Exhibit 10.2
 
SECURITIES PURCHASE AGREEMENT
 
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of June 30, 2010, by
and among Telanetix, Inc., a Delaware corporation, with headquarters located at
11201 SE 8th Street, Suite 200, Bellevue, Washington 98004 (the "Company"), and
the investors listed on the Schedule of Buyers attached hereto (individually, a
"Buyer" and collectively, the "Buyers").
 
WHEREAS:
 
A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506 of
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
 
B. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms
and conditions stated in this Agreement, (i) that aggregate principal amount of
Notes set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers attached hereto (which aggregate amount for all Buyers shall be
$10,500,000) in substantially the form attached hereto as Exhibit A (the
"Notes") and (ii) that aggregate number of shares of the Common Stock, par value
$0.0001 per share of the Company (the "Common Stock"), set forth opposite such
Buyer's name in column (4) on the Schedule of Buyers (which aggregate amount for
all Buyers shall be 287,501,703 shares of Common Stock and shall collectively be
referred to herein as the "Common Shares").
 
C. Pursuant to the terms of the Notes, up to $3,000,000 aggregate principal
amount of Notes may be redeemed by the Company in exchange for shares of Common
Stock (the "Redemption Shares").
 
D. Pursuant to the terms and conditions of Section 1(e), additional shares of
Common Stock (the "Post-Closing Adjustment Shares") may be issued to the Buyers.
 
E. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit B (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Registrable Securities (as defined in
the Registration Rights Agreement) under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
 
F. The Notes, the Common Shares, the Redemption Shares and the Post-Closing
Adjustment Shares, collectively are referred to herein as the "Securities".
 
G. The Notes will rank senior to all outstanding and future indebtedness of the
Company, other than Permitted Indebtedness (as defined in the Notes), and will
be secured by a first priority perfected security interest in all of the assets
of the Company and the stock, equity interests and assets of each of the
Company's subsidiaries, as evidenced by (i) a pledge and security agreement, in
the form attached hereto as Exhibit C (as amended or modified from time to time
in accordance with its terms, the "Pledge and Security Agreement") and (ii) the
guaranties of the subsidiaries of the Company in the form attached hereto as
Exhibit D (as amended or modified from time to time in accordance with its
terms, the "Guaranty" and, together with the Pledge and Security Agreement and
any ancillary documents related thereto, collectively the "Security Documents").
 
 
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NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
 
1. PURCHASE AND SALE OF NOTES AND COMMON SHARES.
 
(a) Purchase of Notes and Common Shares.  Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall
issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees
to purchase from the Company on the Closing Date (as defined below), (i) the
principal amount of Notes as is set forth opposite such Buyer's name in column
(3) on the Schedule of Buyers and (ii) the number of Common Shares as is set
forth opposite such Buyer's name in column (5) on the Schedule of Buyers (the
"Closing").  On the first Business Day immediately after the Stockholder
Approval Date (the "Subsequent Issuance Date"), the Company shall issue to each
Buyer the number of Common Shares as is set forth opposite such Buyer's name in
column (6) on the Schedule of Buyers.
 
(b) Closing.  The date and time of the Closing (the "Closing Date") shall be
10:00 a.m., New York City time, on the date hereof (or such other date and/or
time as is mutually agreed to by the Company and each Buyer) after notification
of satisfaction (or waiver) of the conditions to the Closing set forth in
Sections 6 and 7 below at the offices of Schulte Roth & Zabel LLP, 919 Third
Avenue, New York, New York 10022.
 
(c) Purchase Price.
 
(i) The aggregate purchase price for the Notes issued at the Closing, the number
of Common Shares set forth opposite such Buyer's name on column (5) of the
Schedule of Buyers issued at the Closing, and the number of Common Shares set
forth opposite such Buyer's name on column (6) of the Schedule of Buyers issued
on the Subsequent Issuance Date (the "Purchase Price") shall be the amount set
forth opposite each Buyer's name in column (7) of the Schedule of Buyers.
 
(ii) The Buyers and the Company agree that the Notes and the Common Shares
constitute an "investment unit" for purposes of Section 1273(c)(2) of the
Internal Revenue Code of 1986, as amended (the "Code").  Within thirty (30) days
of the Closing Date, the Buyers shall notify the Company of the allocation of
the issue price of such investment unit between the Notes and the Common Shares
in accordance with Section 1273(c)(2) of the Code and Treasury Regulation
Section 1.1273-2(h), and neither the Buyers nor the Company shall take any
position inconsistent with such allocation in any tax return or in any judicial
or administrative proceeding in respect of taxes.
 
(d) Form of Payment.  On the Closing Date, (i) each Buyer shall pay its Purchase
Price to the Company for the Notes and the Common Shares to be issued and sold
to such Buyer, by wire transfer of immediately available funds in accordance
with the Company's written wire instructions, and (ii) the Company shall deliver
to each Buyer the Notes (in the principal amounts as such Buyer shall have
reasonably requested in writing at least one Business Day prior to the Closing)
which such Buyer is then purchasing along with the number of Common Shares as
set forth opposite such Buyer's name in column (5) on the Schedule of Buyers
which such Buyer is purchasing, in each case duly executed on behalf of the
Company and registered in the name of such Buyer or its designee.  On the
Subsequent Issuance Date, the Company shall deliver to each Buyer the number of
Common Shares as set forth opposite such Buyer's name in column (6) on the
Schedule of Buyers which such Buyer is purchasing, in each case duly executed on
behalf of the Company and registered in the name of such Buyer or its designee.
 
 
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(e) Post-Closing Adjustment Shares.  If at anytime prior to the two-year
anniversary of the Closing Date, the Company or any of its Subsidiaries receives
notice (a "Contingent Payable Event") that the Company or the applicable
Subsidiary is obligated to pay up to $769,539 for (i) accrued tax liabilities of
the Company and its Subsidiaries for any period prior to the Closing Date in
respect of taxes assessed by New York Annual Telecom Tax & Utility Services or
by the Universal Service Administrative Company, including interest and
penalties assessed thereon, (ii) accrued tax liabilities for any period prior to
the Closing Date in respect of the penalty imposed by the IRS against Union
Labor Force One, LLC, including interest assessed thereon and (iii) intellectual
property liabilities incurred by the Company or any of its Subsidiaries prior to
the Closing Date that are not included in the May 2010 Balance Sheet (as such
term is defined in Section 3(k)), including any additional fees and penalties
assessed thereon, (such payables, the "Contingent Payables"), then the Company
will issue to each Buyer an amount of Post-Closing Adjustment Shares (the
"Contingent Share Issuance") such that the Buyer's total percentage ownership of
the Company's fully diluted shares of Common Stock, assuming for purposes of
determining such percentage that (i) all of the Common Shares and Redemption
Shares issued to the Buyers on the Closing Date and after the Closing Date
pursuant to the terms of the Transaction Documents were issued on the Closing
Date and (ii) the percentage ownership of the Common Stock reserved for issuance
under the Telanetix, Inc. 2010 Stock Option Plan as of the Closing Date,
immediately after the consummation of the transactions contemplated hereby, is
the same percentage ownership as of the date such Contingent Share Issuance is
calculated, will be equal to the percentage ownership of the Company's fully
diluted shares of Common Stock that the Buyers would have had if the aggregate
Contingent Payables had actually been paid by the Company and its Subsidiaries
prior to the Closing Date thereby reducing the agreed upon share price.  The
"Contingent Share Issuance" shall be determined in accordance with the formula
used to establish the price per Common Share and by reference to the table
attached as Exhibit E hereto .  Such Contingent Share Issuance shall be made
within two (2) Business Days of the Company's receipt of notice of the
obligation to pay the Contingent Payable.
 
2. BUYER'S REPRESENTATIONS AND WARRANTIES.  Each Buyer, severally and not
jointly, represents and warrants with respect to only itself that:
 
(a) Such Buyer is acquiring the Notes and the Common Shares and will acquire the
Redemption Shares and the Post-Closing Adjustment Shares in the ordinary course
of business for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act, and such Buyer does not
presently have any agreement or understanding, directly or indirectly, with any
Person (as defined in Section 3(s)) to distribute any of the Securities;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
 
 
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(b) Accredited Investor Status.  Such Buyer is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D.
 
(c) Reliance on Exemptions.  Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.  At no time was such Buyer presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or, to its knowledge, any other form of general solicitation or
advertising.
 
(d) Information.  No prospectus or "offering memorandum" has been delivered to
the undersigned in connection with the purchase of the Securities.  Such Buyer
and its advisors, if any, have been furnished with all materials relating to the
business, finances and operations of the Company and materials relating to the
offer and sale of the Securities which have been requested by such Buyer.  Such
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company.  Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained herein.  Such Buyer
(i)understands that its investment in the Securities involves a high degree of
risk, (ii)is able to bear such risk and is able to afford a complete loss of
such investment, (iii)has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities and (iv)acknowledges and agrees that the Company
does not make and has not made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
the Transaction Documents (as defined in Section 3(b)).
 
(e) No Governmental Review.  Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
 
(f) Transfer or Resale.  Such Buyer understands that except as provided in the
Registration Rights Agreement (i) the Securities have not been and are not being
registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C)
such Buyer provides the Company with reasonable assurance that such Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the 1933 Act, as amended, (or a successor rule thereto)
(collectively, "Rule 144"); (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and further,
if Rule 144 is not applicable, any resale of the Securities under circumstances
in which the seller (or the Person (as defined in Section 3(s)) through whom the
sale is made) may be deemed to be an underwriter (as that term is defined in the
1933 Act) may require compliance with some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (iii) neither the Company
nor any other Person is under any obligation to register the Securities under
the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.  The Securities may be pledged in
connection with a bona fide margin account or other loan or financing
arrangement secured by the Securities and such pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no
Buyer effecting a pledge of Securities shall be required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document, including, without
limitation, this Section 2(f).
 
 
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(g) Legends.  Such Buyer understands that the certificates or other instruments
representing the Notes and, until such time as the resale of the Common Shares,
the Redemption Shares and the Post-Closing Adjustment Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Common Shares, the Redemption
Shares and the Post-Closing Adjustment Shares, except as set forth below, shall
bear any legend as required by the "blue sky" laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
 
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at DTC (as defined below), (i) such Securities are registered for resale
under the 1933 Act; provided that such Buyer shall return the shares to the
Company for re-legending in the event that the registration statement covering
their resale ceases to be effective and available for resale of the applicable
Securities, (ii) in connection with a sale, assignment or other transfer, such
holder provides the Company with an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such sale, assignment or transfer
of the Securities may be made without registration under the applicable
requirements of the 1933 Act, or (iii) such holder provides the Company with
reasonable assurance that the Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A.
 
 
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(h) Validity; Enforcement.  This Agreement, the Registration Rights Agreement
and the Security Documents to which such Buyer is a party have been duly and
validly authorized, executed and delivered on behalf of such Buyer and shall
constitute the legal, valid and binding obligations of such Buyer enforceable
against such Buyer in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.  Such Buyer is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and consummate
the transactions contemplated by the Transaction Documents and to otherwise
carry out its obligations hereunder and thereunder.
 
(i) No Conflicts.  The execution, delivery and performance by such Buyer of this
Agreement, the Registration Rights Agreement and the Security Documents to which
such Buyer is a party and the consummation by such Buyer of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment  or decree (including federal and state securities
laws) applicable to such Buyer, except in the case of clauses (ii) and (iii)
above, for such conflicts, defaults, rights or violations which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations
hereunder.
 
(j) Certain Trading Activities.  Such Buyer has not, directly or indirectly, nor
has any Person acting on behalf of or pursuant to any understanding with such
Buyer which (i) had knowledge of the transactions contemplated hereby, (ii) has
or shares discretion relating to such Buyer's investments and trading or
information concerning such Buyer's investments or (iii) is subject to such
Buyer's review or input concerning such Person's investments or trading (the
foregoing, "Buyer Trading Affiliates"), engaged in any sale or purchase in the
securities of the Company (including, without limitation, any Short Sales
involving the Company's securities) since the time that such Buyer was first
contacted by the Company regarding the investment in the Company contemplated
herein. "Short Sales" include, without limitation, all "short sales" as defined
in Rule 200 promulgated under Regulation SHO ("Regulation SHO") under the
Securities Exchange Act of 1934, as amended (the "1934 Act") and all types of
direct and indirect stock pledges, forward sale contracts, options, puts, calls,
swaps and similar arrangements (including on a total return basis), and sales
and other transactions through non-U.S. broker dealers or foreign regulated
brokers (but shall not be deemed to include the location and/or reservation of
borrowable Common Stock).
 
 
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(k) Residency.  Such Buyer is a resident of that jurisdiction specified below
its address on the Schedule of Buyers.
 
(l) Brokers, Finders.  Such Buyer has not engaged any placement agent or other
agent in connection with the purchase of the Securities pursuant to this
Agreement.
 
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
 
The Company represents and warrants to each of the Buyers that except as
previously disclosed in writing by the Company to each of the Buyers on or prior
to the date of this Agreement (such previous disclosure being referred to herein
as being "Previously Disclosed"):
 
(a) Organization and Qualification.  Each of the Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns any of the capital stock or holds equity or similar
interests) are corporations duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power and authorization to own their properties and to carry
on their business as now being conducted.  Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect.  As used in this Agreement, "Material
Adverse Effect" means any material adverse effect on the business, properties,
assets, operations, results of operations or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents or by the agreements and
instruments to be entered into in connection herewith or therewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below).  The Company has no Subsidiaries.
 
(b) Authorization; Enforcement; Validity.  The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Registration Rights Agreement, the Security
Documents, the Irrevocable Transfer Agent Instructions (as defined in Section
5(b)), and each of the other agreements entered into by the Company in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents") and to issue the Securities in accordance with the
terms hereof and thereof.  The execution and delivery of the Transaction
Documents by the Company and each Subsidiary that is a party thereto and the
consummation by the Company and its Subsidiaries of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Notes, the Common Shares and the Redemption Shares, the reservation for
issuance and issuance of Redemption Shares, if any, and Post-Closing Adjustment
Shares, if any, and the granting of a security interest in the Collateral (as
defined in the Pledge and Security Agreement) have been duly authorized by the
Company's Board of Directors and (other than (i) the filing of appropriate UCC
financing statements with the appropriate states and other authorities pursuant
to the Pledge and Security Agreement, and (ii) the filing with the SEC of one or
more Registration Statements (as defined in the Registration Rights Agreement)
in accordance with the requirements of the Registration Rights Agreement) no
further filing, consent, or authorization is required by the Company, its Board
of Directors or its stockholders.  This Agreement and the other Transaction
Documents of even date herewith have been duly executed and delivered by the
Company and each Subsidiary that is a party thereto, and constitute the legal,
valid and binding obligations of the Company and such Subsidiaries, enforceable
against the Company and such Subsidiaries in accordance with their respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of applicable creditors' rights and remedies.
 
 
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(c) Issuance of Securities.  The issuance of the Notes, the Common Shares, the
Redemption Shares and the Post-Closing Adjustment Shares are duly authorized
and, upon issuance in accordance with the terms hereof and the other Transaction
Documents, shall be free from all taxes, liens and charges with respect to the
issue thereof.  As of the Closing, subject to the stockholder approval set forth
in the first sentence of Section 4(m)(i), a number of shares of Common Stock
shall have been duly authorized and reserved for issuance which equals or
exceeds the sum of (i) the number of Common Shares and (ii) 125% of the
aggregate of the maximum number of shares of Common Stock issuable as Redemption
Shares pursuant to the terms of the Notes and Post-Closing Adjustment Shares
(calculating such maximum number of shares assuming that such shares were
required to be issued as of the Closing Date).  The Post-Closing Adjustment
Shares and, upon payment in accordance with the Notes, the Redemption Shares
will be validly issued, fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the issue
thereof, with the holders being entitled to all rights accorded to a holder of
Common Stock.  Assuming the accuracy of each of the representations and
warranties of the Buyers contained in Section 2, the offer and issuance by the
Company of the Securities is exempt from registration under the 1933 Act.
 
(d) No Conflicts.  The execution, delivery and performance of the Transaction
Documents by the Company and its Subsidiaries and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Notes, the Common Shares and the Redemption
Shares, the granting of a security interest in the Collateral and reservation
for issuance and issuance of the Redemption Shares and the Post-Closing
Adjustment Shares) will not, on or after the Closing Date, (i) result in a
violation of any certificate of incorporation, certificate of formation, any
certificate of designations or other constituent documents of the Company or any
of its Subsidiaries, any capital stock of the Company or any of its Subsidiaries
or the bylaws of the Company or any of its Subsidiaries or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) or result in, or having the enforcement of the rights
provided for in the Transactions Documents constitute, a change of control
(including, without limitation, by being deemed to be a merger, consolidation,
or other disposition of all or substantially all of the assets or businesses of
the Company or any of its Subsidiaries) or similar outcome under, or give to
others any rights (x) of termination, amendment, acceleration or cancellation
of, or (y) to any payment, including, without limitation, any employment or
severance payment, under, any agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment or decree (including foreign, federal
and state securities laws and regulations and the rules and regulations of The
OTC Bulletin Board (the "Principal Market")) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected, except in the case of clause (iii) above, for
such violations which would not have a Material Adverse Effect.
 
 
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(e) Consents.  Neither the Company nor any of its Subsidiaries is required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof.  All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the Closing Date, and the Company and its Subsidiaries
are unaware of any facts or circumstances which might prevent the Company from
obtaining or effecting any of the registration, application or filings pursuant
to the preceding sentence.  The Company is not in violation of the listing
requirements of the Principal Market and has no knowledge of any facts which
would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.
 
(f) Acknowledgment Regarding Buyer's Purchase of Securities.  The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) to the knowledge of the Company, an "affiliate"
of the Company or any of its Subsidiaries (as defined in Rule 144) or (iii) to
the knowledge of the Company, a "beneficial owner" of more than 10% of the
shares of Common Stock (as defined for purposes of Rule 13d-3 of the 1934
Act).  The Company further acknowledges that no Buyer is acting as a financial
advisor or fiduciary of the Company or any of its Subsidiaries (or in any
similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities.  The Company further represents to each
Buyer that the Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and its
representatives.
 
(g) No General Solicitation; Placement Agent's Fees.  Neither the Company, nor
any of its Subsidiaries or affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities.  The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby.  The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney's fees and out-of-pocket expenses) arising in
connection with any such claim.  The Company acknowledges that it has engaged
Merriman Curhan Ford & Co. as placement agent (the "Placement Agent") in
connection with the sale of the Securities.  Other than the Placement Agent, the
Company has not engaged any placement agent or other agent in connection with
the sale of the Securities.
 
 
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(h) No Integrated Offering.  None of the Company, its Subsidiaries, any of their
affiliates, and any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would require registration of any of the
Securities under the 1933 Act, whether through integration with prior offerings
or otherwise, or cause this offering of the Securities to require the approval
of stockholders of the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of any exchange or automated quotation system on which any of
the securities of the Company are listed or designated.  None of the Company,
its Subsidiaries, their affiliates and any Person acting on their behalf will
take any action or steps referred to in the preceding sentence that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings for purposes of
any such applicable stockholder approval provisions.
 
(i) Dilutive Effect.  The Company understands and acknowledges that the Company
may issue the Redemption Shares pursuant to the terms of the Notes, and that the
Company may issue Post-Closing Adjustment Shares in an amount that will be
determined in the future, in accordance with the terms of Section 1(e).  The
Company further acknowledges that if the Company issues Redemption Shares in
accordance with the terms of the Notes, and/or issues Post-Closing Adjustment
Shares in accordance with Section 1(e) hereof such issuance is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
 
(j) Application of Takeover Protections; Rights Agreement.  The Company and its
Board of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation of the Company or
the laws of the jurisdiction of its incorporation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities.  The Company and its
Board of Directors have taken all necessary action to render inapplicable
Section 203 of the Delaware General Corporation Law to any Buyer and the
transactions contemplated by this Agreement, including, without limitation, the
issuance of the Securities to the Buyers.  The Company has not adopted a
stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
 
(k) SEC Documents; Financial Statements.  During the two (2) years prior to the
date hereof, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the 1934 Act (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements, notes
and schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents").  The Company has delivered to
the Buyers or their respective representatives true, correct and complete copies
of the SEC Documents not available on the EDGAR system, except for such SEC
Documents that, individually or in the aggregate, are not material to the
business, properties, assets, operations, results of operations or condition
(financial or otherwise) of the Company and its Subsidiaries.  As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.  As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto.  The Company has delivered a consolidated balance sheet of the
Company and its Subsidiaries as of May 31, 2010 to the Buyers on or before the
date hereof (the "May 2010 Balance Sheet").  Such financial statements,
including, without limitation, the financial statements specified in the
immediately preceding sentence, have been prepared in accordance with generally
accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).  No other information provided by or on
behalf of the Company to the Buyers which is not included in the SEC Documents,
including, without limitation, information referred to in Section 2(d) of this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading.
 
 
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(l) Absence of Certain Changes.  Since December 31, 2009, there has been no
development with respect to the Company or its Subsidiaries that has resulted
in, or is reasonably likely to result in, a Material Adverse Effect.  Since
December 31, 2009, the Company has not (i) declared or paid any dividends, (ii)
sold any assets, individually or in the aggregate, in excess of $250,000 outside
of the ordinary course of business or (iii) had capital expenditures,
individually or in the aggregate, in excess of $450,000.  During the year prior
to the date hereof, no customer of the Company or any of its Subsidiaries has
cancelled any contract with the Company or its Subsidiaries.  Since December 31,
2009, neither the Company nor any of its Subsidiaries has taken any steps to
seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so.  The Company is not as of the date hereof,
after giving effect to the transactions contemplated hereby to occur at the
Closing, Insolvent (as defined below).  For purposes of this Section 3(l),
"Insolvent" means, with respect to any Person (as defined in Section 3(s), (i)
the present fair saleable value of such Person's assets (including intangibles)
is less than the amount required to pay such Person's total Indebtedness (as
defined in Section 3(s)), (ii) such Person is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
 
 
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(m) No Undisclosed Events, Liabilities, Developments or Circumstances.  Except
for the transactions contemplated by the Transaction Documents, no event,
liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on an Annual Report on Form 10-K, Quarterly Report on Form 10-Q
or Current Report on Form 8-K filed with the SEC relating to an issuance and
sale by the Company of its Common Stock and which has not been publicly
announced.
 
(n) Conduct of Business; Regulatory Permits.  Neither the Company nor its
Subsidiaries is in violation of any term of or in default under any certificate
of designations of any outstanding series of preferred stock of the Company, its
Certificate of Incorporation or Bylaws or their organizational charter or
certificate of incorporation or bylaws, respectively.  Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except for possible
violations which would not, individually or in the aggregate, have a Material
Adverse Effect.  Without limiting the generality of the foregoing, the Company
is not in violation of any of the rules, regulations or requirements of the
Principal Market and has no knowledge of any facts or circumstances which would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future.  During the two years prior to the date
hereof, (i) the Common Stock has been designated for quotation on the Principal
Market, (ii) trading in the Common Stock has not been suspended by the SEC or
the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market.  The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
 
(o) Foreign Corrupt Practices.  Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
 
(p) Sarbanes-Oxley Act.  The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof with respect to the Company, and any and all applicable rules
and regulations promulgated by the SEC thereunder that are effective as of the
date hereof.
 
 
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(q) Transactions With Affiliates.  No current or former employee, partner,
director, officer or, to the knowledge of any director or senior executive, any
stockholder of the Company or its Subsidiaries, or any associate or any
affiliate of any thereof, or any relative with a relationship no more remote
than first cousin of any current or former employee, partner, director, officer
of the Company or its Subsidiaries, is presently, or during the period
commencing on December 31, 2007 and ending on the date hereof has been, (i) a
party to any transaction with the Company or its Subsidiaries (including any
contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any such director, officer or stockholder or such associate or
affiliate or relative other than for ordinary course services as employees,
officers or directors) other than employment agreements and compensation
agreements described in the SEC Documents or (ii) the direct or indirect owner
of an interest in any corporation, firm, association or business organization
which is a competitor, supplier or customer of the Company or its Subsidiaries
(except for a passive investment (direct or indirect) in less than 5% of the
common stock of a company whose securities are traded on or quoted through an
Eligible Market (as defined in the Note)), nor does any such Person receive
income from any source other than the Company or its Subsidiaries which relates
to the business of the Company or its Subsidiaries or should properly accrue to
the Company or its Subsidiaries.  No employee, officer, stockholder or director
of the Company or any of its Subsidiaries or member of his or her immediate
family is indebted to the Company or its Subsidiaries, as the case may be, nor
is the Company or any of its Subsidiaries indebted (or committed to make loans
or extend or guarantee credit) to any of them, other than (i) for payment of
salary for services rendered, (ii) reimbursement for reasonable expenses
incurred on behalf of the Company, and (iii) for other standard employee
benefits made generally available to all employees or executives (including
stock option agreements outstanding under any stock option plan approved by the
board of directors of the Company).
 
(r) Equity Capitalization.  (i)  As of the date hereof, before giving effect to
the transactions contemplated hereby to occur at the Closing, the authorized
capital stock of the Company consists of (x) 300,000,000 shares of Common Stock,
of which as of the date hereof, 31,768,320 are issued and outstanding,
15,500,000 shares are reserved for issuance pursuant to the Company's stock
option and purchase plans and 12,695,718 shares are reserved for issuance
pursuant to securities (other than the aforementioned options and the Notes)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(y) 10,000,000 shares of preferred stock, $0.0001 par value, (the "Preferred
Stock") of which as of the date hereof, none are issued and outstanding.  All of
such outstanding shares have been, or upon issuance will be, validly issued and
are fully paid and nonassessable.
 
(ii) The capitalization of the Company immediately prior to the Closing is set
forth on Schedule 3(r)(A) and the capitalization of the Company immediately
following the Closing, after giving effect to the issuance of the Common Shares
on the Subsequent Issuance Date, is set forth on Schedule 3(r)(B).
 
 
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(iii) Immediately following the closing of the transactions contemplated by the
Repurchase Agreement (as defined in Section 4(d) below), none of the Sellers (as
defined in the Repurchase Agreement) will own any securities of the Company,
whether equity, equity linked, debt or otherwise.
 
(iv) Immediately following consummation of the transactions contemplated hereby,
all of the debt and warrants issued to Enable Capital Management, Enable Growth
Partners and their respective affiliates shall no longer be outstanding, and
none of Enable Capital Management, Enable Growth Partners or their respective
affiliates will own any securities of the Company or its Subsidiaries other than
Common Stock, which ownership shall be in an amount less than five percent (5%)
beneficial ownership of the Common Stock.  In connection with the consummation
of the transactions contemplated hereby, Merriman Curhan Ford Group, Inc. and
its affiliates shall be entitled to receive no more than $592,500 in cash and
warrants to purchase 2,336,431 shares of Common Stock.
 
(v) Except as Previously Disclosed, there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries,
or contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its
Subsidiaries.  (A) None of the Company's capital stock is subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (B) there are no outstanding debt securities, notes,
credit agreements, credit facilities or other agreements, documents or
instruments evidencing Indebtedness of the Company or any of its Subsidiaries or
by which the Company or any of its Subsidiaries is or may become bound; (C)
there are no financing statements securing obligations in any material amounts,
either singly or in the aggregate, filed in connection with the Company or any
of its Subsidiaries; (D) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except pursuant to the Registration Rights
Agreement); (E) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (F) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities; (G) the Company does
not have any stock appreciation rights or "phantom stock" plans or agreements or
any similar plan or agreement; and (H) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents but not
so disclosed in the SEC Documents, other than those incurred in the ordinary
course of the Company's or its Subsidiaries' respective businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect, and the Company has not Previously Disclosed any information to the
Buyers or their representatives that modifies, qualifies or relates to the
foregoing.
 
 
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(vi) The Company has furnished to the Buyers true, correct and complete copies
of the Company's Certificate of Incorporation, as amended and as in effect on
the date hereof (the "Certificate of Incorporation"), and the Company's Bylaws,
as amended and as in effect on the date hereof (the "Bylaws"), and the terms of
all securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.
 
(vii) All of the outstanding shares of capital stock of other equity interests
of each Subsidiary are owned, directly or indirectly, by the Company.  All
issued and outstanding shares of capital stock or other equity interests of each
of the Subsidiaries have been validly issued and are duly authorized, fully paid
and non-assessable.
 
(s) Indebtedness and Other Contracts.  Neither the Company nor any of its
Subsidiaries (i) has any outstanding Indebtedness (as defined below), (ii) is a
party to any contract, agreement or instrument, the violation of which, or
default under which, by the other party(ies) to such contract, agreement or
instrument would result in a Material Adverse Effect, (iii) is in violation of
any term of or in default under any contract, agreement or instrument relating
to any Indebtedness, except where such violations and defaults did not and would
not result, individually or in the aggregate, in a Material Adverse Effect, or
(iv) is a party to any contract, agreement or instrument relating to any
Indebtedness, the performance of which, in the judgment of the Company's
officers, has or is expected to have a Material Adverse Effect.  A detailed
description of the material terms of any such outstanding Indebtedness has been
Previously Disclosed.  For purposes of this Agreement:  (x) "Indebtedness" of
any Person means, without duplication (A) all indebtedness for borrowed money,
(B) all obligations issued, undertaken or assumed as the deferred purchase price
of property or services, including (without limitation) "capital leases" in
accordance with generally accepted accounting principles (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments or upon which interest payments are customarily made,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all general unsecured claims, including,
without limitation, trade accounts payable and accrued expenses, (H) all
obligations and liabilities, calculated on a basis satisfactory to the Buyer and
in accordance with acceptable practice, of such Person under Hedge Agreements,
(I) all monetary obligations under any receivables factoring, receivables sales
or similar transactions and all monetary obligations under any synthetic lease,
tax ownership/operating lease, off balance sheet financing or similar financing,
(J) all indebtedness referred to in clauses (A) through (I) above secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (K) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (I)
above; (x) "Contingent Obligation" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (y) "Hedging
Agreement" means any interest rate, foreign currency, commodity or equity swap,
collar, cap, floor or forward rate agreement, or other agreement or arrangement
designed to protect against fluctuations in interest rates or currency,
commodity or equity values (including, without limitation, any option with
respect to any of the foregoing and any combination of the foregoing agreements
or arrangements), and any confirmation executed in connection with any such
agreement or arrangement; and (z) "Person" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
 
 
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(t) Absence of Litigation.  Every action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, the Common Stock or any of the Company's Subsidiaries or any
of the Company's or its Subsidiaries' officers or directors in their capacities
as such has been Previously Disclosed.  There is no action, suit, proceeding,
inquiry or investigation before or by the Principal Market, any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or its Subsidiaries' officers or directors in their
capacities as such which would reasonably be expected to have a Material Adverse
Effect.
 
(u) Insurance.  The Company and each of its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged.  Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
 
(v) Employee Relations.
 
(i) Neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or employs any member of a union.  The Company and its
Subsidiaries believe that their relations with their employees are good.  No
executive officer of the Company or any of its Subsidiaries (as defined in Rule
501(f) of the 1933 Act) has notified the Company or any such Subsidiary that
such officer intends to leave the Company or any such Subsidiary or otherwise
terminate such officer's employment with the Company or any such Subsidiary.  No
executive officer of the Company or any of its Subsidiaries, to the knowledge of
the Company, is, or is now expected to be, in violation of any material term of
any employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other material contract or
agreement or any restrictive covenant, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters.
 
 
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(ii) The Company and its Subsidiaries are in compliance with all federal, state,
local and foreign laws and regulations respecting labor, employment and
employment practices and benefits, terms and conditions of employment and wages
and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
 
(iii) None of the employees set forth in Schedule 3(v)(iii), (i) has been
terminated by the Company or any of its Subsidiaries, (ii) has been under review
by the Company for potential termination, demotion, or reduction of salary or
benefits, or (iii) has notified the Company, any of its Subsidiaries or any
director or senior executive of the Company of his or her resignation from his
or her position with the Company or any of its Subsidiaries or, to the knowledge
of the Company, threatened to resign from his or her position with the Company
or any of its Subsidiaries.
 
(iv) The consummation of the transactions contemplated by this Agreement will
not, on or after the Closing Date, (1) entitle any employee or independent
contractor of the Company or its Subsidiaries to severance pay or termination
benefits, (2) accelerate the time of payment or vesting, or increase the amount
of compensation due to any current or former employee or independent contractor
of the Company or its Subsidiaries, (3) obligate the Company or any of its
affiliates to pay or otherwise be liable for any compensation, vacation days,
pension contribution or other benefits to any current or former employee,
consultant, agent or independent contractor of the Company or its Subsidiaries
for periods before the Closing Date, (4) require assets to be set aside or other
forms of security to be provided with respect to any liability under any
"employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), under which the
Company has any current or future obligation or liability (including any
potential, contingent or secondary liability under Title IV of ERISA) or under
which any employee or former employee (or beneficiary of any employee or former
employee) of the Company has or may have any current or future right to benefits
(the term "plan" shall include any contract, agreement (including an employment
or independent contractor agreement), policy or understanding, each such plan
being hereinafter referred to in this Agreement individually as a "Benefit
Plan", (5) result in any "parachute payment" (within the meaning of Section 280G
of the Code) under any Benefit Plan, or (6) result in any change of control or
similar payments to any officer, director, consultant, independent contractor or
employee..
 
(v) There are no accrued or unaccrued and unpaid obligations of the Company or
any of its Subsidiaries in respect of wages, bonuses or other payouts to current
or former officers, directors, consultants or employees.
 
 
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(w) Title.  The Company and its Subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries.  Any real property and facilities held
under lease by the Company and any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.
 
(x) Intellectual Property; Software.
 
(i) The Company and its Subsidiaries own or possess adequate rights or licenses
to use all Intellectual Property necessary to the conduct of their respective
businesses and such Intellectual Property rights and licenses are perpetual,
transferable without any limitation and require no royalty or other payments in
connection therewith, and, to the knowledge of the Company, such Intellectual
Property represents all material intellectual property rights necessary to the
conduct of the their business as now conducted and as presently contemplated to
be conducted.  There are no conflicts with or infringements of any Intellectual
Property owned by the Company or any of its Subsidiaries by any third party,
except for such infringements and conflicts which could not reasonably be
expected to have a Material Adverse Effect.  The conduct of the business of the
Company and its Subsidiaries as currently conducted or contemplated to be
conducted does not conflict with or infringe any proprietary right or
Intellectual Property of any third party, including, without limitation, the
transmission, reproduction, use, display or modification of any content or
material (including framing, and linking web site content) on a web site,
bulletin board or other like medium hosted by or on behalf of the Company or any
of its Subsidiaries, except for such infringements and conflicts which could not
reasonably be expected to have a Material Adverse Effect.  There is no claim,
suit, action or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary:  (i) alleging any such
conflict or infringement with any third party's proprietary rights; or (ii)
challenging the Company's or any Subsidiary's ownership or use of, or the
validity or enforceability of any Intellectual Property.  The total revenue
derived from the Company's and its Subsidiaries' line of SmartFax Plus and
SmartFax Pro products and services is less than two and one-half percent (2.5%)
of the Company's and its Subsidiaries combined total revenue between January 1,
2010 and May 31, 2010.
 
(ii) A complete and current list of registered trademarks or copyrights, issued
patents, applications thereof, or other forms of registration anywhere in the
world that is owned by the Company or a Subsidiary ("Listed Intellectual
Property") and the owner of record, date of application or issuance and relevant
jurisdiction as to each has been Previously Disclosed.  All Listed Intellectual
Property is owned by the Company or a Subsidiary, free and clear of security
interests, liens, encumbrances or claims of any nature.  All Listed Intellectual
Property is subsisting and, to the knowledge of the Company, is valid and
enforceable and all renewal fees and other maintenance fees that have fallen due
on or prior to the effective date of this Agreement have been paid.  No Listed
Intellectual Property is the subject of any proceeding before any governmental,
registration or other authority in any jurisdiction, including any office action
or other form of preliminary or final refusal of registration.  The consummation
of the transactions contemplated hereby will not alter or impair any
Intellectual Property that is owned by or used pursuant to a license by the
Company or a Subsidiary.
 
 
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(iii) A complete list of all material agreements relating to Intellectual
Property to which the Company or a Subsidiary is a party, subject or bound (the
"Material Intellectual Property Contracts") has been Previously Disclosed.  Each
Material Intellectual Property Contract:  (i) is valid and binding on the
Company or a Subsidiary, as the case may be, and, to the knowledge of any
director or senior executive at the Company, the counterparties thereto, and is
in full force and effect and (ii) upon consummation of the transactions
contemplated hereby shall continue in full force and effect without penalty or
other adverse consequence  Neither the Company or a Subsidiary, on the one hand,
nor, to the knowledge of any director or senior executive at the Company, a
counterparty thereto, is in breach or default of any material contractual
obligation under any of the Material Intellectual Property Contracts.
 
(iv) The Company and its Subsidiaries have taken reasonable measures to protect
the secrecy, confidentiality and value of all of their Intellectual Property
and, to the knowledge of any director or senior executive at the Company, there
has been no unauthorized disclosure of any data or information which, but for
any such unauthorized disclosure, the Company would consider to be a trade
secret owned by the Company or any of its Subsidiaries.
 
(v) Each employee who in the regular course of his employment may create
programs, modifications, enhancements or other inventions, improvements,
discoveries, methods or works of authorship and all consultants have signed an
assignment or similar agreement with the Company or the Subsidiary confirming
the Company's or the Subsidiary's ownership or, in the alternate, transferring
and assigning to the Company or the Subsidiary all right, title and interest in
and to such programs, modifications, enhancements or other inventions including
copyright and other intellectual property rights therein.
 
(vi) The operating and applications computer software programs and databases
owned or used by the Company and its Subsidiaries that are material to the
conduct of their business as now conducted and as presently contemplated to be
conducted (collectively, the "Software") has been Previously Disclosed.
 
(vii) The Company and its Subsidiaries possess or have access to the original
(or, if owned by a third party, copies) of all documentation and all source
code, as applicable for all the Software.  Upon consummation of the transactions
contemplated by this Agreement, the Company and its Subsidiaries will continue
to own all the Software owned by them, free and clear of all claims, liens,
encumbrances, obligations and liabilities and, with respect to all agreements
for the lease or license of Software which require consents or other actions as
a result of the consummation of the transactions contemplated by this Agreement
in order for the Company or its Subsidiaries to continue to use and operate such
Software after the Closing Date, the Company and its Subsidiaries will have
obtained such consents or taken such other actions so required.
 
(viii) No open source or public library software, including any version of any
software licensed pursuant to any GNU or other public license, is, in whole or
in part, embodied or incorporated in the Intellectual Property of the Company or
any of its Subsidiaries, and neither the Company nor any of its Subsidiaries is
otherwise bound by any terms thereof.
 
 
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(ix) For the purpose of this Section 3(x), "Intellectual Property" shall mean
all of the following:  (A) trademarks and service marks, trade dress, product
configurations, trade names and other indications of origin, applications or
registrations in any jurisdiction pertaining to the foregoing and all goodwill
associated therewith; (B) inventions, discoveries, improvements, ideas,
know-how, formula methodology, processes, technology, software (including
password unprotected interpretive code or source code, object code, development
documentation, programming tools, drawings, specifications and data) and
applications and patents in any jurisdiction pertaining to the foregoing,
including re-issues, continuations, divisions, continuations-in-part, renewals
or extensions; (C) trade secrets, including confidential information and the
right in any jurisdiction to limit the use or disclosure thereof; (D) copyrights
in writings, designs software, mask works or other works, applications or
registrations in any jurisdiction for the foregoing and all moral rights related
thereto; (E) database rights; (F) Internet Web sites, domain names and
applications and registrations pertaining thereto and all intellectual property
used in connection with or contained in all versions of the Company's Web sites;
(G) rights under all agreements relating to the foregoing; (H) books and records
pertaining to the foregoing; and (I) claims or causes of action arising out of
or related to past, present or future infringement or misappropriation of the
foregoing.
 
(y) Environmental Laws.  The Company and its Subsidiaries (i) are in compliance
with any and all Environmental Laws (as hereinafter defined), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect.  The term "Environmental Laws" means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
 
(z) Subsidiary Rights.  The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
 
(aa) Investment Company Status.  The Company is not, and upon consummation of
the sale of the Securities will not be, an "investment company," a company
controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of  1940, as amended.
 
 
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(bb) Tax Status.  The Company and each of its Subsidiaries (i) has made or filed
in a timely manner (within any applicable extension periods) and in the
appropriate jurisdictions all material foreign, federal and state income and all
other tax returns, reports, information statements and other documentation
(including any additional or supporting materials) required to be filed or
maintained in connection with the calculation, determination, assessment or
collection of any and all federal, state, local, foreign and other taxes,
levies, fees, imposts, duties, governmental fees and charges of whatever kind
(including any interest, penalties or additions to the tax imposed in connection
therewith or with respect thereto), including, without limitation, taxes imposed
on, or measured by, income, franchise, profits, gross income or gross receipts,
and also ad valorem, value added, sales, use, service, real or personal
property, capital stock, stock transfer, license, payroll, withholding,
employment, social security, workers' compensation, unemployment compensation,
utility, severance, production, excise, stamp, occupation, premium, windfall
profits, environmental, transfer and gains taxes and customs duties (each a
"Tax"), including all amended returns required as a result of examination
adjustments made by the IRS or other Governmental Authority responsible for the
imposition of any Tax (collectively, the "Returns"), and such Returns are true,
correct and complete in all material respects, (ii) has paid all Taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such Returns, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all Taxes for periods subsequent to the periods to which such Returns
apply.  There are no unpaid Taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and none of the Company's chief
executive officer, its chief financial officer or any other senior officer,
including, without limitation, any officer who has responsibility for or
oversight of the preparation or filing of Returns, know of a basis for any such
claim.  Neither the Company nor any of its Subsidiaries has received notice of
assessment or proposed assessment of any taxes claimed to be owed by it or any
other Person on its behalf.  No Returns filed by or on behalf of the Company or
any of its Subsidiaries with respect to Taxes are currently being audited or
examined.  Neither the Company nor any of its Subsidiaries has received notice
of any such audit or examination.  No issue has been raised by any taxing
authority with respect to the Company or any of its Subsidiaries in any audit or
examination which, by application of similar principles, could reasonably be
expected to result in a proposed material adjustment to the liability for Taxes
for any period not so examined.
 
(cc) Internal Accounting and Disclosure Controls.  The Company maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset and liability
accountability, (iii) access to assets or incurrence of liabilities is permitted
only in accordance with management's general or specific authorization and (iv)
the recorded accountability for assets and liabilities is compared with the
existing assets and liabilities at reasonable intervals and appropriate action
is taken with respect to any difference.  The Company maintains disclosure
controls and procedures (as such term is defined in Rule 13a-14 under the 1934
Act) that are effective in ensuring that information required to be disclosed by
the Company in the reports that it files or submits under the 1934 Act is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the SEC, including, without limitation, controls and
procedures designed in to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company's management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.  During the twelve months prior to the date hereof, neither the
Company nor any of its Subsidiaries have received any notice or correspondence
from any accountant relating to any material weakness in any part of the system
of internal accounting controls of the Company or any of its Subsidiaries
 
 
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(dd) Off Balance Sheet Arrangements.  There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its 1934
Act filings and is not so disclosed or that otherwise would be reasonably likely
to have a Material Adverse Effect.
 
(ee) Ranking of Notes.  No Indebtedness of the Company is senior to or ranks
pari passu with the Notes in right of payment, whether with respect of payment
of redemptions, interest, damages or upon liquidation or dissolution or
otherwise.
 
(ff) Form S-1 Eligibility.  The Company is eligible to register the Redemption
Shares, the Post-Closing Adjustment Shares and the Common Shares for resale by
the Buyers using Form S-1 promulgated under the 1933 Act.
 
(gg) Transfer Taxes.  On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Buyer hereunder
(the "Transfer Taxes") will be, or will have been, fully paid or provided for by
the Company, and all laws imposing such taxes will be or will have been complied
with.  There are no Transfer Taxes.
 
(hh) Manipulation of Price.  The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any person any compensation for soliciting another to purchase any other
securities of the Company, except in the case of clauses (ii) and (iii), as
relates to the Placement Agent solely in connection with the issuance of the
Securities to the Buyers as contemplated hereby.
 
(ii) Acknowledgement Regarding Buyers' Trading Activity.  It is understood and
acknowledged by the Company that (i) none of the Buyers have been asked to
agree, nor has any Buyer agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold the Securities for any specified
term and (ii) each Buyer shall not be deemed to have any affiliation with or
control over any arm's length counter-party in any "derivative"
transaction.  The Company further understands and acknowledges that one or more
Buyers may engage in hedging and/or trading activities at various times during
the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Redemption Shares is being determined
and (b) such hedging and/or trading activities, if any, can reduce the value of
the existing stockholders' equity interest in the Company both at and after the
time the hedging and/or trading activities are being conducted.  The Company
acknowledges that such aforementioned hedging and/or trading activities do not
constitute a breach of this Agreement, the Notes or any of the documents
executed in connection herewith.
 
 
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(jj) U.S. Real Property Holding Corporation.  The Company is not, nor has ever
been, a U.S. real property holding corporation within the meaning of Section 897
of the Internal Revenue Code of 1986, as amended, and the Company shall so
certify upon Buyer's request.
 
(kk) Bank Holding Company Act.  Neither the Company nor any of its Subsidiaries
is subject to the Bank Holding Company Act of 1956, as amended (the "BHCA") and
to regulation by the Board of Governors of the Federal Reserve System (the
"Federal Reserve").  Neither the Company nor any of its Subsidiaries or
affiliates owns or controls, directly or indirectly, five percent (5%) or more
of the outstanding shares of any class of voting securities or twenty-five (25%)
or more of the total equity of a bank or any  equity that is subject to the BHCA
and to regulation by the Federal Reserve.  Neither the Company nor any of its
Subsidiaries or affiliates exercises a controlling influence over the management
or policies of a bank or any entity that is subject to the BHCA and to
regulation by the Federal Reserve.
 
(ll) Disclosure.  The Company understands and confirms that each of the Buyers
will rely on the foregoing representations in effecting transactions in
securities of the Company.  All disclosure provided to the Buyers regarding the
Company, or any of its Subsidiaries, their business and the transactions
contemplated hereby, including the information that has been Previously
Disclosed, furnished by or on behalf of the Company is true and correct and does
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.  Each
press release issued by the Company or any of its Subsidiaries during the twelve
(12) months preceding the date of this Agreement did not at the time of release
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.  No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
 
4. COVENANTS.
 
(a) Best Efforts.  Each party shall use its best efforts timely to satisfy each
of the conditions to be satisfied by it as provided in Sections 6 and 7 of this
Agreement.
 
(b) Form D and Blue Sky.  The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Buyer promptly after such filing.  The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities for
issuance and sale to the Buyers at the Closing and at the Subsequent Issuance
Date pursuant to this Agreement under applicable securities or "Blue Sky" laws
of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date.  The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following the Closing Date.
 
 
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(c) Reporting Status.  Until the date on which the Investors (as defined in the
Registration Rights Agreement) shall have sold all the Common Shares, the
Redemption Shares and the Post-Closing Adjustment Shares and none of the Notes
are outstanding (the "Reporting Period"), the Company shall timely file
(including for this purpose filing in compliance with, and within the time
frames provided under, any extension under Rule 12b-25 promulgated under the
1934 Act) all reports required to be filed by the Company with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.
 
(d) Use of Proceeds.  The Company will use $7,500,000 (the "Repurchase Amount")
of the proceeds from the sale of the Securities to fund the repurchases
contemplated by that certain Securities Purchase Agreement, dated as of June 30,
2010, by and among Enable Growth Partners LP, Enable Opportunity Partners LP,
Pierce Diversified Strategy Master Fund LLC, Ena and Crescent International,
Ltd., the Company and Weinstein & Smith, LLP (the "Repurchase Agreement"), and
the Company shall provide joint written instructions to the Buyers in order for
the Buyers to pay, on behalf of the Company, the Repurchase Amount to the Escrow
Agent (as defined in the Repurchase Agreement) and the Escrow Agent shall pay
the Repurchase Amount to Enable Growth Partners LP, Enable Opportunity Partners
LP, Pierce Diversified Strategy Master Fund LLC, Ena and Crescent International,
Ltd. in accordance with the terms and conditions of the Repurchase
Agreement, and the balance, if any, for working capital, and not for (1) the
repayment of any other outstanding Indebtedness of the Company or any of its
Subsidiaries, (2) the redemption or repurchase of any other of its or its
Subsidiaries' equity securities or (3) the settlement of any claims, actions or
proceedings against the Company or any of its Subsidiaries.  The Company shall
not amend, revise, supplement or otherwise modify the Repurchase Agreement
without the prior written consent of the Buyers.
 
(e) Financial Information.  The Company agrees to send the following to each
Investor (as defined in the Registration Rights Agreement) during the Reporting
Period (i) unless the following are filed with the SEC through EDGAR and are
available to the public through the EDGAR system, within one Business Day after
the filing thereof with the SEC, a copy of its Annual Reports and Quarterly
Reports on Form 10-K or 10-Q, any interim reports or any consolidated balance
sheets, income statements, stockholders' equity statements and/or cash flow
statements for any period other than annual, any Current Reports on Form 8-K and
any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act, (ii) on the same day as the release thereof, facsimile
or e-mailed copies of all press releases issued by the Company or any of its
Subsidiaries, (iii) as soon as practicable, and in any event within fifteen (15)
business days after the close of each month of each fiscal year of the Company,
a consolidated balance sheet, statement of income and statement of cash flows of
the Company and any Subsidiaries as at the close of such month and covering
operations for such month and the portion of the Company's fiscal year ending on
the last day of such month, all in reasonable detail and prepared in accordance
with generally accepted accounting principles, subject to audit and year-end
adjustments, setting forth in each case in comparative form the figures for the
comparable period of the previous fiscal year, unless such Investor has
delivered an MNPI Notice (as defined in Section 4(i) below) to the Company, at
which time the obligation to provide such monthly financial information shall
terminate, and (iv) copies of any notices and other information made available
or given to the stockholders of the Company generally, contemporaneously with
the making available or giving thereof to the stockholders.  As used herein,
"Business Day" means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.  Each Buyer acknowledges that the information in clause (iii)
above may be confidential non-public information and such Buyer agrees to
maintain the confidentiality of such information and not to disclose the
information to any third party without the Company's prior consent; provided,
that the information in clause (iii) above shall not be deemed to be
confidential non-public information if such information (i) is or becomes
available to the public other than as a result of a disclosure by such Buyer in
violation of this Agreement; (ii) presently is or hereafter becomes available to
such Buyer on a non-confidential basis from a source, which, to such Buyer's
knowledge, is not subject to a confidentiality agreement; or (iii) is required
to be disclosed by law, legal process or by a subpoena or other regulatory or
court order; and provided further, that, and notwithstanding anything set forth
herein to the contrary, in the event such Buyer is requested or required to
disclose any such information, such Buyer shall, to the extent reasonably
practicable and permitted by applicable law, rule or regulation, notify the
Company of the existence, terms and circumstances of any such request or
requirement so that the Company may, at the Company's expense, seek a protective
order or other appropriate remedy and/or waive compliance with the terms of this
sentence.
 
 
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(f) Listing.  The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance)
and shall maintain such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents.  The Company shall
maintain the Common Stocks' authorization for quotation on the Principal
Market.  Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
the Common Stock on the Principal Market.  The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).
 
(g) Fees.  The Company shall reimburse Hale (a Buyer) or its designee(s) (in
addition to any other expense amounts paid to any Buyer prior to the date of
this Agreement) for all reasonable, out-of-pocket costs and expenses incurred in
connection with the transactions contemplated by the Transaction Documents
(including all legal fees and disbursements of outside counsel in connection
therewith, documentation and implementation of the transactions contemplated by
the Transaction Documents in an amount not to exceed $255,000, and due diligence
fees and disbursements in connection therewith in an amount not to exceed
$25,000), which amount may be withheld by such Buyer from its Purchase Price at
the Closing.  The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or broker's commissions (other than for
Persons engaged by any Buyer) relating to or arising out of the transactions
contemplated hereby, including, without limitation, any fees or commissions
payable to the Placement Agent.  The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
reasonable attorney's fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment.  Except as otherwise set forth in
the Transaction Documents, each party to this Agreement shall bear its own
expenses in connection with the sale of the Securities to the Buyers.
 
 
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(h) Pledge of Securities.  The Company acknowledges and agrees that, subject to
applicable laws, rules and regulations, the Securities may be pledged by an
Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities.  The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
Section 2(f) hereof; provided that an Investor and its pledgee shall be required
to comply with the provisions of Section 2(f) hereof in order to effect a sale,
transfer or assignment of Securities to such pledgee.  The Company hereby agrees
to execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such pledgee
by an Investor.
 
(i) Disclosure of Transactions and Other Material Information.  On or before
8:30 a.m., New York City time, on the fourth Business Day following the date of
this Agreement, the Company shall issue a press release and file a Current
Report on Form 8-K describing the terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching the
material Transaction Documents (including, without limitation, this Agreement,
the form of the Notes, the form the Registration Rights Agreement and the form
of Security Documents as exhibits to such filing (including all attachments, the
"8-K Filing").  From and after the filing of the 8-K Filing with the SEC, no
Buyer shall be in possession of any material, nonpublic information received
from the Company, any of its Subsidiaries or any of their respective officers,
directors, employees or agents, that is not disclosed in the 8-K Filing.  After
the filing of the 8-K Filing, if a Buyer so elects in writing (any such writing,
an "MNPI Notice"), the Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide such Buyer with any material, nonpublic information
regarding the Company or any of its Subsidiaries.  As soon as practicable
following the date of delivery of an MNPI Notice to the Company (the "MNPI
Notice Date"), but in no event later than thirty (30) calendar days following
the MNPI Notice Date, the Company shall publicly disclose, in a Current Report
on Form 8-K, Quarterly Report on Form 10-Q or Annual Report on Form 10-K, all
material, nonpublic information regarding the Company or any of its Subsidiaries
previously provided to the Buyer that delivered such MNPI Notice (the "Cleansing
Filing").  From and after the filing of a Cleansing Filing with the SEC, no
Buyer that delivered an MNPI Notice shall be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or any
of their respective officers, directors, employees or agents, that is not
disclosed in the Cleansing Filing.  If a Buyer has elected not to receive
material, nonpublic information and if a Buyer has, or believes it has, received
any such material, nonpublic information regarding the Company or any of its
Subsidiaries, it shall provide the Company with written notice thereof.  The
Company shall, within two (2) Trading Days (as defined in the Notes) of receipt
of such notice, make public disclosure of such material, nonpublic
information.  In the event of a breach of the foregoing covenant by the Company,
any of its Subsidiaries, or any of its or their respective officers, directors,
employees and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public disclosure,
in the form of a press release, public advertisement or otherwise, of such
material, nonpublic information without the prior approval by the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees
or agents.  No Buyer shall have any liability to the Company, its Subsidiaries,
or any of its or their respective officers, directors, employees, stockholders
or agents for any such disclosure.  Subject to the foregoing, neither the
Company, its Subsidiaries nor any Buyer shall issue any press releases or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the 8-K Filing
and contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release).  Without the prior written consent of
any applicable Buyer, neither the Company nor any of its Subsidiaries or
affiliates shall disclose the name of such Buyer in any filing, announcement,
release or otherwise unless required by applicable law, rules or regulation.
 
 
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(j) Restriction on Redemption and Cash Dividends.  So long as any Notes are
outstanding, the Company shall not, directly or indirectly, redeem, or declare
or pay any cash dividend or distribution on, the Common Stock without the prior
express written consent of the holders of Notes representing not less than a
majority of the aggregate principal amount of the then outstanding Notes.
 
(k) Additional Notes; Variable Securities.  So long as any Buyer beneficially
owns any Notes, the Company will not issue any Notes other than to the Buyers as
contemplated hereby and the Company shall not issue any other securities that
would cause a breach or default under the Notes.  For so long as any Notes
remain outstanding, the Company shall not, in any manner, issue or sell any
rights, warrants or options to subscribe for or purchase Common Stock or
Preferred Stock or directly or indirectly convertible into or exchangeable or
exercisable for Common Stock or Preferred Stock at a price which varies or may
vary with the market price of the Common Stock or Preferred Stock, including by
way of one or more reset(s) to any fixed price.
 
(l) Corporate Existence and Stock Options Plans.  The Company shall not (A) be
party to any Fundamental Transaction (as defined in the Notes), unless the
Company shall have obtained the prior written consent of the Buyers, (x) for so
long as any of the Notes are outstanding, (y) for so long as any Buyer
beneficially owns at least 20% of the Common Shares issued to such Buyer at
Closing and at the Subsequent Issuance Date or (z) if such transaction would
result in the amendment or modification of any of the terms of the Securities
pursuant to Section 4(u) or otherwise involves the issuance of any equity
securities or the incurrence of Indebtedness at a price that is less than the
price per Security issued in connection with the consummation of the
transactions contemplated hereby, (B) issue, grant or award additional options
or amend or otherwise modify the options outstanding as of the Closing Date
under the 2005 Incentive Stock Plan or (C) other than the New Incentive Plan,
adopt, approve or otherwise enter into an equity option or incentive plan (x)
for so long as any of the Notes are outstanding or (y) for so long as any Buyer
beneficially owns at least 20% of the Common Shares issued to such Buyer at
Closing and at the Subsequent Issuance Date.
 
 
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(m) Shareholder Action; Reservation of Shares.  (i) The Company shall file with
the SEC, as promptly as practicable after the date hereof, and provide each
shareholder of the Company with an information statement complying with the
requirements of the 1934 Act and substantially in the form that has been
previously reviewed and approved by the Buyers and a counsel of their choice, at
the expense of the Company informing the stockholders of the Company of the
receipt of the consents of the holders of a majority of the outstanding voting
securities of the Company (the "Stockholder Consent") (I) amending the Company's
certificate of incorporation to (A) increase the authorized shares and (B)
effect a reverse stock split of the Company's outstanding Common Stock to ensure
that there are a sufficient number of authorized shares of Common Stock to issue
100% of the Common Shares set forth opposite such Buyer's name in column (6) on
the Schedule of Buyers and reserve for the purpose of issuance, no less than
125% of the aggregate of the maximum number of shares of Common Stock issuable
as Redemption Shares pursuant to the terms of the Notes and as Post-Closing
Adjustment Shares pursuant to Section 1(e) hereof, (II) approving the New
Incentive Plan and (III) approving such transactions pursuant to applicable law
and the rules and regulations of the Principal Market (the "Resolutions").  In
addition to the foregoing, if otherwise required by applicable law, rule or
regulation, the Company shall prepare and file with the SEC a preliminary proxy
statement with respect to a special or annual meeting of the stockholders of the
Company (the "Stockholder Meeting"), which shall be called as promptly as
practicable after the date hereof, but in no event later than 90 days following
the Closing (the "Stockholder Meeting Deadline") soliciting each such
stockholder's affirmative vote for approval of, to the extent not previously
adopted, the Resolutions (such affirmative approval being referred to herein as
the " Stockholder Approval" and the date such approval is obtained, the
"Stockholder Approval Date"), and the Company shall use its best efforts to
solicit its stockholders' approval of such Resolutions and to cause the Board of
Directors of the Company to recommend to the stockholders that they approve the
Resolutions.  The Company shall be obligated to seek to obtain the Stockholder
Approval by the Stockholder Meeting Deadline.  Each Buyer shall vote 100% of the
Common Shares issued to such Buyer at Closing to approve the New Incentive Plan
at the Stockholder Meeting and shall execute a written consent to the Company in
respect of 100% of the Common Shares issued to such Buyer at Closing in favor of
adoption of the Resolutions.
 
(ii) Thereafter, the Company shall take such action necessary to at all times
have authorized and reserved for the purpose of issuance, no less than 125% of
the aggregate of the maximum number of shares of Common Stock issuable as
Redemption Shares pursuant to the terms of the Notes (calculating such maximum
number of shares assuming that such shares were required to be issued as of the
date of this Agreement and on the first day and the fifteenth day of each
succeeding calendar month for so long as the Company has the right to issue
Redemption Shares) plus an amount equal to 184,126,521 shares of Common Stock
that may be issuable as Post-Closing Adjustment Shares pursuant to Section 1(e)
hereof.  In the event that the Company shall have less than such amount
authorized on any calculation date, it shall promptly notify the Buyers and
promptly take such action as may be required to effect an amendment to the
Company's Certificate of Incorporation to either (i) increase the number of
shares authorized or (ii) effect a reverse split of the Company's outstanding
Common Stock.
 
 
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(n) Conduct of Business.  So long as any Buyer owns at least 10% of the Common
Shares issued to such Buyer at Closing and at the Subsequent Issuance Date, the
business of the Company and its Subsidiaries shall not be conducted in violation
of any law, ordinance or regulation of any governmental entity, except where
such violations would not result, either individually or in the aggregate, in a
Material Adverse Effect.
 
(o) Additional Issuances of Securities.
 
(i) For purposes of this Section 4(o), the following definitions shall apply.
 
(1) "Approved Stock Plan" means any employee benefit plan, including, without
limitation, the New Equity Incentive Plan, which has been approved by the Board
of Directors of the Company and the Buyers, pursuant to which the Company's
securities may be issued to any employee, officer, director or consultant for
services provided to the Company.
 
(2) "Common Stock Equivalents" means, collectively, Options and Convertible
Securities.
 
(3) "Convertible Securities" means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for shares of Common Stock.
 
(4) "Excluded Securities" means Common Stock issued or issuable: (i) in
connection with any Approved Stock Plan and (ii) upon exercise of any Options
which are outstanding immediately preceding the Closing, provided that the terms
of such Options are not amended, modified or changed on or after the Closing and
the terms of any Options outstanding at the Closing or issued thereafter are
acceptable to the Buyers.
 
(5) "Options" means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Convertible Securities.
 
(ii) From the date hereof until the later of (i) the date the Notes are no
longer outstanding and (ii) the date the Buyers cease to own at least 10% of the
outstanding shares of Common Stock (the "Trigger Date"), the Company will not,
directly or indirectly, file any registration statement with the SEC other than
a registration statement on Form S-8 which is reasonably acceptable to the
Buyers and the Registration Statement (as defined in the Registration Rights
Agreement).
 
(iii) From the date hereof until the Trigger Date, the Company will not, (A)
directly or indirectly, offer, sell, grant any option to purchase, or otherwise
dispose of (or announce any offer, sale, grant or any option to purchase or
other disposition of) any of its or its Subsidiaries' equity or equity
equivalent securities, including without limitation any debt, preferred stock or
other instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares of
Common Stock, Common Stock Equivalents or any shares of Preferred Stock or any
other equity securities (any such offer, sale, grant, disposition or
announcement being referred to as a "Subsequent Placement") or (B) be party to
any solicitations, negotiations or discussions with regard to the
foregoing.  From the date hereof until the Trigger Date, the Company will not,
directly or indirectly, effect any Subsequent Placement unless the Company shall
have first complied with this Section 4(o)(iii).
 
 
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(1) The Company shall deliver to each Buyer an irrevocable written notice (the
"Offer Notice") of any proposed or intended issuance or sale or exchange (the
"Offer") of the securities being offered (the "Offered Securities") in a
Subsequent Placement, which Offer Notice shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which they are
to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the persons or entities
(if known) to which or with which the Offered Securities are to be offered,
issued, sold or exchanged and (z) offer to issue and sell to or exchange with
such Buyers such amount of the Offered Securities so that the Buyers shall
retain their then pro-rata portion of the issued and outstanding Common Stock
following the issuance of the Offered Securities, allocated among such Buyers
(a) based on such Buyer's pro rata portion of the aggregate principal amount of
Notes purchased hereunder (the "Basic Amount"), and (b) with respect to each
Buyer that elects to purchase its Basic Amount, any additional portion of the
Offered Securities attributable to the Basic Amounts of other Buyers as such
Buyer shall indicate it will purchase or acquire should the other Buyers
subscribe for less than their Basic Amounts (the "Undersubscription Amount"),
which process shall be repeated until the Buyers shall have an opportunity to
subscribe for any remaining Undersubscription Amount.
 
(2) To accept an Offer, in whole or in part, such Buyer must deliver a written
notice to the Company prior to the end of the seventh (7th) Business Day after
such Buyer's receipt of the Offer Notice (the "Offer Period"), setting forth the
portion of such Buyer's Basic Amount that such Buyer elects to purchase and, if
such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the "Notice of Acceptance").  If the Basic Amounts subscribed for by all
Buyers are less than the total of all of the Basic Amounts, then each Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the "Available
Undersubscription Amount"), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Buyer bears to
the total Basic Amounts of all Buyers that have subscribed for Undersubscription
Amounts, subject to rounding by the Company to the extent its deems reasonably
necessary.  Notwithstanding anything to the contrary contained herein, if the
Company desires to modify or amend the terms and conditions of the Offer prior
to the expiration of the Offer Period, the Company may deliver to the Buyers a
new Offer Notice and the Offer Period shall expire on the seventh (7th) Business
Day after such Buyer's receipt of such new Offer Notice.
 
(3) The Company shall have thirty (30) calendar days from the expiration of the
Offer Period above to (i) offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Buyers (the "Refused Securities") pursuant to a definitive agreement (the
"Subsequent Placement Agreement") but only to the offerees described in the
Offer Notice (if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not
more favorable to the acquiring person or persons or less favorable to the
Company than those set forth in the Offer Notice and (ii) to publicly announce
(a) the execution of such Subsequent Placement Agreement, and (b) either (x) the
consummation of the transactions contemplated by such Subsequent Placement
Agreement or (y) the termination of such Subsequent Placement Agreement, which
shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent
Placement Agreement and any documents contemplated therein filed as exhibits
thereto; provided that with respect to clause (y) no filing with the SEC shall
be required pursuant to this Section 4(o)(iii)(3) to the extent the Company
provides reasonable assurance to the Buyers that such information does not
constitute material, non-public information regarding the Company or any of its
Subsidiaries.
 
 
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(4) In the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 4(o)(iii)(3) above), then each Buyer may, at its sole option and in its
sole discretion, reduce the number or amount of the Offered Securities specified
in its Notice of Acceptance to an amount that shall be not less than the number
or amount of the Offered Securities that such Buyer elected to purchase pursuant
to Section 4(o)(iii)(2) above multiplied by a fraction, (i) the numerator of
which shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to Section 4(o)(iii)(3) above prior to such
reduction) and (ii) the denominator of which shall be the original amount of the
Offered Securities.  In the event that any Buyer so elects to reduce the number
or amount of Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced number or amount
of the Offered Securities unless and until such securities have again been
offered to the Buyers in accordance with Section 4(o)(iii)(1) above.
 
(5) Upon the closing of the issuance, sale or exchange of all or less than all
of the Refused Securities, the Buyers shall acquire from the Company, and the
Company shall issue to the Buyers, the number or amount of Offered Securities
specified in the Notices of Acceptance, as reduced pursuant to Section
4(o)(iii)(3) above if the Buyers have so elected, upon the terms and conditions
specified in the Offer.  The purchase by the Buyers of any Offered Securities is
subject in all cases to the preparation, execution and delivery by the Company
and the Buyers of a purchase agreement relating to such Offered Securities
substantially similar to agreements executed by other investors in or purchasers
of such Offered  Securities. The Buyers and the Company shall each use their
reasonable best efforts to consummate such offering as promptly as commercially
practicable.
 
(6) Any Offered Securities not acquired by the Buyers or other persons in
accordance with Section 4(o)(iii)(3) above may not be issued, sold or exchanged
until they are again offered to the Buyers under the procedures specified in
this Agreement.
 
 
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(7) The Company and the Buyers agree that if any Buyer elects to participate in
the Offer, (x) neither the Subsequent Placement Agreement with respect to such
Offer nor any other transaction documents related thereto (collectively, the
"Subsequent Placement Documents") shall include any term or provisions whereby
any Buyer shall be required to agree to any restrictions in trading as to any
securities of the Company owned by such Buyer prior to such Subsequent
Placement, and (y) any registration rights set forth in such Subsequent
Placement Documents shall be similar in all material respects to the
registration rights contained in the Registration Rights Agreement.
 
(8) Notwithstanding anything to the contrary in this Section 4(o) and unless
otherwise agreed to by the Buyers, the Company shall either confirm in writing
to the Buyers that the transaction with respect to the Subsequent Placement has
been abandoned or shall publicly disclose its intention to issue the Offered
Securities, in either case in such a manner such that the Buyers will not be in
possession of material non-public information, by the fifteenth (15th) Business
Day following delivery of the Offer Notice.  If by the fifteenth (15th) Business
Day following delivery of the Offer Notice no public disclosure regarding a
transaction with respect to the Offered Securities has been made, and no notice
regarding the abandonment of such transaction has been received by the Buyers,
such transaction shall be deemed to have been abandoned and the Buyers shall not
be deemed to be in possession of any material, non-public information with
respect to the Company.  Should the Company decide to pursue such transaction
with respect to the Offered Securities, the Company shall provide each Buyer
with another Offer Notice and each Buyer will again have the right of
participation set forth in this Section 4(o)(iii).  The Company shall not be
permitted to deliver more than one such Offer Notice to the Buyers in any 90 day
period.
 
(iv) The restrictions contained in subsection (iii) of this Section 4(o) shall
not apply in connection with the issuance of any Excluded Securities or the
rights offerings contemplated by Section 4(t) this Agreement.
 
(p) Collateral Agent.
 
(i) Each Buyer hereby (a) appoints HCP-TELA, LLC ("Hale") as the collateral
agent hereunder and under the Security Documents (in such capacity, the
"Collateral Agent"), and (b) authorizes the Collateral Agent (and its officers,
directors, employees and agents) to take such action on such Buyer's behalf in
accordance with the terms hereof and thereof.  The Collateral Agent shall not
have, by reason hereof or the Security Documents, a fiduciary relationship in
respect of any Buyer.  Neither the Collateral Agent nor any of its officers,
directors, employees and agents shall have any liability to any Buyer for any
action taken or omitted to be taken in connection hereof or the Security
Documents except to the extent caused by its own gross negligence or willful
misconduct, and each Buyer agrees to defend, protect, indemnify and hold
harmless the Collateral Agent and all of its officers, directors, employees and
agents (collectively, the "Collateral Agent Indemnitees") from and against any
losses, damages, liabilities, obligations, penalties, actions, judgments, suits,
fees, costs and expenses (including, without limitation, reasonable attorneys'
fees, costs and expenses) incurred by such Collateral Agent Indemnitee, whether
direct, indirect or consequential, arising from or in connection with the
performance by such Collateral Agent Indemnitee of the duties and obligations of
Collateral Agent pursuant hereto or the Security Documents.  The Collateral
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the holders of
at least a majority in principal amount of the Notes then outstanding, and such
instructions shall be binding upon all holders of Notes; provided, however, that
the Collateral Agent shall not be required to take any action which, in the
reasonable opinion of the Collateral Agent, exposes the Collateral Agent to
liability or which is contrary to this Agreement or any other Transaction
Document or applicable law.
 
 
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(ii) The Collateral Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining to
this Agreement, the Pledge and Security Agreement or any of the Transaction
Documents and its duties hereunder or thereunder, upon advice of counsel
selected by it.
 
(iii) The Collateral Agent may resign from the performance of all its functions
and duties hereunder and under the Notes and the Security Documents at any time
by giving at least ten (10) Business Days prior written notice to the Company
and each holder of the Notes.  Such resignation shall take effect upon the
acceptance by a successor Collateral Agent of appointment as provided
below.  Upon any such notice of resignation, the holders of a majority of the
outstanding principal under the Notes shall appoint a successor Collateral
Agent.  Upon the acceptance of the appointment as Collateral Agent, such
successor Collateral Agent shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Collateral Agent, and the
retiring Collateral Agent shall be discharged from its duties and obligations
under this Agreement, the Notes and the Security Documents.  After any
Collateral Agent's resignation hereunder, the provisions of this Section 4(p)
shall inure to its benefit.  If a successor Collateral Agent shall not have been
so appointed within said ten (10) Business Day period, the retiring Collateral
Agent shall then appoint a successor Collateral Agent who shall serve until such
time, if any, as the holders of a majority of the outstanding principal under
the Notes appoint a successor Collateral Agent as provided above.
 
(q) Public Information.  At any time during the period commencing from the six
(6) month anniversary of the Closing Date and ending at such time that all of
the Securities can be sold either pursuant to a registration statement, or if a
registration statement is not available for the resale of all of the Securities,
may be sold without the requirement for the Company to be in compliance with
Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule
144 other than any restrictions on sale imposed to the extent that the holder is
an affiliate of the Company, if the Company shall fail for any reason to satisfy
the current public information requirement under Rule 144(c) (a "Public
Information Failure") then, as partial relief for the damages to any holder of
Securities by reason of any such delay in or reduction of its ability to sell
the Securities (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each such holder an
amount in cash equal to one percent (1%) of the aggregate Purchase Price of such
holder's Securities then held by such holder on the day of a Public Information
Failure and on every thirtieth day (pro rated for periods totaling less than
thirty days) thereafter until the earlier of (i) the date such Public
Information Failure is cured and (ii) such time that such public information is
no longer required pursuant to Rule 144.  The payments to which a holder shall
be entitled pursuant to this Section 4(r) are referred to herein as "Public
Information Failure Payments."  Public Information Failure Payments shall be
paid on the earlier of (I) the last day of the calendar month during which such
Public Information Failure Payments are incurred and (II) the third (3rd)
Business Day after the event or failure giving rise to the Public Information
Failure Payments is cured.  In the event the Company fails to make Public
Information Failure Payments in a timely manner, such Public Information
Failure Payments shall bear interest at the rate of 1.5% per month (prorated for
partial months) until paid in full.
 
 
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(r) Additional Relief.  If the Company shall fail for any reason or for no
reason to issue to such Buyer unlegended certificates or issue such Common
Shares to such Buyer by electronic delivery at the applicable balance account at
DTC within three (3) Trading Days after the receipt of documents necessary for
the removal of the legend set forth in Section 2(g) above (the "Removal Date"),
then in addition to all other remedies available to the Buyer, if on or after
the Trading Day immediately following such three Trading Day period, the Buyer
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Buyer of such Common Shares that the
Buyer anticipated receiving without legend from the Company (a "Buy-In"), then
the Company shall, within five (5) Business Days after the Buyer's request and
in the Buyer's discretion, either (i) redeem from the Buyer such Common Shares
and pay cash to the Buyer in an amount equal to the Buyer's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased (the "Buy-In Price"), or (ii) promptly honor its obligation to deliver
to the Buyer such unlegended Common Shares as provided above and pay cash to the
Buyer in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing Bid
Price (as defined in the Notes) on the Removal Date.
 
(s) Closing Documents.  On or prior to fourteen (14) calendar days after the
Closing Date, the Company agrees to deliver, or cause to be delivered, to each
Buyer and Schulte Roth & Zabel LLP executed copies of the Transaction Documents,
Securities and other documents required to be delivered to any party pursuant to
Section 7 hereof.
 
(t) Rights Offering.  As soon as reasonably practicable, but in no event later
than thirty (30) days after the Closing Date, the Company shall commence a
rights offering pursuant to which stockholders of the Company will be given an
opportunity to participate for their pro rata share of a rights offering for no
less than and no more than $3,000,000 of shares of Common Stock of the Company
at a price per share of Common Stock of not less than and not more than $0.038
per share pursuant to the rights offering documents in the forms attached hereto
as Exhibit F (the "Rights Offering Documents").  The Company shall consummate
such rights offering within ninety (90) days following the Closing.  The Company
hereby agrees to set the record date for the rights offering on a date that is
as close to the date of the launch of the offering as reasonably
practicable.  Upon consummation of the Rights Offering, the Company will pay to
each of the Buyers its pro rata portion (based on the aggregate principal amount
of Notes purchased by the Buyers hereunder) of (x) the gross proceeds received
from the rights offering (which amounts will be applied to the outstanding
balance under the Notes) and (y) $60,000 in cash by wire transfer of immediately
available funds.
 
 
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(u) Most Favored Nation.  From the date hereof until the Trigger Date, in the
event that the Company issues any Indebtedness (other than Permitted
Indebtedness) on terms that are or will be more favorable than the terms of the
Notes or the terms set forth in this Agreement or Common Stock, Common Stock
Equivalents or any shares of Preferred Stock or any other equity securities on
terms that are or will be more favorable than those set forth in this Agreement,
without any further action by the Buyers or the Company, the terms of the Notes
and/or this Agreement, as applicable, shall be deemed to be amended and modified
in an economically and legally equivalent manner such that Buyers shall receive
the benefit of the more favorable terms contained in such issuances.  Prior to
any such issuance, the Company shall provide the Buyers with the agreements
pertaining to such issuance, or if such agreements are confidential, a notice
setting forth in reasonable detail the terms on which such Indebtedness or
equity securities are being issued and the amount thereof issued, including the
persons to which such issuance is proposed made.
 
(v) Board of Directors.  (i)  On the Closing Date, (x) the Company shall cause
the Board of Directors to appoint Martin Hale, Jr. to the Company's Board of
Directors and (y) the Company shall enter into a letter agreement in a form
satisfactory to the Buyers with each of James R. Everline and David A. Rane,
pursuant to which James R. Everline and David A. Rane shall agree to be members
of the Board of Directors designated by Hale (collectively, the "Initial Hale
Designees").  At any time or from time to time, Hale shall have the right to
cause the Initial Hale Designees to resign from the Board of Directors upon
written notice to the Company and the applicable Initial Hale Designee, and the
Company shall promptly take all necessary action to cause the applicable Initial
Hale Designee to resign from the Board of Directors and to cause the Board of
Directors to elect as a director to fill the vacancy so created an individual
designated by Hale; provided that in the event that the resignation and
appointment contemplated by this Section 4(v)(i) is not consummated within three
calendar days following the Company's receipt of the written notice provided by
Hale, then the Company shall promptly take all necessary action, including the
amendment of the Company's governing documents, to cause the number of directors
constituting the entire Board of Directors to be expanded to nine (9) and to
cause the Board of Directors to elect as directors the four (4) individuals
designated by Hale to fill the vacancies so created (for a total of five (5)
directors designated by Hale).
 
(ii) Subject to Section 4(v)(i), the Company and the Buyers shall take all
necessary action to ensure that for so long as any Buyer holds any Notes or at
least 10% of the Common Shares issued to such Buyer at Closing and at the
Subsequent Issuance Date, the Company's Board of Directors shall consist of not
more than five Directors.  For so long as any of the Notes are outstanding or
the Common Stock held by the Buyers represent more than 40% of the outstanding
Common Stock, the Company, at each annual (or special) meeting, or action in
lieu of a meeting, of stockholders of the Company at which directors are to be
elected, shall nominate and recommend for election three individuals designated
by Hale to serve as directors, and such directors designated by Hale shall serve
on such committees of the Company's Board of Directors as such director desires,
provided that such designees meet the requisite listing and SEC requirements for
membership on such committees.  If none of the Notes are outstanding and if the
Common Stock held by the Buyers represent more than 20% but not more than 40% of
the outstanding Common Stock, the Company, at each annual (or special) meeting,
or action in lieu of a meeting, of stockholders of the Company at which
directors are to be elected, shall nominate and recommend for election two
individuals designated by Hale to serve as directors, and such directors
designated by Hale shall serve on such committees of the Company's Board of
Directors as such director desires, provided that such designees meet the
requisite listing and SEC requirements for membership on such committees.  If
none of the Notes are outstanding and if the Common Stock held by the Buyers
represent more than 10% but not more than 20% of the outstanding Common Stock,
the Company, at each annual (or special) meeting, or action in lieu of a
meeting, of stockholders of the Company at which directors are to be elected,
shall nominate and recommend for election one individual designated by Hale to
serve as a director, and such director designated by Hale shall serve on such
committees of the Company's Board of Directors as such director desires,
provided that such designee meets the requisite listing and SEC requirements for
membership on such committees.
 
 
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(iii) The Company shall cause each individual designated by Hale for nomination
in accordance with this Section 4(v) to be included in the Board of Director's
"slate" of nominees for the applicable meeting, or action in lieu of a meeting,
of stockholders and shall use reasonable best efforts to solicit from its
stockholders eligible to vote for the election of directors proxies (x) in favor
of the election of such persons and (y) against removal of any such designee.
 
(iv) Upon the death, disability, retirement, resignation or other removal of a
director designated by Hale, the Company's Board of Directors shall elect as a
director to fill the vacancy so created an individual designated by Hale.
 
(v) Each Hale-designated director(s) shall receive the same compensation and
benefits as the other outside directors of the Company, including reimbursement
for travel, lodging and related expenses incurred in connection with meetings of
the Company's Board of Directors or any of their respective subsidiaries, or any
committee thereof, or otherwise in service as a director or member of the boards
of directors of the Company or any of its respective subsidiaries in accordance
with the Company's policies applicable to the other outside directors.
 
(vi) To the maximum extent permitted under applicable law, the Company shall
indemnify each director designated by Hale from and against any and all losses
which may be imposed on, incurred by, or asserted against such director in any
way relating to or arising out of, or alleged to relate to or arise out of, the
director's service in that capacity pursuant to the Certificate of Incorporation
and Bylaws or other governing documents and an indemnification agreement in the
form heretofore provided to Hale.
 
(vii) The Directors designated by Hale shall be covered by the directors' and
officers' liability insurance and fiduciary liability insurance carried by the
Company, the current benefits and levels of coverage of which have been
disclosed to Hale.
 
(viii) So long as any Buyer holds at least 10% of the Common Shares issued to
such Buyer at Closing and at the Subsequent Issuance Date, the Company shall
notify Hale of all regular meetings and special meetings of the Company's Board
of Directors and committees thereof at the same time that directors are given
notice of such meetings, and shall afford any representative designated by Hale
the right and opportunity to attend any such meeting in a non-voting observer
capacity.  The rights and duties of the non-voting board observer of Hale shall
arise solely out of this Agreement, and neither such observer nor Hale shall be
deemed to owe any fiduciary duties to the Company or any of its shareholders by
reason of such rights.  Such representative shall be entitled to receive all
written materials and other information given to the directors of the Company in
connection with any such meeting at the same time that such materials or
information are given to such directors.  The Company, Board of Directors of the
Company or each committee, as the case may be, shall inform the Hale
representative in advance of the delivery of materials or the disclosure of
material non-public information regarding the Company and allow the Hale
representative, in his or her sole discretion, to forgo receiving such materials
if material non-public information about the Company is contained in any such
materials or is to be disclosed of any such meeting.
 
 
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(ix) So long as the Hale has a designee on the Board of Directors of the
Company, the Company shall cause all issuances of Common Stock to the Buyers,
whether pursuant to the terms of the Notes or pursuant to the terms of this
Agreement or otherwise, to be approved in accordance with Rule 16b-3 of the 1934
Act such that any such issuance shall be subject to the exemptions contain in
Rule 16b-3 of the 1934 Act.
 
(w) Landlord Waiver and Schedule to Pledge and Security Agreement.  The Company
shall obtain a landlord waiver, in the form in attached hereto as Exhibit G,
which may be included as a provision contained in the relevant lease, executed
by each landlord with respect to each of the following locations: (i) 11201 SE
8th Street, Suite 200, Bellevue, Washington 98004, (ii) 2001 6th Avenue, Floors
11 and 13, Seattle, Washington 97121 and (iii) 60 Hudson Street, 9th Floor, New
York, New York 10013, within sixty (60) calendar days of the Closing Date;
provided that the Company may request additional time from the Buyers to obtain
such waivers, which request shall not be unreasonably withheld or delayed by the
Buyers.  The Company shall deliver to the Collateral Agent Schedule II(A) to the
Pledge and Security Agreement, in form and substance satisfactory to the
Collateral Agent, within 30 calendar days of the Closing Date.
 
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
 
(a) Register.  The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to each
holder of Securities), a register for the Securities in which the Company shall
record the name and address of the Person in whose name the Securities have been
issued (including the name and address of each transferee), the principal amount
of Notes held by such Person, and the number of Common Shares, Redemption Shares
and Post-Closing Adjustment Shares held by such Person.  The Company shall keep
the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.
 
(b) Transfer Agent Instructions.  The Company shall issue irrevocable
instructions, substantially in the form of Exhibit H (the "Irrevocable Transfer
Agent Instructions"), to its then transfer agent to issue certificates or credit
shares to the applicable balance accounts at The Depository Trust Company
("DTC"), registered in the name of each Buyer or its respective nominee(s), for
the Common Shares issued at Closing and at the Subsequent Issuance Date, for the
Redemption Shares issuable pursuant to the Notes and for the Post-Closing
Adjustment Shares issuable pursuant to Section 1(e) hereof in such amounts as
specified from time to time by each Buyer to the Company.  The Company warrants
that no instruction other than the Irrevocable Transfer Agent Instructions and
stop transfer instructions to give effect to Section 2(g) hereof, will be given
by the Company to its transfer agent with respect to the Common Shares,
Redemption Shares and Post-Closing Adjustment Shares, and that the Common
Shares, Redemption Shares and Post-Closing Adjustment Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents.  If a Buyer
effects a sale, assignment or transfer of the Common Shares, Redemption Shares
and Post-Closing Adjustment Shares in accordance with Section 2(f), the Company
shall permit the transfer and shall promptly instruct its transfer agent to
issue one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as reasonably specified
by such Buyer to effect such sale, transfer or assignment.  In the event that
such sale, assignment or transfer involves Common Shares, Redemption Shares or
Post-Closing Adjustment Shares, sold, assigned or transferred pursuant to an
effective registration statement or pursuant to Rule 144, the transfer agent
shall issue such Securities to the Buyer, assignee or transferee, as the case
may be, without any restrictive legend.  The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to a
Buyer.  Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5(b) will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 5(b), that a Buyer shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
 
 
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6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
 
The obligation of the Company hereunder to issue and sell the Notes and the
related Common Shares to each Buyer at the Closing and at the Subsequent
Issuance Date is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:
 
(i) Such Buyer and each other Buyer shall have duly executed each of the
Transaction Documents to which it is a party and delivered the same to the
Company.
 
(ii) Such Buyer and each other Buyer shall have delivered to the Company the
Purchase Price (less, (i) an amount equal to the Repurchase Amount that shall be
delivered to the Escrow Agent on behalf of the Company in accordance with
Section 4(d) and (ii) in the case of Hale, any amounts withheld pursuant to
Section 4(g)) for the Notes and the related Common Shares being purchased by
such Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
 
 
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(iii) The representations and warranties of such Buyer and each other Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date which shall be true and correct
as of such specified date), and such Buyer and each other Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
 
(iv) Contemporaneously with the Closing, the Company shall consummate the
transactions contemplated by the Repurchase Agreement.
 
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
 
The obligation of each Buyer hereunder to purchase the Notes and the related
Common Shares at the Closing and at the Subsequent Issuance Date is subject to
the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion by providing the
Company with prior written notice thereof:
 
(i) The Company shall have duly executed and delivered to such Buyer (A) each of
the Transaction Documents, (B) the Notes (in such principal amounts as such
Buyer shall request) being purchased by such Buyer at the Closing pursuant to
this Agreement and (C) the related Common Shares (in such amounts as such Buyer
shall request) being purchased by such Buyer at the Closing pursuant to this
Agreement.
 
(ii) Such Buyer shall have received the opinion of Sheppard Mullin Richter &
Hampton LLP, the Company's outside counsel, dated as of the Closing Date, in
substantially the form of Exhibit I attached hereto.
 
(iii) The Company shall have delivered to such Buyer a copy of the Irrevocable
Transfer Agent Instructions, in the form of Exhibit J attached hereto, which
instructions shall have been delivered to and acknowledged in writing by the
Company's transfer agent.
 
(iv) The Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company and each of its Subsidiaries in such
entity's jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within ten (10) days of
the Closing Date.
 
(v) The Company shall have delivered to such Buyer a certificate evidencing the
Company's qualification as a foreign corporation and good standing issued by the
Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business, as of a date within ten (10) days of the Closing
Date.
 
(vi) The Company shall have delivered to such Buyer a certified copy of the
Certificate of Incorporation as certified by the Secretary of State of the State
of Delaware within ten (10) days of the Closing Date.
 
 
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(vii) The Company shall have delivered to such Buyer a certificate, executed by
the Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company's Board of
Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit J.
 
(viii) The representations and warranties of the Company (considered without
regard to any reference to materiality qualifiers such as "material," "in all
material respects," and "Material Adverse Effect" set forth therein) shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date which shall be true and correct as
of such specified date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.  Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto
as Exhibit K.
 
(ix) The Company shall have delivered to such Buyer a letter from the Company's
transfer agent certifying the number of shares of Common Stock outstanding as of
a date within five days of the Closing Date.
 
(x) The Common Stock (I) shall be designated for quotation or listed on the
Principal Market and (II) shall not have been suspended, as of the Closing Date,
by the SEC or the Principal Market from trading on the Principal Market nor
shall suspension by the SEC or the Principal Market have been threatened, as of
the Closing Date, either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements of the
Principal Market.
 
(xi) The Company shall have obtained all governmental, regulatory or third party
consents and approvals, if any, necessary for the sale of the Securities.
 
(xii) In accordance with the terms of the Security Documents, the Company shall
have delivered to the Collateral Agent (i) original stock certificates
representing all of the common stock of the Subsidiaries of each Grantor (as
defined in the Pledge and Security Agreement) and all intercompany promissory
notes of each Grantor, along with duly executed blank stock powers and other
proper instruments of transfer and (ii) appropriate financing statements on Form
UCC-1 to be duly filed in such office or offices as may be necessary or, in the
opinion of the Collateral Agent, desirable to perfect the security interests
purported to be created by each Security Document.
 
(xiii) In accordance with the terms of the Security Documents, the Company shall
have delivered or caused to be delivered to each Buyer (i) certified copies of
UCC search results, listing all effective financing statements which name as
debtor the Company or any of its Subsidiaries filed in the prior five years to
perfect an interest in any assets thereof, together with copies of such
financing statements, none of which, except as otherwise agreed in writing by
the Buyers, shall cover any of the Collateral (as defined in the Security
Documents) and the results of searches for any tax lien and judgment lien filed
against such Person or its property, which results, except as otherwise agreed
to in writing by the Buyers shall not show any such Liens (as defined in the
Security Documents) other than Permitted Liens (as defined in the Notes); and
(ii) a perfection certificate, duly completed and executed by the Company and
each of its Subsidiaries, in form and substance satisfactory to the Buyers.
 
 
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(xiv) The Company shall have delivered to each Buyer written evidence, in form
and substance satisfactory to such Buyer, that discloses the results of the
Company receiving no benefit from late-in-quarter discounting of license sales,
acceleration of yearly support and service contracts, site licenses, special
sales incentives, reserves or cost deferral or any similar time-shift in
financial performance.
 
(xv) The Company's Board of Directors shall have (i) acknowledged that the
existing senior management incentive plans may be modified by the Buyers in
their sole discretion so long as the total cash compensation opportunity for
2010 will not be changed for each participant, (ii) adopted a new employee
incentive plan for the Company in form and substance reasonably acceptable to
the Buyers (as amended or modified from time to time in accordance with its
terms the "New Incentive Plan"), (iii) subject to the stockholder approval set
forth in the first sentence of Section 4(m), reserved all necessary equity of
the Company as required by the New Incentive Plan (such amount, the "Incentive
Equity"), and (iv) subject to the stockholder approval set forth in the first
sentence of Section 4(m), shall have approved option grants for seventy percent
(70%) of the Incentive Equity to employees of the Company in amounts reasonably
satisfactory to the Buyers in accordance with the terms of the New Incentive
Plan pursuant to an award agreement in form and substance, including, without
limitation, with vesting rights, satisfactory to the Buyers, with each of such
actions in (ii), (iii) and (iv) to be effective on the Closing.
 
(xvi) The Company shall have delivered to Hale written evidence in the form
attached hereto as Exhibit L that the Company has entered into agreements (the
"Stock Award Agreements") with all employees entitled to accrued bonus
compensation, which accrued bonuses shall be in the aggregate not more than
$490,000, providing that effective upon the Closing, such unpaid bonus
compensation will be paid in accordance with the Stock Award Agreements.
 
(xvii) The Company shall have delivered to Hale written evidence that the Board
of Directors has caused Martin Hale, Jr. to be appointed to the Company's Board
of Directors.
 
(xviii) Contemporaneously with the Closing, the Company shall consummate the
transactions contemplated by the Repurchase Agreement.
 
(xix) The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.
 
8. TERMINATION.  In the event that the Closing shall not have occurred with
respect to a Buyer on or before five (5) Business Days from the date hereof due
to the Company's or such Buyer's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this Section
8, the Company shall remain obligated to reimburse the non-breaching Buyers for
the expenses described in Section 4(g) above.
 
 
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9. MISCELLANEOUS.
 
(a) Governing Law; Jurisdiction; Jury Trial.  All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.  EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
 
(b) Counterparts.  This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original.
 
(c) Headings.  The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
 
(d) Severability.  If any provision of this Agreement is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the
parties.  The parties will endeavor in good faith negotiations to replace the
prohibited, invalid or unenforceable provision(s) with a valid provision(s), the
effect of which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
 
 
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(e) Entire Agreement; Amendments.  This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters.  No provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and the
holders of at least a majority of the (i) then aggregate number of Registrable
Securities issued and issuable hereunder and that are then held by the Buyers
and (ii) the principal amount of the Notes then outstanding, and any amendment
to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities, as
applicable.  No such amendment shall be effective to the extent that it applies
to less than all of the holders of the applicable Securities then
outstanding.  No provision hereof may be waived other than by an instrument in
writing signed by the party against whom enforcement is sought.  No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents and holders of Notes.  The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.  Without limiting the foregoing, the
Company confirms that, except as set forth in this Agreement, no Buyer has made
any commitment or promise or has any other obligation to provide any financing
to the Company or otherwise.
 
(f) Notices.  Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered:  (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the
same.  The addresses and facsimile numbers for such communications shall be:
 
If to the Company:
 
Telanetix, Inc.
12301 SE 8th Street, Suite 200
Bellevue, Washington 98004
Telephone: (206) 381-2020
Facsimile:    (425) 646-9078
Attention:   Douglas N. Johnson

 
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With a copy (for informational purposes only) to:
 
Sheppard, Mullin, Richter & Hampton LLP
12275 El Camino Real, Suite 200
San Diego, California 92130
Telephone:  (858) 720-7469
Facsimile:  (858) 523-6705
Attention:  James A. Mercer, III
 
If to the Transfer Agent:
 
Empire Stock Transfer, Inc.
1859 Whitney Mesa Drive
Henderson, Nevada  89014
Telephone:  (702) 818-5898
Facsimile:  (702) 974-1444
Attention:  Patrick Mokros
 
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,
 
with a copy (for informational purposes only) to:
 
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York  10022
Telephone: (212) 756-2000
Facsimile:    (212) 593-5955
Attention:    Eleazer N. Klein, Esq.
 
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such
change.  Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.
 
(g) Successors and Assigns.  This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes.  The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes).  A Buyer
may assign some or all of its rights hereunder without the consent of the
Company, in which event such assignee shall be deemed to be a Buyer hereunder
with respect to such assigned rights.
 
 
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(h) No Third Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.
 
(i) Survival.  Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5
and 9 shall survive the Closing.  Each Buyer shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.
 
(j) Further Assurances.  Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
 
(k) Indemnification.  In consideration of each Buyer's execution and delivery of
the Transaction Documents and acquiring the Securities thereunder and in
addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents.  Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 9(k):  (i) shall not apply to amounts paid in
settlement of any Indemnified Liability if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed; and (ii) shall not apply to any Indemnified
Liabilities to the extent that such Indemnified Liability is solely the result
of a breach by a Buyer of any representation, warranty, covenant, agreement or
obligations of the Buyers made by the Buyers in the Transaction Documents.  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.  To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities that is permissible under
applicable law.  Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
 
 
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(l) No Strict Construction.  The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
 
(m) Remedies.  Each Buyer and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law.  Any Person having any rights under any provision of this Agreement shall
be entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.  Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers.  The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
 
(n) Rescission and Withdrawal Right.  Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then, until such time that the
Company has performed its related obligation in respect of such exercise, Buyer
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, such exercise in whole or in part without prejudice to
its future actions and rights.
 
(o) Payment Set Aside.  To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
 
(p) Independent Nature of Buyers' Obligations and Rights.  The obligations of
each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document.  Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and the Company acknowledges that the Buyers do not so
constitute, a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Buyers are in any way acting in concert
or as a group, and the Company will not assert any such claim with respect to
such obligations or the transactions contemplated by the Transaction Documents
and the Company acknowledges that the Buyers are not acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Documents.  The Company acknowledges and each Buyer confirms that it
has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors.  Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.
 
 
* * * * * *

 
[Signature Page Follows]
 
 
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IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
 

 
COMPANY:
TELANETIX, INC.
 
By:/s/ Douglas N. Johnson          
      Name: Douglas N. Johnson
      Title:  Chief Executive Officer
 

 
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IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
 

 
BUYERS:
 
EREF-TELA, LLC
 
 
By:/s/ Martin Hale Jr.                 
      Name: Marin Hale Jr.
      Title:   Chief Executive Officer

 

 
 
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IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
 

 
BUYERS:
 
HCP-TELA, LLC
 
 
By:/s/ Martin Hale Jr.             
      Name: Marin Hale Jr.
      Title:   Chief Executive Officer

 
 
 
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IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
 

 
BUYERS:
 
CBG-TELA, LLC
 
 
By:/s/ Martin Hale Jr.             
      Name: Marin Hale Jr.
      Title:   Chief Executive Officer

 
 
 
50

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SCHEDULE OF BUYERS
 
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
               
Buyer
 
Address and
Facsimile Number
 
Aggregate
Principal
Amount of
Notes
 
Number of
Common Shares
 
Number of Common Shares Issued at
Closing
 
Number of Common Shares Issued Post -Closing
 
Purchase Price
 
Legal Representative's Address and Facsimile Number
 
               
EREF-TELA, LLC
 
c/o Hale Capital Partners, L.P.
570 Lexington Avenue
49th Floor
New York, NY 10022
Attention: Martin Hale
Facsimile:  212-751-8822
Telephone: 212-751-8800
Residence: Delaware
 
$1,500,000
41,071,672
32,213,252
8,858,420
$1,500,000
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York  10022
Attention:  Eleazer Klein, Esq.
Facsimile: (212) 593-5955
Telephone:  (212) 756-2376
HCP-TELA, LLC
 
c/o Hale Capital Partners, L.P.
570 Lexington Avenue
49th Floor
New York, NY 10022
Attention: Martin Hale
Facsimile:  212-751-8822
Telephone: 212-751-8800
Residence: Delaware
 
$7,000,000
191,667,802
150,328,510
41,339,292
$7,000,000
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York  10022
Attention:  Eleazer Klein, Esq.
Facsimile: (212) 593-5955
Telephone:  (212) 756-2376
CBG-TELA, LLC
 
c/o Hale Capital Partners, L.P.
570 Lexington Avenue
49th Floor
New York, NY 10022
Attention: Martin Hale
Facsimile:  212-751-8822
Telephone: 212-751-8800
Residence: Delaware
$2,000,000
54,762,229
42,951,003
11,811,226
$2,000,000
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York  10022
Attention:  Eleazer Klein, Esq.
Facsimile: (212) 593-5955
Telephone:  (212) 756-2376

 
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EXHIBITS
 
 
Exhibit A
 Form of Notes
Exhibit B
 Form of Pledge and Security Agreement
Exhibit C
 Form of Registration Rights Agreement
Exhibit D
 Form of Guaranty
Exhibit E
 Contingent Share Issuance
Exhibit F
 Rights Offering Documents
Exhibit G
 Form of Landlord Waiver
Exhibit H
 Form of Irrevocable Transfer Agent Instructions
Exhibit I
 Form of Opinion of Company's Counsel
Exhibit J
 Form of Secretary's Certificate
Exhibit K
 Form of Officer's Certificate
Exhibit L
 Form of Stock Award Agreement

 

 
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