SECURITIES PURCHASE AGREEMENT
 
by and among
 
TWISTBOX ENTERTAINMENT, INC.,
 
THE SUBSIDIARY GUARANTORS,
 
AND
 
VALUEACT SMALLCAP MASTER FUND, L.P,
 
dated as of
 
July 30, 2007

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TABLE OF CONTENTS
                     
Page
   
ARTICLE I
DEFINITIONS
   
1.1
 
Definitions
 
1
             
ARTICLE II
PURCHASE AND SALE
   
2.1
 
Closing
 
4
             
ARTICLE III
REPRESENTATIONS AND WARRANTIES
   
3.1
 
Representations and Warranties of the Company
 
5
3.2
 
Representations and Warranties of the Investors
 
16
             
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
   
4.1
 
Transfer Restrictions
 
18
4.2
 
Use of Proceeds
 
20
             
ARTICLE V
REGISTRATION RIGHTS
   
5.1
 
Warrant Shares
 
20
             
ARTICLE VI
OBSERVER RIGHTS
   
6.1
 
Observer
 
20
6.2
 
Confidentiality
 
21
6.3
 
Termination of Certain Rights
 
22
             
ARTICLE VII
COVENANTS
   
7.1
 
Integration
 
22
7.2
 
Reservation of Securities
 
22
             
ARTICLE VIII
CONDITIONS
   
8.1
 
Conditions Precedent to the Investor’s Obligation to Purchase
 
22
8.2
 
Conditions Precedent to the Obligations of the Company
 
24

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ARTICLE IX
MISCELLANEOUS
       
9.1
Termination
25
9.2
Fees and Expenses
25
9.3
Entire Agreement
25
9.4
Notices
25
9.5
Amendments; Waivers
26
9.6
Construction
26
9.7
Successors and Assigns
26
9.8
Governing Law; Venue; Waiver of Jury Trial
26
9.9
Survival
27
9.10
Execution
27
9.11
Severability
27
9.12
Rescission and Withdrawal Right
27
9.13
Replacement of Securities
27
9.14
No Promotion
27

 
Exhibits
 
Exhibit A Schedule of Investors
 
Exhibit B Form of Senior Secured Note
 
Exhibit C Form of Warrant
 
Exhibit D Form of Guarantee and Security Agreement
 
Exhibit E List of Material Agreements
 
Exhibit F Schedule of Exceptions
 
Exhibit G Form of Opinion of Company Counsel
 
Exhibit H Form of Amended and Restated Investors’ Rights Agreement
 
Exhibit I Form of Shareholders Agreement Amendment

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SECURITIES PURCHASE AGREEMENT
 
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), is dated as of July 30,
2007, by and among Twistbox Entertainment, Inc., a Delaware corporation (the
“Company”), each of the Subsidiary Guarantors (as defined below) and ValueAct
SmallCap Master Fund, L.P. (the “Investor”).
 
WHEREAS:
 
A. The Company and the Investor are 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 “Securities Act”), and Rule
506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the Securities Act.
 
B. The Investor 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 (the “Senior Secured Notes”) in substantially the form attached
hereto as Exhibit B set forth opposite such Investor’s name in column two (2) on
the Schedule of Investors attached hereto as Exhibit A, and (ii) that aggregate
number of Warrants (the “Warrants”) in substantially the form attached hereto as
Exhibit C set forth opposite such Investor’s name in column four (4) on the
Schedule of Investors which will be exercisable to purchase shares of Common
Stock, par value $0.001 per share (the “Common Stock”), of the Company (as
exercised, collectively, the “Warrant Shares”).
 
C. Each of the Subsidiary Guarantors (as defined below) will guarantee (the
“Guarantee”) the Company’s obligations under the Senior Secured Notes on the
terms and subject to the conditions of the Guarantee and Security Agreement (as
defined below).
 
D. The Senior Secured Notes, Warrants and Warrant Shares are collectively
referred to herein as the “Securities.”
 
E. NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
 
ARTICLE I
DEFINITIONS
 
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement,
the following terms have the meanings indicated:
 
“Action” has the meaning set forth in Section 3.1(m).
 
“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144.
 
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“Amended and Restated Investors’ Rights Agreement” means the Amended and
Restated Investors’ Rights Agreement in substantially the form set forth as
Exhibit H hereto.
 
“Board” means the Board of Directors of the Company.
 
“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are required by law to remain closed.
 
“Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.
 
“Closing Date” means the date and time of the Closing and shall be 12:00 p.m.,
eastern standard time, on July 30, 2007 (or such other date and time as is
mutually agreed to by the Company and each Investor).
 
“Collateral” has the meaning assigned to such term in the Guarantee and Security
Agreement.
 
“Collateral Agent” has the meaning assigned to such term in the Guarantee and
Security Agreement.
 
“Company Counsel” means Proskauer Rose LLP, special counsel to the Company.
 
“Common Stock” has the meaning set forth in the Preamble.
 
“Environmental Laws” has the meaning set forth in Section 3.1(n).
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“Financial Statements” has the meaning set forth in Section 3.1(h).
 
“Foreign Securities Law” means the laws and regulations governing the sale of
securities of a jurisdiction outside the United States of America where the
capital stock of the Company may be listed or traded.
 
“Fundamental Transaction” shall be (i) a merger or consolidation of the Company
with or into another corporation in which the Company is not the surviving
entity unless the holders of the capital stock of the Company immediately prior
to such transaction are entitled to exercise, directly or indirectly, 50% (fifty
percent) or more of the voting power of all shares of capital stock entitled to
vote generally in the election of directors of the continuing or surviving
corporation, (ii) a reverse triangular merger in which the Company is the
surviving entity but the shares of the Company’s capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (iii) a sale
of transfer of all or substantially all of the Company’s properties and assets
to another person.
 
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“Guarantee and Security Agreement” by and among the Company, the Investor and
Subsidiary Guarantors party thereto in substantially in the form set forth as
Exhibit D hereto.
 
“Grantor” has the meaning assigned to such term in the Guarantee and Security
Agreement.
 
“Information” has the meaning set forth in Section 6.1(b).
 
“Lien” means any lien, charge, claim, encumbrance, right of first refusal or
other security interest.
 
“Major Content Provider” means each of the top five (5) content providers to the
Company ranked by dollar volume during the fiscal year ended March 31, 2007.
 
“Major Mobile Telephone Carrier” means each of the top five (5) mobile telephone
carriers of the Company’s content ranked by revenue during the fiscal year ended
March 31, 2007.
 
“Material Adverse Effect” has the meaning set forth in Section 3.1(a).
 
“Material Agreements” has the meaning set forth in Section 3.1(r).
 
“Material Permits” has the meaning set forth in Section 3.1(ff).
 
“Measuring Date” has the meaning set forth in Section 3.1(i).
 
“Observer” has the meaning set forth in Section 6.1(a).
 
“Person” means any individual or corporation, partnership, trust, incorporated
or unincorporated association, joint venture, limited liability company, or
joint stock company.
 
“Plan” has the meaning set forth in Section 3.1(f)(iii).
 
“Preferred Stock” means the Company’s preferred stock designated as “Series A
Preferred Stock” and “Series B Preferred Stock”.
 
“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened in writing.
 
“Proprietary Assets” has the meaning set forth in Section 3.1(k)(i).
 
“Purchase Price” has the meaning set forth in Section 2.1(b).
 
“Rule 144” means Rule 144 promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
 
“SEC” has the meaning set forth in the Preamble.
 
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“Securities” has the meaning set forth in the Preamble.
 
“Senior Secured Notes” has the meaning set forth in the Preamble.
 
“Shareholders Agreement” means the Second Amended and Restated Shareholders
Agreement, dated as of May 15, 2006, as amended, or otherwise modified from time
to time (including by the Shareholders Agreement Amendment).
 
“Shareholders Agreement Amendment” means the Amendment to the Shareholders
Agreement in substantially the form set forth as Exhibit I hereto.
 
“Shares” means shares of the Company’s Common Stock.
 
“Subsidiary” means any Person in which the Company, directly or indirectly, owns
capital stock or holds an equity or similar interest.
 
“Subsidiary Guarantor” means each Subsidiary of the Company that has guaranteed
the Senior Secured Notes pursuant to the Guarantee and Security Agreement.
 
“Trading Market” means any foreign or United States securities exchange, market
or trading or quotation facility on which the Common Stock is then listed or
quoted.
 
“Transactions” means the transactions contemplated by the Transaction Documents.
 
“Transaction Documents” means this Agreement, the schedules and exhibits
attached hereto, the Senior Secured Notes, the Warrants, the Amended and
Restated Investors’ Rights Agreement, the Shareholders’ Agreement Amendment and
the Guarantee and Security Agreement.
 
“Transfer” means any sale, transfer, assignment or other disposition, directly
or indirectly, and “Transferred” shall have the correlative meaning.
 
“VAC” has the meaning set forth in Section 6.2(a).
 
“VAC Entity” or “VAC Entities” has the meaning set forth in Section 6.2(a).
 
 “Violation” has the meaning set forth in Section 5.8(a).
 
“Warrant” has the meaning set forth in the Preamble.
 
“Warrant Shares” has the meaning set forth in the Preamble.

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ARTICLE II
PURCHASE AND SALE

2.1 Closing.
 
(a) Subject to the terms and conditions set forth in Sections 8.1 and 8.2
herein, at the Closing the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, such principal amount of Senior
Secured Notes and number of Warrants set forth opposite the Investor’s name on
Exhibit A hereto under the headings “Senior Secured Notes” and “Warrants”. The
Closing shall take place on the Closing Date at the offices of Company Counsel.
 
(b) At the Closing, the Investor shall deliver or cause to be delivered to the
Company the purchase price set forth opposite such Investor’s name on Exhibit A
hereto under the heading “Total Purchase Price” in United States dollars and in
immediately available funds (the “Purchase Price”), by wire transfer to an
account designated in writing to such Investor by the Company for such purpose;
provided, however, that an amount of the Purchase Price equal to the principal
amount together with accrued interest on the promissory note dated July 16, 2007
between the Company and the Investor in the principal amount of $250,000 (the
“Promissory Note”) may be paid by the Investor by delivering to the Company the
Promissory Note for cancellation by the Company.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES
 
3.1 Representations and Warranties of the Company. The Company hereby represents
and warrants to the Investor that, except as set forth in the Schedule of
Exceptions attached as Exhibit F to this Agreement, which exceptions shall be
deemed to be part of the representations and warranties made hereunder, the
following representations are true and complete as of the date hereof. The
Schedule of Exceptions shall be arranged in sections corresponding to the
numbered and lettered sections and subsections contained in this Section 3, and
the disclosures in any section or subsection of the Schedule of Exceptions shall
qualify other sections and subsections in this Section 3 if it is reasonably
apparent from a reading of the disclosure that such disclosure is applicable to
such other sections and subsections:
 
(a) Organization, Good Standing, Corporate Power and Qualification. Each of the
Company and the Subsidiary Guarantors has been duly incorporated and organized,
and is validly existing in good standing, under the laws of its state of
incorporation and qualified to do business in any state or other jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary except where the failure to be so qualified or in good
standing, as the case may be, would not reasonably be expected to individually
or in the aggregate, (i) materially and adversely affect the legality, validity
or enforceability of any Transaction Document, (ii) have or result in a material
adverse effect on the results of operations, assets, business, prospects or
financial condition of the Company and the Subsidiaries, taken as a whole on a
consolidated basis or (iii) materially and adversely impair the Company’s
ability to perform its obligations under any of the Transaction Documents (any
of (i), (ii) or (iii), a “Material Adverse Effect”). Each of the Company and the
Subsidiary Guarantors has the requisite corporate power and authority to enter
into, deliver, and perform the Transaction Documents, to sell and issue the
Securities (including the underlying Warrant Shares) hereunder, and to own and
operate their properties and assets and to carry on their business as currently
conducted and as presently proposed to be conducted. The Company has made
available to the Investor copies of its Articles of Incorporation, Bylaws and
its minute books. Said copies are true, correct and complete and reflect all
amendments now in effect, and with respect to the minute books, contain minutes
of all meetings and/or actions by written consent of directors and stockholders
since the time of incorporation.

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(b) Subsidiaries. The Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity other than the Subsidiaries scheduled on
Section 3.1(b) of the Schedule of Exceptions. The Company owns, directly or
indirectly, all of the capital stock or comparable equity interests of each
Subsidiary free and clear of any Lien and all the issued and outstanding shares
of capital stock or comparable equity interest of each Subsidiary are, to the
extent applicable, validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.
 
(c) Authorization; Enforcement. All corporate action on the part of the
Company’s and each of the Subsidiary Guarantor’s directors and stockholders
necessary, as applicable, for: (i) the authorization, execution, delivery of,
and the performance of all obligations of the Company and each Subsidiary
Guarantor under this Agreement and the other Transaction Documents to which it
is a party; (ii) the authorization, issuance, reservation for issuance, sale and
delivery of all of the Securities being sold under this Agreement and of the
Warrant Shares; and (iii) amending the Company’s bylaws, has been taken. This
Agreement, along with the other Transaction Documents, when executed and
delivered, will constitute valid and legally binding obligations of the Company
and each Subsidiary Guarantor, to the extent party thereto, enforceable against
the Company and each Subsidiary Guarantor, to the extent party thereto, in
accordance with their respective terms, except as may be limited by (i)
applicable bankruptcy, insolvency, reorganization or others laws of general
application relating to or affecting the enforcement of creditors’ rights
generally, (ii) applicable federal or state securities laws limits on
indemnification; and (iii) the effect of rules of law governing the availability
of equitable remedies.
 
(d) No Conflicts. The execution, delivery and performance of this Agreement and
the other Transaction Documents to which it is a party, and the consummation of
the Transactions contemplated hereby or thereby will not result in any violation
or default, or result in a violation or breach of, with or without the passage
of time or the giving of notice or both, the Company’s or any Subsidiary
Guarantor’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, any judgment, order or decree of any court
or arbitrator to which the Company or any Subsidiary Guarantor is a party or is
subject, any agreement or contract of the Company or any Subsidiary Guarantor,
or, to the Company’s knowledge, a violation of any statute, law, regulation or
order, or an event which results in the creation of any Lien upon any asset of
the Company or any Subsidiary Guarantor (other than the Lien granted to the
Investor pursuant to the Transaction Documents).
 
(e) Valid Issuance of Securities.
 
(i) The Senior Secured Notes have been duly and validly authorized by the
Company for issuance and sale to the Investor pursuant to this Agreement and,
when paid for and then issued, as provided in this Agreement, will have been
validly executed, issued and delivered by the Company in accordance with the
terms of this Agreement and the Senior Secured Note.

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(ii) The Guarantee and Security Agreement has been duly and validly authorized
by each Subsidiary Guarantor and, on the Closing Date, will have been validly
executed and delivered by each such Subsidiary Guarantor in accordance with the
terms of the Guarantee and Security Agreement.
 
(iii) The Warrants have been duly and validly authorized by the Company and,
when paid for and then issued, as provided in this Agreement, will have been
validly executed and delivered by the Company. The Warrant Shares have been duly
and validly authorized and reserved for issuance upon exercise of the Warrants
and when issued upon such exercise in accordance with the Warrant, will be duly
and validly issued and outstanding, fully paid and nonassessable.
 
(iv) Assuming the truth and accuracy of the representations made by the Investor
in Section 3.2 hereof, the offer and sale of the Securities solely to the
Investor in accordance with this Agreement and (assuming no change in currently
applicable law, no Transfer of Securities by any holder thereof and no
commission or other remuneration is paid or given, directly or indirectly, for
soliciting the issuance of Warrant Shares upon exercise of the Warrants) the
issuance of the Warrant Shares are exempt from the registration and prospectus
delivery requirements of the Securities Act and the securities registration and
qualification requirements of the currently effective provisions of the
securities laws of the State of California and the states in which the Investor
is a resident based upon its address set forth on the Schedule of Investors
attached hereto as Exhibit A.
 
(f) Capitalization. The-capitalization of the Company immediately prior to the
Closing consists of the following:
 
(i) Preferred Stock. A total of 5,204,255 authorized shares of preferred stock,
$0.01 par value per share, consisting of 2,500,000 shares designated as “Series
A Preferred Stock,” of which 825,075 shares will be issued and outstanding and
2,704,255 shares designated as “Series B Preferred Stock,” of which 2,704,254
will be issued and outstanding.
 
(ii) Common Stock. A total of 20,000,000 authorized shares of Common Stock, of
which 7,785,716 shares will be issued and outstanding.
 
(iii) Options, Warrants, Reserved Shares. Except for (i) any conversion
privileges of the Preferred Stock, (ii) the 3,700,000 shares of Common Stock
reserved for issuance under the Company’s 2006 Stock Incentive Plan (the “Plan”)
under which (y) options to purchase 2,223,689 shares will be outstanding, and
(z) 1,476,311 shares remain available for future issuance under the Plan, there
are no outstanding options, warrants, rights (including conversion or preemptive
rights) or agreement for the purchase or acquisition from the Company of any
shares of its capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of the Company’s capital stock. Apart
from the exceptions noted herein or in the Schedule of Exceptions, no shares of
the Company’s outstanding capital stock, or stock issuable upon exercise or
exchange of any outstanding options, warrants or rights, or other stock issuable
by the Company, are subject to any preemptive rights, rights of first refusal or
other rights to purchase such stock (whether in favor of the Company or any
other person), pursuant to any agreement or commitment of the Company. The
Company has not made any representations regarding equity incentives to any
officer, employee, director or consultant that are inconsistent with the share
amounts and terms set forth in the Board minutes and/or actions by written
consent of the Board.
 
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(iv) The outstanding shares of the capital stock of the Company (i) are duly
authorized and validly issued, fully paid and nonassessable, and have been
approved by all requisite stockholder action, and (ii) assuming the accuracy of
the representations and warranties and the compliance with the covenants made by
the original purchasers of such shares, were issued in compliance with all
applicable state and federal laws concerning the issuance of securities.
 
(v) All options granted vest as follows: twenty-five percent (25%) of the shares
vest one (1) year following the vesting commencement date, with the remaining
seventy-five percent (75%) vesting in equal quarterly installments over the next
three (3) years. No stock plan, stock purchase, stock option or other agreement
or understanding between the Company and any holder of any equity securities or
rights to purchase equity securities provides for acceleration or other changes
in the vesting provisions or other terms of such agreement or understanding as
the result of (i) termination of employment or consulting services (whether
actual or constructive); (ii) any merger, consolidated sale of stock or assets,
change in control or any other transaction(s) by the Company; or (iii) the
occurrence of any other event or combination of events.
 
(g) Consents. No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, (i) any federal, state
or local governmental authority having jurisdiction over the Company or any
Subsidiary Guarantor, or (ii) any other Person, is required on the part of the
Company or any Subsidiary Guarantor in order to enable the Company or the
Subsidiary Guarantors to execute, deliver and perform its obligations under this
Agreement and the other Transaction Documents to which it is a party except (A)
where the failure to obtain the same would not have a material and adverse
impact on the Company’s business, (B) for such qualifications or filings under
applicable securities laws as may be required in connection with the
Transactions contemplated by this Agreement and (C) for such board of director
and stockholder consents that have been obtained prior to Closing. All such
qualifications and filings will, in the case of qualifications, be effective on
the Closing and will, in the case of filings, be made within the time prescribed
by law.
 
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(h) Financial Statements. The Company has delivered to each Investor its
unaudited balance sheet and statements of operations and cash flows as of and
for the period ended March 31, 2007 (collectively the “Financial
Statements”). The Financial Statements are complete and correct in all material
respects and have been prepared substantially in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated, except as set forth in Section 3.1(h) of the Schedule of
Exceptions. The Financial Statements accurately set out and describe the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein.
 
(i) Certain Actions. Since March 31, 2007 (the “Measuring Date”), the Company
has not: (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(ii) incurred any indebtedness for money borrowed individually in excess of Ten
Thousand Dollars ($10,000) or in excess of Twenty Five Thousand Dollars
($25,000) in the aggregate; (iii) made any loans or advances to any person,
other than advances (e.g., travel expenses) made in the ordinary course of
business in excess of Ten Thousand Dollars ($10,000) in the aggregate; (iv)
sold, exchanged or otherwise disposed of any material assets or rights other
than the sale of inventory in the ordinary course of its business; or (v)
entered into any material transactions with any of its officers, directors or
employees or any entity controlled by any of such individuals.
 
(j) Activities Since Measuring Date. Since the Measuring Date, there has not
been:
 
(i) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the assets, properties, financial condition,
operating results, prospects or business of the Company (as presently conducted
and as presently proposed to be conducted), taken as a whole;
 
(ii) any waiver by the Company or any Subsidiary Guarantor of any material right
or of a material debt owed to it;
 
(iii) any change or amendment to a material contract or arrangement by which the
Company, any Subsidiary Guarantor or any of their assets or properties is bound
or subject, except for changes or amendments which are expressly provided for or
disclosed in this Agreement;
 
(iv) any satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company or any Subsidiary Guarantor, except in the
ordinary course of business and that is not material to the assets, properties,
financial condition, operating results or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
 
(v) any material change in any compensation arrangement or agreement with any
employee;
 
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(vi) any sale, assignment or Transfer of any material patents, trademarks,
copyrights, trade secrets or other material intangible assets;
 
(vii) any resignation or termination of employment of any key officer of the
Company; and the chief executive officer of the Company, to his knowledge, does
not know of the impending resignation or termination of employment of any such
officer;
 
(viii) any receipt of notice that there has been a loss of, or material order
cancellation by, any Major Mobile Telephone Carrier or Major Content Provider of
the Company;
 
(ix) any mortgage, pledge, Transfer of a security interest in, or lien, created
by the Company or any Subsidiary Guarantor, with respect to any of its material
intellectual property rights or any other material properties or assets, except
liens for taxes not yet due or payable;
 
(x) any loans or guarantees made by the Company to or for the benefit of its
employees, officers or directors, or any members of their immediate families,
other than travel advances and other advances made in the ordinary course of its
business;
 
(xi) any declaration, setting aside or payment or other distribution in respect
of any of the Company’s capital stock, or any direct; or indirect redemption,
purchase or other acquisition of any of such stock by the Company; or
 
(xii) any agreement or commitment by the Company or any Subsidiary Guarantor to
do any of the things described in this Section 3.1(j).
 
(k) Status of Proprietary Assets.
 
(i) Status. The Company and the Subsidiary Guarantors have full title and
ownership of, or are duly licensed under or otherwise authorized to use, all
inventions, patents, patent applications, trademarks, service marks, trade
names, trade secrets, information, proprietary rights, processes and copyrights
(all of the foregoing collectively hereinafter referred to as the “Proprietary
Assets”) necessary to enable it to carry on its business as now conducted and as
presently proposed to be conducted without any conflict with or, to its
knowledge, infringement upon the rights of others. Neither the Company nor the
Subsidiary Guarantors has received any written communications alleging that the
Company or the Subsidiary Guarantor has violated or, by conducting its business
as currently conducted, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade proprietary rights of any other person
or entity, nor is the Company or any Subsidiary Guarantor aware of any basis
therefore.

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(ii) Licenses; Other Agreements. Neither the Company nor any Subsidiary
Guarantor has granted any options, licenses or agreements of any kind relating
to any Proprietary Asset of the Company or any Subsidiary Guarantor, nor is the
Company or any Subsidiary Guarantor bound by or a party to any option, license
or agreement of any kind with respect to any of its respective Proprietary
Assets. Neither the Company nor the Subsidiary Guarantor is obligated to pay any
royalties or other payments to third parties with respect to the marketing,
sale, distribution, manufacture, license or use of any Proprietary Asset or any
other property or rights.
 
(iii) Employee Obligations. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with their duties to
the Company or that would conflict with the Company’s business as presently
proposed to the conducted.
 
(iv) Assignment of Inventions. Each current or former partner, director,
officer, employee or consultant of the Company who has, in each case, been
involved in the development or modification of any Proprietary Assets owned or
purported to be owned by the Company, has executed a written agreement expressly
assigning to the Company all right, title and interest in any inventions and
works of authorship and all intellectual property rights therein.
 
(1) Tax Matters. The Company and each Subsidiary (i) has timely prepared and
filed all material foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all material taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith, with
respect to which adequate reserves have been set aside on the books of the
Company 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, reports or declarations apply. To the Company’s knowledge, there are no
unpaid taxes in any material amount claimed to be past due by the taxing
authority of any jurisdiction, and the Company knows of no basis for such claim.
The Company has not waived or extended any statute of limitations at the request
of any taxing authority. There are no outstanding tax sharing agreements or
other such arrangements between the Company and any other corporation or entity
and the Company is not presently undergoing any audit by a taxing authority.
 
(m) Absence of Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation (“Action”) pending (or, to the Company’s knowledge,
currently threatened) against the Company or any Subsidiary Guarantor, its
respective activities or its respective properties before any court or
governmental agency. There is no action, suit, proceeding or investigation by
the Company or any Subsidiary Guarantor currently pending or which the Company
or any Subsidiary Guarantor intends to initiate.
 
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(n) Environmental Matters. The Company and each Subsidiary (i) is not in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), (ii) does not own or
operate any real property contaminated with any substance in violation of any
Environmental Laws, (iii) is not liable for any off-site disposal or
contamination pursuant to any Environmental Laws and (iv) is not subject to any
claim relating to any Environmental Laws; which violation, contamination,
liability or claim has affected or would reasonably be expected to affect,
individually or in the aggregate, materially and adversely the assets,
properties, financial condition, operating results or business of the Company;
and there is no pending or, to the Company’s knowledge, threatened investigation
that might lead to such a claim.
 
(o) Compliance. None of the Company or any Subsidiary Guarantor is in violation
of (i) any term of its certificate or articles of incorporation, bylaws or other
organizational or charter documents, (ii) any material term or provision of any
indebtedness, instrument, judgment or decree or Material Agreement and (iii) to
its knowledge, is not in violation of any order, statute, rule or regulation
applicable to the Company where such violation would have a Material Adverse
Effect.
 
(p) Title to Assets. The Company and the Subsidiary Guarantors own and have good
and marketable title to its respective tangible properties and assets, free and
clear of all mortgages, deeds of trust, liens, encumbrances and security
interests except for statutory liens for the payment of current taxes that are
not yet delinquent and liens, encumbrances and security interests which arise in
the ordinary course of business and which do not affect material properties and
assets of the Company. All facilities, machinery, equipment, fixtures, vehicles
and other properties owned, leased or used by the Company or the Subsidiary
Guarantors are in good operating condition and repair, ordinary wear and tear
excepted.
 
(q) Real Property. No condemnation, eminent domain, or similar proceeding
exists, is pending or, to the knowledge of the Company, is threatened with
respect to or that could affect any real property leased by the Company or any
of the Subsidiary Guarantors, which proceedings has affected or would reasonably
be expected to affect, individually or in the aggregate, materially and
adversely the assets, properties, financial condition, operating results or
business of the Company. No real property leased by the Company or any of the
Subsidiary Guarantors is subject to any sales contract, option, right of first
refusal or similar agreement or arrangement with any third party. The Company
owns no real property.
 
(r) Material Agreements and Obligations. All of the indentures, contracts and
agreements, with expected receipts or expenditures in excess of $25,000 or
involving a license or grant of material rights to or from the Company
involving, patents, copyrights, trademarks, or other proprietary information
applicable to the current business of the Company or relating to compensation
plans or arrangements with employees (other than with respect to such employees’
salaries or grants of options pursuant to the Company’s Plan), to which the
Company is a party and which are in effect as of the Closing are listed on
Exhibit E (the “Material Agreements”). The Material Agreements are valid,
binding, and in full force and effect in all material respects, subject to laws
of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and the Company has not received any written notice of
termination with respect to any such contract or agreement by any of the parties
to any such contract or agreement.
 
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(s) Material Liabilities. The Company has no material liabilities or
obligations, absolute or contingent (individually or in the aggregate), except
(i) the liabilities and obligations set forth in the Financial Statements, (ii)
liabilities and obligations which have been incurred subsequent to March 31,
2007 in the ordinary course of business which have not been, in the aggregate,
materially adverse to the assets, properties, financial condition, operating
results or business of the Company, (iii) liabilities and obligations under
leases for its principal offices and for equipment, and (iv) liabilities and
obligations under sales, procurement and other contracts and arrangements
entered into in the normal course of business.
 
(t) No General Solicitation; Brokers or Finders. Neither the Company, nor any of
its 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. Other than
as set forth on Section 3.1(t) of the Schedule of Exceptions, neither the
Company nor the Investor, as a result of any action taken by the Company, have
incurred or will incur, directly or indirectly, any liability for brokerage of
finders’ fees or agents’ commissions or any similar charges in connection with
this Agreement or the Transactions contemplated hereby.
 
(u) Private Placement. None of the Company, its Subsidiaries, any of their
Affiliates, or any Person acting on their behalf has, directly or indirectly, at
any time within the past six (6) months, made any offer or sale of any security
or solicitation of any offer to buy any security under circumstances that would
(i) eliminate the availability of the exemption from registration under
Regulation D under the Securities Act in connection with the offer and sale by
the Company of the Securities as contemplated hereby or (ii) cause the offering
of the Securities pursuant to the Transaction Documents to be integrated with
prior offerings by the Company for purposes of any applicable law, regulation or
stockholder approval provisions, including, without limitation, under the rules
and regulations of any Trading Market.
 
(v) Real Property Holding Corporation. The Company is not a real property
holding corporation within the meaning of Code Section 897(c)(2) and any
regulations promulgated thereunder.
 
(w) Off-Balance Sheet Arrangements. Neither the Company nor any of its
Subsidiaries is a party to, or has any commitment to become a party to, any
“off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of
the SEC).
 
(x) Registration Rights. Except as contemplated by the Transaction Documents and
the Registration Rights Agreement, dated May 16, 2006 by and among the Company
and certain holders of the Company’s Series A Preferred Stock, the Company is
not under any obligation to register under the Securities Act or Foreign
Securities Law any of its currently outstanding securities or any securities
issuable upon exercise or conversion of its currently outstanding securities nor
is the Company obligated to register or qualify any such securities under any
state securities or blue sky laws.
 
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(y) Disclosure. This Agreement, the Exhibits hereto, the other Transaction
Documents and any certificate expressly delivered by the Company or any
Subsidiary Guarantor to the Investor or their attorneys or agents in connection
herewith or therewith or with the Transactions contemplated hereby or thereby,
taken as a whole, neither contain any untrue statement of a material fact nor,
to the Company’s knowledge, omit to state a material fact necessary in order to
make the statements contained herein or therein not misleading except that, with
respect to the Company’s business plan or investment presentations and any
financial projections submitted to the Investor in connection with this
Agreement and the Transactions contemplated hereby, the Company represents and
warrants only that such business plan, investment presentations and financial
projections were prepared in good faith based on reasonable assumptions and are
not materially inconsistent with any internal Company plans, budgets or
forecasts.
 
(z) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses and location in which the
Company and the Subsidiaries are engaged, including directors’ and officers’
liability insurance. Neither the Company nor any Subsidiary has any knowledge
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 without a significant increase in cost.
 
(aa) ERISA. The Company does not have any Employee Pension Benefit Plan as
defined in Section 3 of the Employee Retirement Income Security Act of 1974, as
amended.
 
(bb) Labor Agreements and Actions; Employee Compensation. The Company is not
bound by or subject to any contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the best of the Company’s
knowledge, has sought to represent any of the employees of the Company. There is
no strike or other labor dispute involving the Company pending, or to the best
of the Company’s knowledge, threatened, that could have a Material Adverse
Effect, nor is the Company aware of any labor organization activity involving
its employees. Other than the Company’s Plan and any grants of options
thereunder, the Company is not a party to any employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, or other employee compensation agreement.
 
(cc) Employees. To the Company’s knowledge, no employee of the Company nor any
consultant with whom the Company has contracted, is in violation of any material
term of any employment contract, proprietary information agreement,
non-disclosure agreement or any other similar contract or agreement relating to
the relationship of such employee or consultant with the Company, any former
employer or any other party; and to the Company’s knowledge the continued
employment by the Company of its present employees, and the performance of the
Company’s contracts with its independent contractors, will not result in any
such violation. The Company has not received any written notice alleging that
any such violation has occurred. The Company does not have any collective
bargaining agreement covering any of its employees. The Company does not believe
it is or will be necessary to utilize any inventions of any of its employees
made prior to or outside the scope of their employment by the Company. No
employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of employment
with the Company. The chief executive officer of the Company is not aware that
any officer, key employee or group of employees intends to terminate his, her or
their employment with the Company, nor does the Company have a present intention
to terminate the employment of any officer, key employee or group of employees.
 
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(dd) Transactions With Affiliates and Employees. There are no obligations of the
Company to officers, directors, stockholders, or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company and (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the
Board). No officer, director, key employee or stockholder of the Company is
indebted to the Company (excluding advances to employees made in the ordinary
course of business not exceeding $10,000 in the aggregate). To the Company’s
knowledge, none of the officers, directors, key employees or stockholders of the
Company or any members of their immediate families, has any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, other than (i) passive investments
in publicly traded companies (representing less than 1 % of such company) which
may compete with the Company and (ii) investments by venture capital funds or
similar institutional investors with which directors of the Company may be
affiliated and serve as a board member of a company in connection therewith due
to a person’s affiliation with a venture capital fund or similar institutional
investor in such company. No officer, director or stockholder, or any member of
their immediate families, is, directly or indirectly, personally interested in
any material contract with the Company (other than such contracts as relate to
any such person’s (i) ownership of capital stock or other securities of the
Company, (ii) indemnification by the Company or (iii) salary and other
employment benefits provided by the Company to such person).
 
(ee) Questionable Payments. Neither the Company nor any Subsidiary, nor, to the
Company’s knowledge, directors, officers, employees, agents or other Persons
acting on behalf of the Company or any Subsidiary has, in the course of its
actions for, or on behalf of, the Company: (i) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to foreign or domestic political activity; (ii) made any direct or indirect
unlawful payments to any foreign or domestic governmental officials or employees
from corporate funds; (iii) violated in any respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended or (iv) made any other unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee which, in the aggregate of
clauses (i) through (iv) would materially and adversely affect the assets,
properties, financial condition, operating results or business of the Company.
 
(ff) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign  regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such permits does
not, individually or in the aggregate, materially and adversely affect the
assets, properties, financial condition, operating results, prospects or
business of the Company (“Material Permits”), and neither the Company nor any
Subsidiary has received any written notice of proceedings relating to the
revocation or modification of any Material Permit.
 
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(gg) Internal Accounting Controls. The Company and the Subsidiaries maintain 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 substantially in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
 
(hh) Investment Company. Neither the Company nor any of its Subsidiaries is (i)
an “investment company” as defined in, or subject to regulation under, the
Investment Company Act of 1940 or (ii) a “holding company” as defined in, or
subject to regulation under, the Public Utility Holding Company Act of 1935.
 
(ii) Margin Stock. Neither the Company nor any of the Subsidiaries is engaged
principally, or as one of their important activities, in the business of
extending credit for the purpose of buying or carrying Margin Stock (as such
term is defined in Regulation U). Immediately before and after giving effect to
the sale of the Senior Secured Note, Margin Stock will constitute less than 25%
of the Company’s assets as determined in accordance with Regulation U. No part
of the proceeds of the Senior Secured Note will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, to purchase,
acquire or carry any Margin Stock or for any purpose that entails a violation
of, or that is inconsistent with, the provisions of the regulations of the Board
of Governors of the Federal Reserve System of the United States of America,
including Regulation T, U or X.
 
(jj) Application of Takeover Protections. There is no control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s charter
documents or the laws of its state of incorporation that is or would become
applicable to any of the Investors as a result of the Investors and the Company
fulfilling their obligations or exercising their rights under the Transaction
Documents, including, without limitation, as a result of the Company’s issuance
of the Securities and the Investors’ ownership of the Securities.
 
3.2 Representations and Warranties of the Investors. The Investor hereby
represents and warrants to the Company as follows:
 
(a) Authorization. This Agreement constitutes the Investor’s valid and legally
binding obligation, enforceable against the Investor in accordance with its
terms except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors’ rights generally and (ii) the effect of rules of law
governing the availability of equitable remedies. The Investor represents that
it has full power and authority to enter into the Transaction Documents to which
it is a party.
 
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(b) Purchase for Own Account. The Securities to be purchased by the Investor
hereunder will be acquired for investment for the Investor’s own account, not as
a nominee or agent, and not with a view to the public resale or distribution
thereof with the meaning of the Securities Act, and the Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. If not an individual, the Investor also represents that the Investor
has not been formed for the specific purpose of acquiring Securities.
 
(c) Disclosure of Information. At no time was the Investor presented with or
solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Securities. To the knowledge of such
Investor, such Investor has received or has had full access to all the
information it requested in connection with its investment decision with respect
to the Securities to be purchased by such Investor under this Agreement. Such
Investor further has had an opportunity to discuss the Company’s business,
management and financial affairs with directors, officers and management of the
Company and has had the opportunity to review the Company’s operations and
facilities. Investor has also had the opportunity to ask questions of and
receive answers from, the Company and its management regarding the terms and
conditions of this investment.
 
(d) Investment Experience. The Investor understands that the purchase of the
Securities involves substantial risk. The Investor: (i) has experience as an
investor in securities of companies in the development stage and acknowledges
that the Investor is able to fend for itself, can bear the economic risk of the
Investor’s investment in the Securities and has such knowledge and experience in
financial or business matters that the Investor is capable of evaluating the
merits and risks of this investment in the Securities and protecting its own
interests in connection with this investment and/or (ii) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables such
Investor to be aware of the character, business acumen and financial
circumstances of such persons. The Investor represents that the office in which
its investment decision was made is located at the address on the Schedule of
Investors attached hereto as Exhibit A.
 
(e) Accredited Investor Status. The Investor is an “accredited investor” within
the meaning of Regulation D promulgated under the Securities Act.
 
(f) Restricted Securities. Such Investor understands that the Securities are
characterized as “restricted securities” under the Securities Act inasmuch as
they are being acquired from the Company in a transaction not involving a public
offering and that under the Securities Act and applicable regulations thereunder
such securities may be resold without registration under the Securities Act only
in certain limited circumstances as set forth in Article IV. In this connection,
such Investor represents that the Investor is familiar with Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act. The Investor understands that the Company is under no
obligation to register any of the Securities sold hereunder except as provided
herein. The Investor understands that no public market now exists for any of the
Securities and that it is uncertain whether a public market will ever exist for
the Securities.
 
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ARTICLE IV
 
OTHER AGREEMENTS OF THE PARTIES
 
4.1 Transfer Restrictions.
 
(a) The Investor covenants that the Securities will only be Transferred pursuant
to an effective registration statement under, and in compliance with the
requirements of, the Securities Act or Foreign Securities Law or, if so
requested by the Company, upon delivery to the Company of an opinion of counsel
reasonably satisfactory to the Company that such Transfer is being made pursuant
to an available exemption from the registration requirements of the Securities
Act or Foreign Securities Law, and in compliance with any applicable state
securities laws. The Investor may not Transfer any Securities to any person that
the Board, in its reasonable judgment, deems to be a direct competitor of the
Company or an affiliate thereof. In connection with any Transfer of Securities
other than pursuant to an effective registration statement or to the Company,
the Company may require the transferor to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
Transfer does not require registration under the Securities Act or Foreign
Securities Law. Notwithstanding anything contained herein to the contrary, any
transferee of any Securities shall, as a condition precedent to such Transfer,
agree in writing to be subject to the terms of the Transaction Documents to the
same extent as if the transferee were an original Investor hereunder.
 
(b) Such Investor understands that the instruments representing the Senior
Secured Notes and the Warrants and, when issued, the stock certificates
representing the Warrant Shares, until such time as the resale of the Secrities
have been registered and sold under the Securities Act and Foreign Securities
Law, 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):
 
[NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO
WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN] [THIS NOTE HAS NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES AND BLUE SKY LAWS. [THESE SECURITIES] [THIS NOTE] MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (1) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”) OR FOREIGN SECURITIES LAWS, OR (B) IF REASONABLY
REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR FOREIGN SECURITIES
LAWS AND (2) IF SUCH SALE, TRANSFER OR ASSIGNMENT VIOLATES APPLICABLE STATE
SECURITIES AND BLUE SKY LAWS. [THESE SECURITIES] ARE SUBJECT TO THE PROVISIONS
OF A CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS OF JULY 30, 2007, INCLUDING
CERTAIN RESTRICTIONS ON TRANSFER SET FORTH THEREIN, AND AN AMENDED AND RESTATED
INVESTORS’ RIGHTS AGREEMENT, DATED AS OF JULY 30, 2007. COMPLETE AND CORRECT
COPIES OF SUCH AGREEMENTS ARE AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE
OF THE COMPANY AND WILL BE FURNISHED TO ANY HOLDER OF [THESE SECURITIES] UPON
WRITTEN REQUEST WITHOUT CHARGE.
 
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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, if, unless otherwise required by state securities laws, (i) such
Securities have been registered and sold pursuant to an effective registration
statement under the Securities Act or Foreign Securities Law or (ii) in
connection with a sale, assignment or other Transfer, the Company reasonably
requests that such holder provide the Company with opinion of counsel reasonably
acceptable to the Company that the legend may be removed without registration
under the applicable requirements of the Securities Act or Foreign Securities
Law.
 
(c) Drag-Along. In the event that the Board and holders of a majority of the
outstanding shares of Common Stock issued or issuable upon conversion of the
shares of Series A Preferred Stock and Series B Preferred Stock approve (i) a
sale of all or substantially all of the assets of the Company to an unrelated
third party, (ii) a sale of more than 50% of the outstanding capital stock of
the Company (on an as-converted basis) to one or more unrelated third parties or
(iii) a merger or consolidation of the Company with an unrelated third party as
a result of which either (x) the Company does not survive or (y) such unrelated
third parties (or equity owners thereof) hold, directly or indirectly, at least
a majority of the Common Stock (on an as-converted basis), (such events, a “Sale
of the Company”), then each holder of Warrant Shares hereby agrees with respect
to all shares of capital stock of the Company (including Common Stock) that he,
she or it holds and any other Company securities over which he, she or it
otherwise exercises dispositive power:
 
(i) in the event such transaction requires the approval of stockholders, (a) if
the matter is to be brought to a vote at a stockholder meeting, after receiving
proper notice of any meeting of stockholders of the Company to vote on the
approval of a Sale of the Company, to be present, in person or by proxy, as a
holder of the Company’s capital stock, at all such meetings and be counted for
the purposes of determining the presence of a quorum at such meetings; and (b)
to vote (in person, by proxy or by action by written consent, as applicable) all
shares of the Company’s capital stock in favor of such Sale of the Company and
in opposition of any and all other proposals that could reasonably be expected
to delay or impair the ability of the Company to consummate such Sale of the
Company;
 
(ii) in the event that the Sale of the Company is to be effected by the sale of
shares of the Company’s capital stock held by the holders of the Company’s
Series B Preferred Stock (the “Selling Stockholders”) without the need for
stockholder approval, each holder of Warrant Shares agrees to sell all shares of
capital stock of the Company beneficially held thereby (or in the event that the
Selling Stockholders are selling fewer than all of their shares of Company’s
capital stock, shares in the same proportion as the Selling Stockholders are
selling) to the person to whom the Selling Stockholders propose to sell their
shares, for the same per-share consideration (on an as-converted basis) and on
the same terms and conditions as the Selling Stockholders, except that the
holders of Warrant Shares will not be required to sell their shares unless the
liability for indemnification of such holders of Warrant Shares in such Sale of
the Company is several, not joint, and is pro rata in accordance with such
holder’s respective relative stock ownership of the Company, and will not exceed
the consideration payable thereto, if any, in such transaction (except in the
case of potential liability for fraud or willful misconduct thereby);
 
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(iii) to refrain from exercising any dissenters’ rights or rights of appraisal
under applicable law at any time with respect to such Sale of the Company; and
 
(iv) to execute and deliver all related documentation and take such other action
in support of the Sale of the Company as shall reasonably be requested by the
Company.
 
If the drag-along provisions set forth in the Shareholders Agreement are amended
or modified, or are replaced with a similar provision applicable to the
shareholders of a successor to the Company in connection with a Fundamental
Transaction, then the provisions of Section 4.1(c) above shall be deemed to have
been similarly amended, modified or replaced, mutatis mutandis.
 
4.2 Use of Proceeds. The Company intends to use the net proceeds from the sale
of the Securities for working capital and general corporate purposes and not for
the (i) repayment of any of the Senior Secured Notes or (ii) redemption or
repurchase of any of its equity securities. Pending these uses, the Company
intends to invest the net proceeds from this offering in short-term,
interest-bearing, investment-grade securities, or as otherwise pursuant to the
Company’s customary investment policies.
 
ARTICLE V
REGISTRATION RIGHTS
 
5.1 Warrant Shares. The Warrant Shares have certain rights to registration as
set forth in the Amended and Restated Investors’ Rights Agreement, dated as of
July 30, 2007 and are subject to certain restrictions as set forth therein.
 
ARTICLE VI
OBSERVER RIGHTS
 
6.1 Observer.
 
(a) If ValueAct SmallCap Master Fund, L.P. (“VAC”) no longer has the right to
elect one director pursuant to the Shareholders Agreement, then, so long as VAC
owns at least $5,500,000 of the principal amount of the Senior Secured Notes or
at least 800,582 shares of Common Stock issued or issuable upon exercise of the
Warrants (as adjusted pursuant to the terms and conditions set forth therein),
then VAC shall be granted the right to appoint, and the Company will permit, one
representative appointed by VAC (the “Observer”) to attend all meetings of the
Board and all committees thereof (whether in person, telephonic or other) in a
non-voting, observer capacity and shall provide to the Observer, concurrently
with the members of the Board, and in the same manner, notice of such meeting
and a copy of all materials provided to such members. VAC may transfer its
rights to appoint the Observer to one transferee of the Warrants or Warrant
Shares in connection with a Transfer permitted by the terms of this Agreement,
provided, however, that such Transfer to such transferee shall include at least
$5,500,000 in principal amount of the Senior Secured Notes or 800,582 shares of
Common Stock (as adjusted pursuant to the terms and conditions set forth
therein) issued or issuable upon exercise of the Warrants. Notwithstanding
anything contained herein to the contrary, the Company may withhold portions of
information from the Observer and exclude the Observer from portions of any
meeting if, upon advice of the Company’s legal counsel, access to such
information or attendance at a portion of a meeting by the Observer would
adversely affect the attorney-client privilege between the Company and its legal
counsel. The Observer shall execute a customary confidentiality agreement
reasonably acceptable to the Company.
 
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(b) The Company acknowledges that the Investor will likely have, from time to
time, information that may be of interest to the Company
(“Information”) regarding a wide variety of matters including, by way of example
only, (i) current and future investments VAC has made, may make, may consider or
may become aware of with respect to other companies and other technologies,
products and services, including, without limitation, technologies, products and
services that may be competitive with the Company’s, and (ii) developments with
respect to the technologies, products and services, and plans and strategies
relating thereto, of other companies, including, without limitation, companies
that may be competitive with the Company. The Company recognizes that a portion
of such Information may be of interest to the Company. Such Information may or
may not be known by the Observer. The Company, as a material part of the
consideration for this Agreement, agrees that VAC and its Observer shall have no
duty to disclose any Information to the Company or permit the Company to
participate in any projects or investments based on any Information, or to
otherwise take advantage of any opportunity that may be of interest to the
Company if it were aware of such Information, and hereby waives, to the extent
permitted by law, any claim based on the corporate opportunity doctrine or
otherwise that could limit VAC’s ability to pursue opportunities based on such
Information or that would require VAC or Observer to disclose any such
Information to the Company or offer any opportunity relating thereto to the
Company.
 
6.2 Confidentiality. The Investor agrees to hold all information received
pursuant to this Article VI, or otherwise in connection with its rights under
the Transaction Documents, in confidence, and not to use or disclose any of such
information to any third party, except to the extent such information was made
publicly available by the Company; provided, however, that the Investor may
disclose such information (i) as may be required by law, (ii) to its attorneys,
accountants, consultants, and other professionals to the extent necessary to
obtain their bona fide services in connection with monitoring its investment in
the Company, (iii) to any potential purchaser of the Securities so long as such
purchaser is advised of the confidentiality provisions of this Section 6.2 and
is bound by confidentiality obligations at least as restrictive as this Section
6.2 and (iv) to any partner or affiliate of the Investor so long as such partner
or affiliate is advised of the confidentiality provisions of this Section 6.2
and is bound by confidentiality obligations at least as restrictive as this
Section 6.2.
 
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6.3 Termination of Certain Rights. The Company’s obligations under Sections 6.1
above will terminate (a) upon the closing of the first sale of the Company’s
Common Stock to the general public pursuant to an effective registration
statement filed under the Securities Act or Foreign Securities Law in which the
gross proceeds of the Company (without reduction for underwriter’s discounts and
commissions or expenses of the sale), equals or exceeds $25,000,000; (b) upon a
Fundamental Transaction; or (c) at such time as VAC or any permitted transferee
of the rights under Section 6.1, as the case may be, no longer own, beneficially
or of record, at least (i) $5,500,000 in principal amount of the Senior Secured
Notes or (ii) 800,582 of shares of Common Stock issued or issuable upon exercise
of the Warrants as adjusted pursuant to the terms and conditions set forth
therein.
 
ARTICLE VII
COVENANTS
 
7.1 Integration. The Company shall not, and shall use its best efforts to ensure
that no Affiliate thereof shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Investor or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.
 
7.2 Reservation of Securities. The Company shall maintain a reserve from its
duly authorized shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations in full
under the Transaction Documents. In the event that at any time the then
authorized shares of Common Stock are insufficient for the Company to satisfy
its obligations in full under the Transaction Documents, the Company shall
promptly take such actions as may be required to increase the number of
authorized shares.
 
ARTICLE VIII
CONDITIONS
 
8.1 Conditions Precedent to the Investor’s Obligation to Purchase. The
obligation of the Investor to purchase the Securities at the Closing is subject
to the satisfaction or waiver by the Investor, at or before the Closing, of each
of the following conditions:
 
(a) The Company shall have duly executed and delivered to each Investor:
 
(i) one or more Senior Secured Notes with an aggregate principal amount as is
set forth opposite the Investor’s name in column two (2) on the Schedule of
Investors;
 
(ii) that number of Warrants as is set forth opposite the Investor’s name in
column three (3) on the Schedule of Investors;
 
(iii) copies of the Amended and Restated Investors’ Rights Agreement and the
Shareholders Agreement Amendment fully executed by all parties thereto (other
than the Investor);
 
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(iv) the Guarantee and Security Agreement signed on behalf of the Company, and
each Subsidiary Guarantor party thereto, together with the following:
 
(1) any certificated securities representing shares of capital stock or other
similar interests owned by or on behalf of any Grantor (as defined in the
Guarantee and Security Agreement) constituting Collateral (as defined in the
Guarantee and Security Agreement) as of the Closing Date after giving effect to
the Transactions;
 
(2) any promissory notes and other instruments evidencing all loans, advances
and other debt owed or owing to any Grantor constituting Collateral as of the
Closing Date after giving effect to the Transactions;
 
(3) stock powers and instruments of transfer, endorsed in blank, with respect to
such certificated securities, promissory notes and other instruments;
 
(4) descriptions of all intellectual property, including all patents, trademarks
and copyrights, owned by the Company and its Subsidiaries in detail reasonably
satisfactory to the Investor;
 
(5) the Control Agreements executed by the relevant Grantors and the Collateral
Agent and acknowledged and agreed to by the relevant Control Account Bank
pursuant to the Guarantee and Security Agreement (“Control Agreement”,
“Collateral Agent” and “Control Account Bank” shall have the meanings set forth
in the Guarantee and Security Agreement);
 
(6) all instruments and other documents, including UCC financing statements,
required by law or reasonably requested by the Collateral Agent to be filed,
registered or recorded to create or perfect the Liens intended to be created
under the Guarantee and Security Agreement; and
 
(7) results of a search of the UCC (or equivalent) filings made and tax and
judgment lien searches with respect to the Grantors in the jurisdictions
contemplated by the Guarantee and Security Agreement and copies of the financing
statements (or similar documents) disclosed by such search and evidence
reasonably satisfactory to the Collateral Agent that the Liens indicated by such
financing statements (or similar documents) are acceptable to the Collateral
Agent or have been released.
 
(b) Such Investor shall have received the opinion of Company Counsel, dated as
of the Closing Date, in substantially the form of Exhibit G attached hereto.
 
(c) The Company shall have delivered a certificate, executed on behalf of the
Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board approving the Transactions contemplated by the
Transaction Documents and the issuance of the Securities, certifying the current
versions of the Certificate of Incorporation and Bylaws of the Company and
certifying as to the signatures and authority of persons signing this Agreement
and related documents on behalf of the Company.

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(d) The representations and warranties of the Company shall be true and correct
in all material respects (except for those representations and warranties that
are qualified by materiality or Material Adverse Effect, which shall be true and
correct in all 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) 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. The Investor shall have
received a certificate, executed on behalf of the Company 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 the Investor.
 
(e) The Company shall have obtained all governmental, regulatory or third party
consents and approvals, if any, necessary for the sale of the Securities, except
for those consents and approvals set forth in Sections 3.1(d) and 3.1(g) to the
Schedule of Exceptions.
 
(f) The Investors shall have received all fees and other amounts due and payable
on or prior to the Closing Date pursuant to Section 9.2 hereof.
 
(g) The Company shall have delivered to such Investor such other documents
relating to the Transactions contemplated by this Agreement as such Investor or
its counsel may reasonably request.
 
8.2 Conditions Precedent to the Obligations of the Company. The Company’s
obligation to sell and issue the Securities at the Closing is, at the option of
the Company, subject to the fulfillment or waiver of the following conditions:
 
(a) Receipt of Payment. The Investor shall have delivered payment of the
Purchase Price to the Company for the Securities.
 
(b) Representations and Warranties. The representations and warranties of the
Investor shall be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or Material
Adverse Effect, which shall be true and correct in all 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 date) and the Investor 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 Investor at or prior to the Closing Date.

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(c) Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed, satisfied or complied with by the Investor on or
prior to the Closing Date shall have been performed, satisfied or complied with
in all material respects.
 
(d) Transaction Documents. The Company shall have received copies of all
Transaction Documents fully executed by all parties thereto (other than the
Company and its Subsidiaries).
 
ARTICLE IX
MISCELLANEOUS
 
9.1 Termination. This Agreement may be terminated by the Company or the
Investor, by written notice to the other parties, if the Closing has not been
consummated by the third Business Day following the date of this Agreement;
provided that no such termination will affect the right of any party to sue for
any breach by the other party (or parties).
 
9.2 Fees and Expenses. The Company shall reimburse the Investor for all of its
reasonable costs and expenses incurred in connection with the Transactions
contemplated by this Agreement, including, but not limited to, fees of outside
counsel (in an amount not to exceed $150,000) and other out-of-pocket expenses.
The Company shall pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the initial sale and issuance of the applicable
Securities (other than the Warrant Shares) to the Investor.
 
9.3 Entire Agreement. The Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company and the
Investor will execute and deliver such further documents as may be reasonably
requested in order to give effect to the intention of the parties under the
Transaction Documents.
 
9.4 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Business
Day, (b) the next Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Business Day or later than 6:30 p.m. (New
York City time) on any Business Day, (c) the Business Day following the date of
deposit with a nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given. The
addresses and facsimile numbers for such notices and communications are those
set forth on the signature pages hereof, or such other address or facsimile
number as may be designated in writing hereafter, in the same manner, by any
such Person.
 
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9.5 Amendments; Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the Investor(s) holding a majority in interest on an
as converted basis of the Warrant Shares. Subject to the preceding sentence, any
amendment or waiver effected in accordance with this Section shall be binding
upon all parties to this Agreement, including, without limitation, any Investor
who may not have executed such amendment or waiver.
 
9.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.
 
9.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign its
rights under this Agreement to any Person to whom such Investor assigns or
Transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the Transferred Securities, by the provisions hereof that
apply to the “Investors.”
 
9.8 Governing Law; Venue; Waiver of Jury Trial. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF
THE NEW YORK GENERAL OBLIGATIONS LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES
327(b). 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
(INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS),
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 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
VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF
DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR 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.
THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
 
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9.9 Survival. The representations and warranties, agreements and covenants
contained herein shall survive the Closing.
 
9.10 Execution. This Agreement may be executed in two or more counterparts, all
of which when taken together 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, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
 
9.11 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
 
9.12 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever the Investor exercises a right, election, demand or option
owed to the Investor by the Company under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then, prior to the performance by the Company of the Company’s related
obligation, such Investor may rescind or withdraw, in its sole discretion from
time to time upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and rights.
 
9.13 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and the execution by the holder
thereof of a customary lost certificate affidavit of that fact and an agreement
to indemnify and hold harmless the Company for any losses in connection
therewith. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities.
 
9.14 No Promotion. Except as otherwise required by law and as provided in
Section 4.5 herein, the Company agrees that it will not, without the prior
written consent of VAC in each instance, (i) use in advertising, publicity,
press release or otherwise the name of any VAC Entity, or any partner or
employee of any VAC Entity, nor any trade name, trademark, trade device, service
mark, symbol or any abbreviation, contraction or simulation thereof owned by any
VAC Entity or (ii) represent, directly or indirectly, that any product or any
service provided by the Company has been approved or endorsed by any VAC Entity.
This provision shall survive termination of the Transaction Documents.
 
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[SIGNATURE PAGES TO FOLLOW]
 
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 

   
TWISTBOX ENTERTAINMENT, INC.
   
By:
 
/s/ Ian Aaron
   
Name: 
IAN AARON
   
Title:
PRES./CEO

 

   
WAAT MEDIA CORP.
   
By:
 
/s/ Ian Aaron
   
Name: 
IAN AARON
   
Title:
PRES./CEO

 

   
TWISTBOX GAMES LTD. & CO. KG
   
By:
 
/s/ Ian Aaron
   
Name: 
IAN AARON
   
Title:
PRES./CEO

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Investor Signature Page
 
By its execution and delivery of this signature page, the undersigned Investor
hereby joins in and agrees to be bound by the terms and conditions of the
Securities Purchase Agreement dated as of July 30, 2007 (the “Purchase
Agreement”) by and among Twistbox Entertainment, Inc., the Subsidiary Guarantors
(as defined therein) and the Investor (as defined therein) and authorizes this
signature page to be attached to the Purchase Agreement or counterparts thereof.
 

   
VALUEACT SMALLCAP MASTER FUND, L.P.
   
By its General Partner, VA SmallCap Partners, LLC
         
By:
/s/ David Lockwood
   
Name: 
DAVID LOCKWOOD
   
Title:
MANAGING MEMBER

 

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