June 1, 2004

Interwoven, Inc.
803 11th Street
Sunnyvale, CA  94089

This letter is to confirm that WELLS FARGO BANK, NATIONAL ASSOCIATION (”Bank”),
subject to all terms and conditions contained herein, has agreed to make
available the credit described below to INTERWOVEN, INC. (”Borrower”):

1. A commitment for the issuance of standby letters of credit for the account of
Borrower (each, a “Letter of Credit” and collectively, “Letters of Credit”) from
time to time up to and including July 31, 2005, not to exceed at any time the
maximum principal amount of Sixteen Million Dollars ($16,000,000.00) (”Letter of
Credit Line”).

I. CREDIT TERMS:

1. LETTER OF CREDIT LINE:

      (a)   Letters of Credit. Letters of Credit shall be issued by Bank or an
            affiliate under the Letter of Credit Line to finance Borrower’s
            business requirements; provided however, that the aggregate of all
            undrawn amounts, and all amounts drawn and unreimbursed, under any
            Letters of Credit issued under the Letter of Credit Line shall not
            at any time exceed the maximum principal amount available
            thereunder, as set forth above. The form and substance of each
            Letter of Credit shall be subject to approval by Bank, in its sole
            discretion. Each Letter of Credit shall be issued for a term not to
            exceed three hundred sixty-five (365) days, as designated by
            Borrower; provided however, that no Letter of Credit shall have an
            expiration date more than three hundred sixty-five (365) days beyond
            the maturity date of the Letter of Credit Line. Each Letter of
            Credit shall be subject to the additional terms of the Letter of
            Credit agreements, applications and any related documents required
            by Bank in connection with the issuance thereof (each, a “Letter of
            Credit Agreement”). Bank has issued seven (7) standby letters of
            credit for the account of Borrower in the aggregate amount of Four
            Million Seven Hundred Five Thousand One Hundred Seventy Six and
            51/100 Dollars ($4,705,176.51), each of which is outstanding as of
            the date hereof and shall be deemed included within the definition
            of Letters of Credit set forth herein.

      (b)   Repayment of Drafts. Each drawing paid under any Letter of Credit
            shall be repaid by Borrower in accordance with the provisions of the
            applicable Letter of Credit Agreement.

2. COLLATERAL:

As security for all indebtedness of Borrower to Bank subject hereto, Borrower
hereby grants to Bank security interests of first priority in all Borrower’s
Wells Capital Management Accounts.

All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements, deeds of trust and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank immediately upon demand for all costs and expenses
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.

<PAGE>

II. INTEREST/FEES:

1. Interest. The amount of each draft paid by Bank under any Letter of Credit
shall bear interest from the date such draft is paid by Bank to the date such
amount is fully repaid by Borrower, at the rate of interest set forth in each
promissory note or other instrument or document executed in connection
therewith.

2. 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.

3. Letter of Credit Fees. Borrower shall pay to Bank (a) fees upon the issuance
of each Letter of Credit equal to four tenths percent (0.40%) per annum, and (b)
fees upon the payment or negotiation of each drawing under any Letter of Credit
and fees upon the occurrence of any other activity with respect to any Letter of
Credit (including without limitation, the transfer, amendment or cancellation of
any Letter of Credit) determined in accordance with Bank’s standard fees and
charges then in effect for such activity.

4. Collection of Payments. Borrower authorizes Bank to collect all interest due
under each credit subject hereto by charging Borrower’s deposit account number
4496844531 with Bank, or any other deposit account maintained by Borrower with
Bank, for the full amount thereof. Should there be insufficient funds in. any
such deposit account to pay all such sums when due, the full amount of such
deficiency shall be immediately due and payable by Borrower.

III. REPRESENTATIONS AND WARRANTIES:

Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this letter 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 letter.

1. Legal Status. Borrower is a corporation, duly organized and existing and in
good standing under the laws of the State of Delaware, and is qualified or
licensed to do business in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.

2. Authorization and Validity. This letter and each promissory note, contract,
instrument and other document deemed necessary by Bank to evidence any extension
of credit to Borrower pursuant to the terms and conditions hereof, or now or at
any time hereafter required by or delivered to Bank in connection with this
letter (collectively, the “Loan Documents”) have been duly authorized, and upon
their execution and delivery in accordance with the provisions hereof will
constitute legal, valid and binding agreements and obligations of Borrower or
the party which executes the same, enforceable in accordance with their
respective terms.

3. No Violation. The execution, delivery and performance by Borrower of each of
the Loan Documents do not violate any provision of any law or regulation, [or
contravene any provision of the Articles of Incorporation or By-Laws of
Borrower, or result in a breach of or constitute a default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.

4. Litigation. There are no pending, or to the best of Borrower’s knowledge
threatened, actions, claims, investigations, suits or proceedings by or before
any governmental authority, arbitrator, court or administrative agency which
could have a material adverse effect on the financial condition or operation of
Borrower other than those disclosed by Borrower to Bank in writing prior to the
date hereof.

5. Correctness of Financial Statement. The financial statement of Borrower dated
March 31, 2004, a true copy of which has been delivered by Borrower to Bank
prior to the date hereof, (a) is complete and correct and presents fairly the
financial condition of Borrower, (b) discloses all liabilities of Borrower that
are required to be reflected or reserved against under generally accepted
accounting principles, whether liquidated or unliquidated, fixed or contingent,
and (c) has been prepared in accordance with generally accepted accounting
principles consistently applied. Since the date of such financial statement
there has been no material adverse change in the condition or operation of
Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or
otherwise encumbered any of its assets or properties except in favor of Bank or
as otherwise permitted by Bank in writing.

<PAGE>

6. Income Tax Returns. Borrower has no knowledge of any pending assessments or
adjustments of its income tax payable with respect to any year.

7. No Subordination. There is no agreement, indenture, contract or instrument to
which Borrower is a party or by which Borrower may be bound that requires the
subordination in right of payment of any of Borrower’s obligations subject to
this letter to any other obligation of Borrower.

8. Permits, Franchises. Borrower possesses, and will hereafter possess, all
permits, consents, approvals, franchises and licenses required and all rights to
trademarks, trade names, patents and fictitious names, if any, necessary to
enable it to conduct the business in which it is now engaged in compliance with
applicable law.

9. ERISA. Borrower is in compliance in all material respects with all applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended or
recodified from time to time (”ERISA”); Borrower has not violated any provision
of any defined employee pension benefit plan (as defined in ERISA) maintained or
contributed to by Borrower (each, a “Plan”); no Reportable Event, as defined in
ERISA, has occurred and is continuing with respect to any Plan initiated by
Borrower; Borrower has met its minimum funding requirements under ERISA with
respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and under
generally accepted accounting principles.

10. Other Obligations. Borrower is not in default on any obligation for borrowed
money, any purchase money obligation or any other material lease, commitment,
contract, instrument or obligation.

11. Environmental Matters. Except as disclosed by Borrower to Bank in writing
prior to the date hereof, Borrower is in compliance in all material respects
with all applicable federal or state environmental, hazardous waste, health and
safety statutes, and any rules or regulations 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.

IV. CONDITIONS:

1. Conditions of Initial Extension of Credit. The obligation of Bank to extend
any credit contemplated by this letter is subject to fulfillment to Bank’s
satisfaction of all of the following conditions:

      (a)   Documentation. Bank shall have received each of the Loan Documents,
            duly executed and in form and substance satisfactory to Bank.

      (b)   Financial Condition. There shall have been no material adverse
            change, as determined by Bank, in the financial condition or
            business of Borrower, nor any material decline, as determined by
            Bank, in the market value of any collateral required hereunder or a
            substantial or material portion of the assets of Borrower.

      (c)   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 satisfactory to
            Bank, and where required by Bank, with loss payable endorsements in
            favor of Bank.

2. Conditions of Each Extension of Credit. The obligation of Bank to make each
extension of credit requested by Borrower hereunder shall be subject to the
fulfillment to Bank’s satisfaction of each of the following conditions:

      (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 letter and on the date of each extension

<PAGE>

            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, and on each such date, no default hereunder, and no
            condition, event or act which with the giving of notice or the
            passage of time or both would constitute such a 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.

V. COVENANTS:

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, unless Bank otherwise consents in writing:

1. Punctual Payment. Punctually pay all principal, interest, fees or other
liabilities due under any of the Loan Documents at the times and place and in
the manner specified therein.

2. Accounting Records. Maintain adequate books and records in accordance with
generally accepted accounting principles consistently applied, and permit any
representative of Bank, at any reasonable time, to inspect, audit and examine
such books and records, to make copies of the same and inspect the properties of
Borrower.

3. Financial Statements. Provide to Bank all of the following, in form and
detail satisfactory to Bank:

      (a)   not later than 120 days after and as of the end of each fiscal year,
            an audited consolidated financial statement of Borrower, prepared by
            a certified public accountant acceptable to Bank, to include balance
            sheet and income statement;

      (b)   not later than 45 days after and as of the end of each fiscal
            quarter, a consolidated financial statement of Borrower, prepared by
            Borrower, to include balance sheet and income statement;

      (c)   not later than 15 days after and as of the end of each month, a copy
            of Borrower’s Wells Capital Management Account statement;

      (d)   from time to time such other information as Bank may reasonably
            request.

4. Compliance. Preserve and maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of its
business; and comply with the provisions of all documents pursuant to which
Borrower is organized and/or which govern Borrower’s continued existence and
with the requirements of all laws, rules, regulations and orders of a
governmental agency applicable to Borrower and/or its business.

5. Insurance. Maintain and keep in force insurance of the types and in amounts
customarily carried in lines of business similar to that of Borrower, including
but not limited to fire, extended coverage, public liability, flood, property
damage and workers’ compensation, with all such insurance carried with companies
and in amounts satisfactory to Bank, and deliver to Bank from time to time at
Bank’s request schedules setting forth all insurance then in effect.

6. Facilities. Keep all properties useful or necessary to Borrower’s business in
good repair and condition, and from time to time make necessary repairs,
renewals and replacements thereto so that such properties shall be fully and
efficiently preserved and maintained.

7. Taxes and Other Liabilities. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except (a) such as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank’s satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.

<PAGE>

8. Litigation. Promptly give notice in writing to Bank of any litigation pending
or threatened against Borrower.

9. Dividends, Distributions. Not declare or pay 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, and Borrower shall
provide to Bank, upon request, any documentation required by Bank to
substantiate the appropriateness of amounts paid or to be paid.

VI. DEFAULT, REMEDIES:

1. Default, Remedies. Upon the violation of any term or condition of any of the
Loan Documents, or upon the occurrence of any default or defined event of
default under any of the Loan Documents: (a) all indebtedness of Borrower under
each of the Loan Documents, any term thereof to the contrary notwithstanding,
shall at Bank’s option and without notice become immediately due and payable
without presentment, demand, protest or notice of dishonor, all of which are
expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any
further credit under any of the Loan Documents shall immediately cease and
terminate; and (c) Bank shall have all rights, powers and remedies available
under each of the Loan Documents, or accorded by law, including without
limitation the right to resort to any or all security for any credit subject
hereto and to exercise any or all of the rights of a beneficiary or secured
party pursuant to applicable law. All rights, powers and remedies of Bank may be
exercised at any time by Bank and from time to time after the occurrence of any
such breach or default, are cumulative and not exclusive, and shall be in
addition to any other rights, powers or remedies provided by law or equity.

2. No Waiver. No delay, failure or discontinuance of Bank in exercising any
right, power or remedy under any of the Loan Documents shall affect or operate
as a waiver 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.

VII. MISCELLANEOUS:

1. Notices. All notices, requests and demands which any party is required or may
desire to give to any other party under any provision of this letter must be in
writing delivered to each party at its address first set forth above, 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.

2. Costs, Expenses and Attorneys’ Fees. Borrower shall pay to Bank immediately
upon demand the full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys’ fees (to include outside counsel fees
and all allocated costs of Bank’s in-house counsel), expended or incurred by
Bank in connection with (a) the negotiation and preparation of this letter and
the other Loan Documents, Bank’s continued administration hereof and thereof,
and the preparation of amendments and waivers hereto and thereto, (b) the
enforcement of Bank’s rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or defense
of any action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Borrower or any other person or
entity.

3. Successors, Assignment. This letter shall be binding upon and inure to the
benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interest hereunder without Bank’s prior written consent.
Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Bank’s rights and
benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or hereafter may
acquire relating to any credit subject hereto, Borrower or its business, or any
collateral required hereunder.

<PAGE>

4. Entire Agreement; Amendment. This letter and the other Loan Documents
constitute the entire agreement between Borrower and Bank with respect to each
credit subject hereto and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This letter
may be amended or modified only in writing signed by each party hereto.

5. No Third Party Beneficiaries. This letter is made and entered into for the
sole protection and benefit of the parties hereto and their respective permitted
successors and assigns, and no other person or entity shall be a third party
beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this letter or any other of the Loan Documents to which it is
not a party.

6. Severability of Provisions. If any provision of this letter shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
letter.

7. Governing Law. This letter shall be governed by and construed in accordance
with the laws of the State of California.

8. Arbitration.

      (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 arising out of or relating to in any way (i) the loan
            and related Loan Documents which are the subject of this Agreement
            and its 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 California 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 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, 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. Section 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

<PAGE>

            neutral attorney licensed in the State of California or a neutral
            retired judge of the state or federal judiciary of California, 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 California 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 California 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
            and within 180 days of the filing of the dispute with the AAA. Any
            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. The resolution of any dispute
            arising pursuant to the terms of this Agreement shall be determined
            by a separate arbitration proceeding and such dispute shall not be
            consolidated with other disputes or included in any class
            proceeding.

      (g)   Payment Of Arbitration Costs And Fees. The arbitrator shall award
            all costs and expenses of the arbitration proceeding.

      (h)   Real Property Collateral; Judicial Reference. Notwithstanding
            anything herein to the contrary, no dispute shall be submitted to
            arbitration if the dispute concerns indebtedness secured directly or
            indirectly, in whole or in part, by any real property unless (i) the
            holder of the mortgage, lien or security interest specifically
            elects in writing to proceed with the arbitration, or (ii) all
            parties to the arbitration waive any rights or benefits that might
            accrue to them by virtue of the single action rule statute of
            California, thereby agreeing that all indebtedness and obligations
            of the parties, and all mortgages, liens and security interests
            securing such indebtedness and obligations, shall remain fully valid
            and enforceable. If any such dispute is not submitted to
            arbitration, the dispute shall be referred to a referee in
            accordance with California Code of Civil Procedure Section 638 et
            seq., and this general reference agreement is intended to be
            specifically enforceable in accordance with said Section 638. A
            referee with the qualifications required herein for arbitrators
            shall be selected pursuant to the AAA’s selection procedures.
            Judgment upon-the decision rendered by a referee shall be entered in
            the court in which such proceeding was commenced in accordance with
            California Code of Civil Procedure Sections 644 and 645.

      (i)   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.

<PAGE>

Your acknowledgment of this letter shall constitute acceptance of the foregoing
terms and conditions. Bank’s commitment to extend any credit to Borrower
pursuant to the terms of this letter shall terminate on July 1, 2004, unless
this letter is acknowledged by Borrower and returned to Bank on or before that
date.

                                         Sincerely,

                                         WELLS FARGO BANK NATIONAL ASSOCIATION

                                         By:      /s/ Manao Keegan
                                                  ——————————
                                                  Manao Keegan
                                                  Vice President

Acknowledged and accepted as of 6/1/04 Interwoven, Inc.

By:      /s/ John E. Calonico
         —————————
         John Calonico
         Senior Vice President

<PAGE>

               ADDENDUM TO SECURITY AGREEMENT: SECURITIES ACCOUNT

THIS ADDENDUM is attached to and made a part of that certain Security Agreement:
Securities Account executed by INTERWOVEN, INC. (”Debtor”) in favor of WELLS
FARGO BANK, NATIONAL ASSOCIATION (”Bank”), dated as of June 1, 2004 (the
“Agreement”).

The following provisions are hereby incorporated into the Agreement:

1. Securities Account Activity. So long as no Event of Default exists, Debtor,
or any party authorized by Debtor to act with respect to the Securities Account,
may (a) receive payments of interest and/or cash dividends earned on financial
assets maintained in the Securities Account, and (b) trade financial assets
maintained in the Securities Account. Without Bank’s prior written consent,
except as permitted by the preceding sentence, neither Debtor nor any party
other than Bank may withdraw or receive any distribution of any Collateral from
the Securities Account. The Collateral Value of the Securities Account shall at
all times be equal to or greater than one hundred percent (100%) of the Letter
of Credit Line amount, including the amount of all issued and outstanding
letters of credit if any, secured hereby. In the event that the Collateral
Value, for any reason and at any time, is less than the required amount, Debtor
shall promptly make a principal reduction on the Indebtedness or deposit
additional assets of a nature satisfactory to Bank into the Securities Account,
in either case in amounts or with values sufficient to achieve the required
Collateral Value.

2. “Collateral Value” means the percentage set forth below of the lower of the
face or market value, or the lower of the face or redemption value, as
appropriate, for each type of investment property held in the Securities Account
at the time of computation, with such value and the classification of any
particular investment property in all instances determined by Bank in its sole
discretion, and excluding from such computation (a) all WF Securities and
Collective Investment Funds, (b) any stock with a market value of $10.00 or
less, and (c) all investment property from an issuer if Bank determines such
issuer to be ineligible.

Type of Investment Property                                          Percentage
—————————                                          ———-
                                                                
Cash                                                                     100%

Cash Equivalents                                                         95%

U.S. Government Bills, Notes and U.S. Government Sponsored Agency
Securities:

(a) with maturities less than or equal to 5 years                        90%

Corporate and Municipal Bonds and Notes:

(a) rated AAA/Aaa, AA/Aa or SP-1 by a nationally recognized rating
agency with maturities less than or equal to 5 years                     85%

Commercial Paper:

(a) rated Al or P1 by a nationally recognized rating agency              80%

3. Exclusion from Collateral. Notwithstanding anything herein to the contrary,
the terms “Collateral” and “Proceeds” do not include, and Bank disclaims a
security interest in all WF Securities and Collective Investment Funds now or
hereafter maintained in the Securities Account.

4. “Collective Investment Funds” means collective investment funds as described
in 12 CFR 9.18 and includes, without limitation, common trust funds maintained
by Bank for the exclusive use of its fiduciary clients.

5. “WF Securities” means stock, securities or obligations of Wells Fargo &
Company or of any affiliate thereof (as the term affiliate is defined in Section
23A of the Federal Reserve Act (12 USC 371(c), as amended from time to time).

IN WITNESS WHEREOF, this Addendum has been executed as of the same date as the
Agreement.

<PAGE>

INTERWOVEN, INC.                         WELLS FARGO BANK NATIONAL ASSOCIATION

Copyright: http://www.PressMarts.com

Refrences: http://contracts.onecle.com

Understanding and Using Letters of Credit, Part I

Letters of credit accomplish their purpose by substituting the credit of the bank for that of the customer, for the purpose of facilitating trade. There are basically two types: commercial and standby. The commercial letter of credit is the primary payment mechanism for a transaction, whereas the standby letter of credit is a secondary payment mechanism.

Commercial Letter of Credit

Commercial letters of credit have been used for centuries to facilitate payment in international trade. Their use will continue to increase as the global economy evolves.

Letters of credit used in international transactions are governed by the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits. The general provisions and definitions of the International Chamber of Commerce are binding on all parties. Domestic collections in the United States are governed by the Uniform Commercial Code.

A commercial letter of credit is a contractual agreement between a bank, known as the issuing bank, on behalf of one of its customers, authorizing another bank, known as the advising or confirming bank, to make payment to the beneficiary. The issuing bank, on the request of its customer, opens the letter of credit. The issuing bank makes a commitment to honor drawings made under the credit. The beneficiary is normally the provider of goods and/or services. Essentially, the issuing bank replaces the bank’s customer as the payee.

Elements of a Letter of Credit

• A payment undertaking given by a bank (issuing bank)
• On behalf of a buyer (applicant)
• To pay a seller (beneficiary) for a given amount of money
• On presentation of specified documents representing the supply of goods
• Within specified time limits
• Documents must conform to terms and conditions set out in the letter of credit
• Documents to be presented at a specified place

Beneficiary

The beneficiary is entitled to payment as long as he can provide the documentary evidence required by the letter of credit. The letter of credit is a distinct and separate transaction from the contract on which it is based. All parties deal in documents and not in goods. The issuing bank is not liable for performance of the underlying contract between the customer and beneficiary. The issuing bank’s obligation to the buyer, is to examine all documents to insure that they meet all the terms and conditions of the credit. Upon requesting demand for payment the beneficiary warrants that all conditions of the agreement have been complied with. If the beneficiary (seller) conforms to the letter of credit, the seller must be paid by the bank.

Issuing Bank

The issuing bank’s liability to pay and to be reimbursed from its customer becomes absolute upon the completion of the terms and conditions of the letter of credit. Under the provisions of the Uniform Customs and Practice for Documentary Credits, the bank is given a reasonable amount of time after receipt of the documents to honor the draft.

The issuing banks’ role is to provide a guarantee to the seller that if compliant documents are presented, the bank will pay the seller the amount due and to examine the documents, and only pay if these documents comply with the terms and conditions set out in the letter of credit.

Typically the documents requested will include a commercial invoice, a transport document such as a bill of lading or airway bill and an insurance document; but there are many others. Letters of credit deal in documents, not goods.

Advising Bank

An advising bank, usually a foreign correspondent bank of the issuing bank will advise the beneficiary. Generally, the beneficiary would want to use a local bank to insure that the letter of credit is valid. In addition, the advising bank would be responsible for sending the documents to the issuing bank. The advising bank has no other obligation under the letter of credit. If the issuing bank does not pay the beneficiary, the advising bank is not obligated to pay.

Confirming Bank

The correspondent bank may confirm the letter of credit for the beneficiary. At the request of the issuing bank, the correspondent obligates itself to insure payment under the letter of credit. The confirming bank would not confirm the credit until it evaluated the country and bank where the letter of credit originates. The confirming bank is usually the advising bank.

Letter of Credit Characteristics

Negotiability

Letters of credit are usually negotiable. The issuing bank is obligated to pay not only the beneficiary, but also any bank nominated by the beneficiary. Negotiable instruments are passed freely from one party to another almost in the same way as money. To be negotiable, the letter of credit must include an unconditional promise to pay, on demand or at a definite time. The nominated bank becomes a holder in due course. As a holder in due course, the holder takes the letter of credit for value, in good faith, without notice of any claims against it. A holder in due course is treated favorably under the UCC.

The transaction is considered a straight negotiation if the issuing bank’s payment obligation extends only to the beneficiary of the credit. If a letter of credit is a straight negotiation it is referenced on its face by “we engage with you” or “available with ourselves”. Under these conditions the promise does not pass to a purchaser of the draft as a holder in due course.

Revocability

Letters of credit may be either revocable or irrevocable. A revocable letter of credit may be revoked or modified for any reason, at any time by the issuing bank without notification. A revocable letter of credit cannot be confirmed. If a correspondent bank is engaged in a transaction that involves a revocable letter of credit, it serves as the advising bank.

Once the documents have been presented and meet the terms and conditions in the letter of credit, and the draft is honored, the letter of credit cannot be revoked. The revocable letter of credit is not a commonly used instrument. It is generally used to provide guidelines for shipment. If a letter of credit is revocable it would be referenced on its face.

The irrevocable letter of credit may not be revoked or amended without the agreement of the issuing bank, the confirming bank, and the beneficiary. An irrevocable letter of credit from the issuing bank insures the beneficiary that if the required documents are presented and the terms and conditions are complied with, payment will be made. If a letter of credit is irrevocable it is referenced on its face.

Transfer and Assignment

The beneficiary has the right to transfer or assign the right to draw, under a credit only when the credit states that it is transferable or assignable. Credits governed by the Uniform Commercial Code (Domestic) maybe transferred an unlimited number of times. Under the Uniform Customs Practice for Documentary Credits (International) the credit may be transferred only once. However, even if the credit specifies that it is nontransferable or nonassignable, the beneficiary may transfer their rights prior to performance of conditions of the credit.

Sight and Time Drafts

All letters of credit require the beneficiary to present a draft and specified documents in order to receive payment. A draft is a written order by which the party creating it, orders another party to pay money to a third party. A draft is also called a bill of exchange.

There are two types of drafts: sight and time. A sight draft is payable as soon as it is presented for payment. The bank is allowed a reasonable time to review the documents before making payment.

A time draft is not payable until the lapse of a particular time period stated on the draft. The bank is required to accept the draft as soon as the documents comply with credit terms. The issuing bank has a reasonable time to examine those documents. The issuing bank is obligated to accept drafts and pay them at maturity.

Standby Letter of Credit

The standby letter of credit serves a different function than the commercial letter of credit. The commercial letter of credit is the primary payment mechanism for a transaction. The standby letter of credit serves as a secondary payment mechanism. A bank will issue a standby letter of credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract between the beneficiary. The parties involved with the transaction do not expect that the letter of credit will ever be drawn upon.

The standby letter of credit assures the beneficiary of the performance of the customer’s obligation. The beneficiary is able to draw under the credit by presenting a draft, copies of invoices, with evidence that the customer has not performed its obligation. The bank is obligated to make payment if the documents presented comply with the terms of the letter of credit.

Standby letters of credit are issued by banks to stand behind monetary obligations, to insure the refund of advance payment, to support performance and bid obligations, and to insure the completion of a sales contract. The credit has an expiration date.

The standby letter of credit is often used to guarantee performance or to strengthen the credit worthiness of a customer. In the above example, the letter of credit is issued by the bank and held by the supplier. The customer is provided open account terms. If payments are made in accordance with the suppliers’ terms, the letter of credit would not be drawn on. The seller pursues the customer for payment directly. If the customer is unable to pay, the seller presents a draft and copies of invoices to the bank for payment.

The domestic standby letter of credit is governed by the Uniform Commercial Code. Under these provisions, the bank is given until the close of the third banking day after receipt of the documents to honor the draft.

Procedures for Using the Tool

The following procedures include a flow of events that follow the decision to use a Commercial Letter of Credit. Procedures required to execute a Standby Letter of Credit are less rigorous. The standby credit is a domestic transaction. It does not require a correspondent bank (advising or confirming). The documentation requirements are also less tedious.

Step-by-step process:

• Buyer and seller agree to conduct business. The seller wants a letter of credit to guarantee payment.
• Buyer applies to his bank for a letter of credit in favor of the seller.
• Buyer’s bank approves the credit risk of the buyer, issues and forwards the credit to its correspondent bank (advising or confirming). The correspondent bank is usually located in the same geographical location as the seller (beneficiary).
• Advising bank will authenticate the credit and forward the original credit to the seller (beneficiary).
• Seller (beneficiary) ships the goods, then verifies and develops the documentary requirements to support the letter of credit. Documentary requirements may vary greatly depending on the perceived risk involved in dealing with a particular company.
• Seller presents the required documents to the advising or confirming bank to be processed for payment.
• Advising or confirming bank examines the documents for compliance with the terms and conditions of the letter of credit.
• If the documents are correct, the advising or confirming bank will claim the funds by:
  • Debiting the account of the issuing bank.
  • Waiting until the issuing bank remits, after receiving the documents.
  • Reimburse on another bank as required in the credit.
• Advising or confirming bank will forward the documents to the issuing bank.
• Issuing bank will examine the documents for compliance. If they are in order, the issuing bank will debit the buyer’s account.
• Issuing bank then forwards the documents to the buyer.

Standard Forms of Documentation

When making payment for product on behalf of its customer, the issuing bank must verify that all documents and drafts conform precisely to the terms and conditions of the letter of credit. Although the credit can require an array of documents, the most common documents that must accompany the draft include:

Commercial Invoice

The billing for the goods and services. It includes a description of merchandise, price, FOB origin, and name and address of buyer and seller. The buyer and seller information must correspond exactly to the description in the letter of credit. Unless the letter of credit specifically states otherwise, a generic description of the merchandise is usually acceptable in the other accompanying documents.

Bill of Lading

A document evidencing the receipt of goods for shipment and issued by a freight carrier engaged in the business of forwarding or transporting goods. The documents evidence control of goods. They also serve as a receipt for the merchandise shipped and as evidence of the carrier’s obligation to transport the goods to their proper destination.

Warranty of Title

A warranty given by a seller to a buyer of goods that states that the title being conveyed is good and that the transfer is rightful. This is a method of certifying clear title to product transfer. It is generally issued to the purchaser and issuing bank expressing an agreement to indemnify and hold both parties harmless.

Letter of Indemnity

Specifically indemnifies the purchaser against a certain stated circumstance. Indemnification is generally used to guaranty that shipping documents will be provided in good order when available.

Common Defects in Documentation

About half of all drawings presented contain discrepancies. A discrepancy is an irregularity in the documents that causes them to be in non-compliance to the letter of credit. Requirements set forth in the letter of credit cannot be waived or altered by the issuing bank without the express consent of the customer. The beneficiary should prepare and examine all documents carefully before presentation to the paying bank to avoid any delay in receipt of payment. Commonly found discrepancies between the letter of credit and supporting documents include:

• Letter of Credit has expired prior to presentation of draft.
• Bill of Lading evidences delivery prior to or after the date range stated in the credit.
• Stale dated documents.
• Changes included in the invoice not authorized in the credit.
• Inconsistent description of goods.
• Insurance document errors.
• Invoice amount not equal to draft amount.
• Ports of loading and destination not as specified in the credit.
• Description of merchandise is not as stated in credit.
• A document required by the credit is not presented.
• Documents are inconsistent as to general information such as volume, quality, etc.
• Names of documents not exact as described in the credit. Beneficiary information must be exact.
• Invoice or statement is not signed as stipulated in the letter of credit.

When a discrepancy is detected by the negotiating bank, a correction to the document may be allowed if it can be done quickly while remaining in the control of the bank. If time is not a factor, the exporter should request that the negotiating bank return the documents for corrections.

If there is not enough time to make corrections, the exporter should request that the negotiating bank send the documents to the issuing bank on an approval basis or notify the issuing bank by wire, outline the discrepancies, and request authority to pay. Payment cannot be made until all parties have agreed to jointly waive the discrepancy.

Tips for Exporters

• Communicate with your customers in detail before they apply for letters of credit.
• Consider whether a confirmed letter of credit is needed.
• Ask for a copy of the application to be fax to you, so you can check for terms or conditions that may cause you problems in compliance.
• Upon first advice of the letter of credit, check that all its terms and conditions can be complied with within the prescribed time limits.
• Many presentations of documents run into problems with time-limits. You must be aware of at least three time constraints – the expiration date of the credit, the latest shipping date and the maximum time allowed between dispatch and presentation.
• If the letter of credit calls for documents supplied by third parties, make reasonable allowance for the time this may take to complete.
• After dispatch of the goods, check all the documents both against the terms of the credit and against each other for internal consistency.

Summary

The use of the letters of credit as a tool to reduce risk has grown substantially over the past decade. Letters of credit accomplish their purpose by substituting the credit of the bank for that of the customer, for the purpose of facilitating trade.

The credit professional should be familiar with two types of letters of credit: commercial and standby. Commercial letters of credit are used primarily to facilitate foreign trade. The commercial letter of credit is the primary payment mechanism for a transaction.

The standby letter of credit serves a different function. The standby letter of credit serves as a secondary payment mechanism. The bank will issue the credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract.

Upon receipt of the letter of credit, the credit professional should review all items carefully to insure that what is expected of the seller is fully understood and that he can comply with all the terms and conditions. When compliance is in question, the buyer should be requested to amend the credit.
 

PressMarts.com

Copyright 1999 Credit Research Foundation

http://www.crfonline.org

Understanding and Using Letters of Credit, Part II

CRF thanks Ron Borcky for his development of this section

Purpose

The purpose of this document is to provide a general understanding of letters of credit, their use and application. The topics covered are the following:

• General background information;
• Types of letters of credit;
• Common problems with letters of credit;
• Procedures for establishing letters of credit;
• Amendments; and
• General tips to both buyers and sellers.

In addition, attachments to this document detail a step-by-step letter of credit procedures.

Definition

Letters of credit are commonly used to reduce credit risk to sellers in both domestic and international sales arrangements. By having a bank issue a letter of credit, in essence, one is substituting the bank’s credit worthiness for that of the customer.

Types

There are two basic forms of letters of credit: Standby and Documentary. Documentary letters of credit can be either Revocable or Irrevocable, although the first is extremely rare. Irrevocable letters of credit can be Confirmed or Not Confirmed. Each type of credit has advantages and disadvantages for the buyer and for the seller, which this information will review below. Charges for each type will also vary. However, the more the banks assume risk by guaranteeing payment, the more they will charge for providing the service.

Documentary Revocable Letter of Credit

Revocable credits may be modified or even canceled by the buyer without notice to the seller. Therefore, they are generally unacceptable to the seller.

Documentary Irrevocable Letter of Credit

This is the most common form of credit used in international trade. Irrevocable credits may not be modified or canceled by the buyer. The buyer’s issuing bank must follow through with payment to the seller so long as the seller complies with the conditions listed in the letter of credit. Changes in the credit must be approved by both the buyer and the seller. If the documentary letter of credit does not mention whether it is revocable or irrevocable, it automatically defaults to irrevocable. See Credit Administration, Sample Procedure for Administration of a Documentary Irrevocable Letters of Credit for a systematic procedure for establishing an irrevocable letter of credit.

There are two forms of irrevocable credits:

Unconfirmed credit (the irrevocable credit not confirmed by the advising bank)

In an unconfirmed credit, the buyer’s bank issuing the credit is the only party responsible for payment to the seller. The seller’s advising bank pays only after receiving payment from the issuing bank. The seller’s advising bank merely acts on behalf of the issuing bank and, therefore, incurs no risk.

Confirmed credit (the irrevocable confirmed credit)

In a confirmed credit, the advising bank adds its guarantee to pay the seller to that of the buyer’s issuing bank. Once the advising bank reviews and confirms that all documentary requirements are met, it will pay the seller. The advising bank will then look to the issuing bank for payment.
Confirmed Irrevocable letters of credit are used when trading in a high-risk area where war or social, political, or financial instability are real threats. Also common when the seller is unfamiliar with the bank issuing the letter of credit or when the seller needs to use the confirmed letter of credit to obtain financing its bank to fill the order. A confirmed credit is more expensive because the bank has added liability.

Standby Letter of Credit

This credit is a payment or performance guarantee used primarily in the United States. They are often called non-performing letters of credit because they are only used as a backup should the buyer fail to pay as agreed. Thus, a stand-by letter of credit allows the customer to establish a rapport with the seller by showing that it can fulfill its payment commitments. Standby letters of credit are used, for example, to guarantee repayment of loans, to ensure fulfillment of a contract, and to secure payment for goods delivered by third parties. The beneficiary to a standby letter of credit can cash it on demand. Stand-by letters of credit are generally less complicated and involve far less documentation requirements than irrevocable letters of credit. See Credit Administration, Sample Procedure for Administration of a Standby Letter of Credit for a systematic procedure for establishing a standby letter of credit.

Special Letters of Credit

The following is a brief description of some special letters of credit.

Back-to-Back Letter of Credit

This is a new letter of credit opened based on an already existing, nontransferable credit used as collateral. Traders often use back-to-back arrangements to pay the ultimate supplier. A trader receives a letter of credit from the buyer and then opens another letter of credit in favor of the supplier. The first letter of credit serves as collateral for the second credit.

Deferred Payment (Usance) Letter of Credit

In Deferred Payment Letters of Credit, the buyer accepts the documents related to the letter of credit and agrees to pay the issuing bank after a fixed period. This credit gives the buyer a grace period for payment.

Red Clause Letter of Credit

Red Clause Letters of Credit provide the seller with cash prior to shipment to finance production of the goods. The buyer’s issuing bank may advance some or all of the funds. The buyer, in essence, extends financing to the seller and incurs the risk for all advanced credits.

Revolving Letter of Credit

With a Revolving Letter of Credit, the issuing bank restores the credit to its original amount once it has been used or drawn down. Usually, these arrangements limit the number of times the buyer may draw down its line over a predetermined period.

Transferable Letter of Credit

This type of credit allows the seller to transfer all or part of the proceeds of the original letter of credit to a second beneficiary, usually the ultimate supplier of the goods. The letter of credit must clearly state that it is transferable for its to be considered as such. This is a common financing tactic for middlemen and is common in East Asia.

Assignment of Proceeds

The beneficiary of a letter of credit may assign all or part of the proceeds under a credit to a third party (the assignee). However, unlike a transferred credit, the beneficiary maintains sole rights to the credit and is solely responsible for complying with its terms and conditions. For the assignee, an assignment only means that the paying bank, once it receives notice of the assignment, undertakes to follow the assignment instructions, if and when payment is made. The assignee is dependent upon the beneficiary for compliance, and thus this arrangement is riskier than a transferred credit. Before agreeing to an assignment of proceeds arrangement, the assignee should carefully review the original letter of credit.

Common Problems with Letters of Credit

Most problems result from the seller’s inability to fulfill obligations stated in the letter of credit. The seller may find these terms difficult or impossible to fulfill and, either tries to fulfill them and fails, or asks the buyer to amend to the letter of credit. As most letters of credit are irrevocable, amendments may at times be difficult since both the buyer and the seller must agree.

Sellers may have one or more of the following problems:

• The shipment schedule cannot be met;
• The stipulations concerning freight costs are unacceptable;
• The price becomes too low due to exchange rates fluctuations;
• The quantity of product ordered is not the expected amount;
• The description of product is either insufficient or too detailed; and,
• The stipulated documents are difficult or impossible to obtain.

Even when sellers accept the terms of a letter of credit, problems often arise late in the process. When this occurs, the buyer’s and seller’s banks will try to negotiate any differences. In some cases, the seller can correct the documents and present them within the time specified in the letter of credit. If the documents cannot be corrected, the advising bank will ask the issuing bank to accept the documents despite the discrepancies found. It is important to note that, if the documents are not in accord with the specifications of the letter of credit, the buyer’s issuing bank is no longer obligated to pay.

Basic Procedures for Establishing a Letter of Credit

The letter of credit process has been standardized by a set of rules published by the International Chamber of Commerce (ICC). These rules are called the Uniform Customs and Practice for Documentary Credits (UCP) and are contained in ICC Publication No. 500. The following is the basic set of steps used in a letter of credit transaction. Specific letter of credit transactions follow somewhat different procedures.

1. After the buyer and seller agree on the terms of a sale, the buyer arranges for his bank to open a letter of credit in favor of the seller.
Note: The buyer will need to have a line of credit established at the bank or provide cash collateral for the amount of the letter of credit.

2. The buyer’s issuing bank prepares the letter of credit, including all of the buyer’s instructions to the seller concerning shipment and required documentation.

3. The buyer’s bank sends the letter of credit to the seller’s advising bank.

4. The seller’s advising bank forwards the letter of credit to the seller.

5. The seller carefully reviews all conditions stipulated in the letter of credit. If the seller cannot comply with any of the provisions, it will ask the buyer to amend the letter of credit.

6. After final terms are agreed upon, the seller ships the goods to the appropriate port or location.

7. After shipping the goods, the seller obtains the required documents. Please note that the seller may have to obtain some documents prior to shipment.

8. The seller presents the documents to its advising bank along with a draft for payment.

9. The seller’s advising bank reviews the documents. If they are in order, it will forward them to the buyer’s issuing bank. If a confirmed letter of credit, the advising bank will pay the seller (cash or a bankers’ acceptance).

10. Once the buyer’s issuing bank receives and reviews the documents, it either (1) pays if there are no discrepancies; or (2) forwards the documents to the buyer if there are discrepancies for its review and approval.

Opening a Letter of Credit

Level of Detail

The wording in a letter of credit should be simple, but specific. The more detailed an L/C is, the more likely the seller will reject it as too difficult to fulfill. At the same time, the buyer will wish to define in detail what its is paying for.

Type of Credit

Letters of credit used in trade are usually either irrevocable unconfirmed credits or irrevocable confirmed credits. In choosing which type to open both the seller and the buyer should consider the generally accepted payment processes in each country, the value and demand for the goods, and the reputation of the buyer and seller.

Documents

In specifying required documents, it is very important to include those required for customs and those reflecting the agreement reached between the buyer and the seller. Required documents usually include the bill of lading, a commercial and/or consular invoice, the bill of exchange, the certificate of origin, and the insurance document. Other documents required may be an inspection certificate, copies of a cable sent to the buyer with shipping information, a confirmation from the shipping company of the state of its ship, and a confirmation from the forwarder that the goods are accompanied by a certificate of origin. Prices should be stated in the currency of the letter of credit and documents should in the same language as the letter of credit.

The Letter of Credit Application

The following information should be addressed when establishing a letter of credit.

1. Beneficiary

The seller should provide to the buyer its full corporate name and correct address. A simple mistake here may translate to inconsistent or improper documentation at the other end.

2. Amount

The seller should state the actual amount of the letter of credit. One can request a maximum amount when there is doubt as to the actual count or quantity of the goods. Another option is to use words like “approximate”, “circa”, or “about” to indicate an acceptable 10 % plus or minus from the stated amount. For consistency, if you use this wording you will need to use it also in connection with the quantity.

3. Validity

The seller will need time to ship and to prepare all the necessary documents. Therefore, the seller should ensure that the validity and period for document presentation after the shipment of the goods is long enough.

4. Seller’s Bank

The seller should list its advising bank as well as a reimbursing bank if applicable. The reimbursing bank is the local bank appointed by the issuing bank as the disbursing bank.

5. Type of Payment Availability

The buyer and seller may agree to use sight drafts, time drafts, or some sort of deferred payment mechanism.

6. Desired Documents

The buyer specifies the necessary documents. Buyers can list, for example, a bill of lading, a commercial invoice, a certificate of origin, certificates of analysis, etc. The seller must agree to all documentary requirements or suggest an amendment to the letter of credit.

7. Notify Address

This is the address to notify upon the imminent arrival of goods at the port or airport of destination. A notification listing damaged goods is also sent to this address, if applicable.

8. Description of Goods

The seller should provide a short and precise description of the goods as well as the quantity involved. Note the comments in step #2 above concerning approximate amounts.

9. Confirmation Order

With international arrangements, the seller may wish to confirm the letter of credit with a bank in its country.

Amendment of a Letter of Credit

For the seller to change the terms noted on an irrevocable letter of credit, it must request an amendment from the buyer. The amendment process is as follows:

1. The seller requests a modification or amendment of questionable terms in the letter of credit;
2. If the buyer and issuing bank agree to the changes, the issuing bank will change the letter of credit;
3. The buyer’s issuing bank notifies the seller’s advising bank of the amendment; and
4. The seller’s advising bank notifies the seller of the amendment.
   Tips for Buyers and Sellers

Seller

1. Before signing a sales contract, the seller should make inquiries about the buyer’s creditworthiness and business practices. The seller’s bank will generally assist in this investigation.

2. In many cases, the issuing bank will specify the advising and/or confirming bank. These designations are usually based on the issuing bank’s established correspondent relationships. The seller should ensure that the advising/confirming bank is a financially sound institution.

3. The seller should confirm the good standing of the buyer’s issuing bank if the letter of credit is unconfirmed.

4. For confirmed letters of credit, the seller’s advising bank should be willing to confirm the letter of credit issued by the buyer’s bank. If the advising bank refuses to do so, the seller should request another issuing bank as the current bank may be or is in the process of becoming insolvent.

5. The seller should carefully review the letter of credit to ensure its conditions can be met. All documents must conform to the terms of the letter of credit. The seller must comply with every detail of the letter of credit specifications; otherwise the security given by the credit is lost.

6. The seller should ensure that the letter of credit is irrevocable.

7. If amendments are necessary, the seller should contact the buyer immediately so that the buyer can instruct the issuing bank to make the necessary changes quickly. The seller should keep the letter of credit’s expiration date in mind throughout the amendment process.

8. The seller should confirm with the insurance company that it can provide the coverage specified in the letter of credit and that insurance charges listed in the letter of credit are correct. Typical insurance coverage is for CIF (cost, insurance and freight) often the value of the goods plus about 10 percent.

9. The seller must ensure that the goods match the description in the letter of credit and the invoice description.

10. The seller should be familiar with foreign exchange limitations in the buyer’s country that could hinder payment procedures.

Buyer

1. When choosing the type of letter of credit, the buyer should consider the standard payment methods in the seller’s country.

2. The buyer should keep the details of the purchase short and concise.

3. The buyer should be prepared to amend or re-negotiate terms of the letter of credit with the seller. This is a common procedure in international trade. With irrevocable letters of credit, the most common type, all parties must agree to amend the document.

4. The buyer can reduce the foreign exchange risk by buying forward currency contracts.

5. The buyer should use a bank experienced in foreign trade as its issuing bank.

6. The validation time stated on the letter of credit should give the seller ample time to produce the goods or to pull them out of stock.

7. A letter of credit is not fail-safe. Banks are only responsible for the documents exchanged and not the goods shipped. Documents in conformity with the letter of credit specifications cannot be rejected on grounds that the goods were not delivered as specified in the contract. The goods shipped may not in fact be the goods ordered and paid for.

8. Purchase contracts and other agreements pertaining to the sale between the buyer and seller are not the concern of the issuing bank. Only the letter of credit terms are binding on the bank.

9. Documents specified in the letter of credit should include those the buyer requires for customs clearance.

Copyright 1999 Credit Research Foundation

 

http://www.crfonline.org

 

Letter of credit

After a contract is concluded between buyer and seller, buyer’s bank supplies a letter of credit to seller.
Seller consigns the goods to a carrier in exchange for a bill of lading.
Seller provides bill of lading to bank in exchange for payment. Seller’s bank exchanges bill of lading for payment from buyer’s bank. Buyer’s bank exchanges bill of lading for payment from buyer.
Buyer provides bill of lading to carrier and takes delivery of goods.

A letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking (it can also be revocable, confirmed, unconfirmed, transferable or others e.g. back to back: revolving but is most commonly irrevocable/confirmed) to a beneficiary against complying documents as stated in the Letter of Credit. Letter of Credit is abbreviated as an LC or L/C, and often is referred to as a documentary credit, abbreviated as DC or D/C, documentary letter of credit, or simply as credit (as in the UCP 500 and UCP 600).

A Standby Letter of Credit, SBLC, is a credit enhancement device which helps secure a primary loan. Banks, after the current financial collapse, require standby letters of credit for most real estate development loans.

The LC can also be the source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, stormwater ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to giros and Traveler’s cheques. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and documents proving the shipment was insured against loss or damage in transit. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin.
Contents

* 1 Terminology
* 2 How it works
* 3 Availability
* 4 Some of the Documents Called for under a DC
* 5 Some of Major Terms and Conditions in a DC
* 6 Legal principles governing documentary credits
* 7 The price of LCs
* 8 Legal Basis for Letters of Credit
* 9 International Trade Payment methods
* 10 Risk situations in a DC transaction
* 11 Risks in International Trade
* 12 See also
* 13 References

Terminology

The English name “letter of credit” derives from the French word “accreditation”, a power to do something, which in turn is derivative of the Latin word “accreditivus”, meaning trust. S.‘The Application any defence relating to the underlying contract of sale. This is as long as the seller performs their duties to an extent that meets the requirements contained in the LC.

How it works

A business called the InCosmetika from time to time imports goods from a business called BLISS, which banks with the ABC Bank. InCosmetika holds an account at the Commonwealth Bank. InCosmetika wants to buy $500,000 worth of merchandise from BLISS, who agrees to sell the goods and give InCosmetika 60 days to pay for them, on the condition that they are provided with a 90-day LC for the full amount. The steps to get the letter of credit would be as follows:

* InCosmetika goes to The Commonwealth Bank and requests a $500,000 letter of credit, with BLISS as the beneficiary.
* The Commonwealth Bank can issue an LC either on approval of a standard loan underwriting process or by InCosmetika funding it directly with a deposit of $500,000 plus fees which are typically between 1% and 8% of the face value of the LC.
* The Commonwealth Bank sends a copy of the LC to the ABC Bank, which notifies BLISS that payment is available and they can ship the merchandise InCosmetika has ordered with the full assurance of payment to them.
* On presentation of the stipulated documents in the letter of credit and compliance with the terms and conditions of the letter of credit, the Commonwealth Bank transfers the $500,000 to the ABC Bank, which then credits the account of BLISS for that amount.
* Note that banks deal only with documents required in the letter of credit and not the underlying transaction.
* Many exporters have mistakenly assumed that the payment is guaranteed after receiving the LC. The issuing bank is obligated to pay under the letter of credit only when the stipulated documents are presented and the terms and conditions of the letter of credit have been met.

Availability

* DC being an irrevocable undertaking of the issuing bank makes available the Proceeds, to the Beneficiary of the Credit provided, stipulated documents strictly complying with the provisions of the DC, UCP 600 and other international standard banking practices, are presented to the issuing bank , then :
* i.if the Credit provides for sight payment – by payment at sight against compliant presentation
* ii.if the Credit provides for deferred payment – by payment on the maturity date(s) determinable in accordance with the stipulations of the Credit; and of course undertaking to pay on due date and confirming maturity date at the time of compliant presentation
* iii.a.if the Credit provides for acceptance by the Issuing Bank – by acceptance of Draft(s) drawn by the Beneficiary on the Issuing Bank and payment at maturity of such tenor draft, or
* iii.b. if the Credit provides for acceptance by another drawee bank – by acceptance and payment at maturity Draft(s)drawn by the Beneficiary on the Issuing Bank in the event the drawee bank stipulated in the Credit does not accept Draft(s) drawn on it,

or by payment of Draft(s) accepted but not paid by such drawee bank at maturity;

* iv. if the Credit provides for negotiation by another bank – by payment without recourse to drawers and/or bona fide holders, Draft(s) drawn by the Beneficiary and/or document(s) presented under the Credit, (and so negotiated by the nominated bank )

* Negotiation means the giving of value for Draft(s) and/or document(s) by the bank authorized to negotiate, viz the nominated bank. Mere examination of the documents and forwarding the same to DC issuing bank for reimbursement, without giving of value / agreed to give, does not constitute a negotiation.

Some of the Documents Called for under a DC

* Financial Documents

Bill of Exchange, Co-accepted Draft

* Commercial Documents

Invoice, Packing list

* Shipping Documents

Transport Document, Insurance Certificate, Commercial, Official or Legal Documents

* Official Documents

License, Embassy legalization, Origin Certificate, Inspection Cert , Phyto-sanitary Certificate

* Transport Documents

Bill of Lading (ocean or multi-modal or Charter party), Airway bill, Lorry/truck receipt, railway receipt, CMC Other than Mate Receipt, Forwarder Cargo Receipt, Deliver Challan…etc

* Insurance documents

Insurance policy, or Certificate but not a cover note.

Guidance on Preparation of Documents under a Letter of Credit

Some of Major Terms and Conditions in a DC

* Expiry date of the DC for presentation of Shipping docs for Negotiation / Honor
* Shipment expiry date within which the goods should be on board the named mode of transport
* Currency and amount, maximum that can be drawn under the DC, and tolerance if any
* Applicant and Beneficiary
* Ports of loading and delivery
* Availability of the DC by

By Negotiation / Sight payment / Deferred payment / Acceptance with

* Availability of the DC with

a specific nominatated bank to make the proeeds available to the beneficiary

* Goods description
* Presentation should be made to whom and when and how, and within what period
* Reimbursement , is available to be nominated bank , how and when.
* Charges , what are all to account of the applicant and beneficiary
* Confirmation , of the DC to be effected by whom, and charges to whose a/c

and of course

* Instructions to nominated bank
* Sender to receiver information
* Exclusions to UCP 600 or any other specific waviers or restrictions, perhaps like, all Docs should be in English and should contain DC no, or due to OFAC and other sanctions certain type of txn will not be handled and honored, etc etc.

Legal principles governing documentary credits

One of the primary peculiarities of the documentary credit is that the payment obligation is abstract and independent from the underlying contract of sale or any other contract in the transaction. Thus the bank’s obligation is defined by the terms of the credit alone, and the sale contract is irrelevant. The defences of the buyer arising out of the sale contract do not concern the bank and in no way affect its liability.[1] Article 3(a) UCP states this principle clearly. Article 4 the UCP further states that banks deal with documents only, they are not concerned with the goods (facts). Accordingly, if the documents tendered by the beneficiary, or his or her agent, appear to be in order, then in general the bank is obliged to pay without further qualifications.

The policies behind adopting the abstraction principle are purely commercial and reflect a party’s expectations: firstly, if the responsibility for the validity of documents was thrown onto banks, they would be burdened with investigating the underlying facts of each transaction and would thus be less inclined to issue documentary credits as the transaction would involve great risk and inconvenience. Secondly, documents required under the credit could in certain circumstances be different from those required under the sale transaction; banks would then be placed in a dilemma in deciding which terms to follow if required to look behind the credit agreement. Thirdly, the fact that the basic function of the credit is to provide the seller with the certainty of receiving payment, as long as he performs his documentary duties, suggests that banks should honour their obligation notwithstanding allegations of misfeasance by the buyer. [2] Finally, courts have emphasised that buyers always have a remedy for an action upon the contract of sale, and that it would be a calamity for the business world if, for every breach of contract between the seller and buyer, a bank were required to investigate said breach.

The “principle of strict compliance” also aims to make the bank’s duty of effecting payment against documents easy, efficient and quick. Hence, if the documents tendered under the credit deviate from the language of the credit the bank is entitled to withhold payment even if the deviation is purely terminological.[3] The general legal maxim de minimis non curat lex has no place in the field of documentary credits.

The price of LCs

All the charges for issuance of Letter of Credit, negotiation of documents, reimbursements and other charges like courier are to the account of applicant or as per the terms and conditions of the Letter of credit. If the LC is silent on charges, then they are to the account of the Applicant. The description of charges and who would be bearing them would be indicated in the field 71B in the Letter of Credit.

Legal Basis for Letters of Credit

Although documentary credits are enforceable once communicated to the beneficiary, it is difficult to show any consideration given by the beneficiary to the banker prior to the tender of documents. In such transactions the undertaking by the beneficiary to deliver the goods to the applicant is not sufficient consideration for the bank’s promise because the contract of sale is made before the issuance of the credit, thus consideration in these circumstances is past. In addition, the performance of an existing duty under a contract cannot be a valid consideration for a new promise made by the bank: the delivery of the goods is consideration for enforcing the underlying contract of sale and cannot be used, as it were, a second time to establish the enforceability of the bank-beneficiary relation.

Legal writers have analyzed every possible theory from every legal angle and failed to satisfactorily reconcile the bank’s undertaking with any contractual analysis. The theories include: the implied promise, assignment theory, the novation theory, reliance theory, agency theories, estoppels and trust theories, anticipatory theory, and the guarantee theory. [4] Davis, Treitel, Goode, Finkelstein and Ellinger have all accepted the view that documentary credits should be analyzed outside the legal framework of contractual principles, which require the presence of consideration. Accordingly, whether the documentary credit is referred to as a promise, an undertaking, a chose in action, an engagement or a contract, it is acceptable in English jurisprudence to treat it as contractual in nature, despite the fact that it possesses distinctive features, which make it sui generis.

Even though a couple of countries and US states (see eg Article 5 of the Uniform Commercial Code) have tried to create statutes to establish the rights of the parties involved in letter of credit transactions, most parties subject themselves to the Uniform Customs and Practices (UCP) issued by the International Chamber of Commerce (ICC) in Paris. The ICC has no legislative authority, rather, representatives of various industry and trade groups from various countries get together to discuss how to revise the UCP and adapt them to new technologies. The UCP are quoted according to the publication number the ICC gives them. The UCP 600 are ICC publication No. 600 effective July 1, 2007. The previous revision was called UCP 500 and became effective 1993. Since the UCP are not laws, parties have to include them into their arrangements as normal contractual provisions. It is interesting to see that in the area of international trade the parties do not rely on governmental regulations, but rather prefer the speed and ease of auto-regulation

International Trade Payment methods

* Advance payment (most secure for seller)

Where the buyer parts with money first and waits for the seller to forward the goods

* Documentary Credit (more secure for seller as well as buyer)

subject to ICC’s UCP 600, where the bank gives an undertaking (on behalf of buyer and at the request of applicant ) to pay the shipper ( beneficiary ) the value of the goods shipped if certain docs are submitted and if the stipulated terms and conditions are strictly complied.

Here the buyer can be confident that the goods he is expecting only will be received since it will be evidenced in the form of certain docs called for meeting the specified terms and conditions while the supplier can be confident that if he meets the stipulations his payment for the shipment is guaranteed by bank, who is independent of the parties to the contract.

* Documentary collection (more secure for buyer and to a certain extent to seller)

subject to ICC’s URC 525, sight and usance, for delivery of shipping documents against payment or acceptances of draft, where shipment happens first, then the title documents are sent to the [collecting bank] buyer’s bank by seller’s bank [remitting bank], for delivering documents against collection of payment/acceptance

* Direct payment (most secure for buyer)

Where the supplier ships the goods and waits for the buyer to remit the bill proceeds, on open account terms

Risk situations in a DC transaction

General Risks

* If goods are being offered for sale at a price that is too good to be true, then it probably is too good to be true’

Fraud Risks

* The payment will be obtained for nonexistent or worthless merchandise against presentation by the Beneficiary of forged or falsified documents.
* Credit itself may be forged.

Sovereign and Regulatory Risks

* Performance of the Documentary Credit may be prevented by government action outside the control of the parties.

Legal Risks

* Possibility that performance of a Documentary Credit may be disturbed by legal action relating directly to the parties and their rights and obligations under the Documentary Credit

Force Majeure and Frustration of Contract

* Performance of a contract – including an obligation under a Documentary Credit relationship – is prevented by external factors such as natural disasters or armed conflicts

Risks to the Applicant

* Non-delivery of Goods
* Short Shipment
* Inferior Quality
* Early /Late Shipment
* Damaged in transit
* Foreign exchange
* Failure of Bank viz Issuing bank / Collecting Bank

Risks to the Issuing Bank

* Insolvency of the Applicant
* Fraud Risk, Sovereign and Regulatory Risk and Legal Risks

Risks to the Reimbursing Bank

* no obligation to reimburse the Claiming Bank unless it has issued a reimbursement undertaking.

Risks to the Beneficiary

* Failure to Comply with Credit Conditions
* Failure of, or Delays in Payment from, the Issuing Bank
* Credit Issued by Party other than Bank

Risks to the Advising Bank

* The Advising Bank’s only obligation – if it accepts the Issuing Bank’s instructions – is to check the apparent authenticity of the Credit and advising it to the Beneficiary

Risks to the Nominated Bank

* Nominated Bank has made a payment to the Beneficiary against documents that comply with the terms and conditions of the Credit and is unable to obtain reimbursement from the Issuing Bank

Risks to the Confirming Bank

* If Confirming Bank’s main risk is that, once having paid the Beneficiary, it may not be able to obtain reimbursement from the Issuing Bank because of insolvency of the Issuing Bank or refusal of the Issuing Bank to reimburse because of a dispute as to whether or not payment should have been made under the Credit

Risks in International Trade

* A Credit risk is a risk from a change in the credit of an opposing business.
* An Exchange risk is a risk from a change in the foreign exchange rate.
* A Force majeure risk is 1. a risk in trade incapability caused by a change in a country’s policy, and 2. a risk caused by a natural disaster.
* Other risks are mainly risks caused by a difference in law, language or culture. In these cases, the cargo might be found late because of a dispute in import and export dealings.

References:
Wikipedia

Copyright:
PressMarts 2009

Printing press

For the invention and technology of movable type, see Movable type.
Printing press from 1811, photographed in Munich, Germany.

A printing press is a mechanical device for applying pressure to an inked surface resting upon a medium (such as paper or cloth), thereby transferring an image. The mechanical systems involved were first assembled in Germany by the goldsmith Johannes Gutenberg around 1440, based on existing screw-presses used to press cloth, grapes etc., and possibly to print woodcuts, which were printed in Europe before Gutenberg. Although both woodblock printing and movable type printing press technologies were already developed first in China, and Korea in East Asia several hundred years earlier, Gutenberg was the first in Western Europe to develop a printing press.

During the renaissance era, printing methods based on Gutenberg’s printing press spread rapidly throughout first Europe and then the rest of the world. It eventually replaced most versions of block printing, making it the most used format of modern movable type, until being superseded by the advent of offset printing.

Part of the series on the:
History of printing
Woodblock printing     200
Movable type     1040
Intaglio     1430s
Printing press     1454
Lithography     1796
Chromolithography     1837
Rotary press     1843
Flexography     1873
Mimeograph     1876
Hot metal typesetting     1886
Offset press     1903
Screen-printing     1907
Dye-sublimation     1957
Phototypesetting     1960s
Photocopier     1960s
Pad printing     1960s
Laser printer     1969
Dot matrix printer     1970
Thermal printer
Inkjet printer     1976
3D printing     1986
Stereolithography     1986
Digital press     1993
v • d • e
Contents
[hide]

* 1 History
* 2 Gutenberg’s Press
* 3 Historical Impact
* 4 The art of book printing
* 5 The Industrial Revolution
* 6 See also
* 7 Notes
* 8 References
* 9 Further reading
* 10 External links

History

Finely crafted books—like the 1259 Song Dynasty Bencao (materia medica) shown here—were produced by woodblock in China as early as the ninth century, the earliest known being the Diamond Sutra.[1]

The overall invention of Gutenberg’s printing method depended for some of its elements upon a diffusion of technologies from China (East Asia), primarily the Chinese inventions and innovations of paper, in addition to a growing demand by the general European public for the lower cost paper books, instead of the exorbitantly expensive parchment books.[2] By 1424, Cambridge University library owned only 122 books—each of which had a value equal to a farm or vineyard.[2] The demand for these books was driven by rising literacy amongst the middle class and students in Western Europe.[2] At this time, the Renaissance was still in its early stages and the populace was gradually removing the monopoly the clergy had held on literacy.[2]

While woodblock printing had arrived in Europe at approximately the same time paper did, this method was not as suitable for literary communication as it was in the east.[2] Block printing is well-suited to the ancient written Chinese because character alignment is not critical, but the existence of over 100,000 ancient characters and hieroglyphic symbols made the ancient Chinese movable type technology somewhat inefficient and economically impractical affecting the profits of the ancient Chinese book publishers.[2] With the Latin alphabet, however, the need for precise alignment and a much simpler character set positioned movable type as a great advance for the west.[2]

The use of a press was a key technological difference provided European book publishers increased profits over their ancient Chinese counterparts—the screw-based presses used in wine and olive oil production.[2] Attaining mechanical sophistication in approximately the year 1000, devices for applying pressure on a flat-plane were common in Europe.[3]

Gutenberg’s Press

In this woodblock from 1568, the printer at left is removing a page from the press while the one at right inks the text-blocks

Johannes Gutenberg’s work on the printing press began in approximately 1436 when he partnered with Andreas Dritzehn—a man he had previously instructed in gem-cutting—and Andreas Heilmann, owner of a paper mill.[2] However, it was not until a 1439 lawsuit against Gutenberg that an official record exists; witnesses’ testimony discussed Gutenberg’s types, an inventory of metals (including lead), and his type molds.[2]

Others in Europe were also developing movable type at this time, including goldsmith Procopius Waldfoghel of France and Laurens Janszoon Coster of the Netherlands.[2] However, they are not known to have contributed specific advances to the printing press.[4]

Having previously worked as a professional goldsmith, Gutenberg made skillful use of the knowledge of metals he had learned as a craftsman. He was the first to make type from an alloy of lead, tin, and antimony, which was critical for producing durable type that produced high-quality printed books and proved to be more suitable for printing than the clay, wooden or bronze types invented in East Asia. To create these lead types, Gutenberg used what some considered his most ingenious invention, a special matrix enabling the quick and precise moulding of new type blocks from a uniform template.

Gutenberg is also credited with the introduction of an oil-based ink which was more durable than the previously used water-based inks. As printing material he used both vellum and paper, the latter having been introduced in Europe a few centuries earlier from China by way of the Arabs.

In the Gutenberg Bible, Gutenberg made a trial of coloured printing for a few of the page headings, present only in some copies.[5] A later work, the Mainz Psalter of 1453, presumably designed by Gutenberg but published under the imprint of his successors Johann Fust and Peter Schöffer, had elaborate red and blue printed initials.[6]

Historical Impact
See also:

History of typography in East Asia

Printing as developed in East Asia did not make use of a printing press as in Gutenberg’s case. Although the invention of movable type in China and Korea preceded Gutenberg’s printing press, the impact of East Asian movable type printing presses was not as influential as it was in Western European society. This was likely due to the enormous amount of labour involved in manipulating the thousands of porcelain tablets, or in the case of Korea, metal tablets, required by the use of written Chinese characters. Nevertheless, hundreds of thousands of books, on subjects ranging from Confucian Classics to science and mathematics, were printed using the older technology of woodblock printing, creating the world’s first print culture.[7].

In contrast, the impact of Gutenberg’s printing press in Europe was comparable to the development of writing, the invention of the alphabet or the Internet, as far as its effects on society. Just as writing did not replace speaking, printing did not achieve a position of total dominance. Handwritten manuscripts continued to be produced, and the different graphic modes of communication continued to influence each other.

The printing press was also a factor in the establishment of a community of scientists who could easily communicate their discoveries through the establishment of widely disseminated scholarly journals, helping to bring on the scientific revolution. Because of the printing press, authorship became more meaningful and profitable. It was suddenly important who had said or written what, and what the precise formulation and time of composition was. This allowed the exact citing of references, producing the rule, “One Author, one work (title), one piece of information” (Giesecke, 1989; 325). Before, the author was less important, since a copy of Aristotle made in Paris would not be exactly identical to one made in Bologna. For many works prior to the printing press, the name of the author was entirely lost.

Because the printing process ensured that the same information fell on the same pages, page numbering, tables of contents, and indices became common, though they previously had not been unknown. The process of reading was also changed, gradually changing over several centuries from oral readings to silent, private reading. The wider availability of printed materials also led to a drastic rise in the adult literacy rate throughout Europe.

Within fifty or sixty years of the invention of the printing press, the entire classical canon had been reprinted and widely promulgated throughout Europe (Eisenstein, 1969; 52). Now that more people had access to knowledge both new and old, more people could discuss these works. Furthermore, now that book production was a more commercial enterprise, the first copyright laws were passed to protect what we now would call intellectual property rights. A second outgrowth of this popularization of knowledge was the decline of Latin as the language of most published works, to be replaced by the vernacular language of each area, increasing the variety of published works. Paradoxically, the printed word also helped to unify and standardize the spelling and syntax of these vernaculars, in effect ‘decreasing’ their variability. This rise in importance of national languages as opposed to pan-European Latin is cited as one of the causes of the rise of nationalism in Europe.

The art of book printing

For years, book printing was considered a true art form. Typesetting, or the placement of the characters on the page, including the use of ligatures, was passed down from master to apprentice. In Germany, the art of typesetting was termed the “black art,” in allusion to the ink-covered printers. The Black Art Press & Print in Baltimore, MD adopted their name for this reason. It has largely been replaced by computer typesetting programs, which make it easy to get similar results more quickly and with less physical labor. Some practitioners continue to print books the way Gutenberg did. For example, there is a yearly convention of traditional book printers in Mainz, Germany.

Some theorists, such as McLuhan, Eisenstein, Kittler, and Giesecke, see an “alphabetic monopoly” as having developed from printing, removing the role of the image from society. Other authors stress that printed works themselves are a visual medium. Certainly, modern developments in printing have revitalized the role of illustrations.

The Industrial Revolution
Main article: Industrial Revolution
Koenig’s 1814 steam-powered printing press

The Gutenberg press was much more efficient than manual copying and still was largely unchanged in the eras of John Baskerville and Giambattista Bodoni—over 300 years later.[8] By 1800, Lord Stanhope had constructed a press completely from cast iron, reducing the force required by 90% while doubling the size of the printed area.[8] While Stanhope’s “mechanical theory” had improved the efficiency of the press, it still was only capable of 250 sheets per hour.[8] German printer Friedrich Koenig would be the first to design a non-manpowered machine—using steam.[8] Having moved to London in 1804, Koenig soon met Thomas Bensley and secured financial support for his project in 1807.[8] Patented in 1810, Koenig had designed a steam press “much like a hand press connected to a steam engine.”[8] The first production trial of this model occurred in April 1811. He produced his machine with assistance from German engineer Andreas Friedrich Bauer.

Koenig and Bauer sold two of their first models to The Times in London in 1814, capable of 1,100 impressions per hour. The first edition so printed was on November 28, 1814. They went on to perfect the early model so that it could print on both sides of a sheet at once. This began the long process of making newspapers available to a mass audience (which in turn helped spread literacy), and from the 1820s changed the nature of book production, forcing a greater standardization in titles and other metadata. Their company Koenig & Bauer AG is still one of the world’s largest manufacturers of printing presses today.
The Miehle P.P. & Mfg. Co. 1905

Later on in the middle of the 19th century the rotary printing press (invented in 1833 in the United States by Richard M. Hoe) allowed millions of copies of a page in a single day. Mass production of printed works flourished after the transition to rolled paper, as continuous feed allowed the presses to run at a much faster pace.

Also, in the middle of the 19th century, there was a separate development of jobbing presses, small presses capable of printing small-format pieces such as billheads, letterheads, business cards, and envelopes. Jobbing presses were capable of quick set-up (average makeready time for a small job was under 15 minutes) and quick production (even on treadle-powered jobbing presses it was considered normal to get 1,000 impressions per hour [iph] with one pressman, with speeds of 1,500 iph often attained on simple envelope work). Job printing emerged as a reasonably cost-effective duplicating solution for commerce at this time.
A late 1930’s Platen printing press model

By the late 1930s or early 1940s, printing presses had increased substantially in efficiency: a model by Platen Printing Press was capable of performing 2,500 to 3,000 impressions per hour.

Later inventions in this field include the following:

* Lithography
* Offset printing
* Desktop publishing
* Electronic publishing
* Computer printer
* Composing stick

Incoterms or international commercial terms are a series of international sales terms widely used throughout the world. They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices. They closely correspond to the U.N. Convention on Contracts for the International Sale of Goods.

Contents 1 Group E – Departure 2 Group F – Main carriage unpaid 3 Group C – Main carriage paid 4 Group D – Arrival 5 Summary of terms 6 See also 7 References

//

Group E – Departure

EXW – Ex Works (named place)

the seller makes the goods available at his premises.

the buyer is responsible for all charges

Group F – Main carriage unpaid

FCA – Free Carrier (named place)

the seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of transport, including carriage by air, rail, road, and containerised / multi-modal transport.

FAS – Free Alongside Ship (named loading port)

the seller must place the goods alongside the ship at the named port. The seller must clear the goods for export; this changed in the 2000 version of the Incoterms. Suitable for maritime transport only.

FOB – Free On Board (named loading port)

the classic maritime trade term, Free On Board: seller must load the goods on board the ship nominated by the buyer, cost and risk being divided at ship’s rail. The seller must clear the goods for export. Maritime transport only.

Group C – Main carriage paid

CFR – Cost and Freight (named destination port)

seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods have crossed the ship’s rail. Maritime transport only.

CIF – Cost, Insurance and Freight (named destination port)

exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer. Maritime transport only.

CPT – Carriage Paid To (named place of destination)

the general/containerised/multimodal equivalent of CFR. The seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier.

CIP – Carriage and Insurance Paid to (named place of destination)

the containerised transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.

Group D – Arrival

DAF – Delivered At Frontier (named place)

It can be used when the goods are transported by rail and road. The seller pays for transportation to the named place of delivery at the frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the frontier.

DES – Delivered Ex Ship (named port)

Where goods are delivered ex ship, the passing of risk does not occur until the ship has arrived at the named port of destination and the goods made available for unloading to the buyer. The seller pays the same freight and insurance costs as he would under a CIF arrangement. Unlike CFR and CIF terms, the seller has agreed to bear not just cost, but also Risk and Title up to the arrival of the vessel at the named port. Costs for unloading the goods and any duties, taxes, etc… are for the Buyer. A commonly used term in shipping bulk commodities, such as coal, grain, dry chemicals – - – and where the seller either owns or has chartered, their own vessel.

DEQ – Delivered Ex Quay (named port)

It means the same as DES, but the passing of risk does not occur until the goods have been unloaded at the port of destination.

DDU – Delivered Duty Unpaid (named destination place)

It means that the seller delivers the goods to the buyer to the named place of destination in the contract of sale. The goods are not cleared for import or unloaded from any form of transport at the place of destination. The buyer is responsible for the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination. However, if the buyer wishes the seller to bear cost and risks associated with the import clearance, duty, unloading and subsequent delivery beyond the place of destination, then this all needs to be explicitly agreed upon in the contract of sale.

DDP – Delivered Duty Paid (named destination place)

It means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used interchangeably with the term “Free Domicile”

Summary of terms

For a given term, “Yes” indicates that the seller has the responsibility to provide the service included in the price. “No” indicates it is the buyer’s responsibility. If insurance is not included in the term (for example, CFR) then insurance for transport is the responsibility of the buyer or the seller depending on who owns the cargo at time of transport. In the case of CFR terms, it would be the buyer while in the case of DDU or DDP terms, it would be the seller.