SUPPLEMENT NO. 2 dated as of January 22, 2010 to the Loan and Security Agreement dated as of November 21, 2008 between Insider Guides, Inc. (Borrower) and Venture Lending & Leasing V, Inc. (Lender)

 

 

This Supplement No. 2 (“Supplement No. 2”) is a Supplement to that certain Loan and Security Agreement dated as of November 21, 2008, between Borrower and Lender (as amended, restated, supplemented and modified from time to time, the “Loan and Security Agreement”).  This Supplement No. 2, together with the Loan and Security Agreement, constitute the agreement made as of January 22, 2010 (the “Supplement No. 2 Closing Date”), between Borrower and Lender with respect to the loan commitment from Lender set forth in the definition of “Commitment No. 2” below, separate and apart from the commitment memorialized in the Loan and Security Agreement, as supplemented by an earlier Supplement, dated as of November 21, 2008 (as amended, restated, supplemented and modified from time to time, “Supplement No. 1”), by and between Borrower and Lender.

All capitalized terms used in this Supplement No. 2 and not otherwise defined in this Supplement No. 2 have the meanings ascribed to them in Article 10 of the Loan and Security Agreement and Part 1 of Supplement No. 1, each of which is incorporated in its entirety into this Supplement No. 2.  In the event of any inconsistency between the provisions or definitions in the Loan and Security Agreement and Part 1 of Supplement No. 1, on the one hand, and this Supplement No. 2, on the other hand, this Supplement No. 2 is controlling.

In addition to the provisions of the Loan and Security Agreement and Supplement No. 1, the parties agree as follows:

 

 

Part 1. - Additional Definitions:

“Commitment No. 2” Subject to the terms and conditions set forth in the Loan and Security Agreement and this Supplement No. 2, Lender commits to make Equipment Loans to Borrower up to the aggregate original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000).

“Designated Rate” means, for each Equipment Loan funded pursuant to this Supplement No. 2, a fixed rate of interest per annum equal to the Prime Rate as published on the Business Day on which Lender prepares the Note for such Loan, plus five and three-quarters of one percent (5.75%); provided, however, that in no event shall the Designated Rate for an Equipment Loan funded pursuant to this Supplement No. 2 be less than nine percent (9.00%).

“Eligible Equipment” means any (i) computer equipment, (ii) lab, shop and test equipment, (iii) office equipment, and (iv) other standard hardware acceptable to Lender, provided that none of the foregoing is subject to a license agreement between Borrower and any Person.

“Equipment Loan” means any Loan requested by Borrower and funded by Lender under its Commitment No. 2 to finance Borrower’s acquisition or carrying of specific items of Eligible Equipment, and subject to Section 1(b), Soft Costs.  Equipment Loans are sometimes referred to herein individually as a “Loan” and collectively as the “Loans”.

 

 

“Final Payment”:   Each Equipment Loan funded pursuant to this Supplement No. 2 shall have a Final Payment equal to 6.723% of the original principal amount of such Loan.

“Liquidity Event” means: (i) the closing of a merger, acquisition or other transaction in accordance with the provisions of Section 6.4 of the Loan and Security Agreement; (ii) the closing of a sale of all or substantially all of a Borrower’s assets in accordance with the provisions the Loan and Security Agreement; or (iii) the closing of a firmly underwritten public offering of Borrower’s securities either (A) pursuant to a registration statement filed on Form S-1 under the Securities Act of 1933, as amended or (B) on a foreign exchange.

“Prime Rate” means the “prime rate” of interest, as published from time to time by The Wall Street Journal in the “Money Rates” section of its Western Edition newspaper.

 

“Termination Date” means the earlier of (i) the date Lender may terminate making Loans or extending other credit pursuant to the rights of Lender under Article 7 of the Loan and Security Agreement, or (ii) June 30, 2010; provided, however, that such date shall be extended from June 30, 2010 to December 31, 2010 with respect to the lesser of (x) fifty percent (50%) of Commitment No. 2 (i.e., One Million Two Hundred Fifty Dollars ($1,250,000)), and (y) the portion of Commitment No. 2 that remains unfunded as of such date.

Part 2. - Additional Covenants and Conditions:

 

1.           Commitment No. 2; Use of Proceeds; Limitations on Equipment Loans.

(a)           Funding of Equipment Loans.  Subject to the terms and conditions of the Loan and Security Agreement and this Supplement No. 2, Lender agrees to make Equipment Loans to Borrower from time to time from the Supplement No. 2 Closing Date up to and including the Termination Date in an aggregate original principal amount up to but not exceeding the lesser of (i) the then unfunded portion of its Commitment No. 2, and (ii) an amount equal to 100% of the amount paid by Borrower to a manufacturer, vendor or dealer who is not an Affiliate of Borrower for each item of Eligible Equipment, and subject to Section 1(b), each Soft Cost being financed with the proceeds of such Equipment Loan as shown on an invoice therefor (excluding (x) any commissions, (y) any portion of the amount invoiced which relates to servicing or maintenance of the Eligible Equipment, and (z) delivery, freight and installation charges or sales taxes payable upon acquisition, unless the amounts described in clauses (y) and (z) constitute Soft Costs that are being financed with the proceeds of such Loan) (the “Original Cost”).  Notwithstanding the foregoing, no item of Eligible Equipment and no Soft Cost shall be eligible to be financed with the proceeds of an Equipment Loan if such item was expended, acquired or first placed in service by Borrower earlier than ninety (90) days prior to the Borrowing Date of such Equipment Loan; provided, however, that so long as the Borrowing Date of the initial Equipment Loan occurs on or before January 31, 2010 (or such later date as may be agreed to by the parties on or before January 31, 2010), Borrower may finance Eligible Equipment and Soft Costs expended, acquired or first placed in service from June 30, 2009 at the Original Cost of such items.

(b)           Soft Costs.  Up to fifteen percent (15%) of Commitment No. 2, i.e., Three Hundred Seventy Five Thousand Dollars ($375,000) in aggregate amount, may be used to finance Soft Costs.

(c)           Location of Equipment.  All Eligible Equipment financed hereunder shall be located at all times at (i) Borrower’s place of business in New Hope, Pennsylvania, (ii) ReadyTechs, LLC’s place of business in Secaucus, New Jersey or (iii) other places of business located within the United States as may be consented to by Lender in writing.

 

 

(d)           Minimum Funding Amount. Except to the extent the remaining Commitment No. 2 is a lesser amount, any Equipment Loans requested by Borrower to be made on a single Business Day shall be for a minimum aggregate principal amount of Fifty Thousand Dollars ($50,000).

2.           Maximum Number of Borrowing Requests. Borrower shall not submit a Borrowing Request more frequently than once each calendar month.

 

3.           Repayment of Loans.     Principal of and interest on each Equipment Loan funded by Lender under its Commitment No. 2 shall be payable as set forth in a Note (substantially in the form of Exhibit “A” hereto) evidencing such Equipment Loan, which Note shall provide substantially as follows:  principal and interest at the Designated Rate shall be fully amortized over a period of thirty six (36) months in equal, monthly installments.  In particular, on the Borrowing Date applicable to the Equipment Loan evidenced by such Note, Borrower shall pay to Lender (i) if the Borrowing Date is not the first day of the month, interest only at a rate equal to 1.00% per month, in advance, on the outstanding principal balance of the Loan evidenced by such Note, for the period from such Borrowing Date through the last day of the calendar month in which such Borrowing Date occurs, and (ii) the first (1st) amortization installment of principal and interest at the Designated Rate.  Commencing on the first day of the second full month after the Borrowing Date, and continuing on the first day of each consecutive calendar month thereafter, principal and interest at the Designated Rate shall be payable, in advance, in 35 equal consecutive installments in an amount sufficient to fully amortize the Loan evidenced by such Note.  The Final Payment on such Loan shall be due and payable on the same date that the last installment payment of principal and interest at the Designated Rate is due.

4.           Prepayment.  No Loan funded pursuant to this Supplement No. 2 may be voluntarily prepaid except as provided in this Section 4.

(a)           Voluntary Prepayment at any Time. Borrower may voluntarily prepay all, but not less than all, Loans funded pursuant to this Supplement No. 2 in whole, but not in part, at any time by tendering to Lender cash payment in respect of such Loans in an amount equal to the sum of: (i) all accrued and unpaid interest on such Loans as of the date of prepayment; and (ii) an amount equal to the total amount of all scheduled but unpaid payments (including Final Payments) that would have accrued and been payable from the date of prepayment through the stated maturity of the Loans had they remained outstanding and been paid in accordance with the terms of the related Note(s).

 
 

(b)           Prepayment after Twelve Months of Amortization.  Notwithstanding anything to the contrary in Section 4(a), so long as no Event of Default has then occurred and is continuing, at any time after Borrower has made at least twelve (12) consecutive payments of principal and interest with respect to all Loans funded pursuant to this Supplement No. 2, Borrower may voluntarily prepay all, but not less than all, such Loans in whole but not in part, by tendering to Lender cash payment in respect of such Loans in an amount equal to the sum of:  (i) all accrued and unpaid interest on such Loans as of the date of prepayment; (ii) all outstanding principal balances of such Loans as of the date of prepayment; and (iii) an amount equal to eighty percent (80%) of all interest that would have accrued and been payable from the date of prepayment through the stated date of maturity of the Loans had they remained outstanding and been paid in accordance with the terms of the related Notes, in each case, as such amounts are determined by Lender.  Borrower agrees that its right to prepay the Loans funded pursuant to this Supplement No. 2 pursuant to this Section 4(b) shall not apply in connection with a Liquidity Event or at any time thereafter.

 

 

(c)           Prepayment after Eighteen Months of Amortization.  Notwithstanding anything to the contrary in Section 4(a), so long as no Event of Default has then occurred and is continuing, at any time after Borrower has made at least eighteen (18) consecutive payments of principal and interest with respect to all Loans funded pursuant to this Supplement No. 2, Borrowers may voluntarily prepay all, but not less than all, such Loans in whole but not in part, by tendering to Lender cash payment in respect of such Loans in an amount equal to the sum of:  (i) all accrued and unpaid interest on such Loans as of the date of prepayment; (ii) all outstanding principal balances of such Loans as of the date of prepayment; and (iii) an amount equal to seventy percent (70%) of all interest that would have accrued and been payable from the date of prepayment through the stated date of maturity of the Loans had they remained outstanding and been paid in accordance with the terms of the related Notes, in each case, as such amounts are determined by Lender.  Borrower agrees that its right to prepay the Loans funded pursuant to this Supplement No. 2 pursuant to this Section 4(c) shall not apply in connection with a Liquidity Event or at any time thereafter.

(d)           Prepayment if Lender Fails or Refuses to Fund a Loan.  Notwithstanding anything to the contrary in Section 4(a), if prior to the Termination Date Borrower satisfies all of the conditions precedent with respect to the funding of a Loan and Lender fails or refuses to make such Loan then Borrower may voluntarily prepay all, but not less than all, outstanding Loans funded pursuant to this Supplement No. 2 in whole, but not in part, at any time from the date of such failure or refusal up to the date which is sixty (60) days thereafter by tendering to Lender cash payment in respect of such outstanding Loans in an amount equal to the sum of: (i) all accrued and unpaid interest on such outstanding Loans as of the date of prepayment; and (ii) all outstanding principal balances of such outstanding Loans as of the date of prepayment, in each case, as such amounts are reasonably determined by Lender.

 

5.           Issuance of Warrant.  As additional consideration for the making of Commitment No. 2, Lender has earned and is entitled to receive immediately upon the execution of this Supplement No. 2, a warrant instrument issued by Borrower substantially in the form of Exhibit “C” attached hereto (the “Warrant”).  Borrower acknowledges that Lender has assigned its rights to receive the Warrant to its parent, Venture Lending & Leasing V, LLC, and in connection therewith, Borrower shall issue the Warrant directly to Venture Lending & Leasing V, LLC.  Lender shall furnish to Borrower a copy of the agreement in which Lender has assigned such Warrant to its parent.

6.           Payment of Commitment Fee.  As an additional condition precedent under Section 13 of Part 2 of this Supplement No. 2, Lender shall have completed to its satisfaction its due diligence review of Borrower’s business and financial condition and prospects, and Lender’s investment committee shall have approved its Commitment No. 2.  If this condition is not satisfied, the Twelve Thousand Five Hundred Dollars ($12,500) commitment fee (the “Commitment Fee”) previously paid by Borrower shall be refunded.  Lender agrees that with respect to each Equipment Loan advanced under its Commitment No. 2, on the Borrowing Date applicable to such Loan, Lender shall credit against the payments due from Borrower on such date in respect of such Loan an amount equal to the product of Twelve Thousand Five Hundred Dollars ($12,500) and a fraction the numerator of which is the principal amount of such Loan and the denominator of which is Two Million Five Hundred Thousand Dollars ($2,500,000), until the amount of such credits made by Lender equals but does not exceed Twelve Thousand Five Hundred Dollars ($12,500).  Except as set forth in this Section 6, the Commitment Fee is not refundable.

7.           Documentation Fee Payment.  Borrower shall pay Lender, on demand, the total amount of Lender’s actual costs and expenses incurred in connection with the preparation and negotiation of this Supplement No. 2 and the other Loan Documents described herein, including legal fees, plus actual filing fees incurred by Lender or its counsel related to perfection of the Liens granted under the Loan and Security Agreement.

8.           Borrower’s Account and Wire Transfer Instructions:

Institution Name	Comerica Bank
Address	226 Airport Parkway, Suite 100, M/C 4348 San Jose, CA 95110
ABA No.
Contact Name	Louise DiBenedetto
Phone No.	(617) 757-6300
E-mail	***@***
Account Title	Insider Guides, Inc.
Account No.

 

 

9.           Debits to Account for ACH Transfers.  For purposes of Section 2.2 and 5.10 of the Loan and Security Agreement, the Primary Operating Account shall be the bank account set forth in Section 8 above.  Borrower hereby agrees that Loans will be advanced to the account specified above and regularly scheduled payments of principal, interest and Final Payments will be automatically debited from the same account.

10.           Amendments to Supplement No. 1 and Loan and Security Agreement.

(a)           Amendment to Supplement No. 1.  Exhibit “B” to Supplement No. 1, the form of Borrowing Request, is hereby amended and restated in its entirety by Exhibit “B” attached to this Supplement No. 2.

(b)           Amendments to Loan and Security Agreement.

(i)           Section 6.1 of the Loan and Security Agreement is hereby amended and restated in its entirety as follows:

“6.1

Indebtedness.  Be indebted for borrowed money, the deferred purchase price of property, or leases which would be capitalized in accordance with GAAP; or become liable as a surety, guarantor, accommodation party or otherwise for or upon the obligation of any other Person, except:

(a)

Indebtedness incurred for the acquisition of supplies or inventory on normal trade credit;

(b)

Indebtedness incurred pursuant to one or more transactions permitted under Section 6.4;

(c)           Indebtedness of Borrower under this Agreement;

(d)           Subordinated Debt;

(e)           Indebtedness of Borrower under the 2007 Loan Agreement;

(f)           Bank Debt not to exceed $500,000 in aggregate principal amount outstanding at any time;

(g)           Indebtedness for automobile leases and related insurance not to exceed $24,000 per calendar year;

(h)           Indebtedness for leased office Equipment not to exceed $30,000 per calendar year; and

(i)           any Indebtedness approved by Lender as shown on Schedule 6.1 hereto (as the same may be amended from time to time with Lender’s consent).”

 

 

(ii)           The Schedule of Exceptions to the Loan and Security Agreement is hereby amended and restated in its entirety as follows:

“Schedule of Exceptions

Section 3.5 and Section 3.12(c)

 

Schedule 6.1                           Permitted Indebtedness

 

11.           Borrower’s Representations.  Borrower hereby represents and warrants to Lender that: (a) Borrower has full corporate power and authority to execute and deliver this Supplement No. 2, and to perform the obligations of its part to be performed hereunder and under the Loan and Security Agreement, as amended and supplemented hereby; (b) Borrower has taken all necessary action, corporate or otherwise, to authorize the execution and delivery of this Supplement No. 2 and each of the other Loan Documents described herein; (c) no consent or approval of any Person (that has not been obtained), no waiver of any lien or similar right, and no consent, license, approval or authorization of any governmental authority or agency is or will be required in connection with the execution or delivery by Borrower of this Supplement No. 2 and the Warrant, or the performance by Borrower of the Loan and Security Agreement, as amended and supplemented hereby; (d) this Supplement No. 2 and the Warrant are, or upon delivery thereof to Lender will be, the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; and (e) as of the date hereof, no Default or Event of Default has occurred and is continuing, and subject to the Schedule of Exceptions attached to the Loan and Security Agreement (as amended and restated in Section 10(b)(ii) hereof), the representations and warranties of Borrower contained in Article 3 of the Loan Agreement are true and correct in all material respects.

12.           Ratification by Borrower of Lender’s Security Interest in Collateral.  Borrower hereby confirms and ratifies Lender’s liens and security interests in and to all Collateral.  Borrower acknowledges and agrees that such liens and security interests shall secure all of the Obligations of Borrower under this Supplement No. 2, Supplement No. 1, the Loan and Security Agreement and the other Loan Documents.  In addition, Borrower hereby ratifies, confirms and reaffirms all obligations and covenants contained in the Loan and Security Agreement.

13.           Conditions to Effectiveness.  This Supplement No. 2 shall not be effective until each of the following conditions precedent has been fulfilled to the satisfaction of Lender:

(a)           original counterparts of this Supplement No. 2 and the Warrant shall have been duly executed and delivered to Lender or its counsel;

(b)           Lender shall have received a certificate executed by Borrower’s secretary or another senior officer, which shall certify that attached thereto are (i) a true and correct copy of resolutions duly adopted by Borrower’s Board of Directors, which resolutions have not been modified, amended, or rescinded in any respect and are in full force and effect as of the date hereof, and which resolutions authorize and ratify any actions previously, concurrently, or subsequently taken by Borrower with respect to the execution and performance of this Supplement No. 2 and the matters contemplated herein; (ii) true, correct and complete copies of Borrower’s Amended and Restated Certificate of Incorporation and Bylaws, each as amended through the Supplement No. 2 Closing Date; and (iii)  the names of the officer or officers of Borrower authorized to sign this Supplement No. 2 and each of the Loan Documents described herein, together with a sample of the true signature of each such officer;

 

 

(c)           Lender shall have received a legal opinion of Borrower’s counsel covering the authority and enforceability of this Supplement No. 2 and the Warrant, substantially in the form attached hereto as Exhibit “D”; and

(d)           Lender shall have received a Certificate Concerning Capitalization, substantially in the form attached hereto as Exhibit “E”, executed by Borrower.

Part 3. - Additional Representations:

Borrower represents and warrants that as of the Supplement No. 2 Closing Date and each Borrowing Date:

a)

Its chief executive office is located at:  280 Union Square Drive New Hope, PA 18938.

b)

Its Equipment is located at:  ReadyTechs, LLC, 275 Hartz Way, Secaucus, NJ 07094.

c)

Its Inventory is located at: 280 Union Square Drive New Hope, PA 18938.

d)

Its Records are located at:  280 Union Square Drive New Hope, PA 18938.

e)

In addition to its chief executive office, Borrower maintains offices or operates its business at the following locations:  132 W. 36th Street, 9th Floor, New York, NY  10018.

f)

Other than its current, full corporate name, Borrower has conducted business under the following corporate name(s), or using the following trade names or fictitious business names:  Myyearbook.com; Insider Guides, LLC

g)

Borrower’s Delaware state corporation I.D. number is: 4242493.

h)

Borrower’s federal tax identification number is: 20 ###-###-####.

i)

In addition to the Primary Operating Account identified in Section 8, Borrower maintains the following other Deposit Accounts and investment/securities accounts: None.

Institution Name	Comerica Bank
Address	226 Airport Parkway, Suite 100, M/C 4348 San Jose, CA 95110
ABA No.
Contact Name	Louise DiBenedetto
Phone No.	(617) 757-6300
Email	***@***
Account Title	Insider Guides, Inc.
Account No.

 

Part 4. - Additional Loan Documents:

 

 

 

 

 

[Signature page to Supplement No. 2]

IN WITNESS WHEREOF, the parties have executed this Supplement No. 2 as of the date first above written.