Document:

Exhibit 10.17

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of May 15, 2009 (the “Effective Date”) between SILICON VALLEY BANK, a California corporation (“Bank”), and ZAG.COM INC., a Delaware corporation (“Borrower”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank.  The parties agree as follows:

 

1                                         ACCOUNTING AND OTHER TERMS

 

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

 

2                                         LOAN AND TERMS OF PAYMENT

 

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

 

2.1.1                     Revolving Advances.

 

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

 

(b)                                 Termination; Repayment.  The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

 

2.2                               Intentionally Omitted.

 

2.3                               Payment of Interest on the Credit Extensions.

 

(a)                                 Interest Rate for Advances.  Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to one percentage point (1.00%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below.

 

(b)                                 Default Rate.  Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.00%) above the rate that is otherwise applicable thereto (the “Default Rate”) unless Bank otherwise elects from time to time in its sole discretion to impose a smaller increase.  Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations.  Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

 

(c)                                  Adjustment to Interest Rate.  Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.

 

(d)                                 Computation; 360-Day Year.  In computing interest, the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit

 

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Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.  Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed.

 

(e)                                  Debit of Accounts.  Bank may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due.  These debits shall not constitute a set-off.

 

(f)                                   Interest Payment Date.  Unless otherwise provided, interest is payable monthly on the first (1st) calendar day of each month.

 

2.4                               Fees.  Borrower shall pay to Bank:

 

(a)                                 Commitment Fee.  A fully earned, non-refundable commitment fee of Fifteen Thousand Dollars ($15,000) on the Effective Date; and

 

(b)                                 Bank Expenses.  All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due.  Borrower has already paid to Bank a good faith deposit of Ten Thousand Dollars ($10,000), which shall be applied to Bank Expenses.

 

2.5                               Payments; Application of Payments.

 

(a)                                 All payments (including prepayments) to be made by Borrower under any Loan Document shall be made in immediately available funds in U.S. Dollars, without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when due.  Payments of principal and/or interest received after 12:00 p.m. Pacific time are considered received at the opening of business on the next Business Day.  When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.

 

(b)                                 Bank shall apply the whole or any part of collected funds against the Revolving Line or credit such collected funds to a depository account of Borrower with Bank (or an account maintained by an Affiliate of Bank) as specified by Borrower; provided that, upon the occurrence and during the continuance of an Event of Default, Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.

 

3                                         CONDITIONS OF LOANS

 

3.1                               Conditions Precedent to Initial Advance.  Bank’s obligation to make the initial Advance is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

 

(a)                                 duly executed original signatures to the Loan Documents;

 

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

 

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

 

(d)                                 certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Advance, will be terminated or released;

 

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(e)                                  the Perfection Certificate of Borrower, together with the duly executed original signature thereto;

 

(f)                                   executed copies of all documents entered into by Borrower in connection with the Permitted Loans;

 

(g)                                  evidence satisfactory to Bank that the insurance policies required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing additional insured clauses or endorsements in favor of Bank; and

 

(h)                                 payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.

 

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

 

(a)                                 timely receipt of an executed Payment/Advance Form;

 

(b)                                 the Pledged Account shall have a balance of unrestricted cash equal to or greater than the Minimum Collateral Value; and

 

(c)                                  the representations and warranties in this Agreement shall be true, accurate, and to the best of Borrower’s knowledge, complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and to the best of Borrower’s knowledge, complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension.  Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and to the best of Borrower’s knowledge, complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and to the best of Borrower’s knowledge, complete in all material respects as of such date.

 

3.3                               Covenant to Deliver.  Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension.  Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion.

 

3.4                               Procedures for Borrowing.

 

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

 

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4                                         CREATION OF SECURITY INTEREST

 

4.1                               Grant of Security Interest.  Borrower hereby assigns, pledges, delivers, and transfers to Bank, and hereby grants to Bank, a continuing first priority security interest in and against all right, title and interest of the following, whether now or hereafter existing or acquired by Borrower:

 

(i)                                     the Pledged Account and general intangibles arising therefrom or relating thereto; and all documents, instruments and agreements evidencing the same; and all extensions, renewals, modifications and replacements of the foregoing; and any interest or other amounts payable in connection therewith;

 

(ii)                                  all proceeds of the foregoing (including whatever is receivable or received when the Pledged Account or proceeds is invested, sold, collected, exchanged, returned, substituted or otherwise disposed of, whether such disposition is voluntary or involuntary, including rights to payment and return premiums and insurance proceeds under insurance with respect to the Pledged Account,

 

(iii)                               all rights to payment with respect to any cause of action affecting or relating to the Pledged Account); and

 

(iv)                              and all renewals, replacements and substitutions of items of the Pledged Account.

 

The parties to this Agreement do not intend that Borrower’s delivery of the Pledged Account to Bank as herein provided will constitute an advance payment of any Obligations or liquidated damages, nor do the parties intend that the Pledged Account increase the dollar amount of the Obligations.

 

4.2                               Priority of Security Interest.  Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral.

 

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

 

4.3                               Authorization to File Financing Statements.  Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder.

 

5                                         REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1                               Due Organization, Authorization; Power and Authority.  Borrower is duly existing and in good standing as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business.  In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled “Perfection Certificate”.  Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its

 

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chief executive office); (e) except as set forth on the Perfection Certificate, Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement).  If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.

 

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect, or (v) constitute an event of default under any material agreement by which Borrower is bound.  Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

 

5.2                               Collateral.  Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens.  Borrower has no deposit accounts other than the deposit accounts with Bank, and the deposit accounts, if any, described in the Perfection Certificate delivered to Bank in connection herewith.

 

5.3                               Intentionally Omitted.

 

5.4                               Litigation.  Except as disclosed in the Perfection Certificate or as Borrower has given Bank notice pursuant to Section 6.2(g), there are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries that could reasonably be expected to involve an amount more than, individually or in the aggregate, One Hundred Thousand Dollars ($100,000).

 

5.5                               Financial Statements; Financial Condition.  All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations as of the dates and periods presented.  There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

 

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

 

5.7                               Regulatory Compliance.  Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended.  Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors).  Borrower has complied in all material respects with the Federal Fair Labor Standards Act.  Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005.  To the best of Borrower’s knowledge, Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business.  None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted.

 

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5.8                               Tax Returns and Payments; Pension Contributions.  Borrower has timely filed all required material tax returns and reports, and Borrower has timely paid all material foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower; provided that, Borrower may defer payment of any contested taxes, so long as Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, and (b) with respect to contested amounts in excess of One Hundred Thousand Dollars ($100,000), (i) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (ii) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”.  Except as disclosed in writing to Bank, Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower.  Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

5.9                               Use of Proceeds.  Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements (including for Permitted Loans) and not for personal, family, household or agricultural purposes.

 

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

 

5.11                        Definition of “Knowledge.”  For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness, qualification, knowledge or awareness means the actual knowledge of the Responsible Officers, and when made to the “best of Borrower’s knowledge, means such knowledge or awareness after reasonable investigation, of the Responsible Officers.

 

6                                         AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1                               Government Compliance.

 

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

 

(b)                                 Obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of its property.  Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank.

 

6.2                               Financial Statements, Reports, Certificates, Deliver to Bank:

 

(a)                                 Monthly Financial Statements.  As soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Bank (the “Monthly Financial Statements”);

 

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(b)                                 Monthly Compliance Certificate.  Within thirty (30) days after the last day of each month and together with the Monthly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower was in full compliance with all of the terms and conditions of this Agreement;

 

(c)                                  Annual Audited Financial Statements.  As soon as available, but no later than one hundred eighty (180) days after the last day of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Bank in its reasonable discretion;

 

(d)                                 Board Approved Financial Projections.  As soon as available, but no later than thirty (30) days prior to the last day of Borrower’s fiscal year, board of director approved financial projections and any interim revisions thereto within fifteen (15) days of approval by Borrower’s board of directors;

 

(e)                                  Other Statements.  Within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt;

 

(f)                                   SEC Filings.  In the event that Borrower becomes subject to the reporting requirements under the Exchange Act within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be.  Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrower’s website on the Internet at Borrower’s website address;

 

(g)                                  Legal Action Notice.  A prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, One Hundred Thousand Dollars ($100,000) or more; and

 

(h)                                 Other Financial Information.  Budgets, sales projections, operating plans and other financial information reasonably requested by Bank.

 

6.3                               Intentionally Omitted.

 

6.4                               Taxes; Pensions.  Timely file, and require each of its Subsidiaries to timely file, all required material tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all material foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

 

6.5                               Insurance.  Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request.  Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Bank.  All liability policies shall show, or have endorsements showing, Bank as an additional insured.  All policies (or the loss payable and additional insured endorsements) shall provide that the insurer shall give Bank at least twenty (20) days notice before canceling, amending, or declining to renew its policy.  At Bank’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments.  If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and lake any action under the policies Bank deems prudent.

 

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6.6                               Operating Accounts.

 

(a)                                 No later than thirty (30) days after the Effective Date and at all times thereafter, maintain its primary and its Subsidiaries’ primary operating and other deposit accounts and securities accounts with Bank and Bank’s Affiliates, which accounts shall represent at least eighty five percent (85%) of the dollar value of Borrower’s and such Subsidiaries accounts at all financial institutions.

 

(b)                                 Maintain at least Four Million Five Hundred Thousand Dollars ($4,500,000) in non-interest bearing deposit accounts at Bank at all times, up to One Million Five Hundred Thousand Dollars ($1,500,000) of which may be maintained in the Pledged Account.

 

6.7                               Value of Pledged Account.  At all times, maintain an amount of cash in the Pledged Account in an amount equal to or greater than the Minimum Collateral Value.

 

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

 

6.9                               Further Assurances.  Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.  Deliver to Bank, within five (5) days after the same are sent or received, copies of all correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material adverse effect on any of the Governmental Approvals or otherwise on the operations of Borrower or any of its Subsidiaries.

 

7                                         NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Bank’s prior written consent:

 

7.1                               Dispositions.  Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of the Collateral.

 

7.2                               Changes in Business, Management, Control, or Business Locations.  (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) Borrower’s CEO ceases to hold such office with Borrower and a replacement satisfactory to Borrower’s Board of Directors is not made within thirty (30) days after his departure from Borrower; or (ii) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than forty percent (40%) of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to investors so long as Borrower identifies to Bank the investors prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction).  Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) change its jurisdiction of organization, (2) change its corporate organizational structure or type, (3) change its legal name, or (4) change any organizational number (if any) assigned by its jurisdiction of organization.

 

7.3                               Mergers or Acquisitions.  Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person; provided that, 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.

 

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

 

7.6                               Subordinated Debt.  (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to Bank.

 

7.7                               Compliance.  Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

8                                         EVENTS OF DEFAULT

 

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

 

8.1                               Payment Default.  Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Revolving Line Maturity Date).  During the cure period, the failure to make or pay any payment specified under clause (a) or (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);

 

8.2                               Covenant Default.

 

(a)                                 Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6 or 6.7 or violates any covenant in Section 7; or

 

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

 

8.3                               Intentionally Omitted;

 

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8.4                               Attachment; Levy; Restraint on Business.

 

(a)                                 (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary) on deposit or otherwise maintained with Bank or any Bank Affiliate, or (ii) a notice of lien or levy is filed against any of Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or

 

(b)                                 (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting any material part of its business; and, if there are then no Obligations outstanding, the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof removed or stayed; provided, however, no Credit Extensions are outstanding during any ten (10) day cure period;

 

8.5                               Insolvency (a) Borrower is unable to pay its debts (including trade debts) as they become due or Borrower fails to be solvent as described under Section 5.6 hereof; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

 

8.6                               Other Agreements.  There is, under any agreement to which Borrower or any Guarantor is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of One Hundred Thousand Dollars ($100,000); or (b) any default by Borrower, the result of which could have a material adverse effect on Borrower’s business;

 

8.7                               Judgments.  One or more final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower and the same are not, within ten (10) days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the discharge, stay, or bonding of such judgment, order, or decree);

 

8.8                               Misrepresentations.  Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made; and

 

8.9                               Subordinated Debt.  Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person (other than Bank) shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement.

 

9                                         BANK’S RIGHTS AND REMEDIES

 

9.1                               Rights and Remedies.  While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

 

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

 

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(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 such funds, and verify the amount of such account;

 

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

 

(e)                                  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;

 

(f)                                   ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral.  Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, 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;

 

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

 

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

 

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

 

9.2                               Power of Attorney.  Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (b) transfer the Collateral into the name of Bank or a third party as the Code permits.  Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder.  Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.

 

9.3                               Protective Payments.  If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral.  Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter.  No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

 

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

 

9.5                               Bank’s Liability for Collateral.  So long as Bank complies with reasonable banking practices and the Code regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person.  Borrower bears all risk of loss, damage or destruction of the Collateral.

 

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

 

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

 

10                                  NOTICES

 

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below.  Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.

 

If to Borrower prior to June 30, 2009:

 

	
 
    	
ZAG.COM   INC.
    
	
 
    	
525   Broadway, 3rd Floor
    
	
 
    	
Santa   Monica, CA 90401
    
	
 
    	
Attn:   Chief Financial Officer
    
	
 
    	
Fax:   800.584.5004
    
	
 
    	
Email:   JNguyen@zag.com
    

 

If to Borrower beginning on July 1, 2009:

 

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ZAG.COM   INC.
    
	
 
    	
1546   7th Street
    
	
 
    	
Santa   Monica, CA 90401
    
	
 
    	
Attn:   Chief Financial Officer
    
	
 
    	
Fax:   800.584.5004
    
	
 
    	
Email:   JNguyen@zag.com
    

 

	
If   to Bank:
    	
Silicon   Valley Bank
    
	
 
    	
Canoga   Avenue, Suite 210
    
	
 
    	
Woodland   Hills, CA 91367
    
	
 
    	
Attn:   Tim Barnes
    
	
 
    	
Fax:   (818) 340-0397
    
	
 
    	
Email:   TBarnes@SVBank.com
    

 

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

 

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

 

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

 

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

 

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enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge.  The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a).  Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies.  The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

 

12                                  GENERAL PROVISIONS

 

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

 

12.2                        Indemnification.  Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “Indemnified Person”) harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrower (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’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 Provisions.  Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

 

12.5                        Correction of Loan Documents.  Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties so long as Bank provides Borrower with written notice of such correction and allows Borrower at least ten (10) days to object to such correction.  In the event of such objection, such correction shall not be made except by an amendment signed by both Bank and Borrower.

 

12.6                        Amendments in Writing; Waiver; Integration.  No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought.  Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document.  Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver.  The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

 

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

 

12.8                        Survival.  All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have 

 

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been paid in full and satisfied.  The obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

 

12.9                        Confidentiality.  In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates (provided that such Subsidiaries and Affiliates are bound by the same confidentiality obligation herein); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use its best efforts to obtain any prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein.  Confidential information does not include information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank’s; or (ii) disclosed to Bank by a third party if Bank does not know that the third party is prohibited from disclosing the information.

 

Bank may use confidential information for the development of databases, reporting purposes, and market analysis so long as such confidential information is aggregated and anonymized prior to distribution unless otherwise expressly permitted by Borrower.  The provisions of the immediately preceding sentence shall survive the termination of this Agreement.

 

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

 

12.11                 Electronic Execution of Documents.  The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

 

12.12                 Captions.  The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

 

12.13                 Construction of Agreement.  The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement.  In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

 

12.14                 Relationship.  The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement.  The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

 

12.15                 Third Parties.  Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

 

13                                  DEFINITIONS

 

13.1                        Definitions.  As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative.  As used in this Agreement, the following capitalized terms have the following meanings:

 

15

 

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

 

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

 

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

 

“Agreement” is defined in the preamble hereof.

 

“Availability Amount” is the Revolving Line minus the outstanding principal balance of any Advances.

 

“Bank” is defined in the preamble hereof.

 

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.

 

“Borrower” is defined in the preamble hereof.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

16

 

the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

 

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

 

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

 

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

 

“Designated Deposit Account” is Borrower’s deposit account, account number 3300661754, maintained with Bank.

 

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “s” sign to denote its currency or may be readily converted into lawful money of the United States.

 

“Effective Date” is defined in the preamble hereof.

 

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

 

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

 

“Event of Default” is defined in Section 8.

 

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

 

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

 

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

 

“Governmental Approval” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

 

“Governmental Authority” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

 

“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.

 

“Indemnified Person” is defined in Section 12.2.

 

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

 

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

 

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

 

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.

 

“Minimum Collateral Value” means an aggregate principal amount equal to all Obligations owing from Borrower to Bank.

 

“Monthly Financial Statements” is defined in Section 6.2(a).

 

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

 

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

 

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

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

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

 

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

 

(c)                                  Subordinated Debt;

 

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

 

(e)                                  Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

 

(f)                                   Indebtedness with respect to surety bonds and similar obligations incurred in the ordinary course of business;

 

18

 

(g)                                  Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder;

 

(h)                                 extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (g) 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

 

(i)                                     other Indebtedness not otherwise permitted by Section 7.4 not exceeding One Hundred Thousand Dollars ($100,000) in the aggregate outstanding at any time;

 

“Permitted Liens” are:

 

(a)                                 Liens existing on the Effective Date and shown on the Perfection Certificate (other than Liens in favor of Key Equipment Finance, Inc.) or arising under this Agreement and the other Loan Documents;

 

(b)                                 Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

 

(c)                                  purchase money Liens (i) on Equipment (other than Financed Equipment) acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than One Million Dollars ($1,000,000) in the aggregate amount outstanding, or (ii) existing on Equipment (other than Financed Equipment) when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment; provided however that any such Liens in favor of Key Equipment Finance, Inc. shall not secure Indebtedness in excess of Twenty Six Thousand Dollars ($26,000);

 

(d)                                 Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;

 

(e)                                  Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

 

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

 

(g)                                  leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;

 

(h)                                 exclusive and/or non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business;

 

(i)                                     Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7; and

 

19

 

(j)                                    Liens in favor of other financial institutions arising in connection with Borrower’s or any Subsidiary’s deposit and/or securities accounts held at such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit and/or securities accounts.

 

“Permitted Loans” are (a) loans from Borrower to Scott Painter, Borrower’s Chief Executive Officer, in an aggregate principal amount not to exceed Two Million Three Hundred Thirty Four Thousand Forty One Dollars and Thirty Four Cents ($2,334,041.34); and (b) a loan from Borrower to TrueCar, Inc. in a principal amount not to exceed One Million Five Hundred Thousand Dollars ($1,500,000).

 

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

 

“Pledged Account” shall mean Borrower’s restricted non-interest bearing deposit account number 3300673516 held at Bank.

 

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

 

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

 

“Requirement of Law” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

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

 

“Revolving Line” is an Advance or Advances in an amount equal to Fifteen Million Dollars ($15,000,000).

 

“Revolving Line Maturity Date” is May     , 2010.

 

“SEC” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.

 

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.

 

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.  Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.  Notwithstanding the foregoing, a Person shall not be deemed to be a Subsidiary of another Person solely because both such Persons share a common management team

 

“Transfer” is defined in Section 7.1.

 

[Signature page follows.]

 

20

 

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

 

	
BORROWER:
    	
 
    
	
 
    	
 
    
	
ZAG.COM   INC.
    	
 
    
	
 
    	
 
    	
 
    
	
By
    	
/s/   James Nguyen
    	
 
    
	
Name:
    	
James   Nguyen
    	
 
    
	
Title:
    	
CFO
    	
 
    
	
 
    	
 
    	
 
    
	
BANK:
    	
 
    
	
 
    	
 
    
	
SILICON VALLEY BANK
    	
 
    
	
 
    	
 
    	
 
    
	
By
    	
/s/   Jack Garza
    	
 
    
	
Name:
    	
Jack   Garza
    	
 
    
	
Title:
    	
Relationship   Manager
    	
 
    

 

1

 

EXHIBIT A — COLLATERAL DESCRIPTION

 

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

 

(i)                                     Account number 3300673516 held at Silicon Valley Bank in the name of Borrower (the “Pledged Account”) and general intangibles arising therefrom or relating thereto; and all documents, instruments and agreements evidencing the same; and all extensions, renewals, modifications and replacements of the foregoing; and any interest or other amounts payable in connection therewith;

 

(ii)                                  all proceeds of the foregoing (including whatever is receivable or received when the Pledged Account or proceeds is invested, sold, collected, exchanged, returned, substituted or otherwise disposed of, whether such disposition is voluntary or involuntary, including rights to payment and return premiums and insurance proceeds under insurance with respect to the Pledged Account,

 

(iii)                               all rights to payment with respect to any cause of action affecting or relating to the Pledged Account); and

 

(iv)                              and all renewals, replacements and substitutions of items of the Pledged Account.

 

2

 

EXHIBIT B — LOAN PAYMENT/ADVANCE REQUEST FORM

 

DEADLINE FOR SAME DAY PROCESSING IS NOON PACIFIC TIME*

 

	
Fax   To:
    	
Date:
    	
 
    	
 
    

 

LOAN PAYMENT:

 

ZAG.COM INC.

 

	
From   Account #
    	
 
    	
 
    	
To   Account #
    	
 
    	
 
    
	
 
    	
(Deposit   Account #)
    	
 
    	
 
    	
(Loan   Account #)
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Principal   $
    	
 
    	
 
    	
and/or   Interest $
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Authorized   Signature:
    	
 
    	
 
    	
 
    	
Phone   Number:
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Print   Name/Title:
    	
 
    	
 
    	
 
    	
 
    	
 
    
													

 

LOAN ADVANCE:

 

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

 

	
From   Account #
    	
Line of Credit
    	
 
    	
To   Account #
    	
3300673516
    	
 
    
	
 
    	
(Loan Account #)
    	
 
    	
 
    	
(Deposit   Account #)
    
							

 

	
Amount   of Advance
    	
$1,500,000
    	
 
    	
 
    	
 
    

 

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

 

	
Authorized   Signature:
    	
/s/   James Nguyen
    	
 
    	
 
    	
Phone   Number:
    	
800.584.5000   x267
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Print   Name/Title:
    	
James   Nguyen, CFO
    	
 
    	
 
    	
 
    	
 
    
									

 

OUTGOING WIRE REQUEST:

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

Deadline for same day processing is noon, Pacific Time

 

	
Beneficiary   Name:
    	
 
    	
 
    	
 
    	
Amount   of Wire: $
    	
 
    	
 
    
	
Beneficiary   Bank:
    	
 
    	
 
    	
 
    	
Account   Number:
    	
 
    	
 
    
	
City   and State:
    	
 
    	
 
    	
 
    	
 
    	
 
    
									

 

	
Beneficiary   Bank Transit (ABA) #:
    	
 
    	
 
    	
Beneficiary   Bank Code (Swift, Sort, Chip, etc.):
    	
 
    	
 
    
	
 
    	
 
    	
(For International Wire Only)
    	
 
    

 

	
Intermediary   Bank:
    	
 
    	
 
    	
Transit   (ABA) #:
    	
 
    	
 
    
	
For   Further Credit to:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Special   Instruction:
    	
 
    	
 
    

 

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

 

	
Authorized   Signature:
    	
 
    	
 
    	
2nd Signature (if required):
    	
 
    	
 
    
	
Print   Name/Title:
    	
 
    	
 
    	
Print   Name/Title:
    	
 
    	
 
    
	
Telephone
    	
 
    	
 
    	
Telephone   #:
    	
 
    	
 
    
										

 

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

 

1

 

EXHIBIT C

 

BORROWING RESOLUTIONS

 

 

CORPORATE BORROWING CERTIFICATE

 

	
BORROWER:
    	
 
    	
ZAG.COM   INC.
    	
 
    	
DATE: May 15, 2009
    
	
BANK:
    	
 
    	
Silicon   Valley Bank
    	
 
    	
 
    

 

I hereby certify as follows, as of the date set forth above:

 

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

 

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

 

	
Delaware
    	
 
    	
 
    
	
[print name of state]
    	
 
    	
 
    

 

3.     Attached hereto are true, correct and complete copies of Borrower’s Articles/Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth in paragraph 2 above.  Such Articles/Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

 

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

 

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

 

	
Name
    	
 
    	
Title
    	
 
    	
Signature
    	
 
    	
Authorized to
   Add or
   Remove
   Signatories
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Scott Painter
    	
 
    	
CEO
    	
 
    	
/s/ Scott Painter
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Chris Porch
    	
 
    	
President/COO
    	
 
    	
/s/ Chris Porch
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
James Nguyen
    	
 
    	
CFO
    	
 
    	
/s/ James Nguyen
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Moujan Kazerani
    	
 
    	
General Counsel
    	
 
    	
/s/ Moujan Kazerani
    	
 
    	
x
    

 

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

 

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

 

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

Execute Loan Documents.  Execute any loan documents Bank requires.

Grant Security.  Grant Bank a security interest in any pledged accounts and any proceeds, rights to payment or substitutions thereof.

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

 

1

 

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

 

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

 

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

 

	
 
    	
ZAG.COM   INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   James Nguyen
    
	
 
    	
Name:
    	
James   Nguyen
    
	
 
    	
Title:
    	
CFO
    

 

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

 

I, the Moujan Kazerani of Borrower, hereby certify as to paragraphs 1 through 5 above, as

[print title]

of the date set forth above.

 

	
 
    	
By:
    	
/s/   Moujan Kazerani
    
	
 
    	
Name:
    	
Moujan   Kazerani
    
	
 
    	
Title:
    	
General   Counsel
    

 

2

 

EXHIBIT D

 

COMPLIANCE CERTIFICATE

 

	
TO:
    	
SILICON   VALLEY BANK
    	
Date:
    	
 
    
	
FROM:
    	
ZAG.COM   INC.
    	
 
    

 

The undersigned authorized officer of ZAG.COM INC. (“Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”):

 

(1) Borrower is in complete compliance for the period ending                               with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and to the best of Borrower’s knowledge, complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required material tax returns and reports, and Borrower has timely paid all material foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.

 

Attached are the required documents supporting the certification.  The undersigned certifies that the attached financial statements arc prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes and except, with respect to unaudited financial statements, for the absence of footnotes and subject to year-end audit adjustments.  The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

 

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

 

	
Reporting   Covenant
    	
 
    	
Required
    	
 
    	
Complies
    
	
Monthly   financial statements with Compliance Certificate
    	
 
    	
Monthly   within 30 days
    	
 
    	
Yes  No
    
	
Annual   financial statement (CPA Audited) + CC
    	
 
    	
FYE   within 180 days
    	
 
    	
Yes  No
    
	
10-Q,   10-K and 8-K
    	
 
    	
Within   5 days after filing with SEC
    	
 
    	
Yes  No
    
	
Annual   Projections
    	
 
    	
30   days prior to FYE and interim revisions within 15 days of board approval
    	
 
    	
Yes  No
    
	
Accounts   at Bank or Bank’s Affiliates
    	
 
    	
85%   of all Accounts
    	
 
    	
Yes  No
    

 

The following accounts are maintained outside of Bank/Bank’s Affiliates (please list account numbers and account balances):

 

 

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

 

1

 

	
 
    	
ZAG.COM   INC.
    	
BANK   USE ONLY
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Received   by:
    	
 
    
	
 
    	
By:
    	
 
    	
 
    	
AUTHORIZED   SIGNER
    
	
 
    	
Name:
    	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
Title:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Verified:
    	
 
    
	
 
    	
 
    	
AUTHORIZED   SIGNER
    
	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Compliance   Status:        Yes   No
    
									

 

2

 

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of November 12, 2010 (the “Effective Date”) between SILICON VALLEY BANK, a California corporation (“Bank”), and ZAG.COM INC., a Delaware corporation and TRUECAR, INC., a Delaware corporation (each a “Borrower” and collectively “Borrowers”), amends and restates the terms of that certain Loan and Security Agreement by and between Bank and Borrowers dated as of May 15, 2009, as amended from time to time (the “Existing Loan Agreement”, the Existing Loan Agreement and all other “Loan Documents (as such term is defined in the Existing Loan Agreement) are hereinafter collectively referred to as “Existing Loan Documents”), and provides the terms on which Bank shall lend to Borrowers and Borrowers shall repay Bank. The parties agree as follows:

 

1                                         ACCOUNTING AND OTHER TERMS

 

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

 

2                                         LOAN AND TERMS OF PAYMENT

 

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

 

2.1.1                     Formula Advances.

 

(a)                                 Availability. Subject to the terms and conditions of this Agreement, Bank shall make Formula Advances not exceeding the Availability Amount. Amounts borrowed hereunder may be repaid and, prior to the Revolving Formula Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent here in.

 

(b)                                 Termination; Repayment. The Revolving Formula Line terminates on the Revolving Formula Line Maturity Date, when the principal amount of all Formula Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Formula Line shall be immediately due and payable.

 

2.1.2                     Letters of Credit Sublimit.

 

(a)                                 As part of the Revolving Formula Line, Bank shall issue or have issued Letters of Credit denominated in Dollars or a Foreign Currency for a Borrower’s account. The aggregate Dollar Equivalent amount utilized for the issuance of Letters of Credit shall at all times reduce the amount otherwise available for Formula Advances under the Revolving Formula Line. The aggregate Dollar Equivalent of the face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed the lesser of (A) Two Million Dollars ($2,000,000), minus (i) the sum of all amounts used for Cash Management Services, and minus (ii) the FX Reduction Amount, or (B) the lesser of Revolving Formula Line or the Borrowing Base, minus (i) the’ sum of all outstanding principal amounts of any Formula Advances (including any amounts used for Cash Management Services), and minus (ii) the FX Reduction Amount.

 

(b)                                 If, on the Revolving Formula Line Maturity Date (or the effective date of any termination of this Agreement), there are any outstanding Letters of Credit, then on such date Borrowers shall provide to Bank cash collateral in an amount equal to one hundred ten percent (110%) of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the 

 

1

 

terms and conditions of Bank’s standard Application and Letter of Credit Agreement (the “Letter of Credit Application”). Borrowers agree to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request. Borrowers further agree to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Bank and opened for a Borrower’s account or by Bank’s interpretations of any Letter of Credit issued by Bank for a Borrower’s account, and each Borrower understands and agrees that Bank shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following a Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto, except as may result from Bank’s gross negligence or willful misconduct.

 

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

 

(d)                                 Borrowers may request that Bank issue a Letter of Credit payable in a Foreign Currency. If a demand for payment is made under any such Letter of Credit, Bank shall treat such demand as a Formula Advance to Borrowers of the Dollar Equivalent of the amount thereof (plus fees and charges in connection therewith such as wire, cable, SWIFT or similar charges).

 

(e)                                  To guard against fluctuations in currency exchange rates, upon the issuance of any Letter of Credit payable in a Foreign Currency, Bank shall create a reserve (the “Letter of Credit Reserve”) under the Revolving Formula Line in an amount equal to ten percent (10%) of the face amount of such Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from time to time to account for fluctuations in the exchange rate. The availability of funds under the Revolving Formula Line shall be reduced by the amount of such Letter of Credit Reserve for as long as such Letter of Credit remains outstanding.

 

2.1.3                     Foreign Exchange Sublimit. As part of the Revolving Formula Line, Borrowers may enter into foreign exchange contracts with Bank under which a Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency (each, a “FX Forward Contract”) on a specified date (the “Settlement Date”). FX Forward Contracts shall have a Settlement Date of at least one (1) FX Business Day after the contract date and shall be subject to a reserve of ten percent (10%) of each outstanding FX Forward Contract (the “FX Reserve”). The aggregate amount of FX Forward Contracts at any one time may not exceed ten (10) times the lesser of (A) Two Million Dollars ($2,000,000), minus (i) the sum of all amounts used for Cash Management Services, and minus (ii) the Dollar Equivalent of the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), or (B) the lesser of Revolving Formula Line or the Borrowing Base, minus (i) the sum of all outstanding principal amounts of any Formula Advances (including any amounts used for Cash Management Services), and minus (ii) the Dollar Equivalent of the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve). The amount otherwise available for Credit Extensions under the Revolving Formula Line shall be reduced by an amount equal to ten percent (10%) of each outstanding FX Forward Contract (the “FX Reduction Amount”). Any amounts needed to fully reimburse Bank for any amounts not paid by Borrowers in connection with FX Forward Contracts will be treated as Formula Advances under the Revolving Formula Line and will accrue interest at the interest rate applicable to Formula Advances.

 

2.1.4                     Cash Management Services Sublimit. Borrowers may use the Revolving Formula Line for Bank’s cash management services, which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in Bank’s various cash management services agreements (collectively, the “Cash Management Services”), in an aggregate amount not to exceed the lesser of (A) Two Million Dollars ($2,000,000), minus (i) the Dollar Equivalent of the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), and minus (ii) the FX Reduction Amount, or (B) the lesser of Revolving Formula Line or the Borrowing Base, minus (i) the sum of all outstanding principal amounts of any Formula Advances, minus (ii) the Dollar Equivalent of the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), and minus (iii) the FX Reduction Amount. Any amounts Bank pays on behalf of a Borrower for any Cash Management Services will be treated as Formula Advances under the Revolving Formula Line and will accrue interest at the interest rate applicable to Formula Advances.

 

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2.1.5                     Non-Formula Advances.

 

(a)                                 Availability. Subject to the terms and conditions of this Agreement, Bank shall make Non-Formula Advances not exceeding the Revolving Non-Formula Line. Non-Formula Advances may be repaid and, prior to the Revolving Non-Formula Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

 

(b)                                 Termination; Repayment.  The Revolving Non-Formula Line terminates on the Revolving Non-Formula Line Maturity Date, when the principal amount of all Non-Formula Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Non-Formula Line shall be immediately due and payable.

 

2.1.6                     Equipment Advances.

 

(a)                                 Availability. Subject to the terms and conditions of this Agreement, during the Draw Period, Bank shall make advances (each, an “Equipment Advance” and, collectively, “Equipment Advances”) not exceeding the Equipment Line. Equipment Advances may only be used to finance Eligible Equipment purchased within ninety (90) days (determined based upon the applicable invoice date of such Eligible Equipment) before the date of each Equipment Advance. All Eligible Equipment must have been new when purchased by Borrowers, except for such Eligible Equipment that is disclosed in writing to Bank by Borrowers, and that Bank in its sole discretion has agreed to finance, prior to being financed by Bank. No Equipment Advance may exceed one hundred percent (100%) of the total invoice for Eligible Equipment, including Other Equipment. After repayment, no Equipment Advance may be reborrowed.

 

(b)                                 Repayment. Equipment Advances outstanding on the last day of the Draw Period are payable in (i) thirty six (36) consecutive equal monthly installments of principal plus (ii) monthly payments of accrued interest, beginning on April I, 2011 and ending on the Equipment Maturity Date.

 

2.2                               Overadvances. If, at any time, the sum of (a) the outstanding principal amount of any Formula Advances (including any amounts used for Cash Management Services), plus (b) the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), plus (c) the FX Reduction Amount exceeds the lesser of either the Revolving Formula Line or the Borrowing Base, Borrowers shall immediately pay to Bank in cash such excess.

 

2.3                               Payment of Interest on the Credit Extensions.

 

(a)                                 Interest Rate.

 

(i)                       Formula Advances. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Formula Line shall accrue interest at a floating per annum rate equal to the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below.

 

(ii)                    Non-Formula Advances. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Formula Line shall accrue interest at a floating per annum rate equal to one and one quarter percent (1.25%) below the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below.

 

(iii)                 Equipment Advances. Subject to Section 2.3(b), the principal amount outstanding for each Equipment Advance shall accrue interest at a floating per annum rate equal to one quarter of one percentage point (0.25%) above the Prime Rate, which interest shall be payable monthly.

 

(b)                                 Default Rate. Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.00%) above the rate that is otherwise applicable thereto (the “Default Rate”) unless Bank otherwise elects from time to time in its sole discretion to impose a smaller increase. Fees and expenses which are required to be paid by Borrowers pursuant to 

 

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the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

 

(c)                                  Adjustment to Interest Rate. Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.

 

(d)                                 Computation: 360-Day Year. In computing interest, the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension. Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed.

 

(e)                                  Debit of Accounts. Bank may debit any of Borrowers’ deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrowers owe Bank when due. These debits shall not constitute a set-off.

 

(f)                                   Interest Payment Date.  Unless otherwise provided, interest is payable monthly on the first calendar day of each month.

 

2.4                               Fees. Borrowers shall pay to Bank:

 

(a)                                 Commitment Fee. A fully earned, non-refundable commitment fee of Fifteen Thousand Dollars ($15,000) on the Effective Date; and

 

(b)                                 Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due.

 

2.5                               Payments; Application of Payments.

 

(a)                                 All payments (including prepayments) to be made by Borrowers under any Loan Document shall be made in immediately available fluids in U.S. Dollars, without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when due.  Payments of principal and/or interest received after 12:00 p.m. Pacific time are considered received at the opening of business on the next Business Day.  When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.

 

(b)                                 Bank shall apply the whole or any part of collected funds against the Revolving Formula Line or the Revolving Non-Formula Line or credit such collected funds to a depository account of a Borrower with Bank (or an account maintained by an Affiliate of Bank), as specified by Borrower, provided that upon the occurrence and during the continuance of an Event of Default, Borrowers shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrowers to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in 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 Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

 

(a)                                 duly executed original signatures to the Loan Documents;

 

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(b)                                 duly executed original signatures to the Control Agreements, if any;

 

(c)                                  each Borrower’s Operating Documents and a good standing certificate of each Borrower certified by the Secretary of State of the State of Delaware as of a date no earlier than thirty (30) days prior to the Effective Date;

 

(d)                                 duly executed original signatures to the completed Borrowing Resolutions for each Borrower;

 

(e)                                  certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

 

(f)                                   executed copies of all documents entered into by Borrower in connection with the Permitted Loans;

 

(g)                                  the Perfection Certificates of Borrowers, together with the duly executed original signatures thereto;

 

(h)                                 evidence satisfactory to Bank that the insurance policies required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses or endorsements in favor of Bank;

 

(i)                                     payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.

 

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

 

(a)                                 except as otherwise provided in Section 3.5(a), timely receipt of an executed Payment/Advance Form;

 

(b)                                 the Pledged Account shall have a balance of unrestricted cash equal to or greater than the Minimum Collateral Value;

 

(c)                                  the representations and warranties in this Agreement shall be true, accurate, and to the best of Borrowers’ knowledge, complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and to the best of Borrowers’ knowledge, complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrowers’ representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and to the best of Borrowers’ knowledge, complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and to the best of Borrowers’ knowledge, complete in all material respects as of such date; and

 

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

 

3.3                               Intentionally Omitted.

 

3.4                               Covenant to Deliver. Borrowers agree to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension. Borrowers expressly agree that a 

 

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Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrowers’ obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion,

 

3.5                               Procedures for Borrowing.

 

(a)                                 Formula Advances; Non-Formula Advances. Subject to the prior satisfaction of all other applicable conditions to the making of a Formula Advance or a Non-Formula Advance set forth in this Agreement, to obtain a Formula Advance or a Non-Formula Advance (other than Formula Advances under Sections 2.1.2 or 2.1.4), a Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00  p.m. Pacific time on the Funding Date of the Formula Advance or the Non-Formula Advance. Together with any such electronic or facsimile notification, a Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. Bank may rely on any telephone notice given by a person whom Bank reasonably believes is a Responsible Officer or designee.  Bank shall credit Formula Advances and Non-Formula Advances to the Designated Deposit Account. Bank may make Formula Advances and Non-Formula Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Formula Advances or Non-Formula Advances are necessary to meet Obligations which have become due.

 

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

 

4                                         CREATION OF SECURITY INTEREST

 

4.1                               Grant of Security Interest. Each Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.

 

In addition, Borrowers hereby assign, pledge, deliver, and transfer to Bank, and hereby grant to Bank, a continuing first priority security interest in and against all right, title and interest of the following, whether now or hereafter existing or acquired by Borrowers:

 

(i)                       the Pledged Account and general intangibles arising therefrom or relating thereto; and all documents, instruments and agreements evidencing the same; and all extensions, renewals, modifications and replacements of the foregoing; and any interest or other amounts payable in connection therewith;

 

(ii)                    all proceeds of the foregoing (including whatever is receivable or received when the Pledged Account or proceeds is invested, sold, collected, exchanged, returned, substituted or otherwise disposed of, whether such disposition is voluntary or involuntary, including rights to payment and return premiums and insurance proceeds under insurance with respect to the Pledged Account,

 

(iii)                 all rights to payment with respect to any cause of action affecting or relating to the Pledged Account); and

 

(iv)                and all renewals, replacements and substitutions of items of the Pledged Account.

 

The parties to this Agreement do not intend that Borrowers’ delivery of the Pledged Account to Bank as herein provided will constitute an advance payment of any Obligations or liquidated damages, nor do the parties intend that the Pledged Account increase the dollar amount of the Obligations.

 

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4.2                               Priority of Security Interest.  Each Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement). If a Borrower shall acquire a commercial tort claim, such Borrower shall promptly notify Bank in a writing signed by such Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

 

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

 

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

 

5                                         REPRESENTATIONS AND WARRANTIES

 

Each Borrower represents and warrants as follows:

 

5.1                               Due Organization, Authorization; Power and Authority.  Borrower is duly existing and in good standing as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business. In connection with this Agreement, Borrower has delivered to Bank completed certificates signed by each Borrower, entitled “Perfection Certificate”. Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Except as set forth in the Perfection Certificate, Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (D all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement).  If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.

 

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect or (v) constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

 

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

 

The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate or as permitted pursuant to Section 7.2. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.

 

All Financed Equipment is new, except for such Financed Equipment that has been disclosed in writing to Bank by Borrower as “used” and that Bank, in its sole discretion, has agreed to finance.

 

Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States, (b) over-the-counter software that is commercially available to the public and other non-material Intellectual Property licensed to Borrower, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate. To the best of Borrower’s knowledge, each Patent which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part. To the best of Borrower’s knowledge, no claim has been made in writing that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business.

 

Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.

 

5.3                               Accounts Receivable.  For any Eligible Account in any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing such Eligible Accounts are and shall be true and correct in all material respects and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all material respects what they purport to be. If an Event of Default has occurred and is continuing, Bank may notify any Account Debtor owing Borrower money of Bank’s security interest in such funds and verify the amount of such Eligible Account. All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

 

5.4                               Litigation. Except as disclosed in the Perfection Certificate or as Borrower has given Bank notice pursuant to Section 6.2(h), there are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries that could reasonably be expected to involve an amount more than, individually or in the aggregate, One Hundred Thousand Dollars ($100,000).

 

5.5                               Financial Statements; Financial Condition. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations as of the dates and periods presented. There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

 

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

 

5.7                               Regulatory Compliance. Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005. To the best of Borrower’s knowledge, Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted.

 

5.8                               Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.

 

5.9                               Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required material tax returns and reports, and Borrower has timely paid all material foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower; provided that, Borrower may defer payment of any contested taxes, so long as Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, and (b) with respect to contested amounts in excess of One Hundred Thousand Dollars ($100,000), (i) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (ii) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”. Except as disclosed in writing to Bank, Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

5.10                        Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as working capital, to purchase Eligible Equipment, and to fund its general business requirements (including for Permitted Loans) and not for personal, family, household or agricultural purposes.

 

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

 

5.12                        Definition of “Knowledge.” For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness, knowledge or awareness means the actual knowledge of the Responsible Officers and when made to the “best of Borrower’s knowledge,” means such knowledge or awareness after reasonable investigation, of the Responsible Officers.

 

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6              AFFIRMATIVE COVENANTS

 

Borrowers shall do all of the following:

 

6.1          Government Compliance.

 

(a)           Maintain their and all their Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on a Borrower’s business or operations. Each Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on a Borrower’s business.

 

(b)           Obtain all of the Governmental Approvals necessary for the performance by a Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of its property. At Bank’s request, Borrowers shall promptly provide copies of any such obtained Governmental Approvals to Bank.

 

6.2          Financial Statements, Reports, Certificates. Deliver to Bank:

 

(a)           Borrowing Base Reports. Within twenty (20) days after the last day of each month when Formula Advances are outstanding, aged listings of accounts receivable and accounts payable (by invoice date) (the “Borrowing Base Reports”);

 

(b)           Borrowing Base Certificate. Within twenty (20) days after the last day of each month when Formula Advances are outstanding and together with the Borrowing Base Reports, a duly completed Borrowing Base Certificate signed by a Responsible Officer;

 

(c)           Monthly Financial Statements. As soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated and consolidating balance sheet and income statement covering Borrowers’ and each of their Subsidiary’s operations for such month certified by a Responsible Officer and in a form acceptable to Bank (the “Monthly Financial Statements”);

 

(d)           Monthly Compliance Certificate. Within thirty (30) days after the last day of each month and together with the Monthly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrowers were in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank shall reasonably request;

 

(e)           Annual Audited Financial Statements.  As soon as available, but no later than one hundred eighty (180) days after the last day of Borrowers’ fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Bank in its reasonable discretion; provided however for the 2009 fiscal year such audited financial statements shall be delivered to Bank no later than August 31, 2010;

 

(f)            Other Statements. Within five (5) days of delivery, copies of all statements, reports and notices made available to each Borrower’s security holders or to any holders of Subordinated Debt;

 

(g)           SEC Filings. In the event that a Borrower becomes subject to the reporting requirements under the Exchange Act within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by such Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which such Borrower posts such documents, or provides a link thereto, on such Borrower’s website on the Internet at such Borrower’s website address;

 

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(h)           Legal Action Notice. A prompt report of any legal actions pending or threatened in writing against a Borrower or any of its Subsidiaries that could result in damages or costs to a Borrower or any of its Subsidiaries of, individually or in the aggregate, One Hundred Thousand Dollars ($100,000) or more;

 

(i)            Board Approved Financial Projections. As soon as available, but no later than thirty (30) days prior to the last day of each Borrower’s fiscal year, board of director approved financial projections and any interim revisions thereto within fifteen (15) days of approval by such Borrower’s board of directors; and

 

(j)            Milestone Reporting. Within thirty (30) days after the last day of each month, “milestone” reporting of the type that is normally shared with each Borrower’s board of directors.

 

(k)           Other Financial Information. Budgets, sales projections, operating plans and other financial information reasonably requested by Bank.

 

6.3          Intentionally Omitted.

 

6.4          Taxes; Pensions. Timely file, and require each of their Subsidiaries to timely file, all material required tax returns and reports and timely pay, and require each of their Subsidiaries to timely pay, all material foreign, federal, state and local taxes, assessments, deposits and contributions owed by a Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

 

6.5          Insurance. Keep their businesses and the Collateral insured for risks and in amounts standard for companies in Borrowers’ industry and location and as Bank may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Bank. All property policies shall have a lender’s loss payable endorsement showing Bank as lender loss payee and waive subrogation against Bank. All liability policies shall show, or have endorsements showing, Bank as an additional insured. All policies (or the loss payable and additional insured endorsements) shall provide that the insurer shall give Bank at least twenty (20) days notice before canceling, amending, or declining to renew its policy. At Bank’s request, each Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations. If a Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.

 

6.6          Operating Accounts.

 

(a)           Within ninety (90) days after the Effective Date and at all times thereafter, maintain their primary and their Subsidiaries’ primary operating and other deposit accounts and securities accounts with Bank which accounts shall represent at least eighty five percent (85%) of the dollar value of Borrowers’ and such Subsidiaries accounts at all financial institutions.

 

(b)           Provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each Collateral Account that a Borrower at any time maintains, such Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of a Borrower’s employees and identified to Bank by such Borrower as such.

 

6.7          Financial Covenants. Maintain at all times, to be tested as of the last day of each month, unless otherwise noted, on a consolidating basis with respect to Borrowers and their Subsidiaries:

 

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(a)           Quick Ratio. A ratio of Quick Assets to Current Liabilities (determined in accordance with GAAP) of at least 1.15 to 1.0.

 

6.8          Protection of Intellectual Property Rights.

 

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

 

(b)           Provide written notice to Bank within thirty (30) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public). Borrowers shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.

 

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

 

6.10        Value of Pledged Account.  At all times, maintain an amount of cash in the Pledged Account in an amount equal to or greater than the Minimum Collateral Value.

 

6.11        Access to Collateral; Books and Records.  Allow Bank, or its agents, at reasonable times, on five (5) Business Days’ notice (provided no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and copy any Borrower’s Books. The foregoing inspections and audits shall be at Borrowers’ expense, and the charge therefor shall be Eight Hundred Fifty Dollars ($850) per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses. In the event a Borrower and Bank schedule an audit more than ten (10) days in advance, and such Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies), such Borrower shall pay Bank a fee of One Thousand Dollars ($1,000) plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling. Bank and Borrower hereby agree that the first such audit shall, any case, be conducted once Borrower has requested at least Two Million Dollars ($2,000,000) of Formula Advances.

 

6.12        Formation or Acquisition of Subsidiaries.  At the time that a Borrower forms any majority-owned direct or indirect Subsidiary or acquires any majority-owned direct or indirect Subsidiary after the Effective Date, such Borrower shall, upon Bank’s reasonable request (a) cause such new Subsidiary (other than any Foreign Subsidiary) to provide to Bank a joinder to the Loan Agreement to cause such Subsidiary to become a co-borrower hereunder together with such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Bank, provided that, Borrower shall pledge sixty-five percent (65%) of the direct or beneficial ownership interest of any new Foreign Subsidiary, and (c) provide to Bank all other documentation in form and substance satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section 6.12 shall be a Loan Document.

 

6.13        Further Assurances. Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement. Deliver to 

 

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Bank, within five (5) days after the same are sent or received, copies of all correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material adverse effect on any of the Governmental Approvals or otherwise on the operations of Borrowers or any of their Subsidiaries.

 

7              NEGATIVE COVENANTS

 

No Borrower shall do any of the following without Bank’s prior written consent:

 

7.1          Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment that does not constitute Financed Equipment; (c) in connection with Permitted Liens and Permitted Investments; (d) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States; and (e) of property not otherwise permitted under this Section 7.1, having an aggregate book value not to exceed One Hundred Thousand Dollars ($100,000) in any fiscal year.

 

7.2          Changes in Business, Management, Control, or Business Locations. (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) Borrower’s CEO ceases to hold such office with Borrower and a replacement satisfactory to Borrower’s Board of Directors is not made within thirty (30) days after his departure from Borrower; or (ii) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than forty percent (40%) of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to investors so long as Borrower identifies to Bank the investors prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction).

 

Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Twenty Thousand Dollars ($20,000) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Twenty Thousand Dollars ($20,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization. If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Twenty Thousand Dollars ($20,000) to a bailee (other than Collateral held at co-location sites with a value not in excess of Seven Hundred Fifty Thousand Dollars ($750,000)), and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank in its sole discretion.

 

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, provided that 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. (a) Create, incur, allow, or suffer 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, (b) permit any Collateral not to be subject to the first priority security interest granted herein, except for Permitted Liens, or (iii) enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of 

 

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prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, except pursuant to transactions that are otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein.

 

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

 

7.7          Distributions; Investments. (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock; (iii) Borrower may repurchase the stock of former employees or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided such repurchase does not exceed in the aggregate of Fifty Thousand Dollars ($50,000) per fiscal year; (iv) Borrower may make payments in cash in lieu of the issuance of fractional shares; and (v) Borrower may repurchase stock that is intended to be sold to United Services Automobile Association provided such repurchase does not exceed Three Million Dollars ($3,000,000) in the aggregate; or (b) directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.

 

7.8          Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for (i) 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; (ii) transactions between or among Borrower and its Subsidiaries; (iii) equity and bridge financings with Borrower’s existing investors, provided that any bridge financing shall constitute Subordinated Debt; (iv) Permitted Loans; and (v) transactions permitted pursuant to the terms of Section 7.2 hereof.

 

7.9          Subordinated Debt.  (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to Bank.

 

7.10        Compliance. Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

8              EVENTS OF DEFAULT

 

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

 

8.1          Payment Default. Borrowers fail to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Revolving Formula Line Maturity Date, the Revolving Non-Formula Line Maturity Date and/or the Equipment Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (a) or (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);

 

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8.2          Covenant Default.

 

(a)           Borrowers fail or neglect to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7 or 6.10 or violate any covenant in Section 7; or

 

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

 

8.3          Material Adverse Change. A Material Adverse Change occurs;

 

8.4          Attachment; Levy; Restraint on Business.

 

(a)           (i) The service of process seeking to attach, by trustee or similar process, any funds of a Borrower or of any entity under the control of a Borrower (including a Subsidiary) on deposit or otherwise maintained with Bank or any Bank Affiliate, or (ii) a notice of lien or levy is filed against any of a Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or

 

(b)           (i) any material portion of a Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents a Borrower from conducting any material part of its business;

 

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

 

8.6          Other Agreements. There is, under any agreement to which a Borrower or any Guarantor is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of One Hundred Thousand Dollars ($100,000); or (b) any default by a Borrower or Guarantor , the result of which could have a material adverse effect on a Borrower’s or any Guarantor’s business;

 

8.7          Judgments. One or more final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against a Borrower and the same are not, within ten (10) days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the discharge, stay, or bonding of such judgment, order, or decree);

 

8.8          Misrepresentations. A Borrower or any Person acting for a Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect ill any material respect when made;

 

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8.9          Subordinated Debt. Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement or the Subordination Agreement.

 

9              BANK’S RIGHTS AND REMEDIES

 

9.1          Rights and Remedies. While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

 

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

 

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

 

(c)           demand that Borrowers (i) deposit cash with Bank in an amount equal to one hundred ten percent (110%) of the Dollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrowers shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

 

(d)           terminate any FX Forward Contracts;

 

(e)           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 a Borrower money of Bank’s security interest in such funds, and verify the amount of such account;

 

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

 

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

 

(h)           ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, a Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, 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, Borrowers’ rights under all licenses and all franchise agreements inure to Bank’s benefit;

 

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

 

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

 

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

 

9.2          Power of Attorney. Each Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Each Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have .been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Bank’s foregoing appointment as each 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          Protective Payments. If a Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which such Borrower is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral.  Bank will make reasonable efforts to provide Borrowers with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

 

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

 

9.5          Bank’s Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person.  Borrowers bear all risk of loss, damage or destruction of the Collateral.

 

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

 

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9.7          Demand Waiver. Each 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 such Borrower is liable.

 

9.8          Borrower Liability. Either Borrower may, acting singly, request Credit Extensions hereunder. Each Borrower hereby appoints the other as agent for the other for all purposes hereunder, including with respect to requesting Advances hereunder. Each Borrower hereunder shall be jointly and severally obligated to repay all Advances made hereunder, regardless of which Borrower actually receives said Advance, as if each Borrower hereunder directly received all Advances.  Each Borrower waives (a) any suretyship defenses available to it under the Code or any other applicable law, including, without limitation,  the benefit of California Civil Code Section 2815 permitting revocation as to future transactions and the benefit of California Civil Code Sections 1432, 2809, 2810, 2819, 2839, 2845, 2847, 2848, 2849, 2850, and 2899 and 3433, and (b) any right to require Bank to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy. Bank may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability. Notwithstanding any other provision of this Agreement or other related document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Bank under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.

 

10           NOTICES

 

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (I) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrowers may change their mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.

 

	
If   to Borrowers
    	
ZAG.COM   INC.
    
	
 
    	
TRUECAR,   INC.
    
	
 
    	
525   Broadway, 3rd Floor
    
	
 
    	
Santa   Monica, CA, 90401
    
	
 
    	
Attn:   Chief Financial Officer
    
	
 
    	
Fax:   800.584.5004
    
	
 
    	
Email:   JNguyen@zag.com
    
	
 
    	
 
    
	
If   to Bank:
    	
Silicon   Valley Bank
    
	
 
    	
15260   Ventura Blvd., Suite 980
    
	
 
    	
Sherman   Oaks, CA 91403
    
	
 
    	
Attn:   Jack Garza
    
	
 
    	
Fax:   (818) 783-7984
    
	
 
    	
Email:   jgarza@svb.com
    

 

 

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

 

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

 

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

 

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings.  The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shalt also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

 

12           GENERAL PROVISIONS

 

12.1        Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. No Borrower may assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion). Bank has the right, without the consent of or notice to Borrowers, to sell, transfer, assign, negotiate, or grant participation in all or any

 

19

 

part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.

 

12.2        Indemnification. Borrowers agree to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “Indemnified Person”) harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrowers (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’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 Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

 

12.5        Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties so long as Bank provides Borrowers with written notice of such correction and allows Borrowers at least ten (10) days to object to such correction. In the event of such objection, such correction shall not be made except by an amendment signed by both Bank and Borrowers.

 

12.6        Amendments in Writing; Waiver; Integration.  No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought. Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

 

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

 

12.8        Termination. This Agreement may be terminated by Borrower, effective three (3) Business Days after (i) written notice of termination is given to Bank and (ii) repayment in full of all Obligations (other than inchoate indemnity obligations). Notwithstanding any such termination, Bank’s lien and security interest in the Collateral shall continue until Borrower fully satisfies its Obligations (other than inchoate indemnity obligations).

 

12.9        Survival. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been paid in full and satisfied.  The obligation of Boriowers in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

 

12.10      Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates (provided that such Subsidiaries and Affiliates are bound by the same confidentiality obligation herein); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use its best efforts to obtain any prospective transferee’s or purchaser’s agreement to the terms 

 

20

 

of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (0 to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank’s; or (ii) disclosed to Bank by a third party if Bank does not know that the third party is prohibited from disclosing the information.

 

Bank may use confidential information for the development of databases, reporting purposes, and market analysis so long as such confidential information is aggregated and  anonymized prior to distribution unless otherwise expressly permitted by Borrowers. The provisions of the immediately preceding sentence shall survive the termination of this Agreement.

 

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

 

12.12      Electronic Execution of Documents. The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

 

12.13      Captions. The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

 

12.14      Construction of Agreement.  The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

 

12.15      Relationship. The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

 

12.16      Third Parties. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

 

12.17      Waiver. Bank hereby waives the Event of Default under the Existing Loan Agreement due to Borrowers’ failure to timely deliver their 2009 audited financial statements.

 

12.18      Effect of Amendment and Restatement. This Agreement amends and restates in its entirety the Existing Loan Agreement. Except for the Existing Loan Agreement (which is being amended and restated in its entirety by this Agreement), all other Existing Loan Documents shall continue in full force and effect and constitute Loan Documents, including without limitation, all documents entered into by Borrowers and Bank in connection with Letters of Credit, FX Forward Contracts, or Cash Management Services, all security agreements (which shall continue to secure all present and future indebtedness, liabilities, guarantees and other Obligations), all lockbox agreements and blocked account agreements, all control agreements relating to deposit accounts, securities accounts or other accounts, all warrants to purchase stock or other securities or interests, all investor rights and other agreements relating to stock or securities, and all UCC-1 financing statements and other documents filed with governmental offices which perfect liens or security interests in favor of Bank. References in any such surviving Loan Documents to “Loan Agreement” shall be deemed to refer to this Agreement instead of the Existing Loan 

 

21

 

Agreement. Except as otherwise set forth herein, this Agreement is intended to and does completely amend and restate, without novation, the Existing Loan Agreement. All security interests granted under the Existing Loan Agreement are hereby confirmed and ratified and shall continue to secure all Obligations under this Agreement.

 

13           DEFINITIONS

 

13.1        Definitions. As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative. As used in this Agreement, the following capitalized terms have the following meanings:

 

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

 

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

 

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

 

“Agreement” is defined in the preamble hereof.

 

“Availability Amount” is (a) the lesser of (1) the Revolving Formula Line or (ii) the amount available under the Borrowing Base minus (b) the Dollar Equivalent amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserve, minus (c) the FX Reduction Amount, minus (d) any amounts used for Cash Management Services, and minus (e) the outstanding principal balance of any Formula Advances.

 

“Bank” is defined in the preamble hereof.

 

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrowers.

 

“Borrower(s)” is defined in the preamble hereof.

 

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

 

“Borrowing Base” is (a) eighty percent (80%) of Eligible Accounts plus (b) Three Million Dollars ($3,000,000) as determined by Bank from Borrowers’ most recent Borrowing Base Certificate; provided, however, that Bank may decrease the foregoing amounts and/or percentages in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.

 

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

 

“Borrowing Base Report” is defined in Section 6.2(a).

 

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

 

22

 

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

 

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

 

“Cash Management Services” is defined in Section 2.1.4.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Copyrights” are 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.

 

“Credit Extension” is any Formula Advance, Non-Formula Advance, Letter of Credit, FX Forward Contract, amount utilized for Cash Management Services, Equipment Advance, or any other extension of credit by Bank for Borrowers’ benefit.

 

23

 

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

 

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

 

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

 

“Designated Deposit Account” is a Borrower’s deposit account, account number 3300661754, maintained with Bank.

 

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.

 

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

 

“Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.

 

“Draw Period” is the period of time from the Effective Date through March 31, 2011.

 

“Effective Date” is defined in the preamble hereof.

 

“Eligible Accounts” means Accounts which arise in the ordinary course of a Borrower’s business that meet all Borrowers’ representations and warranties in Section 5.3. Bank reserves the right upon prior written notice to Borrowers at any time after the Effective Date to adjust any of the criteria set forth below based on the results of periodic field exams and to establish new criteria in its good faith business judgment. Unless Bank otherwise agrees in writing, Eligible Accounts shall not include:

 

(a)           Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms;

 

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

 

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

 

(d)           Accounts billed and/or payable outside of the United States;

 

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

 

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

 

(g)           Account with credit balances over ninety (90) days from invoice date;

 

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

 

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

 

(j)            Accounts owing from an Account Debtor where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings);

 

(k)           Accounts subject to contractual arrangements between a Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of such Borrower’s failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts);

 

(l)            Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor’s satisfaction of a Borrower’s complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);

 

(m)          Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;

 

(n)           Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, the relevant Borrower, and the Account Debtor have entered into an agreement acceptable to Bank in its sole discretion wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from such Borrower (sometimes called “bill and hold” accounts);

 

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

 

(p)           Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of a Borrower’s business;

 

(q)           Accounts for which a Borrower has permitted Account Debtor’s payment to extend beyond 90 days;

 

(r)            Accounts subject to chargebacks or others payment deductions taken by an Account Debtor;

 

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

 

(t)            Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue);

 

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

 

(v)           Accounts for which Bank in its good faith business judgment after inquiry and consultation with Borrowers determines collection to be doubtful.

 

25

 

“Eligible Equipment” is the following to the extent it complies with all of Borrowers’ representations and warranties to Bank, is acceptable to Bank in all respects, is located at Borrowers’ address listed in Section 10 or such other location of which Bank has approved in writing, and is subject to a first priority Lien in favor of Bank: (a) general purpose equipment and (b) Other Equipment.

 

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

 

“Equipment Advance” is defined in Section 2.1.6(a).

 

“Equipment Line” is an Equipment Advance or Equipment Advances in an aggregate amount of up to Two Million Five Hundred Thousand Dollars ($2,500,000).

 

“Equipment Maturity Date” is March 1, 2014.

 

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

 

“Event of Default” is defined in Section 8.

 

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

 

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

 

“Formula Advance” or “Formula Advances” means an advance (or advances) under the Revolving Formula Line.

 

“Foreign Currency” means lawful money of a country other than the United States.

 

“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

 

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

 

“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is conducting its normal business and (b) the Foreign Currency being purchased or sold by a Borrower is available to Bank from the entity from which Bank shall buy or sell such Foreign Currency.

 

“FX Forward Contract” is defined in Section 2.1.3.

 

“FX Reduction Amount” is defined in Section 2.1.3.

 

“FX Reserve” is defined in Section 2.1.3.

 

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

 

“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, 

 

26

 

tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

 

“Governmental Approval” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

 

“Governmental Authority” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

 

“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.

 

“Indemnified Person” is defined in Section 12.2.

 

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

 

“Intellectual Property” means all of a Borrower’s right, title, and interest in and to the following:

 

(a)           its Copyrights, Trademarks and Patents;

 

(b)           any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;

 

(c)           any and all source code;

 

(d)           any and all design rights which may be available to a Borrower;

 

(e)           any and all claims for damages by way of past, present and future infringement of any of the foregoing, 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; and

 

(f)            all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.

 

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

 

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

 

“Letter of Credit” means a standby letter of credit issued by Bank or another institution based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set forth in Section 2.1.2.

 

“Letter of Credit Application” is defined in Section 2.1.2(b).

 

“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(e).

 

27

 

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

 

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

 

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of a Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.

 

“Minimum Collateral Value” means an aggregate principal amount equal to all Obligations owing from Borrower to Bank under the Revolving Non-Formula Line.

 

“Monthly Financial Statements” is defined in Section 6.2(c).

 

“Non-Formula Advance” or “Non-Formula Advances” means an advance (or advances) under the Revolving Non-Formula Line.

 

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

 

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

 

“Other Equipment” is leasehold improvements, intangible property such as computer software and software licenses, equipment specifically designed or manufactured for a Borrower, other intangible property, limited use property and other similar property and soft costs approved by Bank, including taxes, shipping, warranty charges, freight discounts and installation expenses.

 

“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

 

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

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

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

 

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

 

(c)           Subordinated Debt;

 

28

 

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

 

(e)           Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

 

(f)            Indebtedness with respect to surety bonds and similar obligations incurred in the ordinary course of business;

 

(g)           Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder;

 

(h)           intercompany Indebtedness that otherwise constitutes an Investment allowed under the definition of Permitted Investments;

 

(i)            unsecured Indebtedness incurred with Borrower’s corporate credit cards in an amount not exceeding Four Hundred Fifty Thousand Dollars ($450,000) in the aggregate;

 

(j)            extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (Ii) 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

 

(k)           other Indebtedness not otherwise permitted by Section 7.4 not exceeding One Hundred Thousand Dollars ($100,000) in the aggregate outstanding at any time;

 

“Permitted Investments” are:

 

(a)           Investments (including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate and;

 

(b)           (i) Investments consisting of Cash Equivalents, and (ii) any Investments permitted by a Borrower’s investment policy, as amended from time to time, provided that such investment policy (and any such amendment thereto) has been approved in writing by Bank;

 

(c)           Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of a Borrower;

 

(d)           Investments consisting of deposit accounts in which Bank has a perfected security interest;

 

(e)           Investments accepted in connection with Transfers permitted by Section 7.1;

 

(f)            Investments by one Borrower in another Borrower;

 

(g)           Permitted Loans;

 

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

 

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

 

29

 

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

 

“Permitted Liens” are:

 

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

 

(b)                                 Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

 

(c)                                  purchase money Liens (1) on Equipment (other than Financed Equipment) acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than One Million Dollars ($1,000,000) in the aggregate amount outstanding, or (ii) existing on Equipment (other than Financed Equipment) when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;

 

(d)                                 Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;

 

(e)                                  Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinal), course of business (other than Liens imposed by ERISA);

 

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

 

(g)                                  leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;

 

(h)                                 non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States;

 

(i)                                     Liens on insurance proceeds granted solely as security for financed premiums;

 

(j)                                    Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7; and

 

(k)                                 Liens in favor of other financial institutions arising in connection with Borrower’s or any Subsidiary’s deposit and/or securities accounts held at such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit and/or securities accounts.

 

30

 

“Permitted Loans” are (i) loans from ZAG.COM INC. to Borrower’s officers as listed in the Perfection Certificate and (ii) loans from ZAG.COM INC. to Borrowers’ officers for the purpose of purchasing equity securities of Borrowers in an amount not to exceed Two Million Dollars ($2,000,000).

 

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

 

“Pledged Account” shall mean Borrowers’ restricted non-interest bearing deposit account number 3300673516 held at Bank.

 

“Prime Rate” means the Prime Rate published in the Money Rates section of the Western Edition of The Wall Street Journal, or such other rate of interest publicly announced from time to time by Bank as its Prime Rate. Bank may price loans to its customers at, above or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in Prime Rate.

 

“Quick Assets” is, on any date, Borrowers’ cash and Cash Equivalents maintained with Bank, plus Accounts receivable.

 

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

 

“Requirement of Law” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

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

 

“Restricted License” is any material license or other agreement with respect to which a Borrower is the licensee (a) that prohibits or otherwise restricts a Borrower from granting a security interest in such Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Bank’s right to sell any Collateral.

 

“Revolving Formula Line” is a Formula Advance or Formula Advances in an amount equal to Eight Million Dollars ($8,000,000).

 

“Revolving Formula Line Maturity Date” is the date three hundred sixty four (364) days from the Effective Date.

 

“Revolving Non- Formula Line” is a Non-Formula Advance or Non-Formula Advances in an amount equal to Eleven Million Dollars ($11,000,000).

 

“Revolving Formula Line Maturity Date” is the date three hundred sixty four (364) days from the Effective Date.

 

“SEC” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.

 

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

 

“Settlement Date” is defined in Section 2.1.3.

 

31

 

“Subordinated Debt” is indebtedness incurred by a Borrower subordinated to all of such Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.

 

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of a Borrower. Notwithstanding the foregoing, a Person shall not be deemed to be a Subsidiary of another Person solely because both such Persons share a common management team

 

“Trademarks” means 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 a Borrower connected with and symbolized by such trademarks.

 

“Transfer” is defined in Section 7.1.

 

[Signature page follows.]

 

32

 

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

 

	
BORROWERS:
    	
 
    
	
 
    	
 
    
	
ZAG.COM   INC.
    	
 
    
	
 
    	
 
    
	
By
    	
/s/   James Nguyen
    	
 
    
	
Name:
    	
James   Nguyen
    	
 
    
	
Title:
    	
CFO
    	
 
    
	
 
    	
 
    
	
TRUECAR, INC.
    	
 
    
	
 
    	
 
    
	
By
    	
/s/   James Nguyen
    	
 
    
	
Name:
    	
James   Nguyen
    	
 
    
	
Title:
    	
CFO
    	
 
    
	
 
    	
 
    
	
BANK:
    	
 
    
	
 
    	
 
    
	
SILICON   VALLEY BANK
    	
 
    
	
 
    	
 
    
	
By
    	
/s/   Jack Garza
    	
 
    
	
Name:
    	
Jack   Garza
    	
 
    
	
Title:
    	
Relationship   Manager
    	
 
    

 

1

 

EXHIBIT A — COLLATERAL DESCRIPTION

 

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

 

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, the Pledged Account, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

 

all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

 

Notwithstanding the foregoing, the Collateral does not include (i) property (and all substitutions, accessions, additions, attachments, accessories, improvements, replacements, products and proceeds thereto) subject to a lien described in clause (c) of the definition of Permitted Liens in which the granting of a security interest in such property or equipment is prohibited by or would constitute a default under any agreement or document governing such property, provided that upon the termination or lapsing of any such prohibition, such property shall automatically be part of the Collateral; (ii) property that constitutes the capital stock of a controlled foreign corporation (as defined in the Internal Revenue Code of 1986, as amended) in excess of sixty-five percent (65%) of the voting power of all classes of capital stock of such controlled foreign corporation entitled to vote; and (iii) any Intellectual Property; provided, however, the Collateral shall include all Accounts and all proceeds of Intellectual Property. If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property.

 

Pursuant to the terms of a certain negative pledge arrangement with Bank, Borrower has agreed not to encumber any of its Intellectual Property without Bank’s prior written consent.

 

2

 

EXHIBIT B — LOAN PAYMENT/ADVANCE REQUEST FORM

 

DEADLINE FOR SAME DAY PROCESSING IS NOON PACIFIC TIME

 

	
Fax   To:
    	
Date:
    	
 
    	
 
    

 

LOAN PAYMENT:

 

ZAG.COM INC.

 

	
From   Account #
    	
 
    	
 
    	
To   Account #
    	
 
    	
 
    
	
(Deposit Account #)
    	
 
    	
(Loan Account #)
    
	
Principal   $
    	
 
    	
 
    	
and/or   Interest $
    	
 
    	
 
    
	
Authorized   Signature:
    	
 
    	
 
    	
Phone   Number:
    	
 
    	
 
    
	
Print   Name/Title:
    	
 
    	
 
    	
 
    
										

 

LOAN ADVANCE:

 

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

 

	
From   Account #
    	
 
    	
 
    	
To   Account #
    	
 
    	
 
    
	
(Loan   Account #)
    	
 
    	
(Deposit Account #)
    
	
Amount   of Advance $
    	
 
    	
 
    	
 
    
							

 

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

 

	
Authorized   Signature:
    	
 
    	
 
    	
Phone   Number:
    	
 
    	
 
    
	
Print   Name/Title:
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

OUTGOING WIRE REQUEST:

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

Deadline for same day processing is noon, Pacific Time

 

	
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   #:
    	
 
    	
 
    
										

 

1

 

EXHIBIT C - BORROWING BASE CERTIFICATE

 

Borrowers: ZAG.COM INC. and TRUECAR, INC.
 Lender: Silicon Valley Bank
 Commitment Amount:       $8,000,000

 

	
ACCOUNTS RECEIVABLE
    	
 
    
	
1.
    	
Accounts   Receivable (invoiced) Book Value as of
    	
$
    	
 
    
	
2.
    	
Additions   (please explain on reverse)
    	
$
    	
 
    
	
3.
    	
TOTAL   ACCOUNTS RECEIVABLE
    	
$
    	
 
    
	
 
    	
 
    	
 
    
	
ACCOUNTS RECEIVABLE DEDUCTIONS (without   duplication)
    	
 
    
	
4.
    	
90   Days Past Invoice Date
    	
$
    	
 
    
	
5.
    	
Balance   of 50% over 90 Day Accounts
    	
$
    	
 
    
	
6.
    	
Foreign   Account Debtor Accounts
    	
$
    	
 
    
	
7.
    	
Foreign   Invoiced Accounts
    	
$
    	
 
    
	
8.
    	
Contra/Customer   Deposit Accounts
    	
$
    	
 
    
	
9.
    	
Intercompany/Employee   Accounts
    	
$
    	
 
    
	
10.
    	
Credit   Balances over 90 Days
    	
$
    	
 
    
	
11.
    	
U.S.   Governmental Accounts
    	
$
    	
 
    
	
12.
    	
Promotion   or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts
    	
$
    	
 
    
	
13.
    	
Accounts   with Progress/Milestone/Pre-billings; Contract Accounts
    	
$
    	
 
    
	
14.
    	
Accounts   for Retainage Billings
    	
$
    	
 
    
	
15.
    	
Trust   Accounts
    	
$
    	
 
    
	
16.
    	
Bill   and Hold Accounts
    	
$
    	
 
    
	
17.
    	
Unbilled   Accounts
    	
$
    	
 
    
	
18.
    	
Non-Trade   Accounts
    	
$
    	
 
    
	
19.
    	
Accounts   with Extended Term Invoices
    	
$
    	
 
    
	
20.
    	
Accounts   Subject to Chargebacks
    	
$
    	
 
    
	
21.
    	
Disputed   Accounts
    	
$
    	
 
    
	
22.
    	
Deferred   Revenue, if applicable/Other (please explain on reverse)
    	
$
    	
 
    
	
23.
    	
Concentration   Limits
    	
$
    	
 
    
	
24.
    	
TOTAL   ACCOUNTS RECEIVABLE DEDUCTIONS
    	
$
    	
 
    
	
25.
    	
Eligible   Accounts (#3 minus #24)
    	
$
    	
 
    
	
26.
    	
ELIGIBLE   AMOUNT OF ACCOUNTS (80% of #25)
    	
$
    	
 
    
	
 
    	
 
    	
 
    
	
BALANCES
    	
 
    
	
27.
    	
Maximum   Loan Amount
    	
$
    	
8,000,000
    
	
28.
    	
Total   Funds Available [Lesser of #27 or (#26 plus $3,000,000)]
    	
$
    	
 
    
	
29.
    	
Present   balance owing on Line of Credit
    	
$
    	
 
    
	
30.
    	
Outstanding   under Sublimits
    	
$
    	
 
    
	
31.
    	
RESERVE   POSITION (#28 minus #29 and #30)
    	
$
    	
 
    

 

[Continued on following page.]

 

1

 

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

 

	
COMMENTS:
    	
 
    	
BANK USE ONLY
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
Received   by:
    	
 
    
	
Authorized Signer
    	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
 
    	
 
    
	
Date:
    	
 
    	
 
    	
Verified:
    	
 
    
	
 
    	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Compliance   Status:
    	
Yes
    	
No
    
									

 

2

 

EXHIBIT D

 

BORROWING RESOLUTIONS

 

 

CORPORATE BORROWING CERTIFICATE

 

	
BORROWER:
    	
ZAG.COM   INC.
    	
DATE:   November     , 2010
    
	
BANK:
    	
Silicon   Valley Bank
    	
 
    

 

I hereby certify as follows, as of the date set forth above:

 

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

 

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

 

3.              Attached hereto are true, correct and complete copies of Borrower’s Articles/Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth in paragraph 2 above.  Such Articles/Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

 

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

 

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

 

	
Name
    	
 
    	
Title
    	
 
    	
Signature
    	
 
    	
Authorized to
   Add or Remove
   Signatories
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
o
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
o
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
o
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
o
    

 

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

 

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

 

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

Execute Loan Documents. Execute any loan documents Bank requires.

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

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

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

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

 

1

 

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

 

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

 

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

 

	
 
    	
ZAG.COM   INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

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

 

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

[print title]

of the date set forth above.

 

	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

2

 

BORROWING RESOLUTIONS

 

 

CORPORATE BORROWING CERTIFICATE

 

	
BORROWER:
    	
TRUECAR, INC.
    	
DATE:   November 12, 2010
    
	
BANK:
    	
Silicon   Valley Bank
    	
 
    

 

I hereby certify as follows, as of the date set forth above:

 

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

 

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

 

3.              Attached hereto are true, correct and complete copies of Borrower’s Articles/Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth in paragraph 2 above. Such Articles/Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

 

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

 

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

 

	
Name
    	
 
    	
Title
    	
 
    	
Signature
    	
 
    	
Authorized to
   Add or Remove
   Signatories
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Scott   Painter
    	
 
    	
Chairman &   CEO
    	
 
    	
/s/   Scott Painter
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Stephen   Hansen
    	
 
    	
President &   COO
    	
 
    	
/s/   Stephen Hansen
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Jim   Nguyen
    	
 
    	
CFO
    	
 
    	
/s/   Jim Nguyen
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
o
    

 

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

 

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

 

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

Execute Loan Documents. Execute any loan documents Bank requires.

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

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

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

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

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

 

1

 

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

 

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

 

	
 
    	
TRUECAR, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   James Nguyen
    
	
 
    	
Name:
    	
James   Nguyen
    
	
 
    	
Title:
    	
CFO
    

 

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

 

I, the CEO of Borrower, hereby certify as to paragraphs 1 through 5 above, as of the date set forth above.

[print title]

 

	
 
    	
By:
    	
/s/   Scott Painter
    
	
 
    	
Name:
    	
Scott   Painter
    
	
 
    	
Title:
    	
CEO
    

 

2

 

 

CORPORATE BORROWING CERTIFICATE

 

	
BORROWER:
    	
Zag.com   Inc
    	
 
    	
DATE:
    	
11/12/10
    
	
BANK:
    	
Silicon Valley Bank
    	
 
    	
 
    

 

I hereby certify as follows, as of the date set forth above:

 

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

 

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

 

	
Delaware.
    	
 
    
	
[Print name of state]
    	
 
    

 

3.              Attached hereto are true, correct and complete copies of Borrower’s Articles/Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth in paragraph 2 above.  Such Articles/Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

 

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

 

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

 

	
Name
    	
 
    	
Title
    	
 
    	
Signature
    	
 
    	
Authorized to
   Add or Remove

Signatories
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Scott   Painter
    	
 
    	
Chairman   and CEO
    	
 
    	
/s/   Scott Painter
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Stephen   Hansen
    	
 
    	
President   and COO
    	
 
    	
/s/   Stephen Hansen
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
James   Nguyen
    	
 
    	
CFO
    	
 
    	
/s/   James Nguyen
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
o
    

 

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

 

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

 

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

Execute Loan Documents. Execute any loan documents Bank requires.

 

1

 

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

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

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

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

Issue Warrants. Issue warrants for Borrower’s capital stock.

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

 

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

 

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

 

	
 
    	
By:
    	
/s/   Scott Painter
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
Scott   Painter
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
CEO
    

 

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

 

I, the CFO of Borrower, hereby certify as to paragraphs I through 5 above, as of the date set forth above

[print title]

 

	
 
    	
By:
    	
/s/   James Nguyen
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
James   Nguyen
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
CFO
    

 

2

 

FIRST AMENDMENT

TO

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS FIRST AMENDMENT to Amended and Restated Loan and Security Agreement (this “Amendment”) is entered into this 31 day of December, 2010, by and between Silicon Valley Bank (“Bank”) and TRUECAR, INC. (F/K/A ZAG.COM INC.), a Delaware corporation and TRUECAR.COM, INC. (F/K/A TRUECAR, INC.), a Delaware corporation (each a “Borrower” and collectively, “Borrowers”) whose address is 525 Broadway, 3rd Floor, Santa Monica, CA 90401.

 

RECITALS

 

A.                                    Bank and Borrowers have entered into that certain Amended and Restated Loan and Security Agreement dated as of November 12, 2010 (as the same may from time to time be amended, modified, supplemented or restated, the “Loan Agreement”).

 

B.                                    Bank has extended credit to Borrowers for the purposes permitted in the Loan Agreement.

 

C.                                    Borrowers have requested that Bank amend the Loan Agreement to acknowledge and consent to both Borrowers changing their corporate names.

 

D.                                    Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

 

1.                                      Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

 

2.                                      Amendments to Loan Agreement.

 

2.1                               All references in the Loan Documents to Borrower “ZAG.COM INC.” shall hereafter mean and refer to “Truecar, Inc.”.

 

2.2                               All references in the Loan Documents to Borrower “Truecar, Inc.” shall hereafter mean and refer to “Truecar.com, Inc.”.

 

2.3                               Bank hereby consents to each Borrower changing its corporate name and waives the violation of Section 7.2 of the Loan Agreement that has occurred due to Borrowers’ failure to provide Bank with thirty (30) days prior written notice of such name changes.

 

 

3.                                      Limitation of Amendments.

 

3.1                               The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

 

3.2                               This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

 

4.                                      Representations and Warranties. To induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:

 

4.1                               Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) except as explicitly waived hereby, no Event of Default has occurred and is continuing;

 

4.2                               Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

 

4.3                               The organizational documents of Borrower delivered to Bank in connection with this Amendment remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

 

4.4                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

 

4.5                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

 

4.6                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental

 

2

 

or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

 

4.7                               This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

 

5.                                      Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

 

6.                                      Effectiveness. This Amendment shall be deemed effective upon (i) the due execution and delivery to Bank of this Amendment by each party hereto, (ii) the due execution and delivery to Bank of Borrowing Resolutions for each Borrower, and (iii) the delivery of each Borrower’s current Operating Documents reflecting each Borrower’s updated corporate name.

 

[Signature page follows.]

 

3

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

	
BANK
    	
BORROWERS
    
	
 
    	
 
    
	
SILICON   VALLEY BANK
    	
TRUECAR, INC.   (F/K/A ZAG.COM INC.)
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/ Jack Garza
    	
 
    	
By:
    	
/s/   James Nguyen
    
	
Name:
    	
Jack Garza
    	
 
    	
Name:
    	
James   Nguyen
    
	
Title:
    	
Relationship Manager
    	
 
    	
Title:
    	
CFO
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
TRUECAR.COM, INC.   (F/K/A TRUECAR, INC.)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   James Nguyen
    
	
 
    	
Name:
    	
James   Nguyen
    
	
 
    	
Title:
    	
CFO
    

 

 

BORROWING RESOLUTIONS

 

 

CORPORATE BORROWING CERTIFICATE

 

BORROWER:  TRUECAR, INC. (F/K/A ZAG.COM INC.)

DATE:  December 31, 2010

BANK: Silicon Valley Bank

 

I hereby certify as follows, as of the date set forth above:

 

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

 

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

 

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

 

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

 

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

 

	
Name
    	
 
    	
Title
    	
 
    	
Signature
    	
 
    	
Authorized   to
   Add or
   Remove
   Signatories
    
	
Scott   Painter
    	
 
    	
Chairman,   CEO
    	
 
    	
/s/   Scott Painter
    	
 
    	
x
    
	
Stephen   Hansen
    	
 
    	
President,   COO
    	
 
    	
/s/   Stephen Hansen
    	
 
    	
x
    
	
James   Nguyen
    	
 
    	
CFO
    	
 
    	
/s/   James Nguyen
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

 

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

 

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

 

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

Execute Loan Documents. Execute any loan documents Bank requires.

Grant Security. Grant Bank a security interest in any pledged accounts and any proceeds, rights to payment or substitutions thereof.

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

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

 

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

 

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

 

	
 
    	
By:
    	
/s/   Scott Painter
    
	
 
    	
Name:
    	
Scott   Painter
    
	
 
    	
Title:
    	
CEO
    

 

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

 

I, the CFO of Borrower, hereby certify as to paragraphs 1 through 5 above, as of the date set forth above.

 

	
 
    	
By:
    	
/s/   James Nguyen
    
	
 
    	
Name:
    	
James   Nguyen
    
	
 
    	
Title:
    	
CFO
    

 

 

BORROWING RESOLUTIONS

 

 

CORPORATE BORROWING CERTIFICATE

 

BORROWER:  TRUECAR.COM, INC. (F/K/A TRUECAR, INC.)

DATE:  December 31, 2010

BANK: Silicon Valley Bank

 

I hereby certify as follows, as of the date set forth above:

 

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

 

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

 

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

 

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

 

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

 

	
Name
    	
 
    	
Title
    	
 
    	
Signature
    	
 
    	
Authorized   to
   Add or
   Remove
   Signatories
    
	
Scott   Painter
    	
 
    	
Chairman,   CEO
    	
 
    	
/s/   Scott Painter
    	
 
    	
x
    
	
Stephen   Hansen
    	
 
    	
President,   COO
    	
 
    	
/s/   Stephen Hansen
    	
 
    	
x
    
	
James   Nguyen
    	
 
    	
CFO
    	
 
    	
/s/   James Nguyen
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

 

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

 

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

 

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

Execute Loan Documents. Execute any loan documents Bank requires.

Grant Security. Grant Bank a security interest in any pledged accounts and any proceeds, rights to payment or substitutions thereof.

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

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

 

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

 

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

 

	
 
    	
By:
    	
/s/   Scott Painter
    
	
 
    	
Name:
    	
Scott   Painter
    
	
 
    	
Title:
    	
CEO
    

 

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

 

I, the CFO of Borrower, hereby certify as to paragraphs 1 through 5 above, as of the date set forth above.

 

	
 
    	
By:
    	
/s/   James Nguyen
    
	
 
    	
Name:
    	
James   Nguyen
    
	
 
    	
Title:
    	
CFO
    

 

 

SECOND AMENDMENT
 TO
 AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS SECOND AMENDMENT to Amended and Restated Loan and Security Agreement (this “Amendment”) is entered into this 11th day of November, 2011, by and between Silicon Valley Bank (“Bank”) and TRUECAR, INC. (F/K/A ZAG.COM INC.), a Delaware corporation and TRUECAR.COM, INC. (F/K/A TRUECAR, INC.), a Delaware corporation (each a “Borrower” and collectively, “Borrowers”) whose address is 225 Santa Monica Blvd., 12th Floor, Santa Monica, CA 90401.

 

RECITALS

 

A.                                    Bank and Borrowers have entered into that certain Amended and Restated Loan and Security Agreement dated as of November 12, 2010, as amended from time to time, including by that certain First Amendment to Amended and Restated Loan and Security Agreement dated as of December 31, 2010 (as the same may from time to time be further amended, modified, supplemented or restated, the “Loan Agreement”).

 

B.                                    Bank has extended credit to Borrowers for the purposes permitted in the Loan Agreement.

 

C.                                    Borrowers have requested that Bank amend the Loan Agreement to extend the maturity date and consent to TrueCar, Inc. acquiring all of the issued and outstanding equity securities of Automotive Lease Guide (alg), Inc. (the “Acquisition”).

 

D.                                    Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

 

1.                                      Definitions.  Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

 

2.                                      Amendments to Loan Agreement.

 

2.1                               Section 13 (Definitions).  The following term and its definition set forth in Section 13.1 is amended in its entirety and replaced with the following:

 

“Revolving Formula Line Maturity Date” is February 9, 2012.

 

 

2.2                               Bank hereby consents to TrueCar, Inc. consummating the Acquisition and provided that, no later than February 9, 2012, Borrower complies with the provisions of Section 6.12 of the Loan Agreement with respect to Automotive Lease Guide (alg), Inc., Bank waives the violations of Sections 6.12 and Section 7.3 of the Loan Agreement that occurred in connection with consummating the Acquisition without the prior written consent of Bank.

 

3.                                      Limitation of Amendments.

 

3.1                               The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

 

3.2                               This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

 

4.                                      Representations and Warranties.  To induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:

 

4.1                               Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) except as explicitly waived hereby, no Event of Default has occurred and is continuing;

 

4.2                               Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

 

4.3                               The organizational documents of Borrower delivered to Bank prior to the date of this Amendment remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

 

4.4                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

 

4.5                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or

 

2

 

authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

 

4.6                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

 

4.7                               This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

 

5.                                      Counterparts.  This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

 

6.                                      Effectiveness.  This Amendment shall be deemed effective upon (i) the due execution and delivery to Bank of this Amendment by each party hereto and (ii) payment by Borrowers’ of a facility fee in the amount of Five Thousand Dollars ($5,000).

 

[Signature page follows.]

 

3

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

	
BANK
    	
BORROWERS
    
	
 
    	
 
    
	
SILICON   VALLEY BANK
    	
TRUECAR, INC.   (F/K/A ZAG.COM INC.)
    
	
 
    	
 
    
	
By:
    	
/s/ Jack Garza
    	
 
    	
By:
    	
/s/   James Nguyen
    
	
Name:
    	
Jack   Garza
    	
 
    	
Name:
    	
James   Nguyen
    
	
Title:
    	
Relationship   Manager
    	
 
    	
Title:
    	
CFO
    
	
 
    	
 
    
	
 
    	
TRUECAR.COM, INC.   (F/K/A/ TRUECAR, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   James Nguyen
    
	
 
    	
Name:
    	
James   Nguyen
    
	
 
    	
Title:
    	
CFO
    

 

 

THIRD AMENDMENT
 TO
 AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS THIRD AMENDMENT to Amended and Restated Loan and Security Agreement (this “Amendment”) is entered into this 9th day of February, 2012, by and between Silicon Valley Bank (“Bank”) and TRUECAR, INC. (F/K/A ZAG.COM INC.), a Delaware corporation and TRUECAR.COM, INC. (F/K/A TRUECAR, INC.), a Delaware corporation (each an “Existing Borrower” and collectively “Existing Borrowers”) and ALG, INC., a Delaware corporation (“New Borrower” and together with Existing Borrowers, each a “Borrower” and collectively, “Borrowers”) whose address is 225 Santa Monica Blvd., 12th Floor, Santa Monica, CA 90401.

 

RECITALS

 

A.                                    Bank and Existing Borrowers have entered into that certain Amended and Restated Loan and Security Agreement dated as of November 12, 2010, as amended from time to time, including by that certain First Amendment to Amended and Restated Loan and Security Agreement dated as of December 31, 2010 and that certain Second Amendment to Amended and Restated Loan Agreement dated as of November 11, 2011 (as the same may from time to time be further amended, modified, supplemented or restated, the “Loan Agreement”).

 

B.                                    Bank has extended credit to Existing Borrowers for the purposes permitted in the Loan Agreement.

 

C.                                    Existing Borrowers have requested that Bank amend the Loan Agreement to extend the maturity date and add New Borrower as a Borrower under the Loan Documents.

 

D.                                    Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

 

1.                                      Definitions.  Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

 

2.                                      Amendments to Loan Agreement.

 

2.1                               New Borrower is hereby added as a “Borrower” under the Loan Agreement and the other Loan Documents and shall have all rights and obligations of a Borrower thereunder. New Borrower hereby agrees to be bound by all the terms and

 

 

conditions of the Loan Agreement and the other Loan Documents and hereby makes to Bank all representations, warranties, grants of security interest and covenants contained in the Loan Agreement and the other Loan Documents as of the date hereof.

 

2.2                               Borrowers and Bank hereby agree that Borrowers may not request and Bank shall not make any additional Credit Extensions to Borrowers.

 

2.3                               Section 13 (Definitions). The following term and its definition set forth in Section 13.1 is amended in its entirety and replaced with the following:

 

“Revolving Formula Line Maturity Date” is March 31, 2012.

 

3.                                      Limitation of Amendments.

 

3.1                               The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

 

3.2                               This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

 

4.                                      Representations and Warranties.  To induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:

 

4.1                               Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) except as explicitly waived hereby, no Event of Default has occurred and is continuing;

 

4.2                               Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

 

4.3                               The organizational documents of Borrower delivered to Bank prior to the date of this Amendment remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

 

4.4                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

 

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4.5                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

 

4.6                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

 

4.7                               This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

 

5.                                      Counterparts.  This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

 

6.                                      Effectiveness.  This Amendment shall be deemed effective upon (i) the due execution and delivery to Bank of this Amendment by each party hereto (ii) the due execution and delivery to Bank of Borrowing Resolutions for New Borrower and (ii) payment by Borrowers’ of a facility fee in the amount of One Thousand Dollars ($1,000).

 

[Signature page follows.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

	
BANK
    	
BORROWERS
    
	
 
    	
 
    
	
SILICON   VALLEY BANK
    	
TRUECAR, INC.   (F/K/A ZAG.COM INC.)
    
	
 
    	
 
    
	
By:
    	
/s/   Jack Garza
    	
 
    	
 
    
	
Name:
    	
Jack   Garza
    	
 
    	
By:
    	
/s/   James Nguyen
    
	
Title:
    	
Relationship   Manager
    	
 
    	
Name:   
    	
James   Nguyen
    
	
 
    	
Title:
    	
EVP,   Corporate Development
    
	
 
    	
 
    
	
 
    	
TRUECAR.COM, INC.   (F/K/A/ TRUECAR, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   James Nguyen
    
	
 
    	
Name:
    	
James   Nguyen
    
	
 
    	
Title:
    	
EVP,   Corporate Development
    
	
 
    	
 
    
	
 
    	
ALG, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   James Nguyen
    
	
 
    	
Name:
    	
James   Nguyen
    
	
 
    	
Title:
    	
EVP,   Corporate Development
    

 

 

 

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of June 13, 2012 (the “Effective Date”) between SILICON VALLEY BANK, a California corporation (“Bank”), and TRUECAR, INC. (F/K/A ZAG.COM INC.), a Delaware corporation, TRUECAR.COM, INC. (F/K/A TRUECAR, INC.), a Delaware corporation and ALG, INC., a Delaware corporation (each a “Borrower” and collectively “Borrowers”), amends and restates the terms of that certain Loan and Security Agreement by and between Bank and Borrowers dated as of November 12, 2010, as amended from time to time (the “Existing Loan Agreement”, the Existing Loan Agreement and all other “Loan Documents (as such term is defined in the Existing Loan Agreement) are hereinafter collectively referred to as “Existing Loan Documents”), and provides the terms on which Bank shall lend to Borrowers and Borrowers shall repay Bank. The parties agree as follows:

 

1                                         ACCOUNTING AND OTHER TERMS

 

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

 

2                                         LOAN AND TERMS OF PAYMENT

 

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

 

2.1.1                     Revolving Advances.

 

(a)                                 Availability. Subject to the terms and conditions of this Agreement and to deduction of Reserves, Bank shall make Advances not exceeding the Availability Amount. Amounts borrowed hereunder may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

 

(b)                                 Termination; Repayment. The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

 

(c)                                  Verification. Bank may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, either in the name of Borrower or Bank or such other name as Bank may choose, provided that if no Event of Default has occurred and is continuing, Bank shall notify Borrower prior to making any direct contact with Borrower’s Account Debtors.

 

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

 

2.2                          Overadvances. If, at any time, the outstanding principal amount of any Advances exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrowers shall immediately pay to Bank in cash such excess.

 

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2.3                          Payment of Interest on the Credit Extensions.

 

(a)                                      Interest Rate for Advances, Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest (I) at all times until May 31, 2012, at a fixed per annum rate equal to eight percent (8.00%) and (II) at all times beginning on June 1, 2012, at a floating per annum rate equal to the Prime Rate plus the Applicable Margin, which interest shall be payable in accordance with Section 2.3(f) below.

 

(b)                                      Default Rate. Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.00%) above the rate that is otherwise applicable thereto (the “Default Rate”) unless Bank otherwise elects from time to time in its sole discretion to impose a smaller increase. Fees and expenses which are required to be paid by Borrowers pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

 

(c)                                       Adjustment to Interest Rate. Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.

 

(d)                                      Computation; 360-Day Year. In computing interest, the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension. Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed.

 

(e)                                       Debit of Accounts. Bank may debit any of Borrowers’ deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrowers owe Bank when due. These debits shall not constitute a set-off.

 

(1)                                 Interest Payment Date. Unless otherwise provided, interest is payable monthly on the first calendar day of each month.

 

2.4                          Fees. Borrowers shall pay to Bank:

 

(a)                                      Commitment Fee. A fully earned, non-refundable commitment fee of Twenty Thousand Dollars ($20,000) on the Effective Date;

 

(b)                                      Termination Fee. Subject to the terms of Section 12.1, a termination fee; and

 

(c)                                       Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due.

 

2.5                          Payments; Application of Payments.

 

(a)                                      All payments (including prepayments) to be made by Borrowers under any Loan Document shall be made in immediately available funds in U.S. Dollars, without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when due. Payments of principal and/or interest received after 12:00 p.m. Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.

 

(b)                                      Borrowers shall direct each Account Debtor (and each depository institution where proceeds of Accounts are on deposit) to remit payments with respect to the Accounts to either a lockbox account established with Bank or with Wells Fargo Bank or to wire transfer payments to a cash collateral account that Bank

 

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controls (the “Cash Collateral Account”). Any amounts received in the lockbox account referenced above shall be swept no less than weekly to the Cash Collateral Account.

 

(c)                                       Upon receipt by Borrowers of any proceeds of Accounts not in accordance with Section 2.5(b) above, Borrowers shall immediately transfer and deliver same to Bank, along with a detailed cash receipts journal.

 

(d)                                      Provided that a Streamline Period is in effect and no Event of Default exists or an event that with notice or lapse of time will be an Event of Default, within one (1) day of receipt of any proceeds of the Accounts by Bank (whether received by Bank to the Cash Collateral Account or directly from Borrowers, or otherwise), Bank will turn over to Borrowers such proceeds to Borrower. If a Streamline Period is not in effect, an Event of Default exists or an event that with notice or lapse of time will be an Event of Default exists, Bank shall apply any proceeds of the Accounts received by Bank (whether received by Bank to the Cash Collateral Account or directly from Borrowers, or otherwise) to immediately reduce the outstanding Obligations, with any excess remitted to Borrowers within one (1) Business Day.

 

(e)                                       This Section 2.5 does not impose any affirmative duty on Bank to perform any act other than as specifically set forth herein. All Accounts and the proceeds thereof are Collateral, and if an Event of Default occurs and is continuing, Bank may, without notice, apply the proceeds of such Accounts to the Obligations.

 

3                                         CONDITIONS OF LOANS

 

3.1                               Conditions Precedent to Initial Credit Extension. Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

 

(a)              duly executed original signatures to the Loan Documents;

 

(b)              duly executed original signatures to the Control Agreements, if any;

 

(c)               duly executed original signatures to the Warrant;

 

(d)                                      each Borrower’s Operating Documents and a good standing certificate of each Borrower certified by the Secretary of State of the State of Delaware as of a date no earlier than thirty (30) days prior to the Effective Date;

 

(e)                                       duly executed original signatures to the completed Borrowing Resolutions for each Borrower;

 

certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

 

(g)                                       executed copies of all documents entered into by Borrower in connection with the Permitted Loans;

 

(h)                                      the Perfection Certificates of Borrowers, together with the duly executed original signatures thereto;

 

(i)                                          evidence satisfactory to Bank that the insurance policies required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses or endorsements in favor of Bank;

 

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(j)                                         payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.

 

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

 

(a)                                 except as otherwise provided in Section 3.5, timely receipt of an executed Transaction Report;

 

(b)                                 the representations and warranties in this Agreement shall be true, accurate, and to the best of Borrowers’ knowledge, complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and to the best of Borrowers’ knowledge, complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrowers’ representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and to the best of Borrowers’ knowledge, complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and to the best of Borrowers’ knowledge, complete in all material respects as of such date; and

 

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

 

3.3                               Intentionally Omitted.

 

3.4                            Covenant to Deliver. Borrowers agree to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension. Borrowers expressly agree that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrowers’ obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion.

 

3.5                               Procedures for Borrowing. Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to obtain an Advance, the applicable Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Advance. Together with such notification, such Borrower must promptly deliver to Bank by electronic mail or facsimile a completed Transaction Report executed by a Responsible Officer or his or her designee. Bank shall credit Advances to the Designated Deposit Account. Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations which have become due. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee.

 

4                                         CREATION OF SECURITY INTEREST

 

4.1                               Grant of Security Interest. Each Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Each Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank. Regardless of the terms of any Bank Services Agreement, each Borrower agrees that any amounts a Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrowers and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that may have superior priority to Bank’s Lien in this Agreement).

 

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If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations and cash collateralized Bank Services) are satisfied in full, and at such time, Bank shall, at Borrowers’ sole cost and expense, terminate its security interest in the Collateral and all rights therein shall revert to Borrower. In the event (x) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrowers providing cash collateral acceptable to Bank in its good faith business judgment, consistent with Bank’s then current practice for Bank Services, if any. In the event such Bank Services consist of outstanding Letters of Credit, Borrowers shall provide to Bank cash collateral in an amount equal to (i) one hundred five percent (105%) if the Letter of Credit is denominated in U.S. Dollars or (ii) one hundred ten percent (110%) if the Letter of Credit is denominated in a Foreign Currency, of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit.

 

4.2                               Priority of Security Interest. Each Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement). If a Borrower shall acquire a commercial tort claim, such Borrower shall promptly notify Bank in a writing signed by such Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

 

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

 

5                                         REPRESENTATIONS AND WARRANTIES

 

Each Borrower represents and warrants as follows:

 

5.1                               Due Organization, Authorization; Power and Authority. Borrower is duly existing and in good standing as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business. In connection with this Agreement, Borrower has delivered to Bank completed certificates signed by each Borrower, entitled “Perfection Certificate”. Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Except as set forth in the Perfection Certificate, Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (0 all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement). If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.

 

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any

 

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Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect or (v) constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

 

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

 

The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate or as permitted pursuant to Section 7.2. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.

 

Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) nonexclusive licenses granted to its customers in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States, (b) over-the-counter software that is commercially available to the public and other non-material Intellectual Property licensed to Borrower, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate. To the best of Borrower’s knowledge, each Patent which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part. To the best of Borrower’s knowledge, no claim has been made in writing that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business.

 

Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.

 

5.3                               Intentionally Omitted..

 

5.4                               Litigation. Except as disclosed in the Perfection Certificate or as Borrower has given Bank notice pursuant to Section 6.2(h), there are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries that could reasonably be expected to involve an amount more than, individually or in the aggregate, One Hundred Thousand Dollars ($100,000).

 

5.5                               Financial Statements; Financial Condition. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations as of the dates and periods presented. There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

 

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

 

5.7                               Regulatory Compliance. Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company”

 

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or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005. To the best of Borrower’s knowledge, Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted.

 

5.8                               Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.

 

5.9                               Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required material tax returns and reports, and Borrower has timely paid all material foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower; provided that, Borrower may defer payment of any contested taxes, so long as Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, and (b) with respect to contested amounts in excess of One Hundred Thousand Dollars ($100,000), (i) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (ii) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”. Except as disclosed in writing to Bank, Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

5.10                        Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements (including for Permitted Loans) and not for personal, family, household or agricultural purposes.

 

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

 

5.12                        Definition of “Knowledge.” For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness, knowledge or awareness means the actual knowledge of the Responsible Officers and when made to the “best of Borrower’s knowledge,” means such knowledge or awareness after reasonable investigation, of the Responsible Officers.

 

6                                    AFFIRMATIVE COVENANTS

 

Borrowers shall do all of the following:

 

6.1                          Government Compliance.

 

(a)                            Maintain their and all their Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on a Borrower’s business or operations. Each

 

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Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on a Borrower’s business.

 

(b)                            Obtain all of the Governmental Approvals necessary for the performance by a Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of its property. At Bank’s request, Borrowers shall promptly provide copies of any such obtained Governmental Approvals to Bank.

 

6.2                          Financial Statements, Reports, Certificates. Deliver to Bank:

 

(a)                                 Transaction Report. A Transaction Report (and any schedules related thereto) (i) no later than Friday of each week when a Streamline Period is not in effect, (ii) no later than twenty (20) days after the end of each month when a Streamline Period is in effect and (iii) with each request for an Advance;

 

(b)                                 A/R and A/P Reports. Within twenty (20) days after the end of each month, (A) monthly accounts receivable agings, aged by invoice date, (B) monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, and (C) monthly reconciliations of accounts receivable agings (aged by invoice date), transaction reports and general ledger.

 

(c)                                  Monthly Financial Statements. As soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated and consolidating balance sheet and income statement covering Borrowers’ and each of their Subsidiary’s operations for such month certified by a Responsible Officer and in a form acceptable to Bank (the “Monthly Financial Statements”);

 

(d)                                 Monthly Compliance Certificate. Within thirty (30) days after the last day of each month and together with the Monthly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrowers were in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank shall reasonably request;

 

(e)                                  Annual Audited Financial Statements. As soon as available, but no later than one hundred eighty (180) days after the last day of Borrowers’ fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Bank in its reasonable discretion;

 

(f)                                   Other Statements. Within five (5) days of delivery, copies of all statements, reports and notices made available to each Borrower’s security holders or to any holders of Subordinated Debt;

 

(g)                                  SEC Filings. In the event that a Borrower becomes subject to the reporting requirements under the Exchange Act within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by such Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which such Borrower posts such documents, or provides a link thereto, on such Borrower’s website on the Internet at such Borrower’s website address;

 

(h)                                 Legal Action Notice. A prompt report of any legal actions pending or threatened in writing against a Borrower or any of its Subsidiaries that could result in damages or costs to a Borrower or any of its Subsidiaries of, individually or in the aggregate, One Hundred Thousand Dollars ($100,000) or more;

 

(i)                                     Board Approved Financial Projections. As soon as available, but no later than thirty (30) days prior to the last day of each Borrower’s fiscal year, board of director approved financial projections and any interim revisions thereto within fifteen (15) days of approval by such Borrower’s board of directors;

 

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(j)                                         IP Reporting Prompt written notice of (i) any material change in the composition of the Intellectual Property, (ii) the registration of any Copyright, including any subsequent ownership right of a Borrower in or to any Copyright, Patent or Trademark not shown in the IP Security Agreements, and (iii) a Borrower’s knowledge of an event that could reasonably be expected to materially and adversely affect the value of the Intellectual Property;

 

(k)                                      Milestone Reporting. Within thirty (30) days after the last day of each month, “milestone” reporting of the type that is normally shared with each Borrower’s board of directors; and

 

(1)                                 Other Financial Information. Budgets, sales projections, operating plans and other financial information reasonably requested by Bank.

 

6.3                          Intentionally Omitted.

 

6.4                          Taxes; Pensions. Timely file, and require each of their Subsidiaries to timely file, all material required tax returns and reports and timely pay, and require each of their Subsidiaries to timely pay, all material foreign, federal, state and local taxes, assessments, deposits and contributions owed by a Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

 

6.5                          Insurance. Keep their businesses and the Collateral insured for risks and in amounts standard for companies in Borrowers’ industry and location and as Bank may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Bank. All property policies shall have a lender’s loss payable endorsement showing Bank as lender loss payee and waive subrogation against Bank. All liability policies shall show, or have endorsements showing, Bank as an additional insured. All policies (or the loss payable and additional insured endorsements) shall provide that the insurer shall give Bank at least twenty (20) days notice before canceling, amending, or declining to renew its policy. At Bank’s request, each Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations. If a Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.

 

6.6                          Operating Accounts.

 

(a)                                      Maintain their primary and their Subsidiaries’ primary operating and other deposit accounts and securities accounts with Bank which accounts shall represent at least eighty five percent (85%) of the dollar value of Borrowers’ and such Subsidiaries accounts at all financial institutions.

 

(b)                                      Provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each Collateral Account that a Borrower at any time maintains, such Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of a Borrower’s employees and identified to Bank by such Borrower as such.

 

6.7                          Financial Covenants.

 

(a)                                 Tangible Net Worth. Maintain at all times, to be tested as of the last day of each month, unless otherwise noted, on a consolidating basis with respect to Borrowers and their Subsidiaries, a Tangible Net Worth of at least Thirty Five Million Dollars ($35,000,000) at all times starting on May 31, 2012, increasing (i) as

 

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the last day of each calendar quarter (starting with the calendar quarter ending June 30, 2012) by fifty percent (50%) of quarterly net income and (ii) immediately by an amount equal to fifty percent (50%) of any proceeds received by Borrowers from the sale of their equity securities or the incurrence of Subordinated Debt in excess of Twenty Million Dollars ($20,000,000).

 

(b)                                 Negative Free Cash Flow. To be tested as of the last day of each month, unless otherwise noted, on a consolidating basis with respect to Borrowers and their Subsidiaries, if during any month (starting with the month ending May 31, 2012), a Streamline Period is not in effect, and Borrower’s Free Cash Flow is negative, then the absolute value of the Free Cash Flow shall be no greater than Borrowers’ unrestricted cash divided by six (6).

 

6.8                            Protection and Registration of Intellectual Property Rights.

 

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

 

(b)                                      If a Borrower (i) obtains any Patent, registered Trademark, registered Copyright, registered mask work, or any pending application for any of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for any Patent or the registration of any Trademark, then such Borrower shall immediately provide written notice thereof to Bank and shall execute such intellectual property security agreements and other documents and take such other actions as Bank shall request in its good faith business judgment to perfect and maintain a first priority perfected security interest, subject to Permitted Liens, in favor of Bank in such property. If a Borrower decides to register any Copyrights or mask works in the United States Copyright Office, such Borrower shall: (x) provide Bank with at least fifteen (15) days prior written notice of such Borrower’s intent to register such Copyrights or mask works together with a copy of the application it intends to file with the United States Copyright Office (excluding exhibits thereto); (y) execute an intellectual property security agreement and such other documents and take such other actions as Bank may request in its good faith business judgment to perfect and maintain a first priority perfected security interest, subject to Permitted Liens, in favor of Bank in the Copyrights or mask works intended to be registered with the United States Copyright Office; and (z) record such intellectual property security agreement with the United States Copyright Office contemporaneously with filing the Copyright or mask work application(s) with the United States Copyright Office. Each Borrower shall promptly provide to Bank copies of all applications that it files for Patents or for the registration of Trademarks, Copyrights or mask works, together with evidence of the recording of the intellectual property security agreement necessary for Bank to perfect and maintain a first priority perfected security interest in such property, subject to Permitted Liens.

 

(c)                                       Provide written notice to Bank within thirty (30) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public). Borrowers shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.

 

6.9                            Litigation Cooperation. From the date hereof and continuing through the termination of this

 

Agreement, make available to Bank, without expense to Bank, on reasonable prior notice and at reasonable intervals, Borrowers and their officers, employees and agents and each Borrower’s books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrowers.

 

6.10                     Accounts.

 

(a)                                 Schedules and Documents Relating to Accounts. Borrower shall deliver to Bank transaction reports and schedules of collections, as provided in Section 6.2, on Bank’s standard forms; provided,

 

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

 

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

 

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

 

6.11                   Access to Collateral; Books and Records. Allow Bank, or its agents, at reasonable times, on five (5) Business Days’ notice (provided no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and copy any Borrower’s Books. The foregoing inspections and audits shall be at Borrowers’ expense, and the charge therefor shall be Eight Hundred Fifty Dollars ($850) per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses. In the event a Borrower and Bank schedule an audit more than ten (10) days in advance, and such Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies), such Borrower shall pay Bank a fee of One Thousand Dollars ($1,000) plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.

 

6.12                   Formation or Acquisition of Subsidiaries. At the time that a Borrower forms any majority-owned direct or indirect Subsidiary or acquires any majority-owned direct or indirect Subsidiary after the Effective Date, such Borrower shall, upon Bank’s reasonable request (a) cause such new Subsidiary (other than any Foreign Subsidiary) to provide to Bank a joinder to the Loan Agreement to cause such Subsidiary to become a Borrower hereunder together with such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Bank, provided that, Borrower shall pledge sixty-five percent (65%) of the direct or beneficial ownership interest of any new Foreign Subsidiary, and (c) provide to Bank all other documentation in form and substance satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section 6.12 shall be a Loan Document.

 

6.13                   Further Assurances. Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement. Deliver to Bank, within five (5) days after the same are sent or received, copies of all correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material adverse effect on any of the Governmental Approvals or otherwise on the operations of Borrowers or any of their Subsidiaries.

 

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7                                         NEGATIVE COVENANTS

 

No Borrower shall do any of the following without Bank’s prior written consent:

 

7.1                               Dispositions.                         Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out, obsolete or unneeded Equipment; (c) in connection with Permitted Liens and Permitted Investments; (d) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States; and (e) of property not otherwise permitted under this Section 7.1, having an aggregate book value not to exceed One Hundred Thousand Dollars ($100,000) in any fiscal year.

 

7.2                               Changes in Business, Management, Control, or Business Locations. (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) Borrower’s CEO ceases to hold such office with Borrower and a replacement satisfactory to Borrower’s Board of Directors is not made within thirty (30) days after his departure from Borrower; or (ii) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than forty percent (40%) of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to investors so long as Borrower identifies to Bank the investors prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction).

 

Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Twenty Thousand Dollars ($20,000) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Twenty Thousand Dollars ($20,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization. If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Twenty Thousand Dollars ($20,000) to a bailee (other than Collateral held at co-location sites with a value not in excess of Seven Hundred Fifty Thousand Dollars ($750,000)), and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank in its sole discretion.

 

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, provided that 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. (a) Create, incur, allow, or suffer 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, (b) permit any Collateral not to be subject to the first priority security interest granted herein, except for Permitted Liens, or (iii) enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, except pursuant to transactions that are otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein.

 

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

 

7.7                               Distributions; Investments. (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii)  Borrower may pay dividends solely in common stock; (iii) Borrower may repurchase the stock of former employees or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided such repurchase does not exceed in the aggregate of Fifty Thousand Dollars ($50,000) per fiscal year; and (iv) Borrower may make payments in cash in lieu of the issuance of fractional shares; or (b) directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.

 

7.8                               Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for (i) 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; (ii) transactions between or among Borrower and its Subsidiaries; (iii)     equity and bridge financings with Borrower’s existing investors, provided that any bridge financing shall constitute Subordinated Debt; (iv) Permitted Loans; and (v) transactions permitted pursuant to the terms of Section 7.2 hereof.

 

7.9                               Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to Bank.

 

7.10                        Compliance. Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

8                                         EVENTS OF DEFAULT

 

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

 

8.1                               Payment Default. Borrowers fail to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Revolving Line Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (a) or (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);

 

8.2                               Covenant Default.

 

(a)                                 Borrowers fail or neglect to perform any obligation in Sections 2.5, 6.2, 6.4, 6.5, 6.6, 6.7 or 6.10 or violate any covenant in Section 7; or

 

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

 

8.3                               Material Adverse Change. A Material Adverse Change occurs;

 

8.4                               Attachment; Levy; Restraint on Business.

 

(a)                                 (i) The service of process seeking to attach, by trustee or similar process, any funds of a Borrower or of any entity under the control of a Borrower (including a Subsidiary) on deposit or otherwise maintained with Bank or any Affiliate of Bank, or (ii) a notice of lien or levy is filed against any of a Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or

 

(b)                                 (i) any material portion of a Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents a Borrower from conducting any material part of its business;

 

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

 

8.6                          Other Agreements. There is, under any agreement to which a Borrower is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of One Hundred Thousand Dollars ($100,000); or (b) any default by a Borrower, the result of which could have a material adverse effect on a Borrower’s business;

 

8.7                               Judgments. One or more final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against a Borrower and the same are not, within ten (10) days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the discharge, stay, or bonding of such judgment, order, or decree);

 

8.8                               Misrepresentations. A Borrower or any Person acting for a Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;

 

8.9                               Subordinated Debt. Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability

 

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or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement or the Subordination Agreement.

 

9                                         BANK’S RIGHTS AND REMEDIES

 

9.1                               Rights and Remedies. While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

 

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

 

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

 

(c)                                  demand that Borrowers (i) deposit cash with Bank in an amount equal to one hundred ten percent (110%) of the Dollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrowers shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

 

(d)                                 terminate any FX Contracts;

 

(e)                                  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 a Borrower money of Bank’s security interest in such funds, and verify the amount of such account;

 

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

 

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

 

(h)                                 ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, a Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, 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, Borrowers’ rights under all licenses and all franchise agreements inure to Bank’s benefit;

 

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

 

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

 

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

 

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9.2                          Power of Attorney. Each Borrower hereby irrevocably appoints Bank as its lawful attorney-in- fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (0 transfer the Collateral into the name of Bank or a third party as the Code permits. Each Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Bank’s foregoing appointment as each 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                          Protective Payments. If a Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which such Borrower is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral. Bank will make reasonable efforts to provide Borrowers with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

 

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

 

9.5                          Bank’s Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrowers bear all risk of loss, damage or destruction of the Collateral.

 

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

 

9.7                          Demand Waiver. Each 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 such Borrower is liable.

 

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9.8                          Borrower Liability. Either Borrower may, acting singly, request Credit Extensions hereunder. Each Borrower hereby appoints the other as agent for the other for all purposes hereunder, including with respect to requesting Advances hereunder. Each Borrower hereunder shall be jointly and severally obligated to repay all Advances made hereunder, regardless of which Borrower actually receives said Advance, as if each Borrower hereunder directly received all Advances. Each Borrower waives (a) any suretyship defenses available to it under the Code or any other applicable law, including, without limitation, the benefit of California Civil Code Section 2815 permitting revocation as to future transactions and the benefit of California Civil Code Sections 1432, 2809, 2810, 2819, 2839, 2845, 2847, 2848, 2849, 2850, and 2899 and 3433, and (b) any right to require Bank to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy. Bank may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability. Notwithstanding any other provision of this Agreement or other related document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Bank under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.

 

10                             NOTICES

 

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrowers may change their mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.

 

	
If   to Borrowers
    	
 
    	
TRUECAR, INC.,   on behalf of all Borrowers

225   Santa Monica Blvd, 6th Floor

Santa   Monica, CA, 90401

Attn:   EVP, Corporate Development

Fax:   800.584.5004

Email:   jim@truecar.com
    
	
 
    	
 
    	
 
    
	
If   to Bank:
    	
 
    	
Silicon   Valley Bank

15260   Ventura Blvd., Suite 980

Sherman   Oaks, CA 91403 Attn: Jack Garza

Fax:   (818) 783-7984
   Email: jgarza@svb.com
    

 

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

 

California law governs the Loan Documents without regard to principles of conflicts of law. Borrowers and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the

 

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Obligations, or to enforce a judgment or other court order in favor of Bank. Each Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and each Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Each Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to such Borrower at the address set forth in, or subsequently provided by such Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of such Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

 

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

 

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

 

12                             GENERAL PROVISIONS

 

12.1                   Termination Prior to Revolving Line Maturity Date. This Agreement may be terminated prior to the Revolving Line Maturity Date by Borrowers, effective three (3) Business Days after written notice of termination is given to Bank. Notwithstanding any such termination and subject to Sections 4.1 and 12.10, Bank’s lien and security interest in the Collateral shall continue until Borrowers fully satisfy their Obligations. If such termination is at Borrowers’ election or at Bank’s election due to the occurrence and continuance of an Event of Default, Borrowers shall pay to Bank, in addition to the payment of any other expenses or fees then-owing, a termination fee in an amount equal to one percent (1.00%) of the Revolving Line, provided that no termination fee shall be charged if the credit facility hereunder is replaced with a new facility from another division of Bank.

 

12.2                   Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. No Borrower may assign this Agreement or any rights or obligations under it

 

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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 Borrowers, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.

 

12.3                   Indemnification. Borrowers agree to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “Indemnified Person”) harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrowers (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct.

 

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

 

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

 

12.6                   Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties so long as Bank provides Borrowers with written notice of such correction and allows Borrowers at least ten (10) days to object to such correction. In the event of such objection, such correction shall not be made except by an amendment signed by both Bank and Borrowers.

 

12.7                   Amendments in Writing; Waiver; Integration. No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought. Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

 

12.8                   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, is an original, and all taken together, constitute one Agreement.

 

12.9                   Intentionally Omitted.

 

12.10 Survival. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and obligations in respect of Bank Services that have been cash collateralized in accordance with Section 4.1) have been paid in full and satisfied. Without limiting the foregoing, except as otherwise provided in Section 4.1, the grant of security interest by Borrowers in Section 4.1 shall survive until the termination of all Bank Services Agreements. The obligation of Borrowers in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

 

12.11 Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates (provided that such Subsidiaries and Affiliates are bound by the same confidentiality obligation herein); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided,

 

19

 

however, Bank shall use its best efforts to obtain any prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (1) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank’s; or (ii) disclosed to Bank by a third party if Bank does not know that the third party is prohibited from disclosing the information.

 

Bank may use confidential information for the development of databases, reporting purposes, and market analysis so long as such confidential information is aggregated and anonymized prior to distribution unless otherwise expressly permitted by Borrowers. The provisions of the immediately preceding sentence shall survive the termination of this Agreement.

 

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

 

12.13 Electronic Execution of Documents. The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

 

12.14 Captions. The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

 

12.15 Construction of Agreement. The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

 

12.16 Relationship. The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

 

12.17 Third Parties. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

 

12.18 Effect of Amendment and Restatement. This Agreement amends and restates in its entirety the Existing Loan Agreement. Except for the Existing Loan Agreement (which is being amended and restated in its entirety by this Agreement), all other Existing Loan Documents shall continue in full force and effect and constitute Loan Documents, all security agreements (which shall continue to secure all present and future indebtedness, liabilities, guarantees and other Obligations), all lockbox agreements and blocked account agreements, all control agreements relating to deposit accounts, securities accounts or other accounts, all warrants to purchase stock or other securities or interests, all investor rights and other agreements relating to stock or securities, and all UCC-1 financing statements and other documents filed with governmental offices which perfect liens or security interests in favor of Bank. References in any such surviving Loan Documents to “Loan Agreement” shall be deemed to refer to this Agreement instead of the Existing Loan Agreement. Except as otherwise set forth herein, this Agreement is intended to and does completely amend and restate, without novation, the Existing Loan Agreement. All security interests granted under the Existing Loan Agreement are hereby confirmed and ratified and shall continue to secure all Obligations under this Agreement.

 

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13           DEFINITIONS

 

13.1        Definitions. As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative. As used in this Agreement, the following capitalized terms have the following meanings:

 

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

 

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

 

“Adjusted EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted in the calculation of Net Income, depreciation expense and amortization expense, plus (d) income tax expense plus (e) stock based compensation expense, plus (f) non-cash warrant expenses and other one time non-cash expenses.

 

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

 

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

 

“Agreement” is defined in the preamble hereof.

 

“Applicable Margin” means (i) one half of one percent (0.50%) at all times when a Streamline Period is in effect and (ii) two percent (2.00%) at all times when a Streamline Period is not in effect.

 

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

 

“Bank” is defined in the preamble hereof.

 

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrowers.

 

“Bank Services” are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to a Borrower or any of its Subsidiaries by Bank or any Affiliate of Bank, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s various agreements related thereto (each, a “Bank Services Agreement”).

 

“Borrower(s)” is defined in the preamble hereof.

 

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

 

“Borrowing Base” is eighty percent (80%) of Eligible Accounts as determined by Bank from Borrowers’ most recent Transaction Report; provided, however, that Bank may decrease the foregoing amounts and/or

 

21

 

percentages in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Copyrights” are 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.

 

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“Credit Extension” is any Advance or any other extension of credit by Bank for Borrowers’ benefit. 

 

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

 

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

 

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

 

“Designated Deposit Account” is a Borrower’s deposit account, account number 3300661754, maintained with Bank.

 

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.

 

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

 

“Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.

 

“Effective Date” is defined in the preamble hereof.

 

“Eligible Accounts” means Accounts which arise in the ordinary course of a Borrower’s business that meet all Borrowers’ representations and warranties in Section 5.3. Bank reserves the right upon prior written notice to Borrowers at any time after the Effective Date to adjust any of the criteria set forth below based on the results of periodic field exams and to establish new criteria in its good faith business judgment. Unless Bank otherwise agrees in writing, Eligible Accounts shall not include:

 

(a)         Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms;

 

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

 

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

 

(d)         Accounts billed and/or payable outside of the United States;

 

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

 

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

 

(g)          Accounts with credit balances over ninety (90) days from invoice date;

 

23

 

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

 

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

 

(j)            Accounts owing from an Account Debtor where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings);

 

(k)           Accounts subject to contractual arrangements between a Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of such Borrower’s failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts);

 

(I)          Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor’s satisfaction of a Borrower’s complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);

 

(m)          Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;

 

(n)           Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, the relevant Borrower, and the Account Debtor have entered into an agreement acceptable to Bank in its sole discretion wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from such Borrower (sometimes called “bill and hold” accounts);

 

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

 

(p)           Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of a Borrower’s business;

 

(q)           Accounts for which a Borrower has permitted Account Debtor’s payment to extend beyond 90 days;

 

(r)            Accounts subject to chargebacks or others payment deductions taken by an Account Debtor;

 

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

 

(t)            Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue);

 

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

 

(v)           Accounts for which Bank in its good faith business judgment after inquiry and consultation with Borrowers determines collection to be doubtful.

 

24

 

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

 

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

 

“Event of Default” is defined in Section 8.

 

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

 

“Free Cash Flow” is defined as Adjusted EBITDA minus capex and cash taxes, calculated on a monthly basis.

 

“Foreign Currency” means lawful money of a country other than the United States. 

 

“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

 

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

 

“FX Contract” is any foreign exchange contract by and between a Borrower and Bank under which a Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.

 

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

 

“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

 

“Governmental Approval” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

 

“Governmental Authority” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

 

“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.

 

“Indemnified Person” is defined in Section 12.2.

 

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

 

25

 

“Intellectual Property” means all of a Borrower’s right, title, and interest in and to the following:

 

(a)           its Copyrights, Trademarks and Patents;

 

(b)           any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;

 

(c)           any and all source code;

 

(d)           any and all design rights which may be available to a Borrower;

 

(e)           any and all claims for damages by way of past, present and future infringement of any of the foregoing, 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; and

 

(f)            all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.

 

“IP Agreements” are those certain Intellectual Property Security Agreements executed by Borrowers in favor of Bank dated as of the Effective Date

 

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

 

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

 

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

 

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

 

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

 

“Liquidity” is unrestricted cash of Borrowers’ held at Bank plus the Availability Amount.

 

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

 

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or financial condition of a Borrower since the Effective Date; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.

 

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“Monthly Financial Statements” is defined in Section 6.2(a).

 

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

 

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

 

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

 

“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

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

 

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

 

(c)          Subordinated Debt in an aggregate principal amount not to exceed Forty Million Dollars ($40,000,000) provided that the maturity of such Subordinated Debt is no earlier than June 13, 2013;

 

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

 

(e)          Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

 

(f)             Indebtedness with respect to surety bonds and similar obligations incurred in the ordinary course of business;

 

(g)          Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder;

 

(h)         intercompany Indebtedness that otherwise constitutes an Investment allowed under the definition of Permitted Investments;

 

(i)           unsecured Indebtedness incurred with Borrower’s corporate credit cards in an amount not exceeding Four Hundred Fifty Thousand Dollars ($450,000) in the aggregate;

 

(j)          extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (h) above, provided that the principal amount thereof is not increased or the

 

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terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be; and

 

(k)         other Indebtedness not otherwise permitted by Section 7.4 not exceeding One Hundred Thousand Dollars ($100,000) in the aggregate outstanding at any time;

 

“Permitted Investments” are:

 

(a)         Investments (including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate and;

 

(b)         (i) Investments consisting of Cash Equivalents, and (ii) any Investments permitted by a Borrower’s investment policy, as amended from time to time, provided that such investment policy (and any such amendment thereto) has been approved in writing by Bank;

 

(c)          Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of a Borrower;

 

(d)         Investments consisting of deposit accounts in which Bank has a perfected security interest;

 

(e)          Investments accepted in connection with Transfers permitted by Section 7.1;

 

(1)             Investments by one Borrower in another Borrower;

 

(g)             Permitted Loans;

 

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

 

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

 

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

 

“Permitted Liens” are:

 

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

 

(b)         Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

 

(c)          purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than One Million Dollars ($1,000,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;

 

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(d)         Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;

 

(e)          Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

 

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

 

(g)          leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, nonexclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;

 

(h)         non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States;

 

(i)           Liens securing Subordinated Debt;

 

(i)         Liens on insurance proceeds granted solely as security for financed premiums;

 

(k)        Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7; and

 

Liens in favor of other financial institutions arising in connection with Borrower’s or any Subsidiary’s deposit and/or securities accounts held at such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit and/or securities accounts.

 

“Permitted Loans” are (i) loans from TRUECAR, INC to Borrowers’ officers as listed in the Perfection Certificate and (ii) loans from TRUECAR, INC. to Borrowers’ officers for the purpose of purchasing equity securities of Borrowers in an amount not to exceed Two Million Dollars ($2,000,000).

 

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

 

“Prime Rate” means the Prime Rate published in the Money Rates section of the Western Edition of The Wall Street Journal, or such other rate of interest publicly announced from time to time by Bank as its Prime Rate. Bank may price loans to its customers at, above or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in Prime Rate.

 

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

 

“Requirement of Law” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other

 

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Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

“Reserves” means, as of any date of determination, such amounts as Bank may from time to time establish and revise in its reasonable business judgment, reducing the amount of Advances and other financial accommodations which would otherwise be available to Borrowers (a) to reflect events, conditions, contingencies or risks which, as determined by Bank in its reasonable business judgment, do or may adversely affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Accounts), (ii) the assets or business of a Borrower, or (iii) the security interests and other rights of Bank in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Bank’s reasonable belief that any collateral report or financial information furnished by or on behalf of a Borrower or any Guarantor to Bank is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Bank reasonably determines constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default.

 

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

 

“Restricted License” is any material license or other agreement with respect to which a Borrower is the licensee (a) that prohibits or otherwise restricts a Borrower from granting a security interest in such Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Bank’s right to sell any Collateral.

 

“Revolving Line” is a Advance or Advances in an amount equal to Eight Million Dollars ($8,000,000).

 

“Revolving Line Maturity Date” is March 30, 2013.

 

“SEC” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.

 

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

 

“Streamline Period” means any period of time where Borrowers’ maintained Liquidity of at least Fifteen Million Dollars ($15,000,000) at all times during the prior calendar month. If, after the Effective Date, Borrower falls below the foregoing, it must maintain Liquidity of at least Fifteen Million Dollars ($15,000,000) at all times for three consecutive months before a new Streamline Period will begin. Changes in the interest rate or reporting requirements based on Streamline Period eligibility shall take place on the first day of the month following the required delivery of the transaction report for the previous month. For example, the transaction report for May 2012 shall be delivered to Bank no later than June 20, 2012 and any changes based on Streamline Period eligibility for such month shall take effect on July 1, 2012.

 

“Subordinated Debt” is indebtedness incurred by a Borrower subordinated to all of such Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.

 

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of a Borrower. Notwithstanding the foregoing, a Person shall not be deemed to be a Subsidiary of another Person solely because both such Persons share a common management team

 

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“Tangible Net Worth” is, on any date, the consolidated total assets of Borrowers minus (a) any amounts attributable to goodwill and intangible items including unamortized debt discount and expense, Patents, Trademarks, Copyrights, and research and development expenses except prepaid expenses minus (b) Total Liabilities plus (c) Subordinated Debt.

 

“Total Liabilities” is on any day, obligations that should, under GAAP be classified as liabilities on Borrowers’ consolidated balance sheet, including all Indebtedness.

 

“Trademarks” means 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 a Borrower connected with and symbolized by such trademarks.

 

“Transaction Report” is that certain report of transactions and schedule of collections in the form attached hereto as Exhibit B.

 

“Transfer” is defined in Section 7.1.

 

“Warrant” means that certain Warrant to Purchase Stock executed by Truecar, Inc. in favor of Bank as of the Effective Date.

 

(Signature page follows.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first written above.

 

	
BANK
    	
BORROWERS
    
	
 
    	
 
    
	
SILICON   VALLEY BANK
    	
TRUECAR, INC.   (F/K/A ZAG.COM INC.)
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   Jack Garza
    	
 
    	
By:
    	
/s/   James Nguyen
    
	
Name:
    	
Jack   Garza
    	
Name:
    	
James   Nguyen
    
	
Title:
    	
Relationship   Manager
    	
Title:
    	
EVP,   Corporate Development
    
					

 

 

	
 
    	
TRUECAR.COM, INC.   (F/K/A TRUECAR, INC.)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   James Nguyen
    
	
 
    	
Name:
    	
James   Nguyen
    
	
 
    	
Title:
    	
EVP,   Corporate Development
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
ALG, INC.
    

 

 

EXHIBIT A — COLLATERAL DESCRIPTION

 

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

 

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

 

all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

 

Notwithstanding the foregoing, the Collateral does not include (i) property (and all substitutions, accessions, additions, attachments, accessories, improvements, replacements, products and proceeds thereto) subject to a lien described in clause (c) of the definition of Permitted Liens in which the granting of a security interest in such property or equipment is prohibited by or would constitute a default under any agreement or document governing such property, provided that upon the termination or lapsing of any such prohibition, such property shall automatically be part of the Collateral; (ii) property that constitutes the capital stock of a controlled foreign corporation (as defined in the Internal Revenue Code of 1986, as amended) in excess of sixty-five percent (65%) of the voting power of all classes of capital stock of such controlled foreign corporation entitled to vote.

 

2

 

EXHIBIT B — TRANSACTION REPORT

 

[Bank to provide directly]

 

1

 

EXHIBIT C

 

BORROWING RESOLUTIONS

 

SVB> Silicon Valley Bank

 

A Member of SVB Financial Group

 

CORPORATE BORROWING CERTIFICATE

 

	
BORROWER:   TRUECAR, INC. (F/K/A ZAG.COM INC.)
    	
DATE:   June 13, 2012
    
	
 
    	
 
    
	
BANK:
    	
Silicon Valley Bank
    
			

 

I hereby certify as follows, as of the date set forth above:

 

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

 

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

 

3.  Attached hereto are true, correct and complete copies of Borrower’s Articles/Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth in paragraph 2 above. Such Articles/Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

 

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

 

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

 

	
Name
    	
 
    	
Title
    	
 
    	
Signature
    	
 
    	
Authorized to Add or Remove
   Signatures
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Scott Painter
    	
 
    	
CEO
    	
 
    	
/s/ Scott painter
    	
 
    	
X
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Michael Guthrie
    	
 
    	
CFO
    	
 
    	
/s/ Michael Guthrie
    	
 
    	
X
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
James Nguyen
    	
 
    	
EVP Corp. Dev.
    	
 
    	
/s/ James Nguyen
    	
 
    	
X
    

 

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

 

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

 

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

Execute Loan Documents. Execute any loan documents Bank requires.

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

Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or other indebtedness in which

Borrower has an interest and receive cash or otherwise use the proceeds.

Warrants. Issue a warrant to purchase Borrower’s common stock.

 

1

 

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

 

RESOLVED FURTHER, that all acts authorized by the above resolutions and any prior acts relating thereto are ratified. 5. 

 

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

 

	
 
    	
TRUECAR, INC.   (F/K/A ZAG.COM INC.)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/James   Nguyen
    
	
 
    	
Name:   
    	
James   Nguyen
    
	
 
    	
Title:   
    	
EVP   Corp Development
    

 

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

 

I, the CFO of Borrower, hereby certify as to paragraphs 1 through 5 above, asof the date set forth above.

 

	
 
    	
By:   
    	
/s/   Michael Guthrie
    
	
 
    	
 
    	
 
    
	
 
    	
Name:   
    	
Michael   Guthrie
    
	
 
    	
 
    	
 
    
	
 
    	
Title:   
    	
CFO
    

 

 

BORROWING RESOLUTIONS

 

SVB)SiliconValleyBank

A Member of SVB Financial Group

 

CORPORATE BORROWING CERTIFICATE

 

	
BORROWER:   TRUECAR.COM, INC. (F/K/A TRUECAR, INC.)
    	
DATE: June 13, 2012
    	
 
    
	
BANK:
    	
Silicon   Valley Bank
    	
 
    
				

 

I hereby certify as follows, as of the date set forth above:

 

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

 

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

 

3.    Attached hereto are true, correct and complete copies of Borrower’s Articles/Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth in paragraph 2 above. Such Articles/Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

 

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

 

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

 

	
Name
    	
 
    	
Title
    	
 
    	
Signature
    	
 
    	
Authorized to Add or Remove 
   Signatures
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Scott Painter
    	
 
    	
CEO
    	
 
    	
/s/ Scott painter
    	
 
    	
X
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Michael Guthrie
    	
 
    	
CFO
    	
 
    	
/s/ Michael Guthrie
    	
 
    	
X
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
James Nguyen
    	
 
    	
EVP Corp. Dev.
    	
 
    	
/s/ James Nguyen
    	
 
    	
X
    

 

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

 

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

 

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

Execute Loan Documents. Execute any loan documents Bank requires. 

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

Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or other indebtedness in which Borrower has an interest and receive cash or otherwise use the proceeds. Further Acts. Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including documents or agreement that waive Borrowers right to a jury trial) they believe to be necessary to effectuate such resolutions.

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

Further Acts. Designate other individuals to request advances, pay fees and costs and execute other documents or agreements

 

 

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

 

	
 
    	
TRUECAR, INC.   (F/K/A ZAG.COM INC.)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/James   Nguyen
    
	
 
    	
Name:   
    	
James   Nguyen
    
	
 
    	
Title:   
    	
EVP   Corp Development
    

 

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

 

I, the CFO of Borrower, hereby certify as to paragraphs 1 through 5 above, asof the date set forth above.

	
 
    	
By: 
    	
/s/ Michael Guthrie
    
	
 
    	
Name:   
    	
Michael   Guthrie
    
	
 
    	
Title:   
    	
CFO
    

 

 

BORROWING RESOLUTIONS

 

SVB)SiliconValleyBank

A Member of SVB Financial Group

 

CORPORATE BORROWING CERTIFICATE

 

	
BORROWER:   ALG, INC.
    	
DATE: June 13, 2012
    	
 
    
	
BANK:
    	
Silicon   Valley Bank
    	
 
    
				

 

I hereby certify as follows, as of the date set forth above:

 

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

 

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

 

3.    Attached hereto are true, correct and complete copies of Borrower’s Articles/Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth in paragraph 2 above. Such Articles/Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof,

 

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

 

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

 

	
Name
    	
 
    	
Title
    	
 
    	
Signature
    	
 
    	
Authorized to Add or Remove 
   Signatures
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Scott Painter
    	
 
    	
CEO
    	
 
    	
/s/ Scott painter
    	
 
    	
X
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Michael Guthrie
    	
 
    	
CFO
    	
 
    	
/s/ Michael Guthrie
    	
 
    	
X
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
James Nguyen
    	
 
    	
EVP Corp. Dev.
    	
 
    	
/s/ James Nguyen
    	
 
    	
X
    

 

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

 

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

 

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

Execute Loan Documents. Execute any loan documents Bank requires.

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

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

Warrants. Issue a warrant to purchase Borrower’s common stock.

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

 

 

RESOLVED FURTHER, that all acts authorized by the above resolutions and any prior acts relating thereto are ratified. 5. 

 

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

 

	
 
    	
TRUECAR, INC.   (F/K/A ZAG.COM INC.)
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/James   Nguyen
    
	
 
    	
Name:   James Nguyen
    
	
 
    	
Title:   EVP Corp Development
    

 

 

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

 

I, the CFO of Borrower, hereby certify as to paragraphs 1 through 5 above, asof the date set forth above.

 

 

	
 
    	
By:   
    	
/s/   Michael Guthrie
    
	
 
    	
 
    
	
 
    	
Name:   Michael Guthrie
    
	
 
    	
 
    
	
 
    	
Title:   CFO
    

 

 

EXHIBITD

 

COMPLIANCE CERTIFICATE

 

	
TO:
    	
SILICON   VALLEY BANK
    	
Date:
    	
 
    
	
FROM:   
    	
TRUECAR, INC.   (F/K/A ZAG.COM INC., on behalf of all Borrowers
    

 

The undersigned authorized officer of TRUECAR, INC. (F/KJA ZAG.COM INC.) certifies that under the terms and conditions of the Second Amended and Restated Loan and Security Agreement between Borrowers and Bank (the “Agreement”):

 

(1) Borrowers are in complete compliance for the period ending                     with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and to the best of Borrowers’ knowledge, complete in all material respects as of such date; (4) each Borrower, and each of their Subsidiaries, has timely filed all required material tax returns and reports, and each Borrower has timely paid all material foreign, federal, state and local taxes, assessments, deposits and contributions owed by such Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against a Borrower relating to unpaid employee payroll or benefits of which such Borrower has not previously provided written notification to Bank.

 

Attached are the required documents supporting the certification. The undersigned certifies that the attached financial statements are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes and except, in the cases of unaudited financial statements for the absence of footnotes and subject to year-end adjustments. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrowers are not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

 

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

 

	
Renortinit Covenant
    	
 
    	
Required
    	
 
    	
Complies
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Monthly   financial statements with Compliance Certificate
    	
 
    	
Monthly   within 30 days
    	
 
    	
Yes No
    
	
Transaction   Report
    	
 
    	
Weekly   when not on Streamline, Monthly within 20 days when on Streamline and with   each request for an Advance
    	
 
    	
Yes No
    
	
Annual   financial statement (CPA Audited)
    	
 
    	
FYE   within 180 days
    	
 
    	
Yes No
    
	
10-Q,   10-K and 8-K
    	
 
    	
Within   5 days after filing with SEC
    	
 
    	
Yes No
    
	
AIR &   A/P Agings
    	
 
    	
Monthly   within 20 days when Advances outstanding
    	
 
    	
Yes No
    
	
Annual   Projections
    	
 
    	
30   days prior to FYE and interim revisions within 15 days of board approval
    	
 
    	
Yes No
    
	
Milestone   Reporting
    	
 
    	
Monthly   within 30 days
    	
 
    	
Yes No
    
	
Accounts   at Bank or Bank’s Affiliates
    	
 
    	
85%   of all Accounts
    	
 
    	
Yes No
    

 

3

 

	
Financial Covenant
    	
 
    	
Required
    	
 
    	
Actual
    	
 
    	
Complies
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Maintain   on a Monthly Basis:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Minimum   Tangible Net Worth
    	
 
    	
See   attached Schedule 1
    	
 
    	
$
    	
 
    	
 
    	
Yes No
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Negative   Free Cash Flow
    	
 
    	
See   attached Schedule 1
    	
 
    	
$
    	
 
    	
 
    	
Yes No
    

 

	
Streamline Calculation
    	
 
    	
Required
    	
 
    	
Actual
    	
 
    	
Streamline in Effect
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Lowest   Liquidity during prior calendar month
    	
 
    	
$
    	
15,000,000
    	
 
    	
$
    	
 
    	
 
    	
Yes No
    
									

 

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

 

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

 

	
 
    
	
 
    

 

TRUECAR, INC. (F/K/A ZAG.COM INC.) on behalf of BANK USE ONLY itself and the other Borrowers

 

	
 
    	
Received by:
    	
 
    
	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    	
Date:
    
	
Name:
    	
 
    	
 
    	
 
    
	
Title: 
    	
 
    	
 
    	
Verified:
    	
 
    
	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
Date:
    
	
 
    	
 
    
	
 
    	
Compliance Status: 
    	
Yes No
    
							

 

4

 

Schedule 11 to Compliance Certificate
 Financial Covenants of Borrowers

 

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

 

Dated:                            

 

I.                                        Tangible Net Worth (Section 6.7(a))

 

Required:                                 (Thirty Five Million Dollars ($35,000,000) at all times starting on May 31, 2012, increasing (1) as the last day of each calendar quarter (starting with the calendar quarter ending June 30, 2012) by fifty percent (50%) of quarterly net income and (ii) immediately by an amount equal to fifty percent (50%) of any cash proceeds received by Borrowers from the sale of their equity securities or the incurrence of Subordinated Debt in excess of Twenty Million Dollars ($20,000,000).)

 

Actual:

 

	
A.
    	
Total   Assets of Borrowers
    	
 
    
	
 
    	
 
    	
 
    
	
B.
    	
Intangible   Assets of Borrowers
    	
 
    
	
 
    	
 
    	
 
    
	
C.
    	
Total   Liabilities of Borrowers
    	
 
    
	
 
    	
 
    	
 
    
	
D.
    	
Subordinated   Debt
    	
 
    
	
 
    	
 
    	
 
    
	
E.
    	
Tangible   Net Worth (Line A minus Line B minus line   C plus line D)
    	
 
    

 

 Is line E equal to or greater than the amount required above?

 

                  No, not in compliance         Yes, in compliance

 

5

 

	
I.
    	
Negative   Free Cash Flow (Section 6.7(b))
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Required: Not greater than $                         (Borrowers’ unrestricted cash divided by 6)
    	
$
    	
 
    
	
 
    	
 
    	
 
    
	
Actual:
    	
 
    	
$
    	
 
    

 

	
A.
    	
Net   Income
    	
 
    
	
 
    	
 
    	
 
    
	
B.
    	
Interest   Expense
    	
 
    
	
 
    	
 
    	
 
    
	
C.
    	
Depreciation
    	
 
    
	
 
    	
 
    	
 
    
	
D.
    	
Amortization
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
E.
    	
Income   Tax Expense
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
F.
    	
Stock   Based Compensation Expense
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
G.
    	
Non-Cash   Warrant Expense and other one time Non-Cash Expenses
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
H.
    	
Adjusted   EBITDA (Line A plus line B plus the extent deducted in the calculation of Net   Income lines C, and D plus fine E plus line F plus line G
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
I.
    	
Capex
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
J.
    	
Cash   Taxes
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
K.
    	
Free   Cash Flow (Line H minus Line I minus line   J)
    	
 
    	
 
    

 

Is line K equal to or greater than the amount required above?

 

                  No, not in compliance          Yes, in compliance

 

6

 

FIRST AMENDMENT

TO

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS FIRST AMENDMENT to Second Amended and Restated Loan and Security Agreement (this “Amendment”) is entered into this 11th day of October, 2012, by and between Silicon Valley Bank (“Bank”) and TRUECAR, INC. (F/KIA ZAG.COM INC.), a Delaware corporation, TRUECAR.COM, INC. (F/KIA TRUECAR, INC.), a Delaware corporation and ALG, INC., a Delaware corporation (each a “Borrower” and collectively, “Borrowers”) whose address is 120 Broadway, Santa Monica, CA 90401.

 

RECITALS

 

A.                                    Bank and Borrowers have entered into that certain Second Amended and Restated Loan and Security Agreement dated as of June 13, 2012 (as the same may from time to time be amended, modified, supplemented or restated, the “Loan Agreement”).

 

B.                                    Bank has extended credit to Borrowers for the purposes permitted in the Loan Agreement.

 

C.                                    Borrowers are currently in default of the Loan Agreement for failing to comply with the reporting covenants set forth in (i) Sections 6.2(a), 6.2(b), 6.2(c), and 6.2(d) of the Loan Agreement for the June 2012 through August 2012 reporting periods for failing to timely deliver Borrower’s Transaction Report, accounts receivable agings, accounts payable agings, monthly reconciliations of accounts receivable agings, Monthly Financial Statements, and Compliance Certificates, and (ii) Section 6.2(e) for the 2011 fiscal year for failing to timely deliver annual audited financial statements by the date required thereunder (the “Existing Defaults”).

 

D.                                    Borrowers have requested that Bank amend the Loan Agreement to revise the lockbox provisions of the Loan Agreement, and waive the Existing Defaults as more fully set forth below.

 

E.                                    Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

 

AGREEMENT

 

Now, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

 

1.                                 Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

 

2.                                 Waiver. Bank hereby waives the Existing Defaults.

 

 

3.                                      Amendments to Loan Agreement.

 

3.1                               Section 2.5 (Payments; Application of Payments). Sections 2.5(b) and 2.5(c) of the Loan Agreement hereby are amended and restated in their entirety as follows:

 

“(b) Borrowers shall direct each Account Debtor (and each depository institution where proceeds of Accounts are on deposit) to remit payments with respect to the Accounts to either a lockbox account established with Bank or with Wells Fargo Bank or to wire transfer payments to a cash collateral account that Bank controls (the “Cash Collateral Account”). Any amounts received in the lockbox account referenced above shall be swept no less than once every two (2) weeks to the Cash Collateral Account.

 

(c)                                  Upon receipt by Borrowers of any proceeds of Accounts not in accordance with Section 2.5(b) above, Borrowers shall immediately transfer and deliver same to the lockbox account referenced in Section 2.5(b) above”.

 

3.1                               Section 10 (NOTICES). The contact information for the Borrowers as set forth in Section 10 of the Loan Agreement hereby is deleted and replaced with the following:

 

	
“If to Borrowers:
    	
 
    	
TRUECAR, INC.,   on behalf of all Borrowers

120   Broadway

Santa   Monica, CA 90401

Attn:   EVP, Corporate Development

Fax:   800.584.5004

Email:   jim@truecar.com”
    

 

4.                                      Limitation of Amendments.

 

4.1                               The amendments set forth in Section 3, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

 

4.2                               This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

 

5.                                      Representations and Warranties. To induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:

 

 

5.1                               Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) except as explicitly waived hereby, no Event of Default has occurred and is continuing;

 

5.2                               Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

 

5.3                               The organizational documents of Borrower delivered to Bank prior to the date of this Amendment remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

 

5.4                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

 

5.5                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

 

5.6                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

 

5.7                               This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

 

6.                                      Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

 

7.                                      Effectiveness. This Amendment shall be deemed effective upon (i) the due execution and delivery to Bank of this Amendment by each party hereto and (ii) the due execution and delivery to Bank of Borrowing Resolutions for each Borrower.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

	
BANK
    	
 
    	
BORROWERS
    
	
 
    	
 
    	
 
    
	
SILICON   VALLEY BANK
    	
 
    	
TRUECAR, INC.   (F/K/A ZAG.COM INC.)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Victor Le
    	
 
    	
By:
    	
/s/   Michael Guthrie
    
	
Name:
    	
Victor   Le
    	
 
    	
Name:
    	
Michael   Guthrie
    
	
Title:
    	
Relationship   Manager
    	
 
    	
Title:
    	
CFO
    
	
 
    	
 
    	
TRUECAR.CO, INC.   (F/K/A TRUECAR, INC.)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   Michael Guthrie
    
	
 
    	
 
    	
Name:
    	
Michael   Guthrie
    
	
 
    	
 
    	
Title:
    	
CFO
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
ALG, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   Michael Guthrie
    
	
 
    	
 
    	
Name:
    	
Michael   Guthrie
    
	
 
    	
 
    	
Title:
    	
CFO
    

 

 

(Signature Page to First Amendment to

Second Amended and Restated Loan and Security Agreement]

 

 

SECOND AMENDMENT

TO

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

This Second Amendment to Second Amended and Restated Loan and Security Agreement (this “Amendment”) is entered into as of June 13, 2013, to be effective as of June 13, 2013, by and between Silicon Valley Bank (“Bank”) and TrueCar, Inc., a Delaware corporation, TrueCar.com, Inc., a Delaware corporation, and ALG, Inc., a Delaware corporation (each a “Borrower” and collectively, “Borrowers”) whose address is 225 Santa Monica Boulevard, 6th Floor, Santa Monica, CA 90401.

 

RECITALS

 

A.                                    Bank and Borrowers have entered into that certain Second Amended and Restated Loan and Security Agreement dated as of June 13, 2012 (as the same has been and may from time to time be further amended, modified, supplemented or restated, the “Loan Agreement”).

 

B.                                    Bank has extended credit to Borrowers for the purposes permitted in the Loan Agreement.

 

C.                                    Borrowers have requested that Bank amend the Loan Agreement to (i) increase the amount available to be borrowed under the Revolving Line, (ii) extend the maturity date, (iii) lower the interest rate payable on the Advances, and (iv) make certain other revisions to the Loan Agreement as more fully set forth herein.

 

D.                                    Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

 

1.                                      Definitions.  Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

 

2.                                      Amendments to Loan Agreement.

 

2.1                               Section 2.3 (Payment of Interest on the Credit Extensions).  Section 2.3(a) is amended in its entirety and replaced with the following:

 

(a)                                 Interest Rate for Advances.  Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the Prime Rate plus the Applicable Margin, which interest shall be payable in accordance with Section 2.3(f) below.

 

1

 

2.2                               Section 2.5 (Payments; Application of Payments).  Sections 2.5(b) and (c) are amended in their entirety and replaced with the following:

 

(a)                                 Borrowers shall direct each Account Debtor (and each depository institution where proceeds of Accounts are on deposit) to remit payments with respect to the Accounts to a lockbox account established with Bank or to wire transfer payments to a cash collateral account that Bank controls (collectively, the “Lockbox”).  It will be considered an immediate Event of Default if the Lockbox is not established and operational within one hundred twenty (120) days from the Second Amendment Date and at all times thereafter.

 

(b)                                 Until such Lockbox is established, the proceeds of the Accounts shall continue to be paid by the Account Debtors to Borrowers’ lockbox account maintained with Wells Fargo Bank.  Any amounts received in the Wells Fargo lockbox account shall be swept no less than once every two (2) weeks to Borrowers’ cash collateral account maintained with Bank.  Upon receipt by Borrowers of any proceeds of Accounts not in accordance with Section 2.5(b) above or this Section 2.5(c), Borrowers shall immediately transfer and deliver same to Bank, along with a detailed cash receipts journal.

 

2.3                               Section 2.5 (Payments; Application of Payments).  Section 2.5(d) is amended by deleting the parentheticals in their entirety and replacing each with the following:

 

(whether received by Bank in the Lockbox, the lockbox account of Borrowers at Wells Fargo (which lockbox account is being transitioned to Bank pursuant to Section 2.5(b) above), directly from Borrowers, or otherwise)

 

2.4                               Section 6.2 (Financial Statements, Reports, Certificates).  Sections 6.2(a) and (b) are amended in their entirety and replaced with the following:

 

(a)                                 Transaction Report and A/R Agings.  A Transaction Report (and any schedules related thereto) and accounts receivable agings, aged by invoice date, (i) no later than Friday of each week when a Streamline Period is not in effect, (ii) no later than twenty (20) days after the end of each month when a Streamline Period is in effect, and (iii) with each request for an Advance;

 

(b)                                 A/R and A/P Reports.  Within twenty (20) days after the end of each month, (A) monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, and (B) monthly reconciliations of accounts receivable agings (aged by invoice date), transaction reports and general ledger;

 

2.5                               Section 6.7 (Financial Covenants).  Section 6.7 is amended in its entirety and replaced with the following:

 

6.7                               Financial Covenants.  Maintain at all times, subject to periodic reporting as of the last day of each month:

 

(a)                                 Adjusted Quick Ratio.  A ratio of Borrowers’ Quick Assets to all Obligations of Borrowers to Bank of not less than 1.50 to 1.00.

 

2

 

2.6                               Section 13 (Definitions).  The following terms and their respective definitions set forth in Section 13.1 are amended in their entirety and replaced with the following:

 

“Applicable Margin” means (i) if Borrowers’ Liquidity is less than Ten Million Dollars ($10,000,000), one and three-quarters percent (1.75%), (ii) if Borrowers’ Liquidity is equal to or greater than Ten Million Dollars ($10,000,000), but less than Twenty Million Dollars ($20,000,000), one-half of one percent (0.50%), and (iii) if Borrowers’ Liquidity is equal to or greater than Twenty Million Dollars ($20,000,000), zero percent (0.00%).

 

“Revolving Line” is an Advance or Advances in an aggregate amount of up to Twelve Million Dollars ($12,000,000).

 

“Revolving Line Maturity Date” is June 13, 2014.

 

2.7                               Section 13 (Definitions).  The following terms and their respective definitions are added to Section 13.1, in appropriate alphabetical order, as follows:

 

“Second Amendment” is that certain Second Amendment to Second Amended and Restated Loan and Security Agreement by and between Bank and Borrowers dated as of June ___, 2013 (the “Second Amendment Date”).

 

“Lockbox” is defined in Section 2.5(b) of this Agreement.

 

“Quick Assets” is, on any date, Borrowers’ unrestricted cash and Cash Equivalents maintained with Bank plus Eligible Accounts.

 

2.8                               Section 13 (Definitions).  The references to “Fifteen Million Dollars ($15,000,000)” in the definition of “Streamline Period” in Section 13.1 are replaced with “Eight Million Dollars ($8,000,000)”.

 

2.9                               Section 13 (Definitions).  The following terms and their respective definitions set forth in Section 13.1 are deleted in their entirety: “Adjusted EBITDA,” “Free Cash Flow,” “Interest Expense,” “Net Income,” “Tangible Net Worth,” and “Total Liabilities.”

 

2.10                        Exhibit D (Compliance Certificate).  Exhibit D to the Loan Agreement is amended in its entirety and replaced with Exhibit D attached hereto.

 

3.                                      Limitation of Amendments.

 

3.1                               The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

 

3

 

3.2                               This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

 

4.                                      Representations and Warranties.  To induce Bank to enter into this Amendment, Borrowers hereby represent and warrant to Bank as follows:

 

4.1                               Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

 

4.2                               Borrowers have the power and authority to execute and deliver this Amendment and to perform their obligations under the Loan Agreement, as amended by this Amendment;

 

4.3                               The organizational documents of Borrowers most recently delivered to Bank remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

 

4.4                               The execution and delivery by Borrowers of this Amendment and the performance by Borrowers of their obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

 

4.5                               The execution and delivery by Borrowers of this Amendment and the performance by Borrowers of their obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any material law or regulation binding on or affecting any Borrower, (b) any material contractual restriction with a Person binding on any Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on any Borrower, or (d) the organizational documents of any Borrower;

 

4.6                               The execution and delivery by Borrowers of this Amendment and the performance by Borrowers of their obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on any Borrower, except as already has been obtained or made; and

 

4.7                               This Amendment has been duly executed and delivered by Borrowers and is the binding obligation of Borrowers, enforceable against Borrowers in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

 

4

 

5.                                      Integration.  This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.

 

6.                                      Counterparts.  This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

 

7.                                      Effectiveness.  This Amendment shall be deemed effective as of June 13, 2013, upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) the due execution and delivery to Bank of an amendment to the Warrant in substantially the form attached hereto as Exhibit A, (c) Borrowers’ payment of an amendment and renewal fee in an amount equal to Twenty-Four Thousand Dollars ($24,000) and (d) payment of Bank’s legal fees and expenses in connection with the negotiation and preparation of this Amendment.

 

[Signature page follows.]

 

5

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

 

	
BANK
    	
BORROWERS
    
	
 
    	
 
    
	
Silicon   Valley Bank
    	
TrueCar, Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   Victor Le
    	
 
    	
By:
    	
/s/   Michael Guthrie
    
	
Name:
    	
Victor   Le
    	
 
    	
Name:
    	
Michael   Guthrie
    
	
Title:
    	
Vice   President
    	
 
    	
Title:
    	
CFO
    
	
 
    	
 
    
	
 
    	
TrueCar.com, Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael Guthrie
    
	
 
    	
Name:
    	
Michael   Guthrie
    
	
 
    	
Title:
    	
CFO
    
	
 
    	
 
    
	
 
    	
ALG, Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael Guthrie
    
	
 
    	
Name:
    	
Michael   Guthrie
    
	
 
    	
Title:
    	
CFO
    

 

[Signature Page to Second Amendment to 
 Second Amended and Restated Loan and Security Agreement]

 

 

EXHIBIT A

 

AMENDMENT TO WARRANT

 

[See attached.]

 

 

EXHIBIT D

 

COMPLIANCE CERTIFICATE

 

	
TO:
    	
SILICON   VALLEY BANK
    	
Date:   _________________
    
	
FROM:
    	
TRUECAR, INC.,   on behalf of all Borrowers
    	
 
    

 

The undersigned authorized officer of TrueCar, Inc., on behalf of itself, TrueCar.com, Inc. and ALG, Inc. (collectively, “Borrowers”) certifies that under the terms and conditions of the Second Amended and Restated Loan and Security Agreement between Borrowers and Bank (the “Agreement”):

 

(1) Borrowers are in complete compliance for the period ending _______________ with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and, to the best of Borrowers’ knowledge, complete in all material respects as of such date; (4) each Borrower, and each of its Subsidiaries, has timely filed all required material tax returns and reports, and each Borrower has timely paid all material foreign, federal, state and local taxes, assessments, deposits and contributions owed by such Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against a Borrower relating to unpaid employee payroll or benefits of which such Borrower has not previously provided written notification to Bank.

 

Attached are the required documents supporting the certification.  The undersigned certifies that the attached financial statements are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes and except, in the cases of unaudited financial statements, for the absence of footnotes and subject to year-end adjustments.  The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrowers are not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

 

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

 

	
Reporting Covenants
    	
 
    	
Required
    	
 
    	
Complies
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Monthly   financial statements with Compliance Certificate
    	
 
    	
Monthly   within 30 days
    	
 
    	
Yes  No
    
	
Transaction   Report, A/R Agings
    	
 
    	
Weekly   when not on Streamline, Monthly within 20 days when on Streamline and with   each request for an Advance
    	
 
    	
Yes  No
    
	
Annual   financial statement (CPA Audited) + CC
    	
 
    	
FYE   within 180 days
    	
 
    	
Yes  No
    
	
10-Q,   10-K and 8-K
    	
 
    	
Within   5 days after filing with SEC
    	
 
    	
Yes  No
    
	
A/P   Agings
    	
 
    	
Monthly   within 20 days
    	
 
    	
Yes  No
    
	
Annual   Projections
    	
 
    	
30   days prior to FYE and interim revisions within 15 days of board approval
    	
 
    	
Yes  No
    
	
Milestone   Reporting
    	
 
    	
Monthly   within 30 days
    	
 
    	
Yes  No
    
	
Accounts   at Bank or Bank’s Affiliates
    	
 
    	
85%   of all Accounts
    	
 
    	
Yes  No
    

 

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

 

 

 

	
Financial Covenants
    	
 
    	
Required
    	
 
    	
Actual
    	
 
    	
Complies
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Maintain   on a Monthly Basis:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Minimum Adjusted Quick Ratio
    	
 
    	
1.50:1.00
    	
 
    	
___ :1.00
    	
 
    	
Yes  No
    

 

	
Performance Pricing
    	
 
    	
 
    	
 
    	
Applies
    
	
Liquidity   < $10,000,000
    	
 
    	
Prime   + 1.75%
    	
 
    	
Yes No
    
	
$10,000,000 < Liquidity < $20,000,000
    	
 
    	
Prime   + 0.50%
    	
 
    	
Yes No
    
	
Liquidity   > $20,000,000
    	
 
    	
Prime   + 0.00%
    	
 
    	
Yes No
    

 

	
Streamline Calculation
    	
 
    	
Required
    	
 
    	
Actual
    	
 
    	
Complies
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Lowest   Liquidity during prior calendar month
    	
 
    	
$8,000,000
    	
 
    	
$____
    	
 
    	
Yes  No
    

 

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

 

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

 

	
 
    	
TRUECAR, INC.,   on behalf of itself and the other Borrowers
    	
 
    	
BANK   USE ONLY
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Received   by:
    	
 
    
	
 
    	
 
    	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
By:
    	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
Name:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    	
 
    	
Verified:
    	
 
    
	
 
    	
 
    	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Compliance   Status:
    	
Yes   No
    
							

 

 

Schedule 1 to Compliance Certificate

 

Financial Covenants/Calculations of Borrowers

 

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

 

Dated: _______________________

 

I.                                        Adjusted Quick Ratio (Section 6.7(a))

 

	
Required:
    	
1.50:1.00
    
	
 
    	
 
    
	
Actual:
    	
____ :1.00
    

 

	
A.
    	
 
    	
Aggregate   value of the unrestricted cash and Cash Equivalents of Borrowers maintained   at Bank
    	
 
    	
$______
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
B.
    	
 
    	
Aggregate   value of the Eligible Accounts
    	
 
    	
$______
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
C.
    	
 
    	
Quick   Assets (the sum of lines A and B)
    	
 
    	
$______
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
D.
    	
 
    	
Aggregate   value of Obligations to Bank
    	
 
    	
$______
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
E.
    	
 
    	
Adjusted   Quick Ratio (line C divided by line D)
    	
 
    	
___:1.00
    

 

Is line E equal to or greater than 1.50:1.00?

 

	
 
    	
______ 
    	
No,   not in compliance
    	
______
    	
Yes,   in compliance
    

 

II.                                   Liquidity (This is not a financial covenant but is used to determine pricing and Streamline Period eligibility.)

 

	
Required:
    	
$8,000,000   — at all times during prior month for Streamline Period
    
	
 
    	
$10,000,000   and $20,000,000 for pricing changes
    
	
 
    	
 
    
	
 
    	
 
    
	
Actual:
    	
$________________________
    

 

	
A.
    	
 
    	
Lowest   balance of unrestricted cash and Cash Equivalents of Borrowers maintained at   Bank during the past month
    	
 
    	
$______
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
B.
    	
 
    	
Availability   Amount per most recent Transaction Report
    	
 
    	
$______
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
C.
    	
 
    	
Liquidity   (Line A plus line B)
    	
 
    	
$______
    

 

Was line C equal to or greater than $8,000,000 at all times during the prior month?

 

	
_______  No, Streamline Period not in effect
    	
_______  Yes, Streamline Period in effect
    

 

Is line C equal to or greater than $10,000,000 but less than $20,000,000?

 

	
_______  No, Prime + 1.75%
    	
_______  Yes, Prime + 0.50%
    

 

Is line C equal to or greater than $20,000,000?

 

	
_______  No, see above
    	
_______  Yes, Prime + 0.00%Exhibit 10.7

 

TAX RECEIVABLE AGREEMENT

 

This TAX RECEIVABLE AGREEMENT (as amended from time to time, this “Agreement”), dated as of        , 2014, is hereby entered into by and among Moelis & Company, a Delaware corporation (the “Corporation”), Moelis Holdings Feeder, Inc., a Delaware corporation (“Feeder”), Moelis & Company Group LP, a Delaware limited partnership (the “Partnership”), and each of the Partners listed on Schedule 1 hereto.

 

RECITALS

 

WHEREAS, the Partners hold interests in Moelis & Company Partner Holdings LP, a Delaware limited partnership (“Partner Holdings”), or hold interests in one or more other entities which in turn hold interests in Partner Holdings;

 

WHEREAS, Partner Holdings holds Common Units in the Partnership (“Common Units”), which is treated as a partnership for United States federal income tax purposes;

 

WHEREAS, the interest holders in Partner Holdings are treated for U.S. federal income tax purposes as the owners of such Common Units;

 

WHEREAS, the interest holders in Partner Holdings will be treated for U.S. federal income tax purposes as selling a portion of such Common Units (the “Initial Sale”) to the Corporation and Feeder, a direct wholly-owned Subsidiary of the Corporation, pursuant to the transactions described in the registration statement on Form S-1 initially filed with the Securities and Exchange Commission on March 4, 2014 (Registration No. 333-194306), as amended prior to the date hereof, including the initial public offering of shares of Class A common stock (the “Class A Shares”) by the Corporation (the “IPO”);

 

WHEREAS, a wholly-owned Subsidiary of the Corporation will become the general partner of, and will hold general partnership units in, the Partnership;

 

WHEREAS, the Common Units are exchangeable with the Corporation in certain circumstances for Class A Shares in the Corporation and/or cash pursuant to Section 14.1(a) of the Partnership Agreement;

 

WHEREAS, the Partnership and certain direct and indirect Subsidiaries treated as partnerships for United States federal income tax purposes will have in effect an election under section 754 of the Internal Revenue Code of 1986, as amended (the “Code”), for the Taxable Year of the IPO Date and for each other Taxable Year in which an exchange by a Partner of Common 

 

 

Units for Class A Shares and/or cash occurs, which election is intended to result in an adjustment to the tax basis of the assets owned by the Partnership and such Subsidiaries, solely with respect to Feeder or the Corporation, at the time of an exchange by a Partner of Common Units for Class A Shares and/or cash or any other acquisition of Common Units for cash or otherwise, (collectively, including the Initial Sale, an “Exchange”) (such time, the “Exchange Date”) (such assets and any asset whose tax basis is determined, in whole or in part, by reference to the adjusted basis of any such asset, the “Adjusted Assets”) by reason of such Exchange and the receipt of payments under this Agreement;

 

WHEREAS, the income, gain, loss, expense and other Tax items of (i) the Partnership and such Subsidiaries solely with respect to Feeder or the Corporation may be affected by the Basis Adjustment (defined below) with respect to the Adjusted Assets and (ii) Feeder or the Corporation may be affected by the Imputed Interest (as defined below);

 

WHEREAS, the parties to this Agreement desire to make certain arrangements with respect to the effect of the Basis Adjustment and Imputed Interest on the actual liability for Taxes of Feeder or the Corporation.

 

NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the undersigned parties agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

As used in this Agreement, the terms set forth in this Article I shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined).

 

“AAA” has the meaning set forth in Section 7.08(c) of this Agreement.

 

“Adjusted Asset” is defined in the recitals of this Agreement.

 

“Advisory Firm” means any accounting firm or any law firm, in each case that is nationally recognized as being expert in Tax matters and that is agreed to by the Board.

 

“Advisory Firm Letter” shall mean a letter from the Advisory Firm stating that the relevant schedule, notice or other information to be provided by the Corporation to the Applicable Partner and all supporting schedules and work papers were prepared in a manner consistent with the 

 

2

 

terms of this Agreement and, to the extent not expressly provided in this Agreement, on a reasonable basis in light of the facts and law in existence on the date such schedule, notice or other information is delivered to the Applicable Partner.

 

“Affiliate” means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.

 

“Agreed Rate” means LIBOR.

 

“Agreement” is defined in the preamble of this Agreement.

 

“Amended Schedule” is defined in Section 2.04(b) of this Agreement.

 

“Amount Realized” means, in respect of an Exchange by an Applicable Partner, the amount that is deemed for purposes of this Agreement to be the amount realized by the Applicable Partner on the Exchange, which shall be the sum of (i) the Market Value of the Class A Shares, the amount of cash and the amount or fair market value of other consideration transferred to the Exchanging Member in the Exchange and (ii) the Share of Liabilities attributable to the Common Units Exchanged.

 

“Applicable Partner” means any Partner to whom any portion of a Realized Tax Benefit is Attributable hereunder.

 

“Attributable”:  The portion of any Realized Tax Benefit of Feeder or the Corporation that is “Attributable” to any Partner shall be determined by reference to the assets from which arise the depreciation, amortization or other similar deductions for recovery of cost or basis (“Depreciation”) and with respect to increased basis upon a disposition of an asset or Imputed Interest that produce the Realized Tax Benefit, under the following principles:

 

(i)                                     Any Realized Tax Benefit arising from a deduction to Feeder or the Corporation with respect to a Taxable Year for Depreciation arising in respect of a Basis Adjustment to an Adjusted Asset is Attributable to the Applicable Partner to the extent that the ratio of all Depreciation for the Taxable Year in respect of Basis Adjustments resulting from all Exchanges by the Applicable Partner bears to the aggregate of all Depreciation for the Taxable Year in respect of Basis Adjustments resulting from all Exchanges by all Partners.

 

(ii)                                  Any Realized Tax Benefit arising from the disposition of an asset is Attributable to the Applicable Partner to the extent that the ratio of all Basis Adjustments resulting from all Exchanges by the Applicable Partner with 

 

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respect to such asset bears to the aggregate of all Basis Adjustments resulting from all Exchanges by all Partners with respect to such asset.

 

(iii)                               Any Realized Tax Benefit arising from a deduction to Feeder or the Corporation with respect to a Taxable Year in respect of Imputed Interest is Attributable to the Applicable Partner that is required to include the Imputed Interest in income (without regard to whether such Partner is actually subject to tax thereon).

 

(iv)                              For the avoidance of doubt, in the case of a Basis Adjustment arising with respect to an Exchange under section 734(b) of the Code, depreciation, amortization or other similar deductions for recovery of cost or basis shall constitute Depreciation only to the extent that such depreciation, amortization or other similar deductions may produce a Realized Tax Benefit (and not to the extent that such depreciation, amortization or other similar deductions may be for the benefit of a Person other than Feeder or the Corporation), as reasonably determined by the Corporation.

 

“Basis Adjustment” means the adjustment to the Tax basis of an Adjusted Asset under section 732 of the Code (in situations where, as a result of one or more Exchanges, a Partnership becomes an entity that is disregarded as separate from its owner for tax purposes) or sections 734(b) or 743(b) and section 754 of the Code (including in situations where, following an Exchange, a Partnership remains in existence as an entity for Tax purposes) and, in each case, comparable sections of state, local and foreign Tax laws (as calculated under Section 2.01 of this Agreement) as a result of an Exchange and the payments made pursuant to this Agreement.  Notwithstanding any other provision of this Agreement, the amount of any Basis Adjustment resulting from (i) an Exchange of one or more Common Units shall be determined without regard to any Pre-Exchange Transfer of such Common Units and as if any such Pre-Exchange Transfer had not occurred.  For the avoidance of doubt, any adjustments under section 734(b) of the Code arising before the Initial Sale or as a result of the transactions undertaken in connection therewith (“Pre-Existing Section 734(b) Adjustments”) shall not be treated as Exchanges under this Agreement.  Further, for purposes of all calculations made and benefits due under this Agreement, any Pre-Existing Section 734(b) Adjustments shall be disregarded.  The preceding sentence is intended to ensure that the amounts of the adjustments under section 743(b) of the Code arising in connection with Exchanges from and after the date of the Initial Sale and computed under Section 2.01 of this Agreement are not decreased by the amount of any Pre-Existing Section 734(b) Adjustments, and the preceding sentence shall be interpreted and applied consistently with such intention.

 

“Beneficial Ownership” (including correlative terms) shall have the meaning ascribed to that term in Rule 13d-3 promulgated under the Exchange Act.

 

“Board” means the board of directors of the Corporation.

 

“Business Day” means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of New York shall not be regarded as a Business Day.

 

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“Change of Control” means the occurrence of any of the following events:

 

(i)                                     any Person or any group of Persons acting together which would constitute a “group” for purposes of Section 13(d) of the Exchange Act, or any successor provisions thereto, excluding any Permitted Transferee or any group of Permitted Transferees, becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation representing more than fifty percent (50%) of the combined voting power of the Corporation’s then outstanding voting securities; or

 

(ii)                                  the following individuals cease for any reason to constitute a majority of the number of directors of the Corporation then serving: individuals who, on the IPO Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Corporation) whose appointment or election by the Board or nomination for election by the Corporation’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the IPO Date or whose appointment, election or nomination for election was previously so approved or recommended by the directors referred to in this clause (ii); or

 

(iii)                               there is consummated a merger or consolidation of the Corporation or any direct or indirect subsidiary of the Corporation with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation, either (x) the members of the Board immediately prior to the merger or consolidation do not constitute at least a majority of the board of directors of the company surviving the merger or, if the surviving company is a subsidiary, the ultimate parent thereof, or (y) all of the Persons who were the respective Beneficial Owners of the voting securities of the Corporation immediately prior to such merger or consolidation do not Beneficially Own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then-outstanding voting securities of the Person resulting from such merger or consolidation; or

 

(iv)                              the shareholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation, or there is consummated an agreement or series of related agreements for the sale or other disposition, directly or indirectly, by the Corporation of all or substantially all of the Corporation’s assets, other than the sale or other disposition by the Corporation of all or substantially all of the Corporation’s assets to an entity, at least fifty percent (50%) of the combined voting power of the voting securities of which are Beneficially Owned by shareholders of the Corporation in substantially the same proportions as their Beneficial Ownership of such securities of the Corporation immediately prior to such sale.

 

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Notwithstanding the foregoing, (i) a “Change in Control” shall not be deemed to have occurred (x) as a result of any transaction or series of integrated transactions following which Kenneth Moelis or any of his Affiliates possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the Corporation (or any successor thereto), whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the Board or the board of directors or similar body governing the affairs of any successor to the Corporation or (y) except with respect to clause (ii) and clause (iii)(x) above, by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the shares of the Corporation immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Corporation immediately following such transaction or series of transactions.  For purposes of this definition, “Permitted Transferee” means a shareholder’s family members or a trust for the benefit of the shareholder and/or family members.

 

“Class A Shares” is defined in the recitals of this Agreement.

 

“Code” is defined in the recitals of this Agreement.

 

“Common Units” is defined in the recitals of this Agreement.

 

“Competitive Enterprise” means any business enterprise that is engaged, or owns or controls a significant interest in any entity that is engaged, in either case, primarily or in any substantial manner in any place in the world in (x) investment banking or securities activities or financial services, including, without limitation, private equity, hedge fund or other asset or investment management businesses, or (y) any business activities in which the Corporation or any of its Affiliates are engaged primarily or in any substantial manner; in each case excluding Moelis & Company Holdings LP and its Affiliates.

 

“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

 

“Corporate Entity” means any direct Subsidiary of the Corporation which is classified as a corporation for U.S. federal income tax purposes.

 

“Corporation” is defined in the preamble of this Agreement.

 

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“Corporation Return” means the U.S. federal Tax Return and/or state and/or local and/or foreign Tax Return, as applicable, of the Corporation and/or Feeder filed with respect to Taxes of any Taxable Year.

 

“Cumulative Net Realized Tax Benefit” for a Taxable Year means the cumulative amount of Realized Tax Benefits for all Taxable Years of Feeder and the Corporation, up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriments for the same period.  The Realized Tax Benefit and Realized Tax Detriment for each Taxable Year shall be determined based on the most recent Tax Benefit Schedule or Amended Schedule, if any, in existence at the time of such determination.

 

“Default Rate” means LIBOR plus 400 basis points.

 

“Determination” shall have the meaning ascribed to such term in section 1313(a) of the Code or similar provision of state, local and foreign tax law, as applicable, or any other event (including the execution of a Form 870-AD) that finally and conclusively establishes the amount of any liability for Tax.

 

“Detrimental Activities” means any of the following:

 

(i)                       Competitive Activities.  The Partner, directly or indirectly, provides services to, engages in, has any equity interest in, or manages or operates any Competitive Enterprise; provided, however, that the Partner shall be permitted to acquire a passive equity interest of not more than five percent (5%) of such Competitive Enterprise’s outstanding publicly traded equity interests.

 

(ii)                    Solicitation Activities.  The Partner, directly or indirectly, recruits or otherwise solicits, encourages or induces any limited partner, employee, independent contractor, consultant, service provider or supplier of the Corporation or any of its Affiliates (i) to terminate his, her or its employment or arrangement with the Corporation or any of its Affiliates, or (ii) to otherwise change his, her or its relationship with the Corporation or any of its Affiliates.

 

(iii)                 Disparagement Activities.  The Partner disparages in any material respect the Corporation, any of its products or practices, or any of its directors, officers, agents, representatives, stockholders or Affiliates, either orally or in writing, except for truthful statements required by law, regulation, subpoena, court order, or similar legal requirement.

 

(iv)                Attestation.  The Partner fails to timely execute an attestation to the effect that Partner has not engaged in the acts described in clauses (i)-(iii) above prior to each Exchange or at such other times reasonably requested by the Corporation.

 

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(v)                   Breach. The Partner breaches in any material respect, as determined by the Corporation, any agreement the Partner may have with the Corporation or any of its Affiliates, including without limitation, obligations relating to confidentiality.

 

“Disability” means, with respect to any Partner, the Partner’s inability due to illness or other physical or mental impairment to substantially perform his duties to the Corporation or an Affiliate for a period of 90 consecutive days during any six-month period or for 180 days during any 12-month period, as determined in the good faith discretion of the Corporation.

 

“Dispute” has the meaning set forth in Section 7.08(c) of this Agreement.

 

“Early Termination Date” means the date of an Early Termination Notice for purposes of determining an Early Termination Payment or the date of an Individual Early Termination Notice for purposes of determining an Individual Early Termination Payment.

 

“Early Termination Notice” is defined in Section 4.02 of this Agreement.

 

“Early Termination Schedule” is defined in Section 4.02 of this Agreement.

 

“Early Termination Payment” is defined in Section 4.03(b) of this Agreement.

 

“Early Termination Rate” means the lesser of (i) 6.5% and (ii) LIBOR plus 100 basis points.

 

“Exchange” is defined in the recitals of this Agreement, and “Exchanged” and “Exchanging” shall have correlative meanings.  For the avoidance of doubt, if the Partnership exercises its rights to redeem Partnership Common Units under Section 7.3 of the Partnership Agreement, such redemption shall be considered an Exchange under this Agreement.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

 

“Exchange Basis Schedule” is defined in Section 2.02 of this Agreement.

 

“Exchange Date” is defined in the recitals of this Agreement.

 

“Exchange Payment” is defined in Section 5.01 of this Agreement.

 

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“Excluded Assets” is defined in Section 7.11(b) of this Agreement.

 

“Expert” is defined in Section 7.09 of this Agreement.

 

“Feeder” is defined in the recitals of this Agreement.

 

“Hypothetical Tax Liability” means, with respect to any Taxable Year, the liability for Taxes of Feeder and/or the Corporation (and/or the Partnership, but only with respect to Taxes imposed on the Partnership and allocable to Feeder and/or the Corporation) using the same methods, elections, conventions and similar practices used on the relevant Corporation Return (and/or Tax Return of the Partnership) but using the Non-Stepped Up Tax Basis instead of the tax basis reflecting the Basis Adjustments of the Adjusted Assets and excluding any deduction attributable to Imputed Interest.

 

“Imputed Interest” shall mean any interest imputed under section 1272, 1274 or 483 or other provision of the Code and any similar provision of state, local and foreign tax law with respect to the Corporation’s payment obligations under this Agreement.

 

“Individual Early Termination Notice” is defined in Section 4.02 of this Agreement.

 

“Individual Early Termination Payment” is defined in Section 4.03(c) of this Agreement.

 

“Individual Valuation Assumptions” shall mean, as of an Early Termination Date, the assumptions that (1) in each Taxable Year ending on or after such Early Termination Date, Feeder and/or the Corporation will have taxable income sufficient to fully utilize the deductions arising from the Basis Adjustment and the Imputed Interest during such Taxable Year, (2) the federal income tax rates and state, local and foreign income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Date, (3) any loss carryovers generated by the Basis Adjustment or the Imputed Interest and available as of the date of the Early Termination Schedule will be utilized by Feeder and/or the Corporation on a pro rata basis from the date of the Early Termination Schedule through the scheduled expiration date of such loss carryovers, and (4) any non-amortizable assets are deemed to be disposed of on the fifteenth anniversary of the earlier of the Basis Adjustment and the Early Termination Date, provided, that in the event of a Change of Control non-amortizable assets shall be deemed disposed of at the earlier of (i) the time of sale of the relevant asset or (ii) as generally provided in this Valuation Assumption (4).

 

“Initial Sale” is defined in the recitals of this Agreement.

 

“IPO” is defined in the recitals of this Agreement.

 

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“IPO Date” means the date on which Class A Shares in the Corporation are sold in an initial public offering.

 

“IRS” means the United States Internal Revenue Service.

 

“LIBOR” means for each month (or portion thereof) during any period, an interest rate per annum equal to the rate per annum reported, on the date two days prior to the first day of such month, on the Telerate Page 3750 (or if such screen shall cease to be publicly available, as reported on Reuters Screen page “LIBO” or by any other publicly available source of such market rate) for London interbank offered rates for U.S. dollar deposits for such month (or portion thereof).

 

“Market Value” shall mean the closing price of the Class A Shares on the applicable Exchange Date on the national securities exchange or interdealer quotation system on which such Class A Shares are then traded or listed, as reported by the Wall Street Journal; provided that if the closing price is not reported by the Wall Street Journal for the applicable Exchange Date, then the Market Value shall mean the closing price of the Class A Shares on the Business Day immediately preceding such Exchange Date on the national securities exchange or interdealer quotation system on which such Class A Shares are then traded or listed, as reported by the Wall Street Journal; provided further, that if the Class A Shares are not then listed on a National Securities Exchange or Interdealer Quotation System, “Market Value” shall mean the cash consideration paid for Class A Shares, or the fair market value of the other property delivered for Class A Shares, as determined by the Board in good faith.

 

“Material Objection Notice” has the meaning set forth in Section 4.02 of this Agreement.

 

“Net Tax Benefit” has the meaning set forth in Section 3.01(b) of this Agreement.

 

“Non-Stepped Up Tax Basis” means, with respect to any asset at any time, the tax basis that such asset would have had at such time if no Basis Adjustment had been made.

 

“Objection Notice” has the meaning set forth in Section 2.04(a) of this Agreement.

 

“Old Holdings” has the meaning set forth in Section 7.15(b) of this Agreement.

 

“Partner” means each party hereto (other than the Corporation, Feeder and the Partnership), and each other Person who from time to time executes a joinder to this Agreement in form and substance reasonably satisfactory to the Corporation. For the avoidance of doubt, Schedule 1 hereto may provide limitations on the extent to which benefits of this Agreement may be available to a particular Partner.

 

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“Partnership” is defined in the preamble of this Agreement.

 

“Partnership Agreement” means the Amended and Restated Limited Partnership Agreement of the Partnership, as such is from time to time amended or restated.

 

“Payment Date” means any date on which a payment is required to be made pursuant to this Agreement.

 

“Person” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.

 

“Pre-Exchange Transfer” means any transfer (including upon the death of a Partner) of one or more Common Units (i) that occurs prior to an Exchange of such Common Units, and (ii) to which section 743(b) of the Code applies.

 

“Realized Tax Benefit” means, for a Taxable Year and for all Taxes collectively, the net excess, if any, of the Hypothetical Tax Liability over the actual liability for Taxes of Feeder and/or the Corporation (or the Partnership, but only with respect to Taxes imposed on the Partnership and allocable to Feeder and/or the Corporation for such Taxable Year), such actual Tax liability to be computed with the adjustments described in this Agreement. If all or a portion of the actual liability for Taxes of Feeder and/or the Corporation, or the Partnership (but only with respect to Taxes imposed on the Partnership and allocable to Feeder and/or the Corporation for such Taxable Year), for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.

 

“Realized Tax Detriment” means, for a Taxable Year and for all Taxes collectively, the net excess, if any, of the actual liability for Taxes of Feeder and/or the Corporation (or the Partnership, but only with respect to Taxes imposed on the Partnership and allocable to the Corporation for such Taxable Year) over the Hypothetical Tax Liability for such Taxable Year, such actual Tax liability to be computed with the adjustments described in this Agreement. If all or a portion of the actual liability for Taxes of Feeder and/or the Corporation, or the Partnership (but only with respect to Taxes imposed on the Partnership and allocable to Feeder and/or the Corporation for such Taxable Year), for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.

 

“Reconciliation Dispute” has the meaning set forth in Section 7.09 of this Agreement.

 

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“Reconciliation Procedures” shall mean those procedures set forth in Section 7.09 of this Agreement.

 

“Rules” has the meaning set forth in Section 7.08(c) of this Agreement.

 

“Schedule” means any Exchange Basis Schedule, Tax Benefit Schedule or Early Termination Schedule.

 

“Share of Liabilities” means, as to any Common Unit at the time of an exchange, the portion of the relevant Partnership’s “liabilities” (as such term is defined in section 752 and section 1001 of the Code) allocated to that Common Unit pursuant to section 752 of the Code and the applicable Treasury Regulations.

 

“Specified Partner” means, as of any date of determination, any Applicable Partner who has Exchanged Common Units in one or more Exchanges with an aggregate Amount Realized of $50,000,000 (fifty million dollars) or more.

 

“Subsidiaries” means, with respect to any Person, as of any date of determination, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls more than 50% of the voting shares or other similar interests or the sole general partner interest or managing member or similar interest of such Person.

 

“Tax Benefit Payment” is defined in Section 3.01(b) of this Agreement.

 

“Tax Benefit Schedule” is defined in Section 2.03 of this Agreement.

 

“Tax Return” means any return, declaration, report or similar statement required to be filed with respect to Taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated Tax.

 

“Taxable Year” means a taxable year as defined in section 441(b) of the Code or comparable section of state, local or foreign tax law, as applicable, (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made) ending on or after an Exchange Date in which there is a Basis Adjustment due to an Exchange.

 

“Taxes” means any and all U.S. federal, state, local and foreign taxes, assessments or similar charges that are based on or measured with respect to net income or profits, whether on an exclusive or on an alternative basis, and any interest related to such Tax.

 

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“Taxing Authority” shall mean any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising Tax regulatory authority.

 

“Treasury Regulations” means the final, temporary and proposed regulations under the Code promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.

 

“Valuation Assumptions” shall mean, as of an Early Termination Date, the assumptions that (1) in each Taxable Year ending on or after such Early Termination Date, Feeder and/or the Corporation will have taxable income sufficient to fully utilize the deductions arising from the Basis Adjustment and the Imputed Interest during such Taxable Year, (2) the federal income tax rates and state, local and foreign income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Date, (3) any loss carryovers generated by the Basis Adjustment or the Imputed Interest and available as of the date of the Early Termination Schedule will be utilized by Feeder and/or the Corporation on a pro rata basis from the date of the Early Termination Schedule through the scheduled expiration date of such loss carryovers, (4) any non-amortizable assets are deemed to be disposed of on the fifteenth anniversary of the earlier of the Basis Adjustment and the Early Termination Date, provided, that in the event of a Change of Control non-amortizable assets shall be deemed disposed of at the earlier of (i) the time of sale of the relevant asset or (ii) as generally provided in this Valuation Assumption (4), and (5) if, at the Early Termination Date, there are Units that have not been Exchanged, then each such Unit shall be deemed to be Exchanged for the Market Value of the Class A Shares and the amount of cash that would be transferred if the Exchange occurred on the Early Termination Date.

 

ARTICLE II

 

DETERMINATION OF REALIZED TAX BENEFIT

 

Section 2.01                             Basis Adjustment.  For purposes of this Agreement, as a result of an Exchange, the Partnership shall be deemed to be entitled to a Basis Adjustment for each of its Adjusted Assets with respect to Feeder and/or the Corporation, the amount of which Basis Adjustment shall be the excess, if any, of (i) the sum of (x) the Amount Realized by the Applicable Partner in the Exchange, to the extent attributable to such Adjusted Asset, plus (y) the amount of payments made pursuant to this Agreement with respect to such Exchange, to the extent attributable to such Adjusted Asset, over (ii) Feeder’s and/or the Corporation’s share of the Partnership’s Tax basis for such Adjusted Asset immediately after the Exchange, attributable to the Common Units Exchanged, determined as if (x) the Partnership remains in existence as an entity for tax purposes, and (y) the Partnership had not made the election provided by section 754 of the Code.  For the avoidance of doubt, payments made under this Agreement shall not be treated as resulting in a Basis Adjustment to the extent such payments are treated as Imputed Interest.

 

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Section 2.02                             Exchange Basis Schedule. Within 180 calendar days after the filing of the U.S. federal income tax return of the Corporation for each Taxable Year in which any Exchange has been effected, the Corporation shall deliver to the Applicable Partner a schedule (the “Exchange Basis Schedule”) that shows, in reasonable detail, for purposes of Taxes, (i) the actual unadjusted tax basis of the Adjusted Assets as of each applicable Exchange Date, (ii) the Basis Adjustment with respect to the Adjusted Assets as a result of the Exchanges effected in such Taxable Year and all prior Taxable Years, calculated (a) in the aggregate and (b) solely with respect to Exchanges by the Applicable Partner, (iii) the period or periods, if any, over which the Adjusted Assets are amortizable and/or depreciable and (iv) the period or periods, if any, over which each Basis Adjustment is amortizable and/or depreciable (which, for non-amortizable assets shall be based on the Valuation Assumptions).

 

Section 2.03                             Tax Benefit Schedule. Within 180 calendar days after the filing of the U.S. federal income tax return of the Corporation for any Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment, the Corporation shall provide to the Applicable Partner a schedule showing, in reasonable detail, the calculation of the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year (a “Tax Benefit Schedule”). The Schedule will become final as provided in Section 2.04(a) of this Agreement and may be amended as provided in Section 2.04(b) of this Agreement (subject to the procedures set forth in Section 2.04(b)).

 

Section 2.04                             Procedures, Amendments

 

(a)                                 Procedure. Every time the Corporation delivers to the Applicable Partner an applicable Schedule under this Agreement, including any Amended Schedule delivered pursuant to Section 2.04(b), but excluding any Early Termination Schedule or amended Early Termination Schedule, the Corporation shall also (x) deliver to any Specified Partner schedules and work papers providing reasonable detail regarding the preparation of the Schedule and an Advisory Firm Letter supporting such Schedule and (y) in the event that a Change of Control has occurred prior to such time, allow any Specified Partner reasonable access at no cost to the appropriate representatives at the Corporation and the Advisory Firm in connection with a review of such Schedule.  The applicable Schedule shall become final and binding on all parties unless the Applicable Partner, within 30 calendar days after receiving an Exchange Basis Schedule or amendment thereto or within 30 calendar days after receiving a Tax Benefit Schedule or amendment thereto, provides the Corporation with notice of a material objection to such Schedule (“Objection Notice”) made in good faith.  If the parties, for any reason, are unable to successfully resolve the issues raised in such notice within 30 calendar days of receipt by the Corporation of an Objection Notice, if with respect to an Exchange Basis Schedule, or within 30 calendar days of receipt by the Corporation of an Objection Notice, if with respect to a Tax Benefit Schedule, after such Schedule was delivered to the Applicable Partner, the Corporation and the Applicable Partner shall employ the reconciliation procedures  as described in Section 7.09 of this Agreement (the “Reconciliation Procedures”).

 

(b)                                 Amended Schedule. The applicable Schedule for any Taxable Year shall be amended from time to time by the Corporation (i) in connection with a Determination affecting such Schedule, (ii) to correct material inaccuracies in the Schedule identified as a result of 

 

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the receipt of additional factual information relating to a Taxable Year after the date the Schedule was provided to the Applicable Partner or the correction of computational errors set forth in such Schedule, (iii) to comply with the Expert’s determination under the Reconciliation Procedures, (iv) to reflect a material change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other tax item to such Taxable Year, (v) to reflect a material change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year, or (vi) to adjust the Exchange Basis Schedule to take into account payments made pursuant to this Agreement (such Schedule, an “Amended Schedule”).  In the event that the Corporation delivers an Amended Schedule to an Applicable Partner pursuant to Section 2.04(b)(ii) within 180 days of the payment of the Tax Benefit Payment, if any, related to the original Schedule being amended by such Amended Schedule, the Applicable Partner shall, unless otherwise determined by the Corporation in its sole discretion, be obligated to refund to the Corporation the amount (if any) by which the Tax Benefit Payment made pursuant to such original schedule exceeds the Tax Benefit Payment as computed pursuant to the Amended Schedule.

 

Section 2.05                             Limitation of Benefits. Notwithstanding anything to the contrary contained in this Agreement, unless otherwise determined by the Corporation in its sole discretion, in the event that a Partner’s  employment or service with the Corporation and all of its Affiliates is terminated prior to the date of an Exchange for any reason and such Partner engages in Detrimental Activities prior to the date of such Exchange, such Partner shall not be entitled to any benefits hereunder with respect to such Exchange, including, for the avoidance of doubt, the right to the receipt of any Tax Benefit Payments attributable to Basis Adjustments arising from such Exchange.  For the avoidance of doubt, such termination shall not impact a Partner’s rights hereunder with respect to Exchanges occurring on or prior to the date of such termination.

 

Section 2.06                             Treatment of Initial Sale. The undersigned parties hereby acknowledge and agree that the interest holders in Partner Holdings will be treated for U.S. federal income tax purposes as selling a portion of the Common Units held by such interest holders in the Initial Sale.  The Corporation will determine in good faith the portion of such Common Units deemed sold by each Partner or other interest holder in Partner Holdings and will notify each Partner or other interest holder of its determination with respect thereto within 180 days following the Initial Sale, which determination will be binding upon the Corporation, Feeder, the Partnership and the Partners.  For all purposes of this Agreement, each Partner shall be treated as though such Partner had directly sold a portion of the aggregate Common Units deemed sold for U.S. federal income tax purposes, with such portion being a percentage of such Common Units equal to the percentage of the cash proceeds of the Initial Sale distributed to such Partner (either directly by Partner Holdings or to such Partner through other entities through which such Partner holds an interest in Partner Holdings) compared to the total cash proceeds received by Partner Holdings in the Initial Sale.

 

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ARTICLE III

 

TAX BENEFIT PAYMENTS

 

Section 3.01                             Payments

 

(a)                                 Within fifteen (15) calendar days of a Tax Benefit Schedule delivered to an Applicable Partner becoming final in accordance with Section 2.04(a), or earlier in the Corporation’s discretion, the Corporation shall pay to the Applicable Partner for such Taxable Year the Tax Benefit Payment determined pursuant to Section 3.01(b) in the amount Attributable to the Applicable Partner. Each such Tax Benefit Payment shall be made by wire transfer of immediately available funds to a bank account of the Applicable Partner previously designated by such Partner to the Corporation.  For the avoidance of doubt, no Tax Benefit Payment shall be made in respect of estimated tax payments, including, without limitation, federal income tax payments.

 

(b)                                 A “Tax Benefit Payment” means an amount, not less than zero, equal to the sum of the Net Tax Benefit and the Interest Amount.  The “Net Tax Benefit” for each Taxable Year shall be an amount equal to the excess, if any, of 85% of the Cumulative Net Realized Tax Benefit as of the end of such Taxable Year over the total amount of payments previously made under this Section 3.01, excluding payments attributable to Interest Amount; provided, however, that for the avoidance of doubt, no Partner shall be required to return any portion of any previously made Tax Benefit Payment.  The “Interest Amount” for a given Taxable Year shall equal the interest on the Net Tax Benefit for such Taxable Year calculated at the Agreed Rate from the due date (without extensions) for filing the Corporation Return with respect to Taxes for the most recently ended Taxable Year until the Payment Date.  In the case of a Tax Benefit Payment made in respect of an Amended Schedule, the “Interest Amount” shall equal the interest on the Net Tax Benefit for such Taxable Year calculated at the Agreed Rate from the date of such Amended Schedule becoming final in accordance with Section 2.04(a) until the Payment Date.  Notwithstanding the foregoing, for each Taxable Year ending on or after the date of a Change of Control, all Tax Benefit Payments, whether paid with respect to Units that were Exchanged (i) prior to the date of such Change of Control or (ii) on or after the date of such Change of Control, shall be calculated by using Valuation Assumptions (1), (3), and (4), substituting in each case the terms “the date on which a Change of Control becomes effective” for an “Early Termination Date”.  The Net Tax Benefit and the Interest Amount shall be determined separately with respect to each separate Exchange, on a Common Unit-by-Common Unit basis by reference to the Amount Realized by the Applicable Partner on the Exchange of a Common Unit and the resulting Basis Adjustment to Feeder and/or the Corporation.  For purposes of this Section 3.01(b), the amendment to the definition of “Agreed Rate” set forth herein shall be effective as of the date of the Prior Agreement.  Notwithstanding any provision of this Agreement to the contrary, any Partner may elect with respect to any Exchange to limit the aggregate Tax Benefit Payments made to such Partner in respect of any such Exchange to a specified percentage of the Amount Realized by such Partner with respect to such Exchange (or such other limitation selected by the Partner and consented to by the Corporation, which consent shall not be unreasonably withheld).  The Partner shall exercise its rights under the preceding sentence by notifying the Corporation of its desire to impose such a limit and the specified percentage (or such other limitation selected by the Partner) and such other details 

 

16

 

as may be necessary (including whether such limit includes the Interest Amounts in respect of any such Exchange) in such manner and at such time (but in no event later than the date of any such Exchange) as reasonably directed by the Corporation; provided, however, that, in the absence of such direction, the Partner shall give such notice in the same manner as is required by the Partnership Agreement of notice given to the partners under the Partnership Agreement, with such notice given contemporaneously with the Partner’s notice of intention to compel redemption delivered pursuant to the Partnership Agreement. For purposes of the computation of any Tax Benefit Payment, each Partner who is entitled to receive Tax Benefit Payments under this Agreement shall be deemed to share the gains and losses of the Partnership under section 704(c)(1)(A) of the Code (and the principles thereof) as of the IPO Date in proportion to the Partner’s number of Common Units as of the IPO Date.

 

Section 3.02                             No Duplicative Payments. It is intended that the provisions of this Agreement will not result in duplicative payment of any amount (including interest) required under this Agreement. It is also intended that the provisions of this Agreement will result in 85% of the Cumulative Net Realized Tax Benefit, and the Interest Amount thereon, being paid to the Partners pursuant to this Agreement.  The provisions of this Agreement shall be construed in the appropriate manner so that these fundamental results are achieved.

 

Section 3.03                             Pro Rata Payments. For the avoidance of doubt, to the extent (i) Feeder’s or the Corporation’s deductions with respect to any Basis Adjustment is limited in a particular Taxable Year or (ii) the Corporation lacks sufficient funds to satisfy its obligations to make all Tax Benefit Payments due in a particular Taxable Year, the limitation on the deductions, or the Tax Benefit Payments that may be made, as the case may be, shall be taken into account or made for the Applicable Partner in the same proportion as Tax Benefit Payments would have been made absent the limitations set forth in clauses (i) and (ii) of this paragraph, as applicable.

 

ARTICLE IV

 

TERMINATION

 

Section 4.01                             Early Termination and Breach of Agreement.

 

(a)                                 The Corporation may terminate this Agreement with respect to all of the Common Units held (or previously held and exchanged) by all Partners at any time by paying to all of the Partners the Early Termination Payment; provided, however, that this Agreement shall only terminate upon the receipt of the Early Termination Payment by all Partners, and provided, further, that the Corporation may withdraw any notice to execute its termination rights under this Section 4.01(a) prior to the time at which any Early Termination Payment has been paid.  Upon payment of the Early Termination Payments by the Corporation under this Section 4.01(a), neither the Applicable Partners nor the Corporation shall have any further payment obligations under this Agreement in respect of such Partners, other than for any (a) Tax Benefit Payment agreed to by the Corporation and an Applicable Partner as due and payable but unpaid as of the Early Termination Notice and (b) Tax Benefit Payment due for the Taxable Year ending with or including the date of the Early Termination Notice (except to the extent that the amount described in clause (b) is included in the Early Termination Payment).  For the avoidance of doubt, if an Exchange occurs 

 

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after the Corporation makes the Early Termination Payments with respect to all Partners, the Corporation shall have no obligations under this Agreement with respect to such Exchange, and its only obligations under this Agreement with respect to such Exchange in such case shall be its obligations to all Partners under Section 4.03(a).

 

(b)                                 The Corporation may terminate the rights under this Agreement of any Partner who is not a Specified Partner with respect to Exchanges occurring prior to the date thereof at any time by paying to such Partner an Individual Early Termination Payment as calculated with respect to such Partner (taking into account only those Exchanges that have occurred prior to the date thereof, and for the avoidance of doubt not taking into account Common Units not yet Exchanged, nor taking into account Common Units Exchanged in prior Exchanges for which Individual Early Termination Payments have already been received); provided, however, that the Corporation may withdraw any notice to execute its termination rights under this Section 4.01(b) prior to the time at which any Individual Early Termination Payment has been paid.  Upon payment of the Individual Early Termination Payment by the Corporation to such Partner, neither the Applicable Partner nor the Corporation shall have any further payment obligations under this Agreement in respect of such Exchanges by such Partner, other than for any (a) Tax Benefit Payment agreed to by the Corporation and such Partner as due and payable but unpaid as of the Individual Early Termination Notice and (b) Tax Benefit Payment due for the Taxable Year ending with or including the date of the Individual Early Termination Notice (except to the extent that the amount described in clause (b) is included in the Individual Early Termination Payment).  For the avoidance of doubt, a termination pursuant to this Section 4.01(b) shall not impact the rights or obligations of the Corporation and such Partner with respect to Exchanges occurring after the date of such termination.

 

(c)                                  In the event that the Corporation breaches any of its material obligations under this Agreement with respect to one or more Partners, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, and does not cure such breach within ninety (90) days of receipt of notice of such breach from such Partner or Partners, then all obligations hereunder with respect to such Partner or Partners shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such breach and shall include, but not be limited to, (1) an Early Termination Payment calculated with respect to such Partner or Partners pursuant to Section 4.01(a) as if an Early Termination Notice had been delivered to such Partner or Partners on the date of the breach, (2) any Tax Benefit Payment agreed to by the Corporation and such Partner or Partners as due and payable but unpaid as of the date of a breach, and (3) any Tax Benefit Payment due to such Partner or Partners for the Taxable Year ending with or including the date of a breach.  Notwithstanding the foregoing, in the event that the Corporation breaches this Agreement with respect to one or more Partners, such Partners shall be entitled to elect to receive the amounts set forth in clauses (1), (2) and (3), above or to seek specific performance of the terms hereof.  The parties agree that the failure to make any payment due pursuant to this Agreement within three months of the date such payment is due shall be deemed to be a breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be 

 

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considered to be a breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within three months of the date such payment is due.

 

(d)                                 The undersigned parties hereby acknowledge and agree that the timing, amounts and aggregate value of Tax Benefit Payments pursuant to this Agreement are not reasonably ascertainable.

 

Section 4.02                             Early Termination Notice. If the Corporation chooses to exercise its right of early termination under Section 4.01(a) or Section 4.01(b) above, the Corporation shall deliver to each Partner whose rights are being terminated notice of such intention to exercise such right (an “Early Termination Notice” in the case of an early termination under Section 4.01(a) or an “Individual Early Termination Notice” in the case of an early termination under Section 4.01(b)) and a schedule (the “Early Termination Schedule”) specifying the Corporation’s intention to exercise such right and showing in reasonable detail the calculation of the Early Termination Payment or Individual Early Termination Payment with respect to such Partner. The applicable Early Termination Schedule shall become final and binding on the Corporation and such Partner unless such Partner, within 30 calendar days after receiving the Early Termination Schedule provides the Corporation with notice of a material objection to such Schedule made in good faith (“Material Objection Notice”). If the parties, for any reason, are unable to successfully resolve the issues raised in such notice within 30 calendar days after receipt by the Corporation of the Material Objection Notice, the Corporation and the Partner shall employ the Reconciliation Procedures as described in Section 7.09 of this Agreement.

 

Section 4.03                             Payment upon Early Termination. (a) Within fifteen (15) calendar days after agreement between the Applicable Partner and the Corporation of an Early Termination Schedule, the Corporation shall pay to the Applicable Partner an amount equal to the Early Termination Payment or the Individual Early Termination Payment, as the case may be. Such payment shall be made by wire transfer of immediately available funds to a bank account designated by the Applicable Partner.

 

(b)                                 The “Early Termination Payment” as of the date of the delivery of an Early Termination Schedule shall equal with respect to the Applicable Partner the present value, discounted at the Early Termination Rate as of such date, of all Tax Benefit Payments that would be required to be paid by the Corporation to the Applicable Partner beginning from the Early Termination Date and assuming that the Valuation Assumptions are applied.

 

(c)                                  The “Individual Early Termination Payment” as of the date of the delivery of an Early Termination Schedule shall equal with respect to the Applicable Partner the present value, discounted at the Early Termination Rate as of such date, of all Tax Benefit Payments that would be required to be paid by the Corporation to the Applicable Partner beginning from the Early Termination Date and assuming that the Individual Valuation Assumptions are applied (taking into account only those Exchanges that have occurred prior to the date of the applicable Individual Early Termination Notice, and for the avoidance of doubt not taking into account Common Units not yet Exchanged, nor taking into account Common Units Exchanged in prior Exchanges for which Individual Early Termination Payments have already been received).

 

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ARTICLE V

 

SUBORDINATION AND LATE PAYMENTS

 

Section 5.01                             Subordination.  Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment, Early Termination Payment or Individual Early Termination Payment required to be made by the Corporation to a Partner or to the Partners under this Agreement (an “Exchange Payment”) shall rank subordinate and junior in right of payment to any principal, interest or other amounts due and payable in respect of any obligations in respect of indebtedness for borrowed money of the Corporation and its Subsidiaries (“Senior Obligations”) and shall rank pari passu with all current or future unsecured obligations of the Corporation that are not Senior Obligations.

 

Section 5.02                             Late Payments by the Corporation. The amount of all or any portion of any Exchange Payment not made to any Partner when due under the terms of this Agreement shall be payable together with any interest thereon, computed at the Default Rate and commencing from the date on which such Exchange Payment was due and payable.

 

ARTICLE VI

 

NO DISPUTES; CONSISTENCY; COOPERATION

 

Section 6.01                             Partner Participation in Feeder’s, the Corporation’s and Partnership’s Tax Matters. Except as otherwise provided herein, the Corporation shall have full responsibility for, and sole discretion over, all Tax matters concerning Feeder, the Corporation and the Partnership, including without limitation the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to Taxes. Notwithstanding the foregoing, the Corporation shall notify the Partners of, and keep the Partners reasonably informed with respect to the portion of any audit of Feeder, the Corporation and the Partnership by a Taxing Authority the outcome of which is reasonably expected to affect the  Partners’ rights and obligations under this Agreement, and shall provide to the Partners reasonable opportunity to provide information and other input to Feeder, the Corporation, the Partnership and their respective advisors concerning the conduct of any such portion of such audit; provided, however, that Feeder, the Corporation and the Partnership shall not be required to take any action that is inconsistent with any provision of the Partnership Agreement.

 

Section 6.02                             Consistency.  Feeder, the Corporation and the Partners agree to report and cause to be reported for all purposes, including federal, state, local and foreign Tax purposes and financial reporting purposes, all Tax-related items (including without limitation the Basis Adjustment and each Tax Benefit Payment) in a manner consistent with that specified by the Corporation in any Schedule required to be provided by or on behalf of the Corporation under this Agreement unless the Corporation or a Partner receives a written opinion from an Advisory Firm that reporting in such manner is more likely than not to result in an imposition of penalties pursuant to the Code.  Any Dispute concerning such advice shall be subject to the terms of Section 7.09.

 

Section 6.03                             Cooperation. The Partners shall each (a) furnish to the Corporation in a timely manner such information, documents and other materials as the Corporation may

 

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reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (b) make itself available to the Corporation and its representatives to provide explanations of documents and materials and such other information as the Corporation or its representatives may reasonably request in connection with any of the matters described in clause (a) above, and (c) reasonably cooperate in connection with any such matter, and the Corporation shall reimburse each Partner for any reasonable third-party costs and expenses incurred pursuant to this Section.

 

ARTICLE VII

 

MISCELLANEOUS

 

Section 7.01                             Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed duly given and received (a) on the date of delivery if delivered personally, or by facsimile upon confirmation of transmission by the sender’s fax machine if sent on a Business Day (or otherwise on the next Business Day) or (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier service. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:

 

if to the Corporation, to:

 

[                                        ]

 

with a copy to:

 

[                                        ]

 

if to Feeder, to:

 

[                                        ]

 

with a copy to:

 

[                                        ]

 

if to the Partnership, to:

 

[                                        ]

 

with a copy to:

 

[                                        ]

 

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if to the Partners or any Partner, to:

 

the address and facsimile number set forth for such Partner in the records of the Partnership.

 

Any party may change its address or fax number by giving the other party written notice of its new address or fax number in the manner set forth above.

 

Section 7.02                             Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.

 

Section 7.03                             Entire Agreement; No Third Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

Section 7.04                             Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction.

 

Section 7.05                             Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.

 

Section 7.06                             Successors; Assignment; Amendments; Waivers. No Partner may assign this Agreement to any person without the prior written consent of the Corporation; provided, however, (i) that, to the extent Common Units are effectively transferred in accordance with the terms of the Partnership Agreement, and any other agreements the Partners may have entered into with each other, or a Partner may have entered into with the Corporation and/or the Partnership, the transferring Partner shall assign to the transferee of such Common Units the transferring Partner’s rights under this Agreement with respect to such transferred Common Units, as long as such transferee has executed and delivered, or, in connection with such transfer, executes and delivers, a joinder to this Agreement, in form and substance reasonably satisfactory to the Corporation, agreeing to become a “Partner” for all purposes of this Agreement, except as otherwise provided in such joinder, and (ii) that, once an Exchange has occurred, any and all payments that may become

 

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payable to a Partner pursuant to this Agreement with respect to such Exchange may be assigned to any Person or Persons, as long as any such Person has executed and delivered, or, in connection with such assignment, executes and delivers, a joinder to this Agreement, in form and substance reasonably satisfactory to the Corporation, agreeing to be bound by Section 7.12 and acknowledging specifically the last sentence of the next paragraph.  For the avoidance of doubt, to the extent a Partner or other Person transfers Common Units to a Partner as may be permitted by any agreement to which the Partnership is a party, the Partner receiving such Common Units shall have all rights under this Agreement with respect to such transferred Common Units as such  Partner has, under this Agreement, with respect to the other Common Units held by him.

 

Notwithstanding the foregoing provisions of this Section 7.06, no transferee described in clause (i) of the immediately preceding paragraph shall have the right to enforce the provisions of Section 2.04, 4.02, 6.01 or 6.02 of this Agreement, and no assignee described in clause (ii) of the immediately preceding paragraph shall have any rights under this Agreement except for the right to enforce its right to receive payments under this Agreement.

 

No provision of this Agreement may be amended unless such amendment is approved in writing by each of the Corporation and the Partnership, and by Partners who would be entitled to receive at least two-thirds of the Early Termination Payments payable to all Partners hereunder if the Corporation had exercised its right of early termination under Section 4.01(a) on the date of the most recent Exchange prior to such amendment (excluding, for purposes of this sentence, all payments made to any Partner pursuant to this Agreement since the date of such most recent Exchange); provided, that no such amendment shall be effective if such amendment will have a disproportionate effect on the payments certain Partners will or may receive under this Agreement unless at least two-thirds of such Partners disproportionately effected (with such two-thirds threshold being measured by the entitlement to Early Termination Payments as set forth in the preceding portion of this sentence) consent in writing to such amendment. No provision of this Agreement may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective.

 

All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Corporation shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.

 

Section 7.07                             Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

 

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Section 7.08                             Submission to Jurisdiction; Dispute Resolution.

 

(a)                       Except as provided in Section 7.09. any Dispute as to the interpretation of this Agreement shall be resolved by the Corporation in its sole discretion, provided that such resolution shall reflect a reasonable interpretation of the provisions of this Agreement and that such resolution shall not be inconsistent with the fundamental results described in Section 3.02 of this Agreement.

 

(b)                       The remainder of this Section 7.08 shall not apply with respect to claims of a Specified Partner arising out of, relating to or in connection with the validity, negotiation, execution, performance or non-performance of this Agreement.

 

(c)                        Except as otherwise expressly provided by Section 7.08(a) or Section 7.09, any dispute, controversy or claim arising out of or in connection with this Agreement, or the interpretation, breach, termination or validity thereof (“Dispute”) shall be finally resolved by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) then in effect (the “Rules”), except as modified herein and such arbitration shall be administered by the AAA. The place of arbitration shall be New York, New York.

 

(d)                       There shall be one arbitrator who shall be agreed upon by the parties within twenty (20) days of receipt by respondent of a copy of the demand for arbitration. If any arbitrator is not appointed within the time limit provided herein, such arbitrator shall be appointed by the AAA in accordance with the listing, striking and ranking procedure in the Rules, with each party being given a limited number of strikes, except for cause. Any arbitrator appointed by the AAA shall be a retired judge or a practicing attorney with no less than fifteen years of experience with corporate and limited partnership matters and an experienced arbitrator. In rendering an award, the arbitrator shall be required to follow the laws of the state of Delaware.

 

(e)                        The award shall be in writing and shall briefly state the findings of fact and conclusions of law on which it is based. The arbitrator shall not be permitted to award punitive, multiple or other non-compensatory damages. The award shall be final and binding upon the parties and shall be the sole and exclusive remedy between the parties regarding any claims, counterclaims, issues or accounting presented to the arbitrator.  Judgment upon the award may be entered in any court having jurisdiction over any party or any of its assets. Any costs or fees (including attorneys’ fees and expenses) incident to enforcing the award shall be charged against the party resisting such enforcement.

 

(f)                         All Disputes shall be resolved in a confidential manner. The arbitrator shall agree to hold any information received during the arbitration in the strictest of confidence and shall not disclose to any non-party the existence, contents or results of the arbitration or any other information about such arbitration. The parties to the arbitration shall not disclose any information about the evidence adduced or the documents produced by the other party in the arbitration proceedings or about the existence, contents or results of the proceeding except as may be required by law, regulatory or governmental authority or as may be necessary in an action in aid of arbitration or for enforcement of an arbitral award.  Before making any disclosure permitted by the

 

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preceding sentence (other than private disclosure to financial regulatory authorities), the party intending to make such disclosure shall use reasonable efforts to give the other party reasonable written notice of the intended disclosure and afford the other party a reasonable opportunity to protect its interests.

 

(g)                        Barring extraordinary circumstances (as determined in the sole discretion of the arbitrator), discovery shall be limited to pre-hearing disclosure of documents that each side will present in support of its case, and non-privileged documents essential to a matter of import in the proceeding for which a party has demonstrated a substantial need. The parties agree that they will produce to each other all such requested non-privileged documents, except documents objected to and with respect to which a ruling has been or shall be sought from the arbitrator. There will be no depositions.

 

Section 7.09                             Reconciliation. In the event that the Corporation and an Applicable Partner are unable to resolve a disagreement with respect to the matters governed by Sections 2.04, 4.02 and 6.02 within the relevant period designated in this Agreement (“Reconciliation Dispute”), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the “Expert”) in the particular area of disagreement mutually acceptable to both parties. The Expert shall be a partner in a nationally recognized accounting firm or a law firm (other than the Advisory Firm), and the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with either the Corporation or the Applicable Partner or other actual or potential conflict of interest. If the parties are unable to agree on an Expert within fifteen (15) days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the Expert shall be appointed by the AAA. The Expert shall resolve any matter relating to the Exchange Basis Schedule or an amendment thereto or the Early Termination Schedule or an amendment thereto within 30 calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within 15 calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution.  Notwithstanding the preceding sentence, if the matter is not resolved before the date any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, such payment shall be paid on the date such payment would be due and such Tax Return may be filed as prepared by the Corporation, subject to adjustment or amendment upon resolution.  The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be borne jointly by the Corporation and the Applicable Partner, with each party bearing one-half of such costs.  The Corporation and each Applicable Partner shall bear their own costs and expenses of such proceeding.  Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of this Section 7.09 shall be decided by the Expert.  The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.09 shall be binding on the Corporation and the Applicable Partner and may be entered and enforced in any court having jurisdiction.

 

Section 7.10                             Withholding. The Corporation shall be entitled to deduct and withhold from any payment payable pursuant to this Agreement such amounts as the Corporation is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld and paid over

 

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to the appropriate Taxing Authority by the Corporation, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Applicable Partner.

 

Section 7.11                             Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets.

 

(a)                       If the Corporation becomes a member of an affiliated or consolidated group of corporations that files a consolidated income tax return pursuant to sections 1501 et seq. of the Code or any corresponding provisions of state, local or foreign law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments, Early Termination Payments, Individual Early Termination Payments and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole.

 

(b)                       Notwithstanding any other provision of this Agreement, if the Corporation or Feeder acquires one or more assets that, as of an Exchange Date, have not been contributed to the Partnership (other than the Corporation’s interests in the Partnership) (such assets, “Excluded Assets”), then all Tax Benefit Payments due hereunder shall be computed as if such assets had been contributed to the Partnership on the date such assets were first acquired by the Corporation; provided, however, that if an Excluded Asset consists of stock in a corporation, then, for purposes of this Section 7.11(b), such corporation (and any corporation Controlled by such corporation) shall be deemed to have contributed its assets to the Partnership on the date on which the Corporation acquired stock of such corporation.

 

(c)                        If any entity that is obligated to make an Exchange Payment hereunder transfers one or more assets to a corporation with which such entity does not file a consolidated tax return pursuant to section 1501 of the Code, such entity, for purposes of calculating the amount of any Exchange Payment (e.g., calculating the gross income of the entity and determining the Realized Tax Benefit of such entity) due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such contribution.  The consideration deemed to be received by such entity shall be equal to the fair market value of the contributed asset (as reasonably determined by the governing body, or the Person responsible for management, of such entity acting in good faith), plus (i) the amount of debt to which such asset is subject, in the case of a contribution of an encumbered asset or (ii) the amount of debt allocated to such asset, in the case of a contribution of a partnership interest.  If shares of Feeder are transferred such that Feeder and the Corporation no longer join in the filing of a consolidated U.S. federal income tax return pursuant to section 1501 of the Code (other than in a transaction pursuant to which Feeder merges or liquidates for U.S. federal income tax purposes into the Corporation or another member of the consolidated group of which the Corporation is a member), Feeder shall be treated as having disposed of its assets in a fully taxable transaction on the date of such transfer for purposes of calculating the amount of any Exchange Payment.

 

Section 7.12                             Confidentiality.  Each Partner and assignee acknowledges and agrees that the information of the Corporation is confidential and, except in the course of performing any duties as necessary for the Corporation and its Affiliates, as required by law or legal process or to

 

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enforce the terms of this Agreement, shall keep and retain in the strictest confidence and not disclose to any Person any confidential matters, acquired pursuant to this Agreement, of the Corporation, its Affiliates and successors and the other Partners, confidential information concerning the Corporation, its Affiliates and successors and the other Partners, including marketing, investment, performance data, credit and financial information, and other business affairs of the Corporation, its Affiliates and successors and the other Partners learned of by the Partner heretofore or hereafter.  This clause 7.12 shall not apply to (i) any information that has been made publicly available by the Corporation or any of its Affiliates, becomes public knowledge (except as a result of an act of such Partner in violation of this Agreement) or is generally known to the business community and (ii) the disclosure of information to the extent necessary for a Partner to prepare and file his or her tax returns, to respond to any inquiries regarding the same from any taxing authority or to prosecute or defend any action, proceeding or audit by any taxing authority with respect to such returns.  Notwithstanding anything to the contrary herein, each Partner and assignee (and each employee, representative or other agent of such Partner or assignee, as applicable) may disclose to any and all Persons, without limitation of any kind, the tax treatment and tax structure of (x) Feeder, the Corporation, the Partnership, the Partners and their Affiliates and (y) any of their transactions, and all materials of any kind (including opinions or other tax analyses) that are provided to the Partners relating to such tax treatment and tax structure.

 

If a Partner or assignee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.12, the Corporation shall have the right and remedy to have the provisions of this Section 7.12 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other security, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Corporation or any of its Affiliates or the other Partners and that money damages alone shall not provide an adequate remedy to such Persons.  Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity.

 

Section 7.13                             Partnership Agreement. To the extent this Agreement imposes obligations upon the Partnership or a partner of the Partnership, this Agreement shall be treated as part of the partnership agreement of the Partnership as described in section 761(c) of the Code and sections 1.704-1(b)(2)(ii)(h) and 1.761-1(c) of the Treasury Regulations.

 

Section 7.14                             Joinder. The Corporation hereby agrees that, to the extent it acquires a general partnership interest, managing member interest or similar interest in any Person after the date hereof, it shall cause such Person to execute and deliver a joinder to this Agreement promptly upon acquisition of such interest, and such person shall be treated in the same manner as the Partnership for all purposes of this Agreement.  The Corporation hereby agrees to cause any Corporate Entity that acquires an interest in the Partnership (or any entity described in the foregoing sentence) to execute a joinder to this Agreement (to the extent such Person is not already a party hereto) promptly upon such acquisition, and such Corporate Entity shall be treated in the same manner as the Corporation for all purposes of this Agreement.  The Partnership shall have the power and authority (but not the obligation) to permit any Person who becomes a limited partner of the Partnership to execute and deliver a joinder to this Agreement promptly upon acquisition of limited partnership interests in the Partnership by such Person, and such Person shall be treated as a “Partner” for all purposes of this Agreement.

 

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Section 7.15                             Release of Claims.

 

(a)                       Each Partner acknowledges that the benefits to such Partner under this Agreement are only possible as a result of the Initial Sale, the IPO and the actions taken in connection therewith (including, without limitation, the actions described in clause (ii), (iii) and (iv) of Section 7.15(b) below).

 

(b)                       Each Partner, on behalf of himself or herself and his or her successors and assigns, hereby completely releases and forever discharges the Corporation, the Partnership, Partner Holdings, Moelis & Company Holdings LP, a Delaware limited partnership (“Old Holdings”), and their respective affiliates and direct or indirect former, current or future general partners, managing members, directors or officers of any of the foregoing (collectively, the “Released Parties”) from and against any and all claims, liabilities, judgments, demands, costs, expenses (including attorneys’ fees), actions and causes of action, of whatever kind or nature, whether known or unknown, accrued or not yet accrued, suspected or unsuspected, that such Partner had, now has, or may hereafter have against each of the Released Parties, in each case resulting from or in any way related to (i) such Partner’s ownership of, or right to receive, any equity interests in Old Holdings and its affiliates, (ii) the restructuring of interests in Old Holdings and the separation of the advisory and asset management businesses of Old Holdings, each in connection with the Initial Sale and the IPO, including without limitation, the merger of Moelis Merger Company LP, a Delaware limited partnership, with and into Old Holdings, (iii) the Initial Sale and the IPO or (iv) any determinations (including valuations) made by any Released Party in connection with such restructuring or separation, including, without limitation, the value or nature of any consideration received by such Partner in connection therewith, the Initial Sale or the IPO, and each such determination shall be final and binding on such Partner.  Each Partner understands the significance of its release of unknown claims and waiver of statutory protection against a release of unknown claims.  Each Partner expressly assumes the risk of such unknown and unanticipated claims and agrees that this release applies to all claims, whether known, unknown or unanticipated.  Each Partner party hereto expressly understands and acknowledges that it is possible that unknown losses or claims exist or might come to exist or that present losses may have been underestimated in amount, severity, or both.  Accordingly, each Partner party hereto is deemed expressly to understand provisions and principles of law such as Section 1542 of the Civil Code of the State of California (as well as any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar or comparable to Section 1542), which Section provides: GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.  Each Partner party hereto is hereby deemed to agree that the provisions of Section 1542 and all similar federal or state laws, rights, rules, or legal principles of California or any other jurisdiction that may be applicable herein, are hereby knowingly and voluntarily waived and relinquished with respect to the release in this Section 7.15.

 

Section 7.16                             Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

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[Signature pages follow]

 

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IN WITNESS WHEREOF, the Corporation, the Partnership and each Partner have duly executed this Agreement as of the date first written above.

 

	
 
    	
MOELIS & COMPANY
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
MOELIS HOLDINGS FEEDER, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
MOELIS & COMPANY GROUP LP
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
MOELIS & COMPANY PARTNER HOLDINGS LLC
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
MOELIS & CO. MANAGER LLC
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

Signature Page to Tax Receivable Agreement

 

 

The undersigned Partner expressly acknowledges that the benefits to the undersigned under this Agreement are only possible as a result of the Initial Sale, the IPO and the actions taken in connection therewith (including, without limitation, the actions described in clause (ii), (iii) and (iv) of Section 7.15(b) of this Agreement) and the undersigned expressly agrees to the release of claims set forth in Section 7.15 of this Agreement.

 

 

	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Signature:
    	
 
    

 

Signature Page to Tax Receivable Agreement

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