Document:

exv10w34

 

Exhibit 10.34

XATA CORPORATION

AMENDED RESTRICTED STOCK AWARD AGREEMENT

PURSUANT TO 2002 LONG-TERM INCENTIVE AND STOCK OPTION PLAN

THIS RESTRICTED STOCK AWARD AGREEMENT (the “Agreement”) is made effective as of
   , by and between XATA Corporation, a Minnesota corporation
(the “Company”) and    (“Employee”).

     Recitals

     1. The Company desires to afford the Employee an opportunity to acquire
shares of its common stock, par value $.01 per share (the “Shares”), to carry
out the purposes of its 2002 Long-Term Incentive and Stock Option Plan, as
amended (the “Plan”), a copy of which has been provided to Employee and the
terms of which are incorporated by reference herein and shall be considered a
part of this Agreement. For purposes of this Agreement and the Plan,
employment by any subsidiary of the Company is equivalent to employment by the
Company.

     2. The Plan provides that each award is to be evidenced by an agreement,
setting forth the terms and conditions of such award.

     ACCORDINGLY, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Employee hereby agree as
follows:

     1. Restricted Stock Award. Subject to the terms and provisions of this
Agreement and the Plan, the Company hereby grants to Employee as of the date
hereof a restricted stock award for    (   ) Shares (the
“Award Shares”). For purposes of Section 16 under the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder, the grant date
for the Award Shares shall be the effective date hereof; provided, however, all
of Employee’s right, title and interest in and to the Award Shares shall be
subject to Section 2 below.

     2. Vesting of Award Shares.

          (a) Subject to Sections 2(b), (c), (d) and (e) below, all of Employee’s
right, title and interest in and to the Award Shares is and shall be contingent
upon and subject to the continued full time employment of Employee by the
Company during the vesting periods (the “Vesting Periods”). At the end of each
Vesting Period, and provided that Employee is then a full time employee of the
Company, Employee shall be deemed to be fully vested without restriction in all
of the Award Shares covered by that Vesting Period. Each Vesting Period begins
on the effective date hereof.

	 	 	 
	 No. of Award Shares
	 	End of Vesting Period

	 
	 	 

          (b) In the event that Employee voluntary resigns from Employee’s full time
employment with the Company or is terminated by the Company for cause during
any Vesting Period, Employee shall forfeit all right, title and interest in and
to all unvested Award Shares.

          (c) In the event that Employee is terminated from employment by the
Company

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without cause during any Vesting Period, or in the event that Employee is
terminated from employment prior to the end of any Vesting Period because the
Employee has died or become permanently disabled within the meaning of Section
105(b) (4) of the Internal Revenue Code of 1986, Employee shall thereupon
become immediately vested without restriction in all of the Award Shares
covered by that unexpired Vesting Period. Employee shall forfeit all right,
title and interest in and to all other unvested Award Shares.

     3. Restriction on Transfer. No interest in unvested Award Shares shall be
transferable by any means (e.g. sale, assignment, pledge, gift).

     4. Issuance and Delivery of Certificates for Award Shares.

          (a) As soon as practicable after the execution hereof, the Company shall
issue in Employee’s name, and retain in the custody of the Company pursuant to
Section 4(b) below, a certificate for paid-up, non-assessable Shares for the
full number of the Award Shares. The Company shall place a stop transfer order
on its stock records with respect to the Award Shares, and the certificate for
the Award Shares shall contain the following legend:

“The securities evidenced by this certificate were
issued pursuant to a Restricted Stock Award Agreement
between the holder and the issuer dated
   (the “Agreement”), and no
sale, offer to sell, transfer, pledge or other
hypothecation of these securities may be made so long
as the securities remain subject to the restrictions
set forth in the Agreement.”

          (b) Employee acknowledges and agrees that the Company shall retain the
custody of the certificates for the Award Shares, and that the certificates
will not be delivered to Employee except as provided in Section 4(c) below.
Upon execution of this Agreement, Employee has also executed and delivered to
the Company an Assignment Separate from Certificate, authorizing the Company as
attorney to transfer the certificate for the Award Shares to the Company upon
forfeiture pursuant to this Agreement.

          (c) As soon as reasonably practicable after termination of the transfer
restrictions pursuant to Section 3 above, the Company will deliver a
certificate for the Award Shares, adjusted as necessary for the actual number
of Award Shares in which Employee has become vested, without the restrictive
legend set forth in Section 4(a). Delivery of the certificate under this
Section 4(c) shall be made at the principal office of the Company to the person
or persons entitled thereto during ordinary business hours of the Company not
more than thirty (30) days after the vesting of the Award Shares, or at such
time, place and manner as may be agreed upon by the Company and the person or
persons entitled to the Award Shares.

     5. Rights and Restrictions as a Shareholder. During the Employee’s
continued full time employment with the Company or its subsidiaries Employee
shall have full voting rights, dividend rights and other rights as a
shareholder with respect to all vested (but not unvested) Award Shares. So
long as the Company retains custody of the certificates for the Award Shares,
Employee shall not (i) sell, offer to sell, transfer, pledge or hypothecate any
record or beneficial interest in the Award Shares, other than to the Company as
provided in this Agreement or (ii) grant any proxies or voting rights with
respect to the Award Shares, except to the Company. The Employee hereby grants
an irrevocable proxy to the chief executive officer and the chief financial
officer of the Company (the act of one of them being sufficient), which is
coupled with an interest as described in Minnesota Statutes § 302.449, to vote
all unvested

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Award Shares, in the sole discretion of such officer (subject to direction by
the Board of Directors of the Company) on any and all matters put to a vote of
the shareholders of the Company. Upon vesting of the Award Shares pursuant to
Section 2 above, Employee (or the person or persons then entitled to the Award
Shares or any portion thereof pursuant to Section 2(d) above) shall have full
voting rights, dividend rights and other rights as a shareholder with respect
to such Award Shares.

     6. Stock Dividends, Stock Splits and Other Adjustments. During the time
that the Award Shares are subject to the vesting restrictions set forth in
Section 2 above, if a stock dividend or stock split is declared on the
outstanding Shares of the Company, or if outstanding Shares of the Company are
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization, reclassification,
stock split, reverse stock split, combination of shares or dividends payable in
capital stock, appropriate adjustment shall be made in the number and kind of
shares as to which the Award Shares relate (the “Adjusted Shares”), to the end
that the proportionate interest of Employee, as a shareholder of the Company
with respect to the Award Shares when and if vested, shall be maintained as
before the occurrence of such event. As used herein, the term Award Shares
include any corresponding Adjusted Shares. The Company shall retain the
custody of each certificate for the Adjusted Shares pursuant to Section 4(b)
above.

     7. Withholding. Employee shall pay on a timely basis all withholding and
payroll taxes and/or excise taxes required by law with respect to the Award
Shares (collectively, “Withholding Taxes”). The delivery of any Award Shares
(or portion thereof, if any) to Employee under this Agreement shall be subject
to and conditioned upon Employee’s payment of all applicable Withholding Taxes.
Employee hereby authorizes the Company to withhold such Withholding Taxes from
his salary and/or commissions.

     8. Investment Representations. Unless a registration statement under the
Securities Act of 1933, as amended, is in effect with respect to the Award
Shares on the date of issuance of the Award Shares, Employee will be deemed to
have made the following investment representation on the date of issuance:

Employee intends to acquire the Award Shares for
Employee’s own account for investment purposes and not
with a view to resale in connection with any
distribution thereof. Employee has no present
intention, and is not a party to any agreement or
arrangement, to resell or dispose of any of the Award
Shares. Employee understands and agrees that the
Company has no obligation to register the Award Shares
and that the Award Shares will not be registered under
the Securities Act of 1933, as amended (the “Act”), or
under applicable state securities laws, on the grounds
that the Award Shares are being issued in a
transaction not involving a public offering and that,
consequently, such transaction is exempt from
registration under the Act and the state securities
laws. Employee further understands and agrees that
the Award Shares may not be sold, transferred or
otherwise disposed of except pursuant to an effective
registration statement or appropriate exemption from
registration under the foregoing securities acts.
Accordingly, Employee acknowledges that the Company is
not required to recognize any transfer of the Award
Shares if such transfer would result in violation of
any federal or state law regarding the offering or
sale of securities. The Company may place a stop
transfer order on its stock records with

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respect to the Award Shares, and the certificate(s)
for the Award Shares may contain substantially the
following legend:

“The securities evidenced by this certificate have not
been registered either under any applicable federal
law and rules or applicable state law and rules. No
sale, offer to sell, or transfer of these securities
may be made unless a registration statement under the
securities Act of 1933, as amended, and any applicable
state law with respect to such securities is then in
effect or an exemption from the registration
requirements of such law is then, in fact, applicable
to such securities.”

     9. Legend on Shares if Registered. If Employee is deemed an affiliate of
the Company, the Company may place a stop transfer order on its stock records
with respect to the Award Shares, and the certificate(s) for the Award Shares
(or a portion thereof) may contain substantially the following legend:

“The securities evidenced by this certificate were
issued to an affiliate of the issuer, and the resale
of such securities is subject to the restrictions of
Rule 144 under the Securities Act of 1933, as amended,
pertaining to shares held by affiliates.”

     10. Expenses. Nothing contained in this Agreement shall be construed to
impose any liability on the Company in favor of the Employee for any cost, loss
or expense the Employee may incur in connection with, or arising out of any
transaction under, this Agreement.

     11. No Employment Agreement. Nothing in this Agreement shall be construed
to constitute or be evidence of an agreement or understanding, express or
implied, on the part of the Company to employ the Employee on any terms or for
any specific period of time.

     12. Nontransferability. The rights of the Employee under this Agreement
shall not be assigned, transferred, pledged or otherwise hypothecated by the
Employee other than by will or the laws of descent and distribution.

     13. Fractional Shares. No fraction of a share shall be deliverable
pursuant to this Agreement, but in the event any adjustment hereunder of the
number of the Award Shares shall cause such number to include a fraction of a
share, such fraction shall be adjusted to the nearest smaller whole number of
shares.

     14. Complete Agreement, Amendment. This Agreement and the Plan, which by
this reference is hereby incorporated herein in its entirety, contain the
entire agreement between the Company and Employee with respect to the
transactions contemplated hereby. Any modification of the terms of this
Agreement must be in writing and signed by each of the parties.

     15. Governing Law. Any issue related to the formation, execution,
performance and interpretation of this Agreement shall be governed by the laws
of the State of Minnesota.

     16. Headings. The section and subsection headings used in this Agreement
are for convenient reference and are not a part of this Agreement.

	 	 	 	 	 
	XATA CORPORATION
 	 	EMPLOYEE
	By

	 	

	 	

	Title

	 	

	 	 

4

 

ASSIGNMENT SEPARATE FROM CERTIFICATE

     FOR VALUE RECEIVED,    hereby sells, assigns and
transfers unto XATA Corporation    shares, or portion thereof, of
the Common Stock of XATA Corporation, standing in his name on the books of said
Company, represented by Certificate No.    upon the forfeiture of said
shares under that certain Restricted Stock Award Agreement dated
   , and do hereby irrevocably constitute and appoint XATA
Corporation attorney to transfer the said stock on the books of the within
named Company with full power of substitution in the premises.

	 	 	 	 	 
	Dated:

	 	

	 	

SIGNATURE GUARANTEE:

 

 

Employee_______________

Date___________________

ADDENDUM

TO

RESTRICTED STOCK AWARD AGREEMENT

Dated ________________, 2004

     The terms of this Addendum are hereby made a part of the Restricted Stock
Award Agreement dated    , 2004 (“Agreement”) by and between XATA
Corporation (“XATA”) and Employee (named above). Capitalized terms not defined
below have the definitions set forth in the Agreement.

     XATA and Employee agree that if there is a Change of Control (as defined
in the Plan) and within six months following such Change of Control:

	(a)	 	Employee is terminated without Cause; or
	 
	(b)	 	Employee terminates his employment for Good Reason;

then Employee shall thereupon become immediately vested without restriction in
all of the Award Shares.

The following definitions apply for purposes of this Addendum:

Cause A termination of employment shall be for “Cause” only if the
Employee:

	(i)	 	has been convicted of a felony;
	 
	(ii)	 	has engaged in an act or acts of personal dishonesty intended
to result in substantial personal enrichment of the Employee at the
expense of XATA;
	 
	(iii)	 	has intentionally engaged in other conduct that is
demonstrably and materially injurious to XATA, monetarily or
otherwise;
	 
	(iv)	 	has committed a fraud;
	 
	(v)	 	has committed an act involving dishonesty or disloyalty with
respect to XATA or any of its subsidiaries or affiliates;
	 
	(vi)	 	has engaged in conduct tending to bring XATA or any of its
subsidiaries or affiliates into substantial public disgrace or
disrespect; or
	 
	(vii)	 	has acted or failed to act in a manner involving gross
negligence or willful misconduct with respect to XATA or any of its
subsidiaries or affiliates.

Change of Control A Change of Control has occurred if there has been:

	(i)	 	A sale, consolidation, merger, acquisition or affiliation
which results in the Employee not remaining as President and Chief
Executive Officer with

 

 

	 	 	essentially the same duties and responsibilities as prior to the
sale, consolidation, merger, acquisition or affiliation; or
	 
	(ii)	 	A sale, consolidation, merger, or acquisition in which XATA
becomes accountable to, or a part of, a newly created company or
controlling organization where at least 50% of the members of the
Board of the newly created company or controlling organization were
not members of XATA’s Board immediately prior to such sale,
consolidation, merger, or acquisition.

     Termination by Employee for Good Reason. If Employee terminates his
employment due to any of the following actions or failures by XATA, such
termination shall be deemed to be for “Good Reason:”

(i) Assignment to Employee by XATA of duties which are inconsistent with
Employee’s position, duties, responsibilities, and status with XATA, or a
change in Employee’s titles or offices, or any removal of Employee from,
or any failure to reelect or reappoint Employee to any such positions,
except in connection with the termination of his employment for
Disability (as defined in the Employment Agreement dated    , 200   
between Employee and XATA) or Cause.

(ii) Any failure to XATA to continue in effect, or to provide a
comparable substitute for, any benefit plan or arrangement (including,
without limitation, any profit sharing plan, executive supplemental
medical plan, group life insurance plan, and medical, dental, accident,
and disability plans but excluding incentive plans or arrangements) in
which Employee is participating as in effect on the date hereof (or any
other plans providing Employee with substantially similar benefits)
(hereinafter referred to as “Benefit Plans”), or by the taking of any
action by XATA that would adversely affect Employee’s participation in or
materially reduce Employee’s benefits under any such Benefit Plan or
deprive Employee of any material fringe benefit enjoyed by Employee as in
effect on the date hereof.

(iii) Any failure by XATA to continue in effect, or to provide a
comparable substitute for any incentive plan or arrangement (including,
without limitation, any incentive compensation plan, long-term incentive
plan, bonus or contingent bonus arrangements or credits, the right to
receive performance awards, or similar incentive compensation benefits)
in which Employee is participating, or is eligible to participate
(hereinafter referred to as “Incentive Plans”), or the taking of any
action by XATA which would adversely affect Employee’s participation in
any such Incentive Plan.

	 	 	 	 	 
	XATA CORPORATION
 	 	 
	By

	 	

	 	

	Titleexv10w35

 

Exhibit 10.35

LOAN AND SECURITY AGREEMENT

XATA CORPORATION

 

 

     This LOAN AND SECURITY AGREEMENT (“Agreement”) dated as of the Effective
Date, between SILICON VALLEY BANK (“Bank”), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 with a loan production office located at 301
Carlson Parkway, Suite 255, Minnetonka, Minnesota 55305 and XATA CORPORATION
(“Borrower”), whose address is 151 E. Cliff Road, Suite #10, Burnsville,
Minnesota 55337 provides the terms on which Bank will lend to Borrower and
Borrower will repay Bank. The parties agree as follows:

1 ACCOUNTING AND OTHER TERMS

     Accounting terms not defined in this Agreement will be construed following
GAAP. Calculations and determinations must be made following 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 Loan Document.

2 LOAN AND TERMS OF PAYMENT

2.1 Promise to Pay.

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

2.1.1 Revolving Advances.

(a) Bank will make Advances not exceeding the lesser of (A) the Committed
Revolving Line or (B) the Borrowing Base. Amounts borrowed under this Section
may be repaid and reborrowed during the term of this Agreement.

(b) To obtain an Advance, Borrower must notify Bank by facsimile or telephone
by 12:00 p.m. Pacific Time on the Business Day the Advance is to be made.
Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower’s deposit account. Bank may make Advances under this Agreement based
on instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have
become due. Bank may rely on any telephone notice given by a person whom Bank
believes is a Responsible Officer or designee. Borrower will indemnify Bank for
any loss Bank suffers due to such reliance.

(c) The Committed Revolving Line terminates on the Revolving Maturity Date,
when all Advances are immediately payable.

2.2 Overadvances.

     If Borrower’s Obligations under Section 2.1.1 exceed the lesser of either
(i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower must
immediately pay Bank the excess.

2.3 Interest Rate, Payments.

     (a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate equal to the Prime Rate. After an Event of
Default, Obligations accrue interest at 5 percent above the rate effective
immediately before the Event of Default. The interest rate increases or
decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.

(b) Payments. Interest due on the Committed Revolving Line is payable on the
5th of each

 

 

month. Bank may debit any of Borrower’s deposit accounts including Account
Number    for principal and interest payments owing or
any amounts Borrower owes Bank. Bank will promptly notify Borrower when it
debits Borrower’s accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific Time are considered received at the opening of
business on the next Business Day. When a payment is due on a day that is not
a Business Day, the payment is due the next Business Day and additional
interest shall accrue.

2.4 Fees.

     Borrower will pay:

(a) Unused Line Fee. A commitment fee equal to 0.25 of one percent per annum
of the average unused portion of the Committed Revolving Line. Such fee shall
be payable in quarterly installments on the 22nd day of the month following
each fiscal quarter.

(b) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
reasonable expenses) incurred through and after the date of this Agreement, are
payable when due.

(c) Early Termination Fee. A fully earned, non-refundable early termination
fee of $20,000 shall be due upon Borrower’s voluntary termination of this
Agreement.

3 CONDITIONS OF LOANS

3.1 Conditions Precedent to Initial Credit Extension.

     Bank’s obligation to make the initial Credit Extension is subject to the
condition precedent that it receives the agreements, documents and fees it
requires. In addition, Bank’s obligation to make the initial Advance under the
Committed Revolving Line is subject to Bank’s audit of Borrower’s Collateral,
at Borrower’s expense, with results satisfactory to Bank.

3.2 Conditions Precedent to all Credit Extensions.

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

(a) timely receipt of any Payment/Advance Form; and

(b) the representations and warranties in Section 5 must be materially true on
the date of the Payment/Advance Form and on the effective date of each Credit
Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower’s
representation and warranty on that date that the representations and
warranties of Section 5 remain true.

4 CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest.

     Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and
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. If this Agreement is terminated, Bank’s lien and
security interest in the Collateral will continue until Borrower fully
satisfies its Obligations. If Borrower shall at any time, acquire a commercial
tort claim, Borrower shall promptly notify Bank in a writing signed by

 

 

Borrower of the brief details thereof and grant to Bank in such writing a
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance satisfactory to
Bank.

4.2 Authorization to File.

Borrower authorizes Bank to file financing statements without notice to
Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in
order to perfect or protect Bank’s interest in the Collateral.

5 REPRESENTATIONS AND WARRANTIES

     Borrower represents and warrants as follows:

5.1 Due Organization and Authorization.

     Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state 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 has
not changed its state of formation or its organizational structure or type or
any organizational number (if any) assigned by its jurisdiction of formation.

     The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower’s formation documents, nor
constitute an event of default under any material agreement by which Borrower
is bound. Borrower is not in default under any agreement to which 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 the Collateral, free of Liens except Permitted
Liens or Borrower has Rights to each asset that is Collateral. Borrower has no
other deposit account, other than the deposit accounts described in the
Schedule. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor. The
Collateral is not in the possession of any third party bailee (such as at a
warehouse). In the event that Borrower, after the date hereof, intends to
store or otherwise deliver the Collateral to such a bailee, then Borrower will
receive the prior written consent of Bank and such bailee must acknowledge in
writing that the bailee is holding such Collateral for the benefit of Bank.
Borrower has no notice of any actual or imminent Insolvency Proceeding of any
account debtor whose accounts are an Eligible Account in any Borrowing Base
Certificate. All Inventory is in all material respects of good and marketable
quality, free from material defects. Borrower is the sole owner of the
Intellectual Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business. Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party, except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change.

5.3 Litigation.

     Except as shown in the Schedule, 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 a likely adverse decision could
reasonably be expected to cause a Material Adverse Change.

 

 

5.4 No Material Adverse Change in Financial Statements.

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

5.5 Solvency.

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

5.6 Regulatory Compliance.

     Borrower is not an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
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 legally. 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. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted, except where the failure to do so could
not reasonably be expected to cause a Material Adverse Change.

5.7 Investments in Subsidiaries.

     Borrower does not own any 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 jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
cause a material adverse effect on Borrower’s business or operations. Borrower
will comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower’s business or operations or would
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, a company prepared consolidated
balance sheet and income statement covering Borrower’s consolidated operations
during the period certified by a Responsible Officer and in a form acceptable
to Bank; (ii) as soon as available, but no later than 120 days after the last
day of Borrower’s fiscal year, audited consolidated financial statements
prepared under GAAP, consistently applied, together with an unqualified opinion
on the financial statements from an independent certified public accounting
firm reasonably acceptable to Bank; (iii) prior to each fiscal year end a copy
of Borrower’s projections for the next fiscal year; (iv) a prompt report of any
legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of $100,000 or
more; (v) budgets, sales projections, operating plans or other financial
information Bank reasonably requests; and (vi) prompt notice of any material
change in the composition of the Intellectual Property, including any
subsequent ownership right of Borrower 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 materially adversely affects
the value of the Intellectual Property.

(b) Within 30 days after the last day of each month, Borrower will deliver to
Bank a Borrowing Base Certificate signed by a Responsible Officer in the form
of Exhibit C, with aged listings of accounts receivable and accounts payable.

(c) Within 30 days after the last day of each month, Borrower will deliver to
Bank with the monthly financial statements a Compliance Certificate signed by a
Responsible Officer in the form of Exhibit D.

(d) Allow Bank to audit Borrower’s Collateral at Borrower’s expense. Such
audits will be conducted no more often than every year unless 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 of all returns,
recoveries, disputes and claims that involve more than $100,000.

6.4 Taxes.

     Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments 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 a
form, with companies, and in amounts that are satisfactory to Bank in Bank’s
reasonable discretion. All property policies will

 

 

have a lender’s loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured
and 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. Proceeds payable
under any policy will, at Bank’s option, be payable to Bank on account of the
Obligations.

6.6 Primary Accounts.

     Borrower will maintain its primary operating accounts and all excess cash
and investment balances with or through Bank.

6.7 Financial Covenants.

     Borrower will maintain as of the last day of each month:

          (i) Tangible Net Worth. A Tangible Net Worth, excluding capitalized
software development, of at least $2,000,000.

          (ii) Quick Ratio (Adjusted). A ratio of cash and cash equivalents held at
Bank plus Eligible Accounts to Current Liabilities minus Deferred Revenue of at
least 1.50 to 1.00.

6.8 Registration of Intellectual Property Rights.

     Borrower shall not register any Copyrights or Mask Works with the United
States Copyright Office unless it: (i) has provided Bank with a copy of the
application it intends to file with the United States Copyright Office
(excluding exhibits thereto); (ii) executes a security agreement or such other
documents as Bank may reasonably request in order to maintain the perfection
and priority of Bank’s security interest in the Copyrights proposed to be
registered with the United States Copyright Office; and (iii) records such
security documents with the United States Copyright Office contemporaneously
with filing the Copyright application(s) with the United States Copyright
Office. Borrower shall promptly provide to Bank a copy of the Copyright
application(s) filed with the United States Copyright Office, together with
evidence of the recording of the security documents necessary for Bank to
maintain the perfection and priority of its security interest in such
Copyrights or Mask Works. Borrower shall provide written notice to Bank of any
application filed by Borrower in the United States Patent Trademark Office for
a patent or to register a trademark or service mark within 30 days of any such
filing.

     Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property to be
abandoned, forfeited or dedicated to the public without Bank’s written consent.

6.9 Further Assurances.

     Borrower will execute any further instruments and take further action as
Bank reasonably requests to perfect or continue Bank’s security interest in the
Collateral or to effect the purposes of this Agreement.

6.10 Lockbox Account Collection Services.

     Borrower shall enter into a three party agreement (the “Lockbox Agreement”)
with Bank and a lockbox provider (the “Lockbox Provider”). The Lockbox
Agreement and Lockbox Provider shall be acceptable to Bank. Borrower shall use
the lockbox address as the payment address on all invoices issued by Borrower
and shall direct all its Account Debtors to remit their payments to the lockbox
address. The Lockbox Agreement shall provide that the Lockbox Provider shall
remit all collections received in the lockbox to Bank. Upon Bank’s receipt of
such collections, and provided

 

 

that there does not then exist an Event of Default or event that with notice,
lapse or time or otherwise would constitute an Event of Default, and subject to
Bank’s rights in the Collateral, Bank agrees to remit promptly to Borrower the
amount of the receivables collections it receives with respect to receivables
other than Purchased Receivables. It is understood and agreed by Borrower that
this Section does not impose any affirmative duty on Bank to do any act other
than to turn over such amounts. All such receivables and collections are
Collateral and in the event of Borrower’s default hereunder, Bank shall have no
duty to remit collections of Collateral and may apply such collections to the
obligations hereunder and Bank shall have the rights of a secured party under
the California Uniform Commercial Code.

7 NEGATIVE COVENANTS

     For so long as Bank has an obligation to lend or there are any outstanding
Obligations, Borrower shall not, without Bank’s prior written consent (which
shall be a matter of its good faith business judgment), do any of the
following:

7.1 Dispositions.

     Convey, sell, lease, transfer or otherwise dispose of (collectively
“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, except for Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn out or obsolete Equipment.

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

     Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or reasonably
related thereto or if, within any 90 day period, any two of the persons holding
the office of Borrower’s CEO, CFO, VP Sales, and CTO as of the Effective Date
no longer hold such office; or permit or suffer any Change in Control..
Borrower will not, without at least 30 days prior written notice, relocate its
chief executive office, change its state of formation (including
reincorporation), change its organizational number or name or add any new
offices or business locations (such as warehouses) in which Borrower maintains
or stores over $5,000 in Collateral.

7.3 Mergers or Acquisitions.

     Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and (ii) such transaction would not result in a decrease of more than
25% of Tangible Net Worth. A Subsidiary may merge or consolidate into another
Subsidiary or into Borrower.

7.4 Indebtedness.

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

7.5 Encumbrance.

     Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest
granted here, subject to Permitted Liens.

 

 

7.6 Distributions; Investments.

     Directly or indirectly acquire or own any Person, or make any Investment
in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment
or redeem, retire or purchase any capital stock.

7.7 Transactions with Affiliates.

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

7.8 Subordinated Debt.

     Make or permit any payment on any Subordinated Debt, except under the
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.

     Become an “investment company” or a company controlled by an “investment
company,” under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal
Fair Labor Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower’s business or operations or would reasonably be expected to cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.

8 EVENTS OF DEFAULT

     Any one of the following is an Event of Default:

8.1 Payment Default.

     If Borrower fails to pay any of the Obligations within 3 days after their
due date, however, during such period no Credit Extensions will be made;

8.2 Covenant Default.

(a) If Borrower fails to perform any obligation under Sections 6.2 or 6.7 or
violates any of the covenants contained in Section 7 of this Agreement, or

(b) If Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the 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, covenant or agreement that can be cured, has failed
to cure such default within ten (10) days after the occurrence thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within
a reasonable time, then Borrower shall have an additional reasonable period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to have cured such
default shall not be deemed an Event of Default (provided that no Credit
Extensions will be made during such cure period);

 

 

8.3 Material Adverse Change.

     If there (i) occurs a material adverse change in the business, operations,
or financial condition of the Borrower, or (ii) is a material impairment of the
prospect of repayment of any portion of the Obligations; or (iii) is a material
impairment of the value or priority of Bank’s security interests in the
Collateral (the foregoing being defined as a “Material Adverse Change”).

8.4 Attachment.

     If any material portion of Borrower’s assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion
of Borrower’s assets, or if a notice of lien, levy, or assessment is filed
against any of Borrower’s assets by any government agency and not paid within
10 days after Borrower receives notice. These are not Events of Default if
stayed or if a bond is posted pending contest by Borrower (but no Credit
Extensions will be made during the cure period);

8.5 Insolvency.

     If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made
before any Insolvency Proceeding is dismissed);

8.6 Other Agreements.

     If 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
$100,000 or that could cause a Material Adverse Change;

8.7 Judgments.

     If a money judgment(s) in the aggregate of at least $100,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or

8.8 Misrepresentations.

     If 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 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 continues Bank may, without notice or
demand, do any or all of the following:

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

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

 

 

(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable; notify any
Person owing Borrower money of Bank’s security interest in 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;

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

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

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

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

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

9.2 Power of Attorney.

     Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (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. 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, coupled with an interest, are irrevocable until all
Obligations have been fully repaid and performed and Bank’s obligation to
provide Credit Extensions terminates.

9.3 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 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 Bank’s waiver of any Event of Default.

 

 

9.4 Bank’s Liability for Collateral.

     If Bank complies with reasonable banking practices and Section 9-207 of
the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other person. Except as provided above, Borrower bears all risk of loss,
damage or destruction of the Collateral.

9.5 Remedies Cumulative.

     Bank’s rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank’s exercise of one right or remedy
is not an election, and Bank’s waiver of any Event of Default is not a
continuing waiver. Bank’s delay 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.

9.6 Demand Waiver.

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

10 NOTICES

     All notices 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.

11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

     Minnesota 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 Hennepin County, Minnesota.

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 participation 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: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank’s gross negligence or willful misconduct.

12.3 Time of Essence.

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

12.4 Severability of Provision.

     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 between the
parties about the subject matter of this Agreement merge into this Agreement
and the 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 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, but
disclosure of information may be made (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 loans (provided, however, Bank
shall use commercially reasonable efforts in obtaining such prospective
transferee or purchasers agreement of the terms of this provision), (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 exercising remedies under this Agreement. Confidential information
does not include information that either: (a) 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 (b) 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

13.1 Definitions.

     In this Agreement:

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

     “Advance” or “Advances” is a loan advance (or advances) under the
Committed Revolving Line.

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

     “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 or Insolvency Proceedings).

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

     “Borrowing Base” is 75% of Eligible Accounts as determined by Bank from
Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank
may lower the percentage of the Borrowing Base after performing an audit of
Borrower’s Collateral.

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

     “Change in Control” means any change, whether by a single transaction or a
series of transactions, in the Person or Persons who control sufficient voting
rights accorded to the owners of Borrower’s stock (directly or indirectly,
whether by stock ownership, contract, or otherwise) to direct the management of
Borrower; provided, however, this provision shall not be violated by any sale
of the stock (and related voting rights) of Borrower by Borrower through the
New York Stock Exchange, the American Stock Exchange, NASDAQ or other public
securities markets in which stocks of companies are regularly traded in the
United States.

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

     “Collateral” is the property described on Exhibit A.

     “Committed Revolving Line” is an Advance of up to $2,000,000.

     “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 Advance or any other extension of credit by
Bank for Borrower’s benefit.

     “Current Liabilities” are the aggregate amount of Borrower’s Total
Liabilities that mature within one (1) year.

     “Deferred Revenue” is all amounts received in advance of performance under
contract and not yet recognized as revenue.

“Effective Date” is the date Bank executes this Agreement.

     “Eligible Accounts” are Accounts in the ordinary course of Borrower’s
business that meet all Borrower’s representations and warranties in Section 5;
but Bank may change eligibility standards by giving Borrower notice. Unless
Bank agrees otherwise in writing, Eligible Accounts will not include:

(a) Accounts that the account debtor has not paid within 90 days of invoice
date;

(b) Accounts for an account debtor, 50% or more of whose Accounts have not been
paid within 90 days of invoice date;

(c) Credit balances over 90 days from invoice date;

(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that exceed
that percentage, unless the Bank approves in writing;

(e) Accounts for which the account debtor does not have its principal place of
business in the United States;

(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality, except for
Accounts of the United States if the payee has assigned its payment rights to
Bank and the assignment has been acknowledged under the Assignment of Claims
Act of 1940 (31 U.S.C. 3727.

(g) Accounts for which Borrower owes the account debtor, but only up to the
amount owed (sometimes called “contra” accounts, accounts payable, customer
deposits or credit accounts);

(h) Accounts for demonstration or promotional equipment, or in which goods are
consigned, sales guaranteed, sale or return, sale on approval, bill and hold,
or other terms if account debtor’s payment may be conditional;

 

 

(i) Accounts for which the account debtor is Borrower’s Affiliate, officer,
employee, or agent;

(j) Accounts in which the account debtor disputes liability or makes any claim
and Bank believes there may be a basis for dispute (but only up to the disputed
or claimed amount), or if the Account Debtor is subject to an Insolvency
Proceeding, or becomes insolvent, or goes out of business;

(k) Accounts for which Bank reasonably determines collection to be doubtful.

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

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

     “GAAP” is generally accepted accounting principles.

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

     “Insolvency Proceeding” 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.

     “Intellectual Property” is all of Borrower’s:

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

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

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

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

All proceeds and products of the foregoing, including all insurance, indemnity
or 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 of (including stock, partnership
interest or other securities) 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 or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.

     “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 defined in Section 8.3.

     “Obligations” are debts, principal, interest, Bank Expenses and other
amounts Borrower owes 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.

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

     “Permitted Indebtedness” is:

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

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

(c) Subordinated Debt;

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

(e) Indebtedness secured by Permitted Liens.

     “Permitted Investments” are:

(a) Investments shown on the Schedule and existing on the Effective Date; and

(b) (i) marketable direct obligations issued or unconditionally guaranteed by
the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poor’s
Corporation or Moody’s Investors Service, Inc., and (iii) Bank’s certificates
of deposit issued maturing no more than 1 year after issue.

     “Permitted Liens” are:

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

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

(c) Purchase money Liens (i) on Equipment acquired or held by Borrower or its
Subsidiaries incurred for financing the acquisition of the Equipment, or (ii)
existing on equipment when acquired, if the Lien is confined to the property
and improvements and the proceeds of the equipment;

 

 

(d) Licenses or sublicenses granted in the ordinary course of Borrower’s
business and any interest or title of a licensor or under any license or
sublicense, if the licenses and sublicenses permit granting Bank a security
interest;

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

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

     “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 Bank’s lowest rate.

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

     “Revolving Maturity Date” is December 5, 2005.

“Rights”, as applied to the Collateral, means the Borrower’s rights and
interests in, and powers with respect to, that Collateral, whatever the nature
of those rights, interests and powers and, in any event, including Borrower’s
power to transfer rights in such Collateral to Bank.

     “Schedule” is any attached schedule of exceptions.

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

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

     “Tangible Net Worth” is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities.

     “Total Liabilities” is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower’s consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.

     “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 Assignor connected with the trademarks.

 

 

BORROWER:

XATA CORPORATION

By:

Title:

BANK:

SILICON VALLEY BANK

By:

Title:

Effective Date:

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