Document:

FIRST AMENDMENT

TO 

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS FIRST AMENDMENT to Loan and Security Agreement (this “Amendment”) is entered into this 30th day of November, 2006, by and between Silicon Valley Bank (“Bank”) and Sento Corporation, a Utah corporation, Sento Technical Services Corporation, a Utah corporation and Xtrasource Acquisition, Inc., a Delaware corporation (collectively “Borrower”) whose address is 420 East South Temple, Suite 400, Salt Lake City, Utah  84111.

RECITALS

A.  Bank and Borrower have entered into that certain Amended and Restated Loan and Security Agreement with an Effective Date of November 14, 2006 (as the same may from time to time be further amended, modified, supplemented or restated, collectively, the “Loan Agreement”).  

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

C.           Borrower has requested that Bank amend the Loan Agreement to (i) eliminate the Liquidity Coverage covenant; (ii) modify the Revolving Line, and (iii) 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 Third Amended and Restated Schedule to Loan and Security Agreement.

2.1          Section 2.3(a) (Interest Rate; Advances).  Section 2.3(a) is amended by deleting the existing provision and replacing it with the following:

"(a)         Interest Rate; Advances.  Subject to Section 2.3(b), the amounts outstanding under the Revolving Line shall accrue interest at a per annum rate equal to 3.50 percentage points above the Prime Rate, which interest shall be payable monthly."

 

2.2          Section 4.3 (Subordination of Security Interest).  The following Section 4.3 is hereby added to the Loan Agreement:

"4.3        Subordination of Security Interest.  Sento Corporation subordinates to Bank any security interest or lien that it has in all property and assets of Xtrasource Acquisition, Inc.  Despite attachment or perfection dates of Sento Corporation’s security interest and Bank’s security interest, Bank’s security 

 

interest in all assets and property of Xtrasource Acquisition, Inc. is prior to Sento Corporation’s security interest.  Sento Corporation shall execute and cause to be delivered to Bank such instruments and other documents, and shall take such other actions, as Bank may reasonably request to carry out or evidence this subordination of Sento Corporation's security interest."

 

2.3          Section 5.12 (Unbilled Revenue).  The following Section 5.12 is hereby added to the Loan Agreement:

	
             
 	
            "5.12
 	
            Unbilled Revenue.  
 

 

(a)           For the Unbilled Revenue with respect to which Advances are requested, on the date each Advance is requested and made, such Unbilled Revenue, if it were invoiced as of such date, would meet the eligibility requirements set forth in the Eligible Accounts and Eligible Foreign Accounts definitions (excluding clause (a) in the Eligible Accounts definition), as the case may be, in Section 13 below.  

 

(b)           All statements and representations made by Borrower regarding its earned revenue appearing in Borrower's report of its Unbilled Revenue submitted to Bank are and shall be true and correct.  All sales and other transactions underlying or giving rise to the Unbilled Revenue shall comply in all material respects with all applicable laws and governmental rules and regulations. As of the date each Advance is requested, Borrower has fully performed all services in the amount of the Unbilled Revenue.  Unless disclosed in writing to Bank in the report of Borrower's Unbilled Revenue, none of the Unbilled Revenue shall have been billed or invoiced to Borrower's customers.  Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor who is obligated to pay
any of the Unbilled Revenue upon invoicing.  To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Unbilled Revenue are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms."

 

2.4          Section 6.2(d) (Financial Statements, Reports, Certificates).  The following Section 6.2(d) is hereby added to the Loan Agreement:

"(d)  all reports, notices and supporting documents filed with NASDAQ relating to the Qualified Equity Financing shall be provided to Bank contemporaneously with the filing with NASDAQ."

2.5          Section 6.9 (Financial Covenants).  Section 6.9 is amended by deleting the existing provisions and replacing them with the following:

	
             
 	
            "6.9
 	
            Financial Covenants.
 

 

Borrower shall maintain as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Borrower and its Subsidiaries:

 

(a)           Tangible Net Worth.  A Tangible Net Worth of at least the following: (i) $2,750,000.00 effective as of October 31, 2006; (ii) $3,500,000.00 effective as of 

 

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November 30, 2006; and (iii) effective as of December 31, 2006, and thereafter, $3,500,000.00, increasing by 75% of quarterly Net Income and 75% of issuances of equity and the principal amount of Subordinated Debt issued or incurred after the Effective Date, other than the Subordinated Debt issued under the Qualified Equity Financing.  All increases in the quarterly Net Income shall take effect as of the last day of the last month of each quarter, with the first quarterly period ending as of March 31, 2007, and the Tangible Net Worth requirement shall not be decreased in the event of any net loss.

 

(b)           Loans and Investments in Subsidiaries.  Borrower's Investments in its Subsidiaries shall not exceed at any time the sum of $1,700,000.00.

 

In the event Borrower has complied with the Debt Service Coverage Ratio for six consecutive months, then Borrower shall maintain as of the last day of each month, unless otherwise notes, on a consolidated basis with respect to Borrower and its Subsidiaries the following Adjusted Quick Ratio and Debt Service Coverage Ratio covenants.  Borrower shall continue to comply with the Loans and Investments in Subsidiaries and Tangible Net Worth covenants.  Compliance shall be determined as of the end of each month, beginning with the first month following the six consecutive months during which Borrower complied with the Debt Service Coverage Ratio.

 

(c)           Adjusted Quick Ratio.  A ratio of Quick Assets to Current Liabilities minus Deferred Revenue of at least 2.00 to 1.00.

 

(d)           Debt Service Coverage Ratio.  As of the last day of each fiscal month, a ratio of EBITDA, net of adjustments for changes in non-cash income or expenses associated with valuation changes in the market value of options or warrants of any Borrower, in each case for the twelve (12) consecutive months then-ended, to Debt Service, of at least 1.50 to 1.00."

 

2.6          Section 6.12  (Release of Security Interest).  Section 6.12 is amended by deleting the existing provision and replacing it with the following:

"6.12      Release of Security Interest.  Sento Corporation has a second priority security interest in the assets acquired by Xtrasource Acquisition, Inc. from Xtrasource, Inc., and such security interest is junior in priority to the Bank's security interest in the assets of Xtrasource Acquisition, Inc.  Upon payment in full of the debts and obligations due to creditors of Xtrasource, Inc. (excluding equipment leases), Sento Corporation will immediately release its security interest in the assets of Xtrasource Acquisition, Inc."

 

2.7          Section 13.1 (Definitions).  The following terms and their definitions set forth in Section 13.1 are amended by deleting the existing definitions and replacing them with the following: 

""Borrowing Base" is (a) 80% of Eligible Accounts, as determined by Bank from Borrower’s most recent Transaction Report, plus (b) 80% of Unbilled Revenue, which shall not exceed $2,000,000.00, as determined by Bank from Borrower's most recent report of its Unbilled Revenue; provided, however, that Bank may decrease the foregoing percentages in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.

 

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"Overadvance Line Maturity Date" is the earlier of December 21, 2006, or the closing of a Qualified Equity Financing by Borrower."

 

The following term and its definition are hereby added to Section 13.1:

 

""Unbilled Revenue" means amounts due to Borrower for services rendered in the ordinary course of Borrower's business, but which have not been billed to its customers, and which meet all Borrower's representations and warranties in Section 5.12."

 

3.            Forbearance.  The parties anticipate that Borrower will fail to comply with the Tangible Net Worth covenant as of November 30, 2006 (the "Existing Default").  Bank will forbear from exercising its remedies under the Loan Agreement and agrees to waive the Existing Default if Borrower closes a Qualified Equity Financing on or before December 31, 2006.  Borrower acknowledges that the Loan Agreement currently is in default and as a result of the default the Bank is entitled to exercise its remedies in the Loan Agreement and under applicable law.  Nothing in this agreement in any way is a waiver of Borrower’s existing default under the Loan Agreement.  In the event Borrower fails to close a   Qualified Equity Financing on or before December 31, 2006, then, without notice to Borrower, the Bank may exercise any remedies available to it under the Loan Agreement and under applicable law.  

In the event Borrower closes a Qualified Equity Financing on or before December 31, 2006, then effective as of such closing date, Bank waives Borrower's Existing Default under the Loan Agreement.  Bank’s waiver of Borrower’s compliance with the Tangible Net Worth covenant as of November 30, 2006.   For the month ending December 31, 2006, Borrower shall be required to comply with the Tangible Net Worth covenant and the other covenants set forth in Section 6.9 of the Loan Agreement.      

In the event Borrower closes a Qualified Equity Financing on or before December 31, 2006, then Bank's agreement to waive the Existing Default (1) is not an agreement to waive Borrower's compliance with the covenant for other dates and (2) will not limit or impair the Bank's right to demand strict performance of this covenant as of all other dates and (3) does not limit or impair the Bank's right to demand strict performance of all other covenants as of any date.  

	
             
 	
            4.
 	
            Limitation of Amendments.
 

4.1          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.

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, 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 

 

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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;

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 on the Effective Date 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 (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) the due execution and delivery to Bank of the Warrant to Purchase Stock by Sento Corporation, and (c) Borrower’s payment of an amendment fee in an amount equal to $15,000.00 and Bank's out-of-pocket expenses.

UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE.

 

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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
 	
            BORROWER
 
	
             

Silicon Valley Bank

 

 

By:       /s/ Shane Anderson

Name: Shane Anderson

Title:    Relationship Manager
 	
             

Sento Corporation

 

 

By:         /s/ Anthony J. Sansone                          

Name:  Anthony J. Sansone

Title:      SVP & CFO

 

 

Sento Technical Services Corporation

 

 

By:         /s/ Anthony J. Sansone                          

Name:  Anthony J. Sansone

Title:      SVP & CFO

 

 

Xtrasource Acquisition, Inc.

 

 

By:         /s/ Anthony J. Sansone                          

Name:  Anthony J. Sansone

Title:      SVP & CFO

 
 

 

 

6THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

 

WARRANT TO PURCHASE STOCK

 

	
            Company:
 	
            Sento Corporation, a Utah corporation
 

	
            Number of Shares:
 	
            50,000
 

	
            Class of Stock:
 	
            Common
 

	
            Warrant Price:
 	
            105% of the closing price per share one calendar day after the Company's earnings release for the period ending as of September 30, 2006
 

	
            Issue Date:
 	
            November 30, 2006
 

	
            Expiration Date:
 	
            The 5th anniversary after the Issue Date
 

	
            Credit Facility:
 	
            This Warrant is issued in connection with the First Amendment to the Amended and Restated Loan and Security Agreement between Company and Silicon Valley Bank dated November 30, 2006. 
 

 

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (Silicon Valley Bank, together with any registered holder from time to time of this Warrant or any holder of the shares issuable or issued upon exercise of this Warrant, "Holder") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "Shares") of the Company at the Warrant Price, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. 

 

ARTICLE 1. EXERCISE.

 

1.1       Method of Exercise.  Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company.  Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

 

1.2       Conversion Right.  In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share.  The fair market value of the Shares shall be determined pursuant to Article 1.3.

 

1.3       Fair Market Value.  If the Company’s common stock is traded in a public market and the Shares are common stock, the fair market value of each Share shall be the closing price of a Share reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public offering, the “price to public” per share price specified in the final prospectus relating to such offering).  If the Company’s common stock is traded in a public market and the Shares are preferred stock, the fair market value of a Share shall be the closing price of a share of the Company’s common stock reported for the business day
immediately before Holder delivers its Notice of Exercise to the Company (or, in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public offering, the initial “price to public” per share price specified in the final prospectus relating to such offering), in both cases, multiplied  by the number of shares of the Company’s common stock into which a Share is convertible.  If the Company’s common stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.

 

1.4       Delivery of Certificate and New Warrant.  Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.

 

1.5       Replacement of Warrants.  On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

 

	
             
 	
            1.6
 	
            Treatment of Warrant Upon Acquisition of Company.
 

 

1.6.1    "Acquisition".  For the purpose of this Warrant, "Acquisition" means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction.

 

	
             
 	
            1.6.2
 	
            Treatment of Warrant at Acquisition. 
 

A)          Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that is not an asset sale and in which the sole consideration is cash, either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of such Acquisition.  The Company shall provide Holder with written notice of its request relating to the foregoing (together with such reasonable information as Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

B)          Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that is an “arms length” sale of all or substantially all of the Company’s assets (and only its assets) to a third party that is not an Affiliate (as defined below) of the Company (a “True 

 

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Asset Sale”), either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will continue until the Expiration Date if the Company continues as a going concern following the closing of any such True Asset Sale.  The Company shall provide Holder with written notice of its request relating to the foregoing (together with such reasonable information as Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

C)          Upon the closing of any Acquisition other than those particularly described in subsections (A) and (B) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing.  The Warrant Price and/or number of Shares shall be adjusted accordingly.

As used herein “Affiliate” shall mean any person or entity that owns or controls directly or indirectly ten (10) percent or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such person’s or entity’s officers, directors, joint venturers or partners, as applicable.

 

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

 

2.1        Stock Dividends, Splits, Etc.  If the Company declares or pays a dividend on the Shares payable in common stock, or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend occurred.  If the Company subdivides the Shares by reclassification or otherwise into a greater number of shares or takes any other action which increase the amount of stock into which the Shares are convertible, the number of shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased.  If the outstanding shares are combined or
consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

 

2.2       Reclassification, Exchange, Combinations or Substitution.  Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event.  Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Articles or Certificate (as
applicable) of Incorporation upon the closing of a registered public offering of the Company's common stock.  The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant.  The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon 

 

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exercise of the new Warrant.  The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 

2.3        Adjustments for Diluting Issuances.  The Warrant Price and the number of Shares issuable upon exercise of this Warrant or, if the Shares are preferred stock, the number of shares of common stock issuable upon conversion of the Shares, shall be subject to adjustment, from time to time in the manner set forth in the Company’s Articles or Certificate of Incorporation as if the Shares were issued and outstanding on and as of the date of any such required adjustment.  The provisions set forth for the Shares in the Company’s Articles or Certificate (as applicable) of Incorporation relating to the above in effect as of the Issue Date may not be amended, modified or waived, without the prior written consent of Holder unless such amendment,
modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of the same series and class as the Shares granted to Holder.

 

2.4       No Impairment.  The Company shall not, by amendment of its Articles or Certificate (as applicable) of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. 

 

2.5       Fractional Shares.  No fractional Shares shall be issuable upon exercise or conversion of this Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share.  If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.

 

2.6       Certificate as to Adjustments.  Upon each adjustment of the Warrant Price, the Company shall promptly notify Holder in writing, and, at the Company’s expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based.  The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price.

 

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

 

3.1       Representations and Warranties.  The Company represents and warrants to Holder that all Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

 

3.2       Notice of Certain Events.  If the Company proposes at any time (a) to declare any dividend or distribution upon any of its stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for sale any shares of the Company's capital stock (or other securities convertible into such capital stock), other than (i) pursuant to the Company's stock option or other compensatory plans, (ii) in connection with commercial credit arrangements or equipment financings, or (iii) in connection with strategic transactions for purposes other than capital raising; (c) to effect any reclassification or 

 

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recapitalization of any of its stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the Company's securities for cash, then, in connection with each such event, the Company shall give Holder: (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (a) and (b) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and
specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.   Company will also provide information requested by Holder reasonably necessary to enable Holder to comply with Holder’s accounting or reporting requirements.

 

3.3         No Shareholder Rights.  Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.

 

ARTICLE 4. REPRESENTATIONS, WARRANTIES OF HOLDER.  Holder represents and warrants to the Company as follows:

 

4.1         Purchase for Own Account.  This Warrant and the securities to be acquired upon exercise of this Warrant by Holder will be acquired for investment for Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act.  Holder also represents that Holder has not been formed for the specific purpose of acquiring this Warrant or the Shares.

 

4.2         Disclosure of Information.  Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities.  Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.

 

4.3         Investment Experience.  Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk.  Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business
acumen and financial circumstances of such persons.

 

4.4          Accredited Investor Status.  Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

 

4.5        The Act.  Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a 

 

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specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Holder’s investment intent as expressed herein.  Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.  

 

ARTICLE 5. MISCELLANEOUS.

 

5.1        Term.  This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.  

 

5.2       Legends.          This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

 

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

 

5.3       Compliance with Securities Laws on Transfer.  This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company).  The Company shall not require Silicon Valley Bank (“Bank”) to provide an opinion of counsel if the transfer is to Bank’s parent company, SVB Financial Group (formerly Silicon Valley Bancshares), or any other affiliate of
Bank.  Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale.

 

5.4        Transfer Procedure.  After receipt by Bank of the executed Warrant, Bank will transfer all of this Warrant to SVB Financial Group by execution of an Assignment substantially in the form of Appendix 2.  Subject to the provisions of Article 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the
transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable).  The Company may refuse to transfer this Warrant or the Shares to any 

 

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person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded.

 

5.5        Notices.  All notices and other communications from the Company to Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or Holder, as the case may (or on the first business day after transmission by facsimile) be, in writing by the Company or such Holder from time to time.  Effective upon receipt of the fully executed Warrant and the initial transfer described in Article 5.4 above, all notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

 

SVB Financial Group

Attn: Treasury Department

3003 Tasman Drive, HA 200

Santa Clara, CA 95054

Telephone: 408-654-7400

Facsimile: 408-496-2405

 

Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

 

	
             
 	
            Sento Corporation
 

	
             
 	
            Attn: Chief Financial Officer
 

	
             
 	
            420 East South Temple, Suite 400,
 

Salt Lake City, Utah  84111

	
             
 	
            Telephone: (801) 431-9209
 

	
             
 	
            Facsimile:  
 	
            (801) 762-4750
 

 

5.6       Waiver.  This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

 

5.7       Attorneys’ Fees.  In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

 

5.8       Automatic Conversion upon Expiration.  In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to Holder. 

 

5.9        Counterparts.  This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.

 

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5.10      Governing Law.  This Warrant shall be governed by and construed in accordance with the laws of the State of Oregon, without giving effect to its principles regarding conflicts of law.

 

	
            “COMPANY”

 

SENTO CORPORATION

 

 

By: /s/ Patrick F. O’Neal

 

Name: Patrick F. O’Neal

(Print)

Title:    President
 	
            Date:  November 30, 2006

 

 

 

 

By: /s/ Anthony J. Sansone

 

Name: Anthony J. Sansone

(Print)

Title:      Chief Financial Officer
 

 

	
            “HOLDER”

 

SILICON VALLEY BANK

 

 

By: /s/ Shane Anderson

 

Name: Shane Anderson

(Print)

Title:    Relationship Manager

 

 
 	
             
 

 

 

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