation, intangible property such as computer
software and software licenses, equipment specifically designed or manufactured
for Borrower, other intangible property, limited use property and other similar
property.

                “Patents” are patents, patent applications
and like protections, including improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.

                “Permitted
Distributions” are:

                                (i)            repurchases of stock from former
employees or directors of Borrower under the terms of applicable repurchase
agreements in an aggregate amount not to exceed $250,000 in the aggregate in
any fiscal year; provided, that no Event of Default has occurred, is continuing
or would exist after giving effect to the repurchases;

                                (ii)           the
repurchase by Borrower of any of its convertible securities; provided, that
Borrower remains in compliance with Section 6.7 both prior to and
immediately following any such repurchase; and

                                (iii)          the
conversion by Borrower of any of its convertible securities into other
securities pursuant to the terms of such convertible securities or otherwise in
exchange therefore, and payments in cash for any fractional shares of such
convertible securities.

                “Permitted Indebtedness” is:

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

(ii)           Indebtedness existing on the Closing
Date that is acceptable to Bank and shown in the Disclosure Letter;

(iii)          Subordinated Debt;

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

(v)           Indebtedness secured by Permitted
Liens;

(vi)          Indebtedness of Borrower to any
Subsidiary and Contingent Obligations of any Subsidiary with respect to
obligations of Borrower (provided that the primary obligations are not
prohibited hereby), and Indebtedness of any Subsidiary to any other Subsidiary
and Contingent Obligations of any Subsidiary 

18

 

with respect to
obligations of any other Subsidiary (provided that the primary obligations are
not prohibited hereby);

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

(viii)        Other Indebtedness not exceeding  $250,000 in the aggregate outstanding at any
time.

                “Permitted Investments” are:

(i)            Investments existing on the Closing
Date that are acceptable to Bank and shown in the Disclosure Letter;

(ii)           (A)  marketable direct
obligations issued or unconditionally guaranteed by the United States or its
agency or any State maturing within two years from its acquisition,
(B) commercial paper maturing no more than one year after its creation and
having the highest rating from either Standard & Poor’s Corporation
(“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), and
(C) certificates of deposit, issued by Bank or any other commercial bank
organized under the laws of the United States or of any state thereof having a
combined capital and surplus in excess of $750,000,000 and the highest rating
from either S&P or Moody’s, maturing no more than one year after issue;

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

(iv)          Investments of
Subsidiaries in or to other Subsidiaries or Borrower and Investments by
Borrower in Subsidiaries, not to exceed $150,000 in the aggregate in any fiscal
year;

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

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

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

(viii)        Joint ventures or
strategic alliances in the ordinary course of Borrower’s business consisting of
the non-exclusive licensing of technology, the development of technology or the
providing of technical support, provided that any cash investments by Borrower
do not exceed $100,000 in the aggregate in any fiscal year;

(ix)           checking, savings, money market and
investment accounts as permitted by this Agreement;

(x)            distributions payable solely in
Borrower’s capital stock; and

(xi)           conversions of any of Borrower’s
convertible securities into other securities pursuant to the terms of such
convertible securities or otherwise in exchange therefore.

19

 

                “Permitted Liens” are:

(i)            Liens existing on the Closing Date
that are acceptable to Bank and shown in the Disclosure Letter or arising under
this Agreement or other Loan Documents;

(ii)           Liens for taxes, fees, assessments or
other government charges or levies, either not delinquent or being contested in
good faith and for which Borrower maintains adequate reserves on its Books;

(iii)          Purchase money Liens (A) on
Equipment acquired or held by Borrower or its Subsidiaries incurred for
financing the acquisition of Equipment (and all additions and accessions
thereto, and the proceeds thereof), or (B) existing on Equipment when
acquired, if the Lien is confined to the Equipment (and all additions and
accessions thereto, and the proceeds thereof), provided that any such Lien
pertaining to Eligible Equipment that is financed by the Equipment Advances
must be in favor of Bank;

(iv)          Non-exclusive licenses or sublicenses
granted in the ordinary course of Borrower’s business, and any interest or
title of a licensor under any license or sublicense;

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

(vi)          Liens incurred in the extension,
renewal or refinancing of the Indebtedness secured by Liens described in (i)
through (iii), but any extension, renewal or replacement Lien must be limited
to the property encumbered by the existing Lien and the principal amount of the
Indebtedness so secured may not increase;

(vii)         Liens in favor of other financial
institutions arising in connection with Borrower’s deposit accounts held at
such institutions, provided that Bank has a perfected security interest in the
amounts held in such deposit accounts;

(viii)        (A) Liens on real estate for real
estate taxes not yet delinquent, (B)  Liens created by lease agreements,
statute or common law to secure the payments of rental amounts and other sums
not yet due thereunder, and (C) Liens on leasehold interests created by
the lessor in favor of any mortgagee of the leased premises;

(ix)           Liens of carriers, warehousemen,
mechanics, laborers and materialmen and other similar Liens incurred in the
ordinary course of Borrower’s business for sums not yet due or being contested
in good faith, if such reserve or appropriate provision, if any, as shall be
required by GAAP shall have been made therefor;

                (x)            Liens
incurred in the ordinary course of Borrower’s business in connection with
worker’s compensation, unemployment insurance, social security or similar
legislation;

                (xi)           Easements,
right-of-way, matters of public record, restrictions and other similar
encumbrances on the use of real property which do not materially interfere with
the ordinary conduct of the business of such Person as currently conducted;

                (xii)          Deposits
to secure the performance of bids, trade contracts (other than for borrowed
money), contracts for the purchase of property, leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature, in each case, incurred in the ordinary course of Borrower’s business
and not representing an obligation for borrowed money;

20

 

                (xiii)         Liens
in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;

                (xiv)        Liens
on insurance proceeds securing the payment of financed insurance premiums; and

                (xv)         Liens
arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default hereunder.

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

                “Prime Rate” is Bank’s most recently
announced “prime rate,” even if it is not the lowest rate at which Bank makes
loans or otherwise extends credit.  The
Prime Rate may change from time to time over the term of this Agreement.

                “Repayment Period” is:  (i) as to each Equipment Advance, a
period of 24 months commencing on the Commitment Termination Date; and
(ii) as to the Term Loan, a period of 24 months commencing on the
Funding Date of the Term Loan.

                “Responsible  Officer” is each of the Chief
Executive Officer and the Chief Financial Officer of Borrower.

                “Scheduled Payments” is described in Section
2.2.1 and 2.2.2.

                “Schedules” are the attached schedules of
exceptions.

                “SEC” is the United States Securities and
Exchange Commission.

                “Subordinated Debt” is debt incurred by
Borrower that is subordinated to Borrower’s Indebtedness owed to Bank and that
is reflected in a written agreement in a manner and form acceptable to Bank and
approved by Bank in writing.

                “Subsidiary” is, for Borrower, any business
entity of which more than 50% of the voting stock or other equity interests is
owned or controlled, directly or indirectly, by Borrower or one or more
Affiliates of Borrower.

                “Term Loan” is the Credit Extension from
Bank to Borrower in the principal amount equal to the lesser of
(i) $2,000,000 or (ii) that amount needed by Borrower to repay in
full the GATX Debt.

                “Term Loan Maturity Date” is the last day of
the Repayment Period for the Term Loan or, if earlier, the date of acceleration
of the Term Loan by Bank following an Event of Default.

                “Trademarks” are trademark and servicemark
rights, registered or not, applications to register and registrations and like
protections, and the entire goodwill of the business of Borrower connected with
the trademarks.

                “Unrestricted Cash” is all cash that
(i) is not subject to any Lien or (ii) does not otherwise fall within
the definition of “restricted cash” as determined under GAAP.

[Signature Page Follows
Immediately]

21

 

                IN WITNESS WHEREOF, each of the parties hereto has
caused its duly authorized representative to execute and deliver this Agreement
as of the Effective Date.

	
  BANK:

  	
   

  	
  BORROWER:

  
	
   

  	
   

  	
   

  
	
  SILICON VALLEY BANK,

  a California-chartered bank

  	
   

  	
  INTRAWARE, INC.,

  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: /s/ Brian Harrison

  	
   

  	
  By: /s/ Wendy Nieto

  
	
   

  	
   

  	
   

  
	
  Name: Brian Harrison

  	
   

  	
  Name: Wendy Nieto

  
	
   

  	
   

  	
   

  
	
  Title: Vice President

  	
   

  	
  Title: Chief Financial Officer

  

 

22

EXHIBIT A

 

DESCRIPTION OF COLLATERAL

 

                The
Collateral consists of all of Borrower’s right, title and interest in and to
the following, whether owned now or hereafter arising and whether the Borrower
has rights now or hereafter has rights therein and wherever located:

 

                All
goods and equipment now owned or hereafter acquired, including without
limitation all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

 

                All
inventory, now owned or hereafter acquired, including without limitation all
merchandise, raw materials, parts, supplies, packing and shipping materials,
work-in-process and finished products, including such inventory as is
temporarily out of Borrower’s custody or possession or in transit and also
including any returns upon any accounts or other proceeds (including insurance
proceeds) resulting from the sale or disposition of any of the foregoing, and
any documents of title representing any of the above;

 

                All
contract rights and general intangibles now owned or hereafter acquired,
including without limitation goodwill, leases, license agreements, franchise
agreements, blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kind;

 

                All
now existing and hereafter arising accounts, contract rights, royalties,
license rights and all other forms of obligations owing to Borrower arising out
of the sale or lease of goods, the licensing of technology or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, insurance (including refund) claims and proceeds, guaranties
and other security therefor, as well as all merchandise returned to or
reclaimed by Borrower;

 

                All
documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
letter of credit rights, certificates of deposit, instruments and chattel paper
and electronic chattel paper now owned or hereafter acquired, and Borrower’s
Books relating to the foregoing; and

 

                All of Borrower’s Books relating
to the foregoing and any and all claims, rights and interests in any of the
above and all substitutions for, additions and accessions to and proceeds
thereof.

 

The
Collateral shall not be deemed to include any copyrights, copyright
applications, copyright registration and like protection in each work of
authorship and derivative work thereof, whether published or unpublished, now
owned or hereafter acquired; any patents, patent applications and like
protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same, trademarks servicemarks and applications therefore, whether registered or
not, and the goodwill of the business of Borrower connected with and symbolized
by such trademarks, any trade secret rights, including any rights to unpatented
inventions, know-how, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired; or any claims for
damaged by way of any past, present and future infringement of any of the
foregoing (collectively, the “Intellectual Property”), except that Collateral shall
include the proceeds of all the Intellectual Property including proceeds from
the sale, licensing or other disposition of the Intellectual Property and
proceeds that are accounts (e.g.,
accounts receivable of Borrower, or general intangibles consisting of proceeds
and rights to payment).

 

 

                Borrower and Bank are parties to that certain Negative Pledge Agreement,
whereby Borrower, in connection with Bank’s loan or loans to Borrower, has
agreed, among other things, not to sell, transfer, assign, mortgage, pledge,
lease grant a security interest in, or encumber any of its Intellectual
Property without Bank’s prior written consent in accordance with the terms
thereof.

 

 

2

 

EXHIBIT B

 

LOAN PAYMENT/ADVANCE REQUEST FORM

 

Fax
To: __________________________                     Date:
__________________________

 

o Loan Payment:

INTRAWARE, INC.

From
Account # __________________________                               To Account # __________________________

                                          (Deposit
Account #)                                                                           (Loan
Account #)

 

Principal
$________________________ and/or
Interest $__________________________

 

All
Borrower’s representation and warranties in the Loan and Security Agreement are
true, correct and complete in all material respects to on the date of the
telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date:

 

Authorized Signature: __________________________  Phone Number: __________________________

o  LOAN ADVANCE:

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

 

From
Account #__________________________                                To Account #_____________________________

                                 (Loan Account #)                                                                               (Deposit
Account #)

 

Amount
of Advance $__________________________

 

All
Borrower’s representation and warranties in the Loan and Security Agreement  are true, correct and complete in all
material respects to on the date of the telephone transfer request for and
advance, but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
the date:

 

Authorized Signature: __________________________  Phone Number: __________________________

OUTGOING WIRE REQUEST

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

Deadline for same day processing is 12:00 p.m., P.T.

 

Beneficiary Name: _________________________  Amount of Wire: $__________________________

 

Beneficiary Bank: _________________________   Account Number: __________________________

 

City and State: __________________________

 

Beneficiary Bank Transit
(ABA) #: _ _ _ _ _ _ _ Beneficiary Bank Code (Swift, Sort, Chip, etc.): __________

 

(For
International Wire Only)

Intermediary Bank: __________________________             Transit (ABA) #: _________________________

 

For Further Credit to: ______________________________________________________________________

 

Special Instruction:
________________________________________________________________________

 

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

 

	
  Authorized Signature:

  	
   

  	
   

  	
  2nd Signature
  (If Required):

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Print Name/Title:

  	
   

  	
   

  	
  Print Name/Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Telephone #

  	
   

  	
   

  	
  Telephone #

  	
   

  
									

 

EXHIBIT C

 

FORM OF LOAN AGREEMENT SUPPLEMENT

 

LOAN AGREEMENT SUPPLEMENT
No. [ ]

 

LOAN
AGREEMENT SUPPLEMENT No. [ ], dated               ,
200__ (“Supplement”), to the Loan and Security Agreement dated as of
August 1, 2003 (the “Loan Agreement) by and between the undersigned
(“Borrower”), and Silicon Valley Bank (“Bank”).  Capitalized terms used herein but not otherwise defined herein
are used with the respective meanings given to such terms in the Loan
Agreement.

Borrower
hereby requests an Equipment Advance in the amount of $__________________ in
order to finance the Eligible Equipment set forth on Annex A hereto.  To secure the prompt payment by Borrower of
all amounts from time to time outstanding under the Loan Agreement, and the performance
by Borrower of all the terms contained in the Loan Agreement, Borrower grants
to Bank a first priority security interest in each item of equipment and other
property described in Annex A hereto and all proceeds thereof, which equipment
and other property shall be deemed to be “Financed Equipment” (for purposes of
the Loan Agreement) and Collateral.  The
Loan Agreement is hereby incorporated by reference herein and is hereby
ratified, approved and confirmed. 
Annex A (Eligible Equipment Schedule) and Annex B (Equipment
Advance Terms Schedule) are attached hereto and incorporated herein for all
purposes.

The proceeds of the Loan should be
transferred to Borrower’s account with Bank set forth below:

 

Bank
Name:           Silicon Valley Bank

 

Account
No.:        __________________

 

Borrower
hereby certifies that (i) the foregoing information is true and correct
and authorizes Bank to endorse in its respective books and records the interest
rate applicable to the Funding Date of the Equipment Advance contemplated in
this Loan Agreement Supplement and the principal amount set forth in the
Equipment Advance Terms Schedule; (ii) the representations and warranties
made by Borrower in the Loan Agreement are true and correct on the date hereof
and will be true and correct in all material respects on such Funding Date,
provided that any representation or warranty that specified an earlier date
shall continue to be true as of that specified earlier date; and (iii) no
Event of Default has occurred and is continuing under the Loan Agreement.  This Supplement may be executed by Borrower
and Bank in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.

This
Supplement is delivered as of this day and year first above written.

	
  SILICON
  VALLEY BANK, 

  a California-chartered bank

  	
   

  	
  INTRAWARE,
  INC., 

  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
							

 

 

Annex A

 

ELIGIBLE EQUIPMENT SCHEDULE

 

                The Eligible Equipment being
financed with the Equipment Advance as to which this Loan Agreement Supplement
is being executed is listed below.  Upon
the funding of such Equipment Advance, the Eligible Equipment set forth on this
Schedule automatically shall be deemed to be a part of the Collateral.

 

	
  Description of Equipment:

  	
   

  	
  Make

  	
   

  	
  Model

  	
   

  	
  Serial #

  	
   

  	
  Invoice #

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

 

 

 

Annex B

 

EQUIPMENT ADVANCE TERMS SCHEDULE #________

 

Funding Date: 
_____________________, 200__

 

Principal Amount of Equipment Advance 
$___________

 

Interest Rate:  Greater of
(i) Prime Rate plus 1.00% or (ii) 5.25%

 

Scheduled Payment Dates and Principal Payment Amounts:

 

                One (1) payment of
$_______ due ______________

 

                ______ payments of
$_______ due monthly in advance from ______ through ________.

 

                One (1) payment of
$_______ due ______________

 

Maturity Date:  ___________

 

	
  Payment
  No.

  	
   

  	
  Payment Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  . . .

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  [24]

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

EXHIBIT D

 

COMPLIANCE CERTIFICATE

 

TO:                         SILICON VALLEY BANK

FROM:                   INTRAWARE,
INC.

DATED:
                ______________

 

                The undersigned
authorized officer of INTRAWARE, INC. (“Borrower”) certifies that under the
terms and conditions of the Loan and Security Agreement dated as of August 1,
2003 between Borrower and Bank (the “Agreement”), (i) Borrower is in
complete compliance for the period ending on the date first set forth above
with all required covenants except as noted below and (ii) all
representations and warranties in the Agreement are true and correct in all
material respects on this date, provided that any representation or warranty
that specified an earlier date continues to be true as of that specified
earlier date.  Attached are the required
documents supporting the certification. 
The Officer certifies that these are prepared in accordance with
Generally Accepted Accounting Principles (GAAP) consistently applied from one
period to the next except (i) for the absence of footnotes with respect to
interim financial statements, and subject to normal year-end adjustments, and
(ii) as explained in an accompanying letter or footnotes.  The Officer acknowledges that no borrowings
may be requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.

 

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

 

	
  Reporting Covenants

  	
   

  	
  Required

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interim financial
  statements + CC

  	
   

  	
  Monthly within 30 days

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Annual audited financial
  statements + CC

  	
   

  	
  Within 180 days of FYE

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  A/R Aging by Invoice Date

  	
   

  	
  Monthly within
  30 days

  	
   

  	
  Yes

  	
   

  	
  No

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Financial
  Covenants

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A.  Minimum Modified Quick Ratio (monthly)

  	
   

  	
  1.50:1.00

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.  Maximum Loss from Operations (quarterly)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Period

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  05/29/03 - 08/28/03

  	
   

  	
  <$1,500,000>

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  08/29/03 - 11/28/03

  	
   

  	
  <$900,000>

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  11/29/03 - 02/29/04

  	
   

  	
  <$200,000>

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Thereafter to be determined

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  by Bank in accordance with

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 6.7 of the Agreement

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Have there been updates to
  Borrower’s intellectual property?

  	
   

  	
   

  	
   

  	
  Yes

  	
   

  	
  No

  

 

 

	
  Comments Regarding Exceptions: See
  Attached.

  	
   

  	
  BANK USE
  ONLY

  
	
   

  	
   

  	
  Received
  by:

  	
   

  
	
  Sincerely,

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  
	
   

  	
   

  	
   

  
	
  INTRAWARE, INC.,

  	
   

  	
  Date:

  	
   

  
	
  a Delaware corporation

  	
   

  	
   

  
	
   

  	
   

  	
  Verified:

  	
   

  
	
   

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  
	
  SIGNATURE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  TITLE

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
  DATE

  	
   

  	
  Compliance Status:                      Yes    
  NoExhibit 10.2

 

NEGATIVE PLEDGE AGREEMENT

 

                                                                  This Negative Pledge Agreement is made as
of August 1, 2003, by Intraware, Inc. a Delaware corporation Borrower”), in
favor of Silicon Valley Bank, a California-chartered bank (“Bank”).

 

In connection with the Loan and Security Agreement of
even date herewith (the “Loan Agreement”) being concurrently executed herewith
between Borrower and Bank, Borrower agrees as follows:

 

1.                                                         Except for non-exclusive licenses and
exclusive licenses limited to territories outside of the United States and
specific fields of use, Borrower shall not sell, transfer, assign, mortgage,
pledge, lease, grant a security interest in, or encumber any of Borrower’s
intellectual property, including, without limitation, the following:

 

                                                                  a.                     Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether  published
or unpublished and whether or not the same also constitutes a trade  secret, now or hereafter existing, acquired or held;

 

                                                                  b.                    Any and all trade secrets, and any and all
intellectual property rights in computer software products now or hereafter
existing, created, acquired or held;

 

                                                                  c.                     Any and all design rights which may be available to
Borrower nor or hereafter existing, created, acquired or held;

 

                                                                  d.                    All patents, patent applications and like protections
including, without limitation, improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same, including
without limitation the patents and patent applications;

 

                                                                  e.                     Any trademark and servicemark rights, whether
registered or not, 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 such trademarks, including without limitation;

 

                                                                  f.                       Any and all claims for damages by way of past, present
and future infringements of any of the rights included above, with the right,
but not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;

 

                                                                  g.                    All licenses or other rights to use any of the
Copyrights, Patents or Trademarks, and all license fees and royalties arising
from such use to the extent permitted by such license or rights; and

 

 

                                                                  h.                    All amendments, extensions, renewals and extensions of
any of the Copyrights, Trademark or Patents; and

 

                                                                  i.                        All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.

 

2.                                                         It shall be an event of default under the
Loan Agreement if there is a breach of any term of this Negative Pledge
Agreement.

 

3.                                                         Capitalized terms used but not otherwise
defined herein shall have the same meaning as in the Loan Agreement.

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  INTRAWARE, INC.

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:  /s/
  Wendy Nieto

  
	
   

  	
  Name:  Wendy
  Nieto

  
	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  BANK:

  
	
   

  	
   

  
	
   

  	
  SILICON
  VALLEY BANK

  
	
   

  	
  a
  California-chartered bank

  
	
   

  	
   

  
	
   

  	
  By:  /s/
  Brian Harrison

  
	
   

  	
  Name: Brian Harrison

  
	
   

  	
  Title:  Chief
  Financial Officer

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