CREDIT AGREEMENT
Exhibit 10.14
CONFORMED COPY
THIS CREDIT AGREEMENT (this “Agreement”) is entered into as of January 16, 2009 by and between ROSETTA STONE LTD., a Virginia corporation (“Borrower”), and XXXXX FARGO BANK, NATIONAL ASSOCIATION (“Bank”).
Borrower has requested that Bank extend credit to Borrower as described below, and Bank has agreed to provide such credit to Borrower on the terms and conditions contained herein.
ARTICLE I
(b) Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above.
(a) Interest. The outstanding principal balance of the Line of Credit shall bear interest at a rate per annum of two and one-half percent (2.50%) above the Daily One Month LIBOR in effect from time to time.
(b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in each promissory note or other instrument or document required hereby.
(c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one-quarter percent (0.25%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears.
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As security for all indebtedness and other obligations of Borrower to Bank, Borrower hereby grants to Bank the security interest in all Borrower’s Collateral as defined in and as more particularly described in that certain Security Agreement dated of even date herewith, as the same may have been modified or amended from time to time (“Security Agreement”).
All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements, and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall pay to Bank immediately upon demand the full amount of all reasonable out-of-pocket charges, costs and expenses (to include reasonable fees paid to third parties and exclude all allocated costs of Bank personnel), expended or incurred by Bank in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals, audits and title insurance.
SECTION 1.4. GUARANTIES. The payment and performance of all indebtedness and other obligations of Borrower to Bank under the Loan Documents (as hereinafter defined) shall be guaranteed jointly and severally by each of Rosetta Stone Inc., a Delaware corporation, and Rosetta Stone Holdings Inc., a Delaware corporation (individually and collectively, whether one or more in number, the “Guarantor” or “Guarantors”) as evidenced by and subject to the terms of guaranty agreements in form and substance reasonably satisfactory to Bank, as the same may have been modified or amended from time to time.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement.
SECTION 2.1. LEGAL STATUS.
Borrower is a corporation, duly organized and existing and in good
standing under the laws of the Commonwealth of Virginia, and is qualified or
licensed to do business (and is in good standing as a foreign corporation, if
applicable) in all other jurisdictions
in which the failure to so qualify
or to be so licensed could have a material adverse effect on Borrower.
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adopted pursuant thereto, which govern or affect any of Borrower’s operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment.
ARTICLE III
(b) Documentation. Bank shall have received, in form and substance reasonably satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and each promissory note or other instrument or document required hereby, including, without limitation, the Line of Credit Note and Security Agreement;
(ii) A Certificate of Incumbency;
(iii) Corporate borrowing resolutions; and
(ii) Such other documents as Bank may require under any other Section of this Agreement.
(c) Financial Condition. There shall have been no material adverse change, as reasonably determined by Bank, in the financial condition or business of Borrower or any Guarantor hereunder, nor any material decline, as reasonably determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower or any such Guarantor.
(d) Insurance. Borrower shall have delivered to Bank evidence of insurance coverage on all Borrower’s property, in form, substance, amounts, covering risks and issued by companies reasonably satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank.
(e) Budget. Borrower shall have delivered to Bank Borrower’s budget for the 2009 fiscal year.
(f) Due Diligence. Bank shall have received all due diligence, as requested by Bank, and all such diligence matters shall have been deemed satisfactory in form and detail to Bank in its sole discretion.
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(a) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date (except for representations and warranties that specifically relate to a prior date, in which case, such representation or warranty shall be true as of such prior date), and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit.
ARTICLE IV
Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall and, as applicable, the Guarantors shall, unless Bank otherwise consents in writing:
(a) not later than 120 days after and as of the end of each fiscal year, a financial statement of Rosetta Stone Inc., a Delaware corporation (the “Parent”), prepared by Borrower or Parent and in accordance with generally accepted accounting principles consistently applied, to include all annual audited consolidated balance sheets and audited consolidated statements of income, retained earnings, and cash flow, with an unqualified opinion from a recognized independent accounting firm (with respect to such audited statements), together with calculations confirming compliance with all financial covenants;
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(b) not later than 45 days after and as of the end of each of the first three fiscal quarters of each fiscal year of Parent, a financial statement of Parent, prepared by Borrower or Parent and in accordance with generally accepted accounting principles consistently applied, to include all quarterly consolidated and consolidating balance sheets and consolidated and consolidating statements of income, together with calculations confirming compliance with all financial covenants;
(c) contemporaneously with each annual and quarterly financial statements required hereby, a certificate of senior financial officers of Parent and Borrower that said financial statements are accurate, that there exists no Event of Default nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default, which certificate shall include, without limitation, such calculations and supporting documentation as Bank may request confirming compliance with the requirements of Sections 4.9, 5.2, 5.3, 5.4 and 5.5 hereof;
(d) from time to time such other information as Bank may reasonably request.
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(a) Net Operating Income of Parent after taxes not less than $1.00 on a quarterly basis, determined as of each quarter year end. As used herein, the term “Net Operating Income” shall mean gross profit, minus (i) total operating expenses, including any charge for product returns above reserved limits or from any write down of inventory not already included in total operating expenses, and minus (ii) non-cash, stock compensation expenses, with all of the foregoing calculated on a consolidated basis.
(b) At all times, Minimum Liquidity of Borrower which is not less than the greater of (i) Eight Million and No/100 Dollars ($8,000,000.00), or (ii) an amount equal to the Indebtedness of Borrower (the “Minimum Liquidity Requirement”). As used herein, (A) the term “Minimum Liquidity” shall mean unencumbered domestic cash and cash equivalents, plus the fair market value (as determined by the Bank in its reasonable discretion) of all marketable securities, with all of the foregoing calculated on a consolidated basis, and (B) the term “Indebtedness” shall mean the sum of (1) the then-outstanding balances of all obligations, liabilities and indebtedness owed to the Bank or to any other party for borrowed money, (2) the face amount of all letters of credit issued on the account of Borrower, except for letters of credit which are fully secured by cash or cash equivalents, (3) all obligations or liabilities created or arising under any capital lease, and (4) obligations which in any manner directly or indirectly guarantee or assure, or in effect guarantee or assure, the payment or performance of any indebtedness, dividend or other obligation of any other party or assure or in effect assure the holder of any such obligations against loss in respect thereof.
ARTICLE V
Borrower further covenants that so long as Bank remains committed to extend credit pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations subject hereto, Borrower will not and, as appropriate, Parent will not without Bank’s prior written consent:
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unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, (b) any other liabilities of Borrower or Parent existing as of, and disclosed to Bank in writing on Schedule 5.2 attached hereto prior to, the date hereof, (c) indebtedness of Borrower owing to Parent or any of its subsidiaries, (d) indebtedness of any subsidiary of Parent owing to Parent, and (e) other indebtedness of Borrower or Parent in a combined, aggregate principal amount not to exceed the Applicable Threshold (as such term is defined on Exhibit A attached hereto and made a part hereof) at any time outstanding.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantial change in the nature of Borrower’s or Parent’s business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity in an aggregate amount in excess of, over the life of the Line of Credit, the Applicable Threshold (as such term is defined on Exhibit A attached hereto and made a part hereof); nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower’s or Parent’s assets except in the ordinary course of its business.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets as security for, any liabilities or obligations for borrowed money of any other person or entity, except (a) any of the foregoing in favor of Bank, and (b) any of the foregoing in an aggregate principal amount of liability not to exceed the Applicable Threshold (as such term is defined on Exhibit A attached hereto and made a part hereof) at any time outstanding.
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay (a) any dividend or distribution either in cash, stock or any other property on Borrower’s stock now or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire any shares of any class of Borrower’s stock now or hereafter outstanding; provided however, that Borrower may pay cash dividends or distributions to its shareholders in any year to cover its shareholders’ federal and state income tax liability for the immediately preceding year arising as a direct result of Borrower’s reported income for said year, but not to exceed the minimum amount so required, and Borrower shall provide to Bank, upon request, any documentation required by Bank to substantiate the appropriateness of amounts paid or to be paid, (b) any dividend or distribution either in cash, stock or any other property on the stock of Rosetta Stone Holdings, Inc., a Delaware corporation (“Holdings”) now or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire any shares of any class of Holdings’ stock now or hereafter outstanding; provided however, that Holdings may pay cash dividends or distributions to its shareholders in any year to cover its shareholders’ federal and state income tax liability for the immediately preceding year arising as a direct result of Holdings’ reported income for said year, but not to exceed the minimum amount so required, and Borrower or Holdings shall provide to Bank, upon request, any documentation required by Bank to substantiate the appropriateness of amounts
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paid or to be paid, and (c) any dividend or distribution either in cash, stock or any other property on Parent’s stock now or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire any shares of any class of Parent’s stock now or hereafter outstanding, provided, however, that the conversion of preferred stock of Parent to common stock of Parent in connection with any initial public offering shall be permitted.
ARTICLE VI
SECTION 6.1. The occurrence of any of the following shall constitute an “Event of Default” under this Agreement:
(a) Borrower shall fail to pay any principal, interest, fees or other amounts payable under any of the Loan Documents within three (3) days of the due date for such payment.
(b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which the Bank deems capable of cure in its sole discretion, such default shall continue for a period of thirty (30) days from its occurrence.
(d) Any one or more defaults in the payment or performance of any one or more obligations for borrowed money, or any one or more defined events of default, under the terms of any contract or instrument (other than any of the Loan Documents) governing any one or more obligations for borrowed money pursuant to which Borrower or any Guarantor (with each such entity referred to herein as a “Third Party Obligor”) has incurred any debt or other liability to any third person or entity, including Bank, in an aggregate amount in excess of $1,000,000.
(e) The filing of one or more notices of judgment liens against Borrower or any Third Party Obligor in an aggregate amount in excess of $1,000,000; or the recording of any one or more abstracts of judgment in an aggregate amount in excess of $1,000,000 against Borrower or any Third Party Obligor in any county in which Borrower or such Third Party Obligor has an interest in real property; or the service of one or more notices of levy and/or of writs of
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attachment or execution, or other like processes, against the assets of Borrower or any Third Party Obligor in an aggregate amount in excess of $1,000,000; or the entry of one or more judgments against Borrower or any Third Party Obligor in an aggregate amount in excess of $1,000,000.
(f) Borrower or any Third Party Obligor shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower or any Third Party Obligor shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time (“Bankruptcy Code”), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any Third Party Obligor, or Borrower or any Third Party Obligor shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower or any Third Party Obligor shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower or any Third Party Obligor by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in good faith believes to be an adverse change in, or an adverse effect on, the business, operations, financial condition, assets or liabilities of Borrower which materially and negatively impacts the ability of Borrower to perform any of its obligations under any of the Loan Documents.
(h) The dissolution or liquidation of Borrower or any Third Party Obligor; or Borrower or any such Third Party Obligor, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower or such Third Party Obligor.
(i) Any change in control described in Section 5.8 above.
ARTICLE VII
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of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing.
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BORROWER: |
Rosetta Stone Ltd. |
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000 X Xxxxxx Xxxxxx |
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Xxxxxxxxxxxx, Xxxxxxxx 00000 |
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Attention: Xxxx Xxxxxxx |
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BANK: |
Xxxxx Fargo Bank, National Association |
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0000 Xxxxxx Xxxxx, Xxxxx 000 |
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Xxxxxxxx, Xxxxxxxx 00000 |
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Attention: Xxxx Eagle |
or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.
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so long as any party receiving such documentation or information has executed a written confidentiality agreement in advance of receipt.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia.
(a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise in any way arising out of or relating to (i) any credit subject hereto, or any of the Loan Documents, and their negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.
(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in Virginia selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law
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provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to herein, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.
(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.
(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the Commonwealth of Virginia or a neutral retired judge of the state or federal judiciary of Virginia, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of Virginia and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Virginia Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.
(e) Discovery. In any arbitration proceeding, discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date. Any
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requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.
(f) Class Proceedings and Consolidations. No party hereto shall be entitled to join or consolidate disputes by or against others in any arbitration, except parties who have executed any Loan Document, or to include in any arbitration any dispute as a representative or member of a class, or to act in any arbitration in the interest of the general public or in a private attorney general capacity.
(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.
(h) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.
[SIGNATURE PAGES FOLLOW]
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[SIGNATURE PAGE]
BORROWER:
ROSETTA STONE LTD.,
a Virginia corporation
By: |
/s/ Xxxxx X. Xxxxxx (SEAL) |
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Name: |
Xxxxx X. Xxxxxx |
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Title: |
Chief Financial Officer |
Each Guarantor joins in the execution of this Agreement as evidence of its knowledge of the provisions hereof and its consent to the terms, provisions and undertakings herein.
GUARANTORS:
a Virginia corporation
By: |
/s/ Xxxxx X. Xxxxxx (SEAL) |
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Name: |
Xxxxx X. Xxxxxx |
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Title: |
Chief Financial Officer |
ROSETTA STONE HOLDINGS INC.,
a Virginia corporation
By: |
/s/ Xxxxx X. Xxxxxx (SEAL) |
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Name: |
Xxxxx X. Xxxxxx |
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Title: |
Chief Financial Officer |
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[SIGNATURE PAGE]
BANK:
XXXXX FARGO BANK,
NATIONAL ASSOCIATION
By: |
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(SEAL) |
Name: |
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Title: |
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1688376v11
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