Exhibit 10.1

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

$1,500,000

 

November 2, 2004

 

FOR VALUE RECEIVED, the undersigned, Hyperfeed Technologies, Inc., a Delaware
corporation (“Borrower”), hereby promises to pay to PICO Holdings, Inc., a
California corporation (“Lender”), the principal sum or so much of the principal
sum of One Million Five Hundred Thousand Dollars ($1,500,000) as may from time
to time have been advanced and be outstanding, together with accrued interest as
provided herein.  Section M of this Secured Convertible Promissory Note (herein
after the “Note”) contains certain defined terms used in this Note.

 

A.                                   PRINCIPAL.

 

1.                                       ADVANCES.  BORROWER MAY FROM TIME TO
TIME REQUEST ADVANCES FROM LENDER (INDIVIDUALLY AN “ADVANCE” AND COLLECTIVELY
THE “ADVANCES”) BY GIVING WRITTEN NOTICE TO LENDER IN ACCORDANCE WITH THE TERMS
HEREOF, WHICH NOTICE SHALL INDICATE THE AMOUNT OF THE ADVANCE REQUESTED AND THE
PROPOSED USE OF THE ADVANCE PROCEEDS.  PROVIDED THAT NO EVENT OF DEFAULT IS IN
EXISTENCE AND THAT THE REQUESTED ADVANCE WOULD NOT CAUSE AN EVENT OF DEFAULT TO
OCCUR, LENDER SHALL MAKE THE ADVANCE TO BORROWER WITHIN FIVE (5) DAYS OF RECEIPT
OF BORROWER’S NOTICE.  LENDER SHALL NOT BE OBLIGATED TO MAKE AN ADVANCE TO THE
EXTENT THAT SUCH ADVANCE WHEN AGGREGATED WITH ALL ADVANCES WOULD EXCEED ONE
MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) IN THE AGGREGATE.  BORROWER
SHALL NOT HAVE THE RIGHT TO RE-BORROW ANY ADVANCE TO THE EXTENT THAT IT HAS BEEN
REPAID.

 

2.                                       USE OF PROCEEDS.  THE PROCEEDS OF
ADVANCES SHALL BE USED EXCLUSIVELY FOR WORKING CAPITAL AND OPERATING EXPENSES OF
THE BORROWER, AND MAY NOT BE USED FOR PAYMENT OF THE SENIOR INDEBTEDNESS (AS
DEFINED BELOW).

 

B.                                     INTEREST.  INTEREST ON THE UNPAID
PRINCIPAL BALANCE OF THIS NOTE SHALL ACCRUE AT THE RATE OF EIGHT PERCENT (8%)
PER ANNUM COMPOUNDED MONTHLY COMMENCING ON THE DATE LENDER FIRST MAKES AN
ADVANCE TO BORROWER, AND SHALL BE PAYABLE IN A SINGLE INSTALLMENT AT MATURITY AS
SET FORTH BELOW.

 

C.                                     PAYMENT.

 

1.                                       SCHEDULED PAYMENT.  SUBJECT TO THE
PROVISIONS OF SECTION C.4. BELOW, THE ENTIRE UNPAID BALANCE OF PRINCIPAL
(SUBJECT TO CONVERSION OF SUCH PRINCIPAL AS PROVIDED BELOW) AND ALL ACCRUED AND
UNPAID INTEREST SHALL BE DUE AND PAYABLE ON THE DAY PRIOR TO THE FIRST
ANNIVERSARY OF THE DATE HEREOF (THE “MATURITY DATE”). PAYMENT OF PRINCIPAL AND
INTEREST HEREUNDER SHALL BE MADE BY CHECK DELIVERED TO THE LENDER AT THE ADDRESS
FURNISHED TO THE BORROWER FOR THAT PURPOSE.

 

2.                                       PREPAYMENT.  SUBJECT TO THE PROVISIONS
OF SECTION C.4. BELOW, BORROWER SHALL HAVE THE RIGHT AT ANY TIME AND FROM TIME
TO TIME TO PREPAY, IN WHOLE OR IN PART, THE PRINCIPAL OF THIS NOTE, WITHOUT
PAYMENT OF ANY PREMIUM OR PENALTY.  ANY PRINCIPAL PREPAYMENT SHALL BE

 

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accompanied by a payment of all interest accrued on the amount prepaid through
the date of such prepayment.

 

3.                                       FORM OF PAYMENT.  PRINCIPAL AND
INTEREST AND ALL OTHER AMOUNTS DUE HEREUNDER ARE TO BE PAID IN LAWFUL MONEY OF
THE UNITED STATES OF AMERICA IN FEDERAL OR OTHER IMMEDIATELY AVAILABLE FUNDS.

 

4.                                       NOTICE PRIOR TO REPAYMENT.  BORROWER
SHALL PROVIDE LENDER WITH TEN (10) BUSINESS DAYS PRIOR WRITTEN NOTICE OF ITS
INTENTION TO MAKE REPAYMENT OF THIS NOTE, WHETHER BEFORE OR AFTER THE MATURITY
DATE, SO THAT LENDER MAY ELECT, IN ITS SOLE DISCRETION, TO EXERCISE ITS
CONVERSION RIGHTS (AS DEFINED HEREIN).

 

D.                                    CONDITIONS OF ADVANCES.

 

1.                                       CONDITIONS PRECEDENT TO INITIAL
ADVANCE.  THE OBLIGATION OF LENDER TO MAKE THE INITIAL ADVANCE IS SUBJECT TO THE
CONDITION PRECEDENT THAT LENDER SHALL HAVE RECEIVED, IN FORM AND SUBSTANCE
SATISFACTORY TO LENDER, THE FOLLOWING:

 

(A)                                  THIS NOTE;

 

(B)                                 A CERTIFICATE OF THE SECRETARY OF BORROWER
WITH RESPECT TO INCUMBENCY AND RESOLUTIONS AUTHORIZING THE EXECUTION AND
DELIVERY OF THIS NOTE;

 

(C)                                  UCC NATIONAL FORM FINANCING STATEMENT;

 

(D)                                 PAYMENT OF THE FEES AND LENDER EXPENSES IN
THE AMOUNT OF $9659.00;

 

(E)                                  TO PROVIDE EVIDENCE OF INSURANCE WHICH
SATISFIES THE REQUIREMENTS OF SECTION 7 HEREOF; AND

 

(F)                                    A STOCK CERTIFICATE REPRESENTING THE
NUMBER OF SHARES OF COMMON STOCK OF THE BORROWER EQUAL TO: (1) $75,000;  DIVIDED
BY (2) THE PRICE PER SHARE OF THE COMMON STOCK OF THE BORROWER ON THE DATE OF
THIS NOTE (SUCH SHARES THE “COMMITMENT SHARES”) .

 

(G)                                 SUCH OTHER DOCUMENTS, AND COMPLETION OF SUCH
OTHER MATTERS, AS LENDER MAY REASONABLY DEEM NECESSARY OR APPROPRIATE.

 

2.                                       CONDITIONS PRECEDENT TO ALL ADVANCES. 
THE OBLIGATION OF LENDER TO MAKE ANY ADVANCE, IS FURTHER SUBJECT TO THE
FOLLOWING CONDITIONS:

 

(A)                                  THE REPRESENTATIONS AND WARRANTIES
CONTAINED HEREIN SHALL BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS ON AND AS OF
THE DATE OF SUCH REQUEST FOR ADVANCE AND ON THE EFFECTIVE DATE OF EACH ADVANCE
AS THOUGH MADE AT AND AS OF EACH SUCH DATE, AND NO EVENT OF DEFAULT SHALL HAVE
OCCURRED AND BE CONTINUING, OR WOULD EXIST AFTER GIVING EFFECT TO SUCH ADVANCE
(PROVIDED, HOWEVER, THAT THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY
REFERRING TO ANOTHER DATE SHALL BE TRUE, CORRECT AND COMPLETE IN ALL MATERIAL
RESPECTS AS OF SUCH DATE).  THE MAKING OF EACH

 

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Advance shall be deemed to be a representation and warranty by Borrower on the
date of such Advance as to the material accuracy of the facts referred to in
this Section.

 

(B)                                 BORROWER HAS BORROWED THE MAXIMUM AMOUNT
PERMISSIBLE UNDER THE SENIOR LOAN DOCUMENTS (AS DEFINED BELOW), AS AMENDED, SUCH
AMOUNT HAS BEEN OUTSTANDING FOR AT LEAST FORTY FIVE (45) DAYS AND BORROWER HAS
PROVIDED EVIDENCE OF THE FOREGOING REASONABLY SATISFACTORY TO LENDER.  LENDER
MAY WAIVE THE REQUIREMENTS OF THIS SECTION D.2.(B) BY PROVIDING WRITING OF SUCH
WAIVER TO BORROWER.

 

(C)                                BORROWER’S TANGIBLE NET WORTH, AS DETERMINED
IN ACCORDANCE WITH U.S. GENERAL ACCEPTED ACCOUNTING PRINCIPALS, AT THE END OF
THE CALENDAR MONTH PRIOR SUCH ADVANCE, IS AT LEAST $3,000,000.

 

(D)                                 BORROWER’S RATIO OF EBITDA (EARNINGS BEFORE
INTEREST, TAXES, DEPRECIATION AND AMORTIZATION) TO DEBT SERVICE AT THE END OF
THE CALENDAR MONTH PRIOR TO SUCH ADVANCE IS AT LEAST 3.00 TO 1.00.

 

Notwithstanding the foregoing, Lender may waive the requirements of Section
D.2.(c) and Section D.2.(d) by providing writing of such waiver to Borrower.

 

E.                                      SECURITY INTEREST.

 

1.                                       GRANT OF SECURITY INTEREST.  BORROWER
GRANTS AND PLEDGES TO LENDER A CONTINUING SECURITY INTEREST IN ALL PRESENTLY
EXISTING AND HEREAFTER ACQUIRED OR ARISING COLLATERAL IN ORDER TO SECURE PROMPT
REPAYMENT OF ANY AND ALL SECURED OBLIGATIONS AND IN ORDER TO SECURE PROMPT
PERFORMANCE BY BORROWER OF EACH OF ITS COVENANTS AND DUTIES UNDER THE LOAN
DOCUMENTS. SUCH SECURITY INTEREST CONSTITUTES A VALID, PERFECTED SECURITY
INTEREST IN THE PRESENTLY EXISTING COLLATERAL, AND WILL CONSTITUTE A VALID,
PERFECTED SECURITY INTEREST IN COLLATERAL ACQUIRED AFTER THE DATE HEREOF IN EACH
CASE, SUBJECT TO ANY LIEN PERMITTED HEREUNDER AND PERMITTED LIENS.

 

F.                                      SUBORDINATION.  EXCEPT AS PROVIDED IN
THE IMMEDIATELY FOLLOWING SENTENCE, FOR SO LONG AS NO EVENT OF DEFAULT ON THE
SENIOR INDEBTEDNESS (AS DEFINED BELOW) HAS OCCURRED AND IS CONTINUING, BORROWER
SHALL MAKE NO PAYMENT OF PRINCIPAL ON ACCOUNT OF THE SENIOR INDEBTEDNESS UNTIL
PRIOR PAYMENT IN FULL OF THE SECURED OBLIGATIONS.  NOTWITHSTANDING THE PRECEDING
SENTENCE, IF FOR ANY PERIOD THE BORROWER DOES NOT MAINTAIN (1) TANGIBLE NET
WORTH, AS DETERMINED IN ACCORDANCE WITH U.S. GENERAL ACCEPTED ACCOUNTING
PRINCIPALS (AS DETERMINED AS THE END OF EACH CALENDAR MONTH) OF AT LEAST
$3,000,000 AND (2) A RATIO OF EBITDA (EARNINGS BEFORE INTEREST, TAXES,
DEPRECIATION AND AMORTIZATION) TO DEBT SERVICE (AS DETERMINED AT THE END OF EACH
CALENDAR MONTH) OF AT LEAST 3.00 TO 1.00, BORROWER SHALL NOT BE PROHIBITED
HEREUNDER FROM MAKING  PAYMENTS OF PRINCIPAL ON ACCOUNT OF THE SENIOR
INDEBTEDNESS PRIOR TO PAYMENT IN FULL OF THE SECURED OBLIGATIONS DURING SUCH
PERIOD.  AFTER, AND DURING THE CONTINUANCE OF, AN EVENT OF DEFAULT ON THE SENIOR
INDEBTEDNESS, THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS EXPRESSLY SUBORDINATE
AND SUBJECT IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL SENIOR
INDEBTEDNESS OF BORROWER.

 

1.                                       DEFINITION OF SENIOR INDEBTEDNESS. 
“SENIOR INDEBTEDNESS” MEANS THE PRINCIPAL OF (AND PREMIUM, IF ANY), UNPAID
INTEREST ON AND AMOUNTS REIMBURSED, FEES, EXPENSES, COSTS OF

 

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enforcement and other amounts due in connection with any indebtedness of
Borrower with respect to that certain Promissory Note and that certain Security
Agreement, each dated as of June 1, 2004, by and between Borrower and Lakeside
Bank (the “Senior Loan Documents”).

 

2.                                       INSOLVENCY PROCEEDINGS.  IF THERE SHALL
OCCUR ANY RECEIVERSHIP, INSOLVENCY, ASSIGNMENT FOR THE BENEFIT OF CREDITORS,
BANKRUPTCY, REORGANIZATION, OR ARRANGEMENTS WITH CREDITORS (WHETHER OR NOT
PURSUANT TO BANKRUPTCY OR OTHER INSOLVENCY LAWS), SALE OF ALL OR SUBSTANTIALLY
ALL OF THE ASSETS, DISSOLUTION, LIQUIDATION, OR ANY OTHER MARSHALING OF THE
ASSETS AND LIABILITIES OF BORROWER, NO AMOUNT SHALL BE PAID BY BORROWER IN
RESPECT OF THE PRINCIPAL OF, INTEREST ON OR OTHER AMOUNTS DUE WITH RESPECT TO
THIS NOTE AT THE TIME OUTSTANDING, UNLESS AND UNTIL THE PRINCIPAL OF AND
INTEREST ON THE SENIOR INDEBTEDNESS THEN OUTSTANDING SHALL BE PAID IN FULL.

 

3.                                       SUBROGATION.  AFTER, AND DURING THE
CONTINUANCE OF, AN EVENT OF DEFAULT ON THE SENIOR INDEBTEDNESS, SUBJECT TO THE
PAYMENT IN FULL OF ALL SENIOR INDEBTEDNESS, LENDER’S RIGHTS UNDER THIS NOTE
SHALL BE SUBROGATED TO THE RIGHTS OF THE HOLDER(S) OF SUCH SENIOR INDEBTEDNESS
(TO THE EXTENT OF THE PAYMENTS OR DISTRIBUTIONS MADE TO THE HOLDER(S) OF SUCH
SENIOR INDEBTEDNESS PURSUANT TO THE PROVISIONS OF THIS SECTION) TO RECEIVE
PAYMENTS AND DISTRIBUTIONS OF ASSETS OF  BORROWER APPLICABLE TO THE SENIOR
INDEBTEDNESS.  NO SUCH PAYMENTS OR DISTRIBUTIONS APPLICABLE TO THE SENIOR
INDEBTEDNESS SHALL, AS BETWEEN BORROWER AND ITS CREDITORS, OTHER THAN THE
HOLDERS OF SENIOR INDEBTEDNESS AND LENDER, BE DEEMED TO BE A PAYMENT BY BORROWER
TO OR ON ACCOUNT OF THIS NOTE; AND FOR PURPOSES OF SUCH SUBROGATION, NO PAYMENTS
OR DISTRIBUTIONS TO THE HOLDERS OF THE SENIOR INDEBTEDNESS TO WHICH LENDER WOULD
BE ENTITLED EXCEPT FOR THE PROVISIONS OF THIS SECTION SHALL, AS BETWEEN BORROWER
AND ITS CREDITORS, OTHER THAN THE HOLDERS OF SENIOR INDEBTEDNESS AND LENDER, BE
DEEMED TO BE A PAYMENT BY BORROWER TO OR ON ACCOUNT OF THE SENIOR INDEBTEDNESS.

 

G.                                     REPRESENTATIONS AND WARRANTIES.  BORROWER
REPRESENTS AND WARRANTS TO LENDER THAT:

 

1.                                       COLLATERAL.  BORROWER IS THE TRUE AND
LAWFUL OWNER OF THE COLLATERAL, HAVING GOOD AND MARKETABLE TITLE THERETO, FREE
AND CLEAR OF ANY AND ALL LIENS OTHER THAN LIENS AND SECURITY INTERESTS GRANTED
TO LENDER HEREUNDER AND THE PERMITTED LIENS SET FORTH ON THE SCHEDULE.  BORROWER
SHALL NOT CREATE OR ASSUME OR PERMIT TO EXIST ANY SUCH LIEN ON OR AGAINST ANY OF
THE COLLATERAL EXCEPT AS CREATED OR PERMITTED BY THE LOAN DOCUMENTS AND
PERMITTED LIENS, AND BORROWER SHALL PROMPTLY NOTIFY LENDER OF ANY SUCH OTHER
LIEN AGAINST THE COLLATERAL AND SHALL DEFEND THE COLLATERAL AGAINST, AND TAKE
ALL SUCH ACTION AS MAY BE NECESSARY TO REMOVE OR DISCHARGE, ANY SUCH LIEN.

 

2.                                       DUE AUTHORIZATION; NO CONFLICT.  THE
EXECUTION, DELIVERY, AND PERFORMANCE OF THE LOAN DOCUMENTS ARE WITHIN BORROWER’S
POWERS, HAVE BEEN DULY AUTHORIZED, AND ARE NOT IN CONFLICT WITH NOR CONSTITUTE A
BREACH OF ANY PROVISION CONTAINED IN BORROWER’S CERTIFICATE OF INCORPORATION OR
BYLAWS, NOR WILL THEY CONSTITUTE AN EVENT OF DEFAULT UNDER ANY MATERIAL
AGREEMENT TO WHICH BORROWER IS A PARTY OR BY WHICH BORROWER IS BOUND.  BORROWER
IS NOT IN DEFAULT UNDER ANY MATERIAL AGREEMENT TO WHICH IT IS A PARTY OR BY
WHICH IT IS BOUND.

 

3.                                       INTELLECTUAL PROPERTY COLLATERAL. 
BORROWER IS THE SOLE OWNER OF THE INTELLECTUAL PROPERTY COLLATERAL, EXCEPT FOR
NON-EXCLUSIVE LICENSES GRANTED BY BORROWER TO ITS CUSTOMERS IN THE

 

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ordinary course of business.  No part of the Intellectual Property Collateral
has been judged invalid or unenforceable, in whole or in part, and no claim, to
the knowledge of Borrower, has been made that any part of the Intellectual
Property Collateral violates the rights of any third party.  Except as set forth
in the Schedule of Exceptions, Borrower is not a party to, or bound by, any
agreement that restricts the grant by Borrower of a security interest in
Borrower’s rights under such agreement.

 

4.                                       NAME; LOCATION OF CHIEF EXECUTIVE
OFFICE.  EXCEPT AS SET FOR IN THIS SECTION 4, BORROWER HAS NOT DONE BUSINESS
UNDER ANY NAME OTHER THAN THAT SPECIFIED ON THE SIGNATURE PAGE HEREOF AND UNDER
THE NAMES OF PCQUOTE.COM AND PCQUOTE, INC. (THROUGH JUNE 30, 2003) AND UNDER THE
NAME OF HYPERWARE, INC SINCE JUNE 30, 2003.  THE CHIEF EXECUTIVE OFFICE OF
BORROWER IS LOCATED AT THE ADDRESS LISTED IN SECTION M.3. HEREOF.  ALL OF
BORROWER’S INVENTORY AND EQUIPMENT ARE LOCATED AT THE  ADDRESS LOCATED IN
SECTION M.3 AND THE ADDRESSES IN NEW YORK (50 BROADWAY, SUITE 2900, NEW YORK,
NY  10004), CALIFORNIA (388 MARKET ST, SUITE 1050, SAN FRANCISCO, CA  94111),
AURORA (600 N. COMMONS DRIVE, SUITE 100, AURORA, IL  60504 AND 4313 WESTERN
AVENUE, LISLE, IL 60532.

 

5.                                       LITIGATION.  THERE ARE NO ACTIONS OR
PROCEEDINGS PENDING BY OR AGAINST BORROWER BEFORE ANY COURT OR ADMINISTRATIVE
AGENCY IN WHICH AN ADVERSE DECISION COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
BUSINESS ASSETS OR FINANCIAL CONDITION OF BORROWER, OR A MATERIAL ADVERSE EFFECT
ON BORROWER’S INTEREST OR LENDER’S SECURITY INTEREST IN THE COLLATERAL
(COLLECTIVELY, A “MATERIAL ADVERSE EFFECT”).

 

6.                                       SOLVENCY, PAYMENT OF DEBTS.  BORROWER
IS SOLVENT AND ABLE TO PAY ITS DEBTS (INCLUDING TRADE DEBTS) AS THEY MATURE.

 

7.                                       TAXES.  BORROWER HAS FILED OR CAUSED TO
BE FILED ALL TAX RETURNS REQUIRED TO BE FILED BY BORROWER, AND HAS PAID, OR HAS
MADE ADEQUATE PROVISION FOR THE PAYMENT OF, ALL TAXES REFLECTED IN SUCH TAX
RETURNS.

 

8.                                       GOVERNMENT CONSENTS.  BORROWER HAS
OBTAINED ALL CONSENTS, APPROVALS AND AUTHORIZATIONS OF, MADE ALL DECLARATIONS OR
FILINGS WITH, AND GIVEN ALL NOTICES TO, ALL GOVERNMENTAL AUTHORITIES THAT ARE
NECESSARY FOR, AND THE ABSENCE OF WHICH WOULD NOT CAUSE A MATERIAL ADVERSE
EFFECT UPON, THE CONTINUED OPERATION OF BORROWER’S BUSINESS AS CURRENTLY
CONDUCTED.

 

H.                                    AFFIRMATIVE COVENANTS. BORROWER COVENANTS
AND AGREES THAT, UNTIL PAYMENT IN FULL OF ALL SECURED OBLIGATIONS, AND UNTIL
SUCH TIME THAT LENDER HAS NO FURTHER OBLIGATION TO MAKE AN ADVANCE, BORROWER
SHALL DO ALL OF THE FOLLOWING

 

1.                                       REPAYMENT OF OTHER INDEBTEDNESS. 
BORROWER HEREBY AGREES THAT IT WILL NOT MAKE ANY PAYMENT OF PRINCIPAL IN
CONNECTION WITH THE SENIOR INDEBTEDNESS, OR PERMIT ANY OF ITS SUBSIDIARIES TO
MAKE ANY SUCH PAYMENT, EXCEPT IN ACCORDANCE WITH SECTION F HEREOF.  WITH RESPECT
TO INDEBTEDNESS OTHER THAN THE SENIOR INDEBTEDNESS, BORROWER HEREBY AGREES THAT
IT WILL NOT REPAY ANY INDEBTEDNESS, OR PERMIT ANY OF ITS SUBSIDIARIES TO MAKE
ANY SUCH PAYMENT, INCURRED AFTER THE DATE HEREOF.

 

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2.                                       PERFECTION OF SECURITY INTEREST. 
BORROWER AGREES TO TAKE ALL ACTIONS REQUESTED BY LENDER AND REASONABLY NECESSARY
TO PERFECT, TO CONTINUE THE PERFECTION OF, AND TO OTHERWISE GIVE NOTICE OF, THE
LIEN GRANTED HEREUNDER, INCLUDING, BUT NOT LIMITED TO, EXECUTION OF FINANCING
STATEMENTS.

 

3.                                       GOOD STANDING.  BORROWER SHALL MAINTAIN
ITS CORPORATE EXISTENCE IN ITS JURISDICTION OF INCORPORATION AND MAINTAIN
QUALIFICATION IN EACH JURISDICTION IN WHICH THE FAILURE TO BE SO QUALIFIED COULD
HAVE A MATERIAL ADVERSE EFFECT UPON THE BORROWER.   BORROWER SHALL MAINTAIN IN
FORCE ALL LICENSES, APPROVALS AND AGREEMENTS, THE LOSS OF WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT.

 

4.                                       GOVERNMENT COMPLIANCE.  BORROWER SHALL
MEET THE MINIMUM FUNDING REQUIREMENTS OF ERISA WITH RESPECT TO ANY EMPLOYEE
BENEFIT PLANS SUBJECT TO ERISA.  BORROWER SHALL COMPLY WITH ALL STATUTES, LAWS,
ORDINANCES AND GOVERNMENT RULES AND REGULATIONS TO WHICH IT IS SUBJECT,
NONCOMPLIANCE WITH WHICH COULD HAVE A MATERIAL ADVERSE EFFECT.

 

5.                                       FINANCIAL STATEMENTS, REPORTS,
CERTIFICATES.  BORROWER SHALL DELIVER TO LENDER SUCH BUDGETS, PROJECTIONS,
OPERATING PLANS, FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION AS LENDER
MAY REASONABLY REQUEST FROM TIME TO TIME, INCLUDING, BUT NOT LIMITED TO MONTHLY
VARIANCE REPORTS AND MONTHLY CASH FLOW REPORTS.

 

6.                                       TAXES.  BORROWER SHALL MAKE DUE AND
TIMELY PAYMENT OR DEPOSIT OF ALL FEDERAL AND STATE INCOME TAXES, AND ALL OTHER
MATERIAL LOCAL TAXES, ASSESSMENTS, OR CONTRIBUTIONS REQUIRED OF IT BY LAW.

 

7.                                       INSURANCE.

 

(A)                                  BORROWER, AT ITS EXPENSE, SHALL KEEP THE
COLLATERAL INSURED AGAINST LOSS OR DAMAGE IN SUCH AMOUNTS AS ORDINARILY INSURED
AGAINST BY OTHER OWNERS IN SIMILAR BUSINESSES CONDUCTED IN THE LOCATIONS WHERE
BORROWER’S BUSINESS IS CONDUCTED ON THE DATE HEREOF.  BORROWER SHALL ALSO
MAINTAIN INSURANCE RELATING TO BORROWER’S BUSINESS, OWNERSHIP AND USE OF THE
COLLATERAL IN AMOUNTS AND OF A TYPE THAT ARE CUSTOMARY TO BUSINESSES SIMILAR TO
BORROWER’S.

 

(B)                                 ALL SUCH POLICIES OF INSURANCE SHALL BE IN
SUCH FORM, WITH SUCH COMPANIES, AND IN SUCH AMOUNTS AS ARE REASONABLY
SATISFACTORY TO LENDER.  SUBJECT TO THE LIEN IN FAVOR OF THE SENIOR
INDEBTEDNESS, ALL SUCH POLICIES OF PROPERTY INSURANCE SHALL CONTAIN A LENDER’S
LOSS PAYABLE ENDORSEMENT, IN A FORM SATISFACTORY TO LENDER, SHOWING LENDER AS AN
ADDITIONAL LOSS PAYEE THEREOF, AND ALL LIABILITY INSURANCE POLICIES SHALL SHOW
LENDER AS AN ADDITIONAL INSURED AND SHALL SPECIFY THAT THE INSURER MUST GIVE AT
LEAST TWENTY (20) DAYS NOTICE TO LENDER BEFORE CANCELING ITS POLICY FOR ANY
REASON.  UPON LENDER’S REQUEST, BORROWER SHALL DELIVER TO LENDER CERTIFIED
COPIES OF SUCH POLICIES OF INSURANCE AND EVIDENCE OF THE PAYMENTS OF ALL
PREMIUMS THEREFOR.  ALL PROCEEDS PAYABLE UNDER ANY SUCH POLICY SHALL, AT THE
OPTION OF LENDER, BE PAYABLE TO LENDER TO BE APPLIED ON ACCOUNT OF THE
OBLIGATIONS UNDER THE LOAN DOCUMENTS.

 

8.                                       REGISTRATION OF INTELLECTUAL PROPERTY
RIGHTS.

 

(A)                                  (INTENTIONALLY LEFT BLANK)

 

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(B)                                 BORROWER SHALL (I) PROTECT, DEFEND AND
MAINTAIN THE VALIDITY AND ENFORCEABILITY OF THE TRADEMARKS, PATENTS AND
COPYRIGHTS WHICH ARE NECESSARY TO THE CONDUCT OF ITS BUSINESS, (II) USE ITS
REASONABLE EFFORTS TO DETECT INFRINGEMENTS OF THE TRADEMARKS, PATENTS AND
COPYRIGHTS AND PROMPTLY ADVISE LENDER IN WRITING OF INFRINGEMENTS DETECTED AND
(III) NOT ALLOW ANY TRADEMARKS, PATENTS OR COPYRIGHTS TO BE ABANDONED, FORFEITED
OR DEDICATED TO THE PUBLIC WITHOUT THE WRITTEN CONSENT OF LENDER, WHICH SHALL
NOT BE UNREASONABLY WITHHELD.

 

(C)                                  LENDER MAY AUDIT BORROWER’S INTELLECTUAL
PROPERTY COLLATERAL TO CONFIRM COMPLIANCE WITH THIS SECTION, PROVIDED SUCH AUDIT
MAY NOT OCCUR MORE OFTEN THAN TWICE PER YEAR, UNLESS AN EVENT OF DEFAULT HAS
OCCURRED AND IS CONTINUING.  LENDER HAVE THE RIGHT, BUT NOT THE OBLIGATION, TO
TAKE, AT BORROWER’S SOLE REASONABLE EXPENSE, ANY ACTIONS THAT BORROWER IS
REQUIRED UNDER THIS SECTION TO TAKE BUT WHICH BORROWER FAILS TO TAKE, AFTER
FIFTEEN (15) CALENDAR DAYS’ NOTICE TO BORROWER.  BORROWER SHALL REIMBURSE AND
INDEMNIFY LENDER FOR ALL REASONABLE COSTS AND REASONABLE EXPENSES INCURRED IN
THE EXERCISE OF ITS RIGHTS UNDER THIS SECTION.

 

9.                                       FILINGS.  BORROWER SHALL FILE ALL
REPORTS AND OTHER INFORMATION AND DOCUMENTS WHICH IT IS REQUIRED TO FILE WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE NASDAQ STOCK MARKET, IN CONNECTION
WITH THIS NOTE OR OTHERWISE.

 

10.                                 FURTHER ASSURANCES.  AT ANY TIME AND FROM
TIME TO TIME BORROWER SHALL EXECUTE AND DELIVER SUCH FURTHER INSTRUMENTS AND
TAKE SUCH FURTHER ACTION AS MAY REASONABLY BE REQUESTED BY LENDER TO EFFECT THE
PURPOSES OF THIS NOTE.

 

I.                                         NEGATIVE COVENANTS. BORROWER
COVENANTS AND AGREES THAT, UNTIL PAYMENT IN FULL OF ALL SECURED OBLIGATIONS, AND
UNTIL SUCH TIME AS LENDER HAS NO FURTHER OBLIGATION TO MAKE AN ADVANCE, BORROWER
WILL NOT DO ANY OF THE FOLLOWING WITHOUT EXPRESS WRITTEN CONSENT OF LENDER:

 

1.                                       DISPOSITIONS.  CONVEY, SELL, LEASE,
TRANSFER OR OTHERWISE DISPOSE OF (COLLECTIVELY, A “TRANSFER”), ALL OR ANY PART
OF ITS BUSINESS OR PROPERTY, OTHER THAN:  (I) TRANSFERS OF INVENTORY IN THE
ORDINARY COURSE OF BUSINESS; (II) TRANSFERS OF NON-EXCLUSIVE LICENSES FOR THE
USE OF THE PROPERTY OF BORROWER IN THE ORDINARY COURSE OF BUSINESS; OR
(III) TRANSFERS OF WORN-OUT OR OBSOLETE EQUIPMENT.

 

2.                                       CHANGE IN BUSINESS; CHANGE IN CONTROL
OR EXECUTIVE OFFICE.  ENGAGE IN ANY BUSINESS OTHER THAN THE BUSINESSES CURRENTLY
ENGAGED IN BY BORROWER AND ANY BUSINESS SUBSTANTIALLY SIMILAR OR RELATED THERETO
(OR INCIDENTAL THERETO); OR WITHOUT THIRTY (30) DAYS PRIOR WRITTEN NOTIFICATION
TO LENDER, RELOCATE ITS CHIEF EXECUTIVE OFFICE OR STATE OF INCORPORATION; OR
WITHOUT LENDER’S PRIOR WRITTEN CONSENT, CHANGE THE DATE ON WHICH ITS FISCAL YEAR
ENDS.

 

3.                                       MERGERS OR ACQUISITIONS.  MERGE OR
CONSOLIDATE OR AGREE TO MERGE OR CONSOLIDATE, WITH OR INTO ANY OTHER BUSINESS
ORGANIZATION, OR ACQUIRE ALL OR SUBSTANTIALLY ALL OF THE CAPITAL STOCK OR
PROPERTY OF ANOTHER PERSON.

 

4.                                       INDEBTEDNESS. CREATE, INCUR, ASSUME OR
BE OR REMAIN LIABLE WITH RESPECT TO ANY INDEBTEDNESS FOR BORROWED MONEY (OTHER
THAN TRADE DEBT), OTHER THAN THE SENIOR INDEBTEDNESS.

 

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5.                                       ENCUMBRANCES.  CREATE, INCUR, ASSUME OR
SUFFER TO EXIST ANY LIEN WITH RESPECT TO ANY OF ITS PROPERTY, OR ASSIGN OR
OTHERWISE CONVEY ANY RIGHT TO RECEIVE INCOME, INCLUDING THE SALE OF ANY
ACCOUNTS, EXCEPT FOR PERMITTED LIENS AND LIENS DISCLOSED ON THE SCHEDULE.  AGREE
WITH ANY PERSON OTHER THAN LENDER -NOT TO GRANT A SECURITY INTEREST IN, OR
OTHERWISE ENCUMBER, ANY OF ITS PROPERTY.

 

6.                                       DISTRIBUTIONS.  PAY ANY DIVIDENDS OR
MAKE ANY OTHER DISTRIBUTION OR PAYMENT ON ACCOUNT OF OR IN REDEMPTION,
RETIREMENT OR PURCHASE OF ANY CAPITAL STOCK, EXCEPT THAT BORROWER MAY REPURCHASE
THE STOCK OF FORMER EMPLOYEES PURSUANT TO STOCK REPURCHASE AGREEMENTS AS LONG AS
AN EVENT OF DEFAULT DOES NOT EXIST PRIOR TO SUCH REPURCHASE OR WOULD NOT EXIST
AFTER GIVING EFFECT TO SUCH REPURCHASE.

 

7.                                       INVESTMENTS.  DIRECTLY OR INDIRECTLY
ACQUIRE OR OWN, OR MAKE ANY INVESTMENT IN OR TO ANY PERSON, OR PERMIT ANY OF ITS
SUBSIDIARIES SO TO DO, OTHER THAN INVESTMENTS SET FORTH ON THE SCHEDULE; OR
MAINTAIN OR INVEST ANY OF ITS PROPERTY WITH A PERSON UNLESS SUCH PERSON HAS
ENTERED INTO A CONTROL AGREEMENT WITH LENDER, IN FORM AND SUBSTANCE SATISFACTORY
TO LENDER; OR SUFFER OR PERMIT ANY SUBSIDIARY TO BE A PARTY TO, OR BE BOUND BY,
AN AGREEMENT THAT RESTRICTS SUCH SUBSIDIARY FROM PAYING DIVIDENDS OR OTHERWISE
DISTRIBUTING PROPERTY TO BORROWER.

 

8.                                       TRANSACTIONS WITH AFFILIATES.  DIRECTLY
OR INDIRECTLY ENTER INTO OR PERMIT TO EXIST ANY MATERIAL TRANSACTION WITH ANY
AFFILIATE OF BORROWER EXCEPT FOR TRANSACTIONS THAT ARE IN THE ORDINARY COURSE OF
BORROWER’S BUSINESS, UPON FAIR AND REASONABLE TERMS THAT ARE NO LESS FAVORABLE
TO BORROWER THAN WOULD BE OBTAINED IN AN ARM’S LENGTH TRANSACTION WITH A
NON-AFFILIATED PERSON.

 

9.                                       NEGATIVE PLEDGE AGREEMENTS.  OTHER THAN
THE SENIOR LOAN DOCUMENTS, PERMIT THE INCLUSION IN ANY CONTRACT TO WHICH IT
BECOMES A PARTY OF ANY PROVISIONS THAT COULD RESTRICT OR INVALIDATE THE CREATION
OF A SECURITY INTEREST IN ANY OF BORROWER’S PROPERTY.

 

J.                                        EVENTS OF DEFAULT.

 

1.                                       DEFINITION OF EVENT OF DEFAULT.  THE
OCCURRENCE OF ANY ONE OR MORE OF THE FOLLOWING EVENTS SHALL CONSTITUTE AN “EVENT
OF DEFAULT” HEREUNDER:

 

(A)                                  BORROWER’S BREACH OF THE OBLIGATION TO PAY
ANY AMOUNT OF THE SECURED OBLIGATIONS ON THE DATE THAT IT IS DUE AND PAYABLE;

 

(B)                                 BORROWER’S FAILURE TO PERFORM, KEEP OR
OBSERVE ANY OF ITS COVENANTS, CONDITIONS, PROMISES, AGREEMENTS OR OBLIGATIONS
UNDER ANY OF THE LOAN DOCUMENTS OR ANY OTHER AGREEMENT WITH ANY PERSON IF SUCH
FAILURE MAY HAVE A MATERIAL ADVERSE EFFECT ON BORROWER’S ASSETS, OPERATIONS OR
CONDITION, FINANCIAL OR OTHERWISE;

 

(C)                                  BORROWER’S COMMENCEMENT OF VOLUNTARY
BANKRUPTCY PROCEEDINGS, OR BORROWER’S FILING OF A PETITION OR ANSWER OR CONSENT
SEEKING REORGANIZATION OR RELEASE, UNDER THE FEDERAL BANKRUPTCY CODE, OR ANY
OTHER APPLICABLE FEDERAL OR STATE LAW RELATING TO CREDITOR RIGHTS AND REMEDIES,
OR BORROWER’S CONSENT TO THE FILING OF ANY SUCH PETITION OR THE APPOINTMENT OF A
RECEIVER, LIQUIDATOR, ASSIGNEE, TRUSTEE OR OTHER SIMILAR OFFICIAL OF BORROWER OR
OF ANY

 

8

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substantial part of its property, or Borrower’s making of an assignment for the
benefit of creditors, or the taking of corporate action in furtherance of such
action;

 

(D)                                 THE LOSS, THEFT, DAMAGE OR DESTRUCTION OF,
OR SALE (OTHER THAN IN THE ORDINARY COURSE OF BUSINESS), LEASE OR FURNISHING
UNDER A CONTRACT OF SERVICE OF, ANY MATERIAL PORTION OF THE COLLATERAL;

 

(E)                                  THE CREATION (WHETHER VOLUNTARY OR
INVOLUNTARY) OF, OR ANY ATTEMPT TO CREATE, ANY LIEN UPON ANY OF THE COLLATERAL,
OTHER THAN THE PERMITTED LIENS, OR ANY LEVY, SEIZURE OR ATTACHMENT OF ANY
MATERIAL PORTION THEREOF;

 

(F)                                    THE OCCURRENCE AND CONTINUANCE OF ANY
DEFAULT UNDER ANY LEASE OR AGREEMENT FOR BORROWED MONEY THAT GIVES THE LESSOR OR
THE CREDITOR OF SUCH INDEBTEDNESS, AS APPLICABLE, THE RIGHT TO ACCELERATE THE
LEASE PAYMENTS OR THE  INDEBTEDNESS, AS APPLICABLE, OR THE RIGHT TO EXERCISE ANY
RIGHTS OR REMEDIES WITH RESPECT TO ANY OF THE COLLATERAL; OR

 

(G)                                 THE ENTRY OF ANY JUDGMENT OR ORDER AGAINST
BORROWER WHICH REMAINS UNSATISFIED OR UNDISCHARGED AND IN EFFECT FOR THIRTY (30)
DAYS AFTER SUCH ENTRY WITHOUT A STAY OF ENFORCEMENT OR EXECUTION.

 

2.                                       RIGHTS AND REMEDIES ON EVENT OF
DEFAULT.

 

(A)                                  DURING THE CONTINUANCE OF AN EVENT OF
DEFAULT, - LENDER SHALL HAVE THE RIGHT, ITSELF OR THROUGH ANY OF ITS AGENTS,
WITH OR WITHOUT NOTICE TO BORROWER (AS PROVIDED BELOW), AS TO ANY OR ALL OF THE
COLLATERAL, BY ANY AVAILABLE JUDICIAL PROCEDURE, OR WITHOUT JUDICIAL PROCESS
(PROVIDED, HOWEVER, THAT IT IS IN COMPLIANCE WITH THE UCC), TO EXERCISE ANY AND
ALL RIGHTS AFFORDED TO A SECURED PARTY UNDER THE UCC OR OTHER APPLICABLE LAW.
 WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LENDER SHALL  — HAVE THE
RIGHT TO SELL OR OTHERWISE DISPOSE OF ALL OR ANY PART OF THE COLLATERAL, EITHER
AT PUBLIC OR PRIVATE SALE, IN LOTS OR IN BULK, FOR CASH OR FOR CREDIT, WITH OR
WITHOUT WARRANTIES OR REPRESENTATIONS, AND UPON SUCH TERMS AND CONDITIONS, ALL
AS LENDER, IN ITS REASONABLE DISCRETION, MAY DEEM ADVISABLE, AND IT SHALL HAVE
THE RIGHT TO PURCHASE AT ANY SUCH SALE.  BORROWER AGREES THAT A NOTICE SENT AT
LEAST FIFTEEN (15) DAYS BEFORE THE TIME OF ANY INTENDED PUBLIC SALE OR OF THE
TIME AFTER WHICH ANY PRIVATE SALE OR OTHER DISPOSITION OF THE COLLATERAL IS TO
BE MADE SHALL BE REASONABLE NOTICE OF SUCH SALE OR OTHER DISPOSITION.  THE
PROCEEDS OF ANY SUCH SALE, OR OTHER COLLATERAL DISPOSITION SHALL BE APPLIED,
FIRST TO THE EXPENSES OF RETAKING, HOLDING, STORING, PROCESSING AND PREPARING
FOR SALE, SELLING, AND THE LIKE, AND TO LENDER’S REASONABLE ATTORNEYS’ FEES AND
LEGAL EXPENSES, AND THEN TO THE SECURED OBLIGATIONS AND TO THE PAYMENT OF ANY
OTHER AMOUNTS REQUIRED BY APPLICABLE LAW, AFTER WHICH LENDER SHALL ACCOUNT TO
BORROWER FOR ANY SURPLUS PROCEEDS.  IF, UPON THE SALE OR OTHER DISPOSITION OF
THE COLLATERAL, THE PROCEEDS THEREOF ARE INSUFFICIENT TO PAY ALL AMOUNTS TO
WHICH LENDER IS LEGALLY ENTITLED, BORROWER SHALL BE LIABLE FOR THE DEFICIENCY,
TOGETHER WITH INTEREST THEREON, AND THE REASONABLE FEES OF ANY ATTORNEYS
LENDER’S EMPLOYS TO COLLECT SUCH DEFICIENCY; PROVIDED, HOWEVER, THAT THE
FOREGOING SHALL NOT BE DEEMED TO REQUIRE LENDER TO RESORT TO OR INITIATE
PROCEEDINGS AGAINST THE COLLATERAL PRIOR TO THE COLLECTION OF ANY SUCH
DEFICIENCY FROM BORROWER.  TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER
WAIVES ALL CLAIMS, DAMAGES AND DEMANDS AGAINST LENDER ARISING OUT OF THE
RETENTION OR SALE OR LEASE OF THE COLLATERAL OR OTHER EXERCISE OF LENDER’S
RIGHTS AND REMEDIES WITH RESPECT THERETO.

 

9

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(B)                                 TO THE EXTENT PERMITTED BY LAW, BORROWER
COVENANTS THAT IT WILL NOT AT ANY TIME INSIST UPON OR PLEAD, OR IN ANY MANNER
WHATEVER CLAIM OR TAKE ANY BENEFIT OR ADVANTAGE OF, ANY STAY OR EXTENSION LAW
NOW OR AT ANY TIME HEREAFTER IN FORCE, NOR CLAIM, TAKE OR INSIST UPON ANY
BENEFIT OR ADVANTAGE OF OR FROM ANY LAW NOW OR HEREAFTER IN FORCE PROVIDING FOR
THE VALUATION OR APPRAISAL OF THE COLLATERAL OR ANY PART THEREOF, PRIOR TO ANY
SALE OR SALES THEREOF TO BE MADE PURSUANT TO ANY PROVISION HEREIN CONTAINED, OR
THE DECREE, JUDGMENT OR ORDER OF ANY COURT OF COMPETENT JURISDICTION; OR, AFTER
SUCH SALE OR SALES, CLAIM OR EXERCISE ANY RIGHT UNDER ANY STATUTE NOW OR
HEREAFTER MADE OR ENACTED BY ANY STATE OR OTHERWISE TO REDEEM THE PROPERTY SO
SOLD OR ANY PART THEREOF, AND, TO THE FULL EXTENT LEGALLY PERMITTED, HEREBY
EXPRESSLY WAIVES ALL BENEFIT AND ADVANTAGE OF ANY SUCH LAW OR LAWS, AND
COVENANTS THAT IT WILL NOT INVOKE OR UTILIZE ANY SUCH LAW OR LAWS OR OTHERWISE
HINDER, DELAY OR IMPEDE THE EXECUTION OF ANY POWER HEREIN GRANTED AND DELEGATED
TO LENDER, BUT WILL SUFFER AND PERMIT THE EXECUTION OF EVERY SUCH POWER AS
THOUGH NO SUCH POWER, LAW OR LAWS HAD BEEN MADE OR ENACTED.

 

(C)                                  ANY SALE, WHETHER UNDER ANY POWER OF SALE
HEREBY GIVEN OR BY VIRTUE OF JUDICIAL PROCEEDINGS, SHALL OPERATE TO DIVEST ALL
BORROWER’S RIGHT, TITLE, INTEREST, CLAIM AND DEMAND WHATSOEVER, EITHER AT LAW OR
IN EQUITY, IN AND TO THE COLLATERAL SOLD, AND SHALL BE A PERPETUAL BAR, BOTH AT
LAW AND IN EQUITY, AGAINST BORROWER, ITS SUCCESSORS AND ASSIGNS, AND AGAINST ALL
PERSONS AND ENTITIES CLAIMING THE COLLATERAL SOLD OR ANY PART THEREOF UNDER, BY
OR THROUGH BORROWER, ITS SUCCESSORS OR ASSIGNS.

 

(D)                                 BORROWER APPOINTS LENDER, AND ANY OFFICER,
EMPLOYEE OR AGENT OF LENDER, WITH FULL POWER OF SUBSTITUTION, AS BORROWER’S TRUE
AND LAWFUL ATTORNEY-IN-FACT, EFFECTIVE AS OF THE DATE HEREOF, WITH POWER, IN ITS
OWN NAME OR IN THE NAME OF BORROWER, DURING THE CONTINUANCE OF AN EVENT OF
DEFAULT -, TO ENDORSE ANY NOTES, CHECKS, DRAFTS, MONEY ORDERS, OR OTHER
INSTRUMENTS OF PAYMENT IN RESPECT OF THE COLLATERAL THAT MAY COME INTO LENDER’S
POSSESSION, TO SIGN AND ENDORSE ANY DRAFTS AGAINST DEBTORS, ASSIGNMENTS,
VERIFICATIONS AND NOTICES IN CONNECTION WITH ACCOUNTS, AND OTHER DOCUMENTS
RELATING TO COLLATERAL; TO PAY OR DISCHARGE TAXES OR LIENS AT ANY TIME LEVIED OR
PLACED ON OR THREATENED AGAINST THE COLLATERAL; TO DEMAND, COLLECT, ISSUE
RECEIPT FOR, COMPROMISE, SETTLE AND SUE FOR MONIES DUE IN RESPECT OF THE
COLLATERAL; TO NOTIFY PERSONS AND ENTITIES OBLIGATED WITH RESPECT TO THE
COLLATERAL TO MAKE PAYMENTS DIRECTLY TO LENDER; AND, GENERALLY, TO DO, AT
LENDER’S OPTION AND AT BORROWER’S EXPENSE, AT ANY TIME, OR FROM TIME TO TIME,
ALL ACTS AND THINGS WHICH LENDER DEEMS NECESSARY TO PROTECT, PRESERVE AND
REALIZE UPON THE COLLATERAL AND LENDER’S SECURITY INTEREST THEREIN TO EFFECT THE
INTENT OF THE LOAN DOCUMENTS, ALL AS FULLY AND EFFECTUALLY AS BORROWER MIGHT OR
COULD DO; AND BORROWER HEREBY RATIFIES ALL THAT SAID ATTORNEY SHALL LAWFULLY DO
OR CAUSE TO BE DONE BY VIRTUE HEREOF.  THIS POWER OF ATTORNEY SHALL BE
IRREVOCABLE AS LONG AS ANY OF THE SECURED OBLIGATIONS ARE OUTSTANDING.

 

(E)                                  ALL OF LENDER’S RIGHTS AND REMEDIES WITH
RESPECT TO THE COLLATERAL, WHETHER ESTABLISHED HEREBY OR BY ANY OTHER
AGREEMENTS, INSTRUMENTS OR DOCUMENTS OR BY LAW SHALL BE CUMULATIVE AND MAY BE
EXERCISED SINGLY OR CONCURRENTLY.

 

K.                                    CONVERSION RIGHT.

 

1.                                       CONVERSION RIGHT.  LENDER SHALL HAVE
THE RIGHT (THE “CONVERSION RIGHT”), IN ITS SOLE DISCRETION, AT ANY TIME AND FROM
TIME TO TIME TO ELECT TO CONVERT ALL OR ANY PART OF THE SECURED

 

10

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Obligations into that number of shares of Common Stock of Borrower as is
obtained by dividing (a) the total amount of Secured Obligations by (b) the
lesser of the (i) price per share of the Common Stock on the date of the
Lender’s election to exercise its Conversion Right or (ii) the price per share
of the Common Stock on the date hereof.  Notwithstanding the foregoing, at no
time shall the number of shares of Common Stock issued, or issuable, in
aggregate, pursuant to the Conversion Right be greater than Six Hundred Eleven
Thousand (611,000) shares minus the Commitment Shares.

 

2.                                       EXERCISE OF CONVERSION RIGHT.  TO
CONVERT ANY OF THE SECURED OBLIGATIONS INTO SHARES OF COMMON STOCK, LENDER SHALL
DELIVER TO BORROWER A WRITTEN NOTICE OF ELECTION TO EXERCISE THE CONVERSION
RIGHT (THE “CONVERSION NOTICE”).  BORROWER SHALL, AS SOON AS PRACTICABLE
THEREAFTER, ISSUE AND DELIVER TO LENDER A CERTIFICATE OR CERTIFICATES,
REGISTERED IN LENDER’S NAME, FOR THE NUMBER OF SHARES OF COMMON STOCK TO WHICH
LENDER SHALL BE ENTITLED BY VIRTUE OF SUCH EXERCISE.  THE CONVERSION OF THE
SECURED OBLIGATIONS SHALL BE DEEMED TO HAVE BEEN MADE ON THE DATE THAT BORROWER
RECEIVES THE CONVERSION NOTICE (THE “CONVERSION DATE”) AND LENDER SHALL BE
TREATED FOR ALL PURPOSES AS THE RECORD HOLDER OF THE CONVERSION SHARES AS OF
SUCH DATE.

 

3.                                       FRACTIONAL SHARES.  BORROWER SHALL NOT
ISSUE FRACTIONAL SHARES OF COMMON STOCK OR SCRIP REPRESENTING FRACTIONAL SHARES
OF COMMON STOCK UPON EXERCISE OF THE CONVERSION RIGHT.  AS TO ANY FRACTIONAL
SHARE OF COMMON STOCK WHICH LENDER WOULD OTHERWISE BE ENTITLED TO PURCHASE FROM
BORROWER UPON SUCH EXERCISE, BORROWER SHALL PURCHASE FROM LENDER SUCH FRACTIONAL
SHARE AT A PRICE EQUAL TO AN AMOUNT CALCULATED BY MULTIPLYING SUCH FRACTIONAL
SHARE (CALCULATED TO THE NEAREST 1/100TH OF A SHARE) BY THE PRICE PER SHARE OF
COMMON STOCK ON THE CONVERSION DATE.  PAYMENT OF SUCH AMOUNT SHALL BE MADE IN
CASH OR BY CHECK PAYABLE TO THE ORDER OF LENDER AT THE TIME OF DELIVERY OF ANY
CERTIFICATE OR CERTIFICATES ARISING UPON SUCH EXERCISE.

 

L.                                      REGISTRATION RIGHTS.  CONCURRENT WITH
THE EXECUTION AND DELIVERY OF THIS NOTE, BORROWER SHALL TAKE ALL ACTIONS
NECESSARY TO CAUSE LENDER, UPON THE EXERCISE OF THE CONVERSION RIGHT PROVIDED
FOR HEREIN, TO HAVE THE SIMILAR REGISTRATION AND SIMILAR LIQUIDITY RIGHTS AS THE
RIGHTS GRANTED TO THE PARTICIPANTS IN HYPERFEED’S PRIVATE PLACEMENT DATED MAY
15, 2003 AND DURING THE TERM OF THIS NOTE NO STOCKHOLDER OF BORROWER SHALL HAVE
MORE FAVORABLE REGISTRATION OR OTHER LIQUIDITY RIGHTS THAN THE RIGHTS GRANTED TO
LENDER PURSUANT TO THIS SECTION.

 

M.                                 OTHER PROVISIONS.

 

1.                                       DEFINITIONS.  AS USED HEREIN, THE
FOLLOWING TERMS SHALL HAVE THE FOLLOWING MEANINGS:

 

“Lender Expenses” means all reasonable costs or expenses (including reasonable
attorneys’ fees and expenses) incurred in connection with the preparation,
negotiation, administration, and enforcement of the Loan Documents; reasonable
Collateral audit fees; and Lender’s reasonable attorneys’ fees and expenses
incurred in amending, enforcing or defending the Loan Documents (including fees
and expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.

 

11

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“Collateral” means the Intellectual Property Collateral and the property
described on Exhibit A attached hereto.

 

“Copyrights” means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.

 

“Intellectual Property Collateral” means all of Borrower’s right, title, and
interest in and to the following:

 

(A)                                  COPYRIGHTS, TRADEMARKS AND PATENTS;

 

(B)                                 ANY AND ALL TRADE SECRETS, AND ANY AND ALL
INTELLECTUAL PROPERTY RIGHTS IN COMPUTER SOFTWARE AND COMPUTER SOFTWARE PRODUCTS
NOW OR HEREAFTER EXISTING, CREATED, ACQUIRED OR HELD;

 

(C)                                  ANY AND ALL DESIGN RIGHTS WHICH MAY BE
AVAILABLE TO BORROWER NOW OR HEREAFTER EXISTING, CREATED, ACQUIRED OR HELD;

 

(D)                                 ANY AND ALL CLAIMS FOR DAMAGES BY WAY OF
PAST, PRESENT AND FUTURE INFRINGEMENT OF ANY OF THE RIGHTS INCLUDED ABOVE, WITH
THE RIGHT, BUT NOT THE OBLIGATION, TO SUE FOR AND COLLECT SUCH DAMAGES FOR SAID
USE OR INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS IDENTIFIED ABOVE;

 

(E)                                  ALL LICENSES OR OTHER RIGHTS TO USE ANY OF
THE COPYRIGHTS, PATENTS OR TRADEMARKS, AND ALL LICENSE FEES AND ROYALTIES
ARISING FROM SUCH USE TO THE EXTENT PERMITTED BY SUCH LICENSE OR RIGHTS;

 

(F)                                    ALL AMENDMENTS, RENEWALS AND EXTENSIONS
OF ANY OF THE COPYRIGHTS, TRADEMARKS OR PATENTS; AND

 

(G)                                 ALL PROCEEDS AND PRODUCTS OF THE FOREGOING,
INCLUDING WITHOUT LIMITATION ALL PAYMENTS UNDER INSURANCE OR ANY INDEMNITY OR
WARRANTY PAYABLE IN RESPECT OF ANY OF THE FOREGOING.

 

“Insolvency Proceeding” means any proceeding commenced by conforms to J.1(c) any
Person under any provision of the United States Bankruptcy Code, as amended, or
under any other bankruptcy or insolvency law, including assignments for the
benefit of creditors, formal or informal moratoria, compositions, extension
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

 

“Lien” means any lien (statutory or other), mortgage, pledge, hypothecation,
assignment, deposit arrangement, security interest, charge, claim or other
encumbrance of any kind (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to give any
security interest) and any agreement to give or refrain from giving a lien,

 

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mortgage, pledge, hypothecation, assignment, deposit arrangement, security
interest, charge, claim or other encumbrance of any kind.

 

“Loan Documents” means, collectively, this Note, any note or notes executed by
Borrower and issued to Lender, and any other agreement entered into in
connection with this Note, all as amended or extended from time to time.

 

“Patents” means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.

 

“Permitted Liens” means:  (i) Liens imposed by law, such as carriers’,
warehousemen’s, materialmen’s and mechanics’ liens, or Liens arising out of
judgments or awards against Borrower with respect to which Borrower at the time
shall currently be prosecuting an appeal or proceedings for review; (ii) Liens
for taxes not yet subject to penalties for non­payment and Liens for taxes the
payment of which is being contested in good faith and by appropriate proceedings
and for which, to the extent required by U.S. generally accepted accounting
principles then in effect, proper and adequate book reserves relating thereto
are established by Borrower; (iii) Liens securing the Senior Indebtedness (iv)
liens securing the purchase price or lease of any goods, which liens attached
only to the goods being purchased or leased, (v) liens securing security bonds,
bid bonds, performance bonds and other similar items, (vi) liens in the form of
deposits or pledges  in connection with worker’s compensation, social security
unemployment compensation or other similar matter, and (vii) liens existing as
of the date hereof.

 

“Person” means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, person or governmental agency.

 

“Secured Obligations” means all debt, principal, interest, Lender Expenses and
other amounts owed to Lender by Borrower pursuant to the Loan Documents, whether
absolute or contingent, due or to become due, now existing or hereafter arising,
including any interest that accrues after the commencement of an Insolvency
Proceeding and including any debt, liability, or obligation owing from Borrower
to others that Lender may have obtained by assignment or otherwise.

 

“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.

 

“UCC” means the Uniform Commercial Code in effect from time to time in the
relevant jurisdiction.

 

2.                                       GOVERNING LAW; VENUE.  THE LOAN
DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES.  BORROWER AND LENDER AGREE THAT
ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THE LOAN DOCUMENTS SHALL
BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE CITY
OF SAN DIEGO, COUNTY OF SAN

 

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Diego, State of California or, at Lender’s option, any court in which Lender
determines it is necessary or appropriate to initiate legal or equitable
proceedings in order to exercise, preserve, protect or defend any of its rights
and remedies under the Loan Documents or otherwise or to exercise, preserve,
protect or defend its Lien, and the priority thereof, against the Collateral,
and which has subject matter jurisdiction over the matter in controversy. 
Borrower waives any right it may have to assert the doctrine of forum non
conveniens or to object to such venue, and consents to any court ordered
relief.  Borrower waives personal service of process and agrees that a summons
and complaint commencing an action or proceeding in any such court shall be
promptly served and shall confer personal jurisdiction if served by registered
or certified mail to Borrower.  The choice of forum set forth herein shall not
be deemed to preclude the enforcement of any judgment obtained in such forum, or
the taking of any action under the Loan Documents to enforce the same, in any
appropriate jurisdiction.

 

3.                                       NOTICES.  ANY NOTICE OR COMMUNICATION
REQUIRED OR DESIRED TO BE SERVED, GIVEN OR DELIVERED HEREUNDER SHALL BE IN THE
FORM AND MANNER SPECIFIED BELOW, AND SHALL BE ADDRESSED TO THE PARTY TO BE
NOTIFIED AS FOLLOWS:

 

If to Lender:

 

James F. Mosier, Esq.

 

 

General Counsel and Secretary

 

 

PICO Holdings, Inc.

 

 

875 Prospect Street, Suit 301

 

 

La Jolla, CA 92037

 

 

Phone: 858.456.6022

 

 

Fax: 858.456.6480

 

 

 

If to Borrower:

 

Randall J. Frapart

 

 

Senior Vice President and Chief
Financial Officer

 

 

Hyperfeed Technologies, Inc.

 

 

300 South Wacker Drive, #300

 

 

Chicago, IL 60606

 

or to such other address as each party designates to the other by notice in the
manner herein prescribed.  Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by national
overnight delivery service, (iii) mailed by first-class United States mail,
postage prepaid, registered or certified, with return receipt requested, or (iv)
sent via telecopy machine with a duplicate signed copy sent on the same day as
provided in clause (ii) above.  Notice mailed as provided in clause (iii) above
shall be effective upon the expiration of three (3) business days after its
deposit in the United States mail, and notice telecopied as provided in clause
(iv) above shall be effective upon receipt of such telecopy if the duplicate
signed copy is sent under clause (iv) above.  Notice given in any other manner
described in this section shall be effective upon receipt by the addressee
thereof; provided, however, that if any notice is tendered to an addressee and
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender unless expressly set forth in such notice.

 

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4.                                       LENDER’S RIGHTS; BORROWER WAIVERS. 
LENDER’S ACCEPTANCE OF PARTIAL OR DELINQUENT PAYMENT FROM BORROWER HEREUNDER, OR
LENDER’S FAILURE TO EXERCISE ANY RIGHT HEREUNDER, SHALL NOT CONSTITUTE A WAIVER
OF ANY OBLIGATION OF BORROWER HEREUNDER, OR ANY RIGHT OF LENDER HEREUNDER, AND
SHALL NOT AFFECT IN ANY WAY THE RIGHT TO REQUIRE FULL PERFORMANCE AT ANY TIME
THEREAFTER.   BORROWER WAIVES PRESENTMENT, DILIGENCE, DEMAND OF PAYMENT, NOTICE,
PROTEST AND ALL OTHER DEMANDS AND NOTICES IN CONNECTION WITH THE DELIVERY,
ACCEPTANCE, PERFORMANCE, DEFAULT OR ENFORCEMENT OF THIS NOTE.  IN ANY ACTION ON
THIS NOTE, LENDER NEED NOT PRODUCE OR FILE THE ORIGINAL OF THIS NOTE, BUT NEED
ONLY FILE A PHOTOCOPY OF THIS NOTE CERTIFIED BY LENDER BE A TRUE AND CORRECT
COPY OF THIS NOTE IN ALL MATERIAL RESPECTS.

 

5.                                       ENFORCEMENT COSTS.  BORROWER SHALL PAY
ALL REASONABLE COSTS AND EXPENSES, INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS’ FEES AND EXPENSES LENDER EXPENDS OR INCURS IN CONNECTION WITH THE
ENFORCEMENT OF THE LOAN DOCUMENTS, THE COLLECTION OF ANY SUMS DUE THEREUNDER,
ANY ACTIONS FOR DECLARATORY RELIEF IN ANY WAY RELATED TO THE LOAN DOCUMENTS, OR
THE PROTECTION OR PRESERVATION OF ANY RIGHTS OF THE HOLDER THEREUNDER.

 

6.                                       SEVERABILITY.  WHENEVER POSSIBLE EACH
PROVISION OF THIS NOTE SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE
AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION IS PROHIBITED BY OR INVALID
UNDER APPLICABLE LAW, IT SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION
OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF THE PROVISION OR THE
REMAINING PROVISIONS OF THIS NOTE.

 

7.                                       AMENDMENT PROVISIONS.  THIS NOTE MAY
NOT BE AMENDED OR MODIFIED, NOR MAY ANY OF ITS TERMS BE WAIVED, EXCEPT BY
WRITTEN INSTRUMENTS SIGNED BY BORROWER AND LENDER.

 

8.                                       BINDING EFFECT.  THIS NOTE SHALL BE
BINDING UPON, AND SHALL INURE TO THE BENEFIT OF, BORROWER AND THE HOLDER HEREOF
AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS; PROVIDED, HOWEVER, THAT BORROWER’S
RIGHTS AND OBLIGATIONS SHALL NOT BE ASSIGNED OR DELEGATED WITHOUT LENDER’S PRIOR
WRITTEN CONSENT, GIVEN IN ITS SOLE DISCRETION, AND ANY PURPORTED ASSIGNMENT OR
DELEGATION WITHOUT SUCH CONSENT SHALL BE VOID AB INITIO.

 

9.                                       TIME OF ESSENCE.  TIME IS OF THE
ESSENCE OF EACH AND EVERY PROVISION OF THIS NOTE.

 

10.                                 HEADINGS.  SECTION HEADINGS USED IN THIS
NOTE HAVE BEEN SET FORTH HEREIN FOR CONVENIENCE OF REFERENCE ONLY.  UNLESS THE
CONTRARY IS COMPELLED BY THE CONTEXT, EVERYTHING CONTAINED IN EACH SECTION
HEREOF APPLIES EQUALLY TO THIS ENTIRE NOTE.

 

 

[The remainder of this page is intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Note to be executed as
of the date first above written.

 

 

 

BORROWER:

 

HYPERFEED TECHNOLOGIES, INC.

 

 

 

 

 

By:

/s/ Randall J. Frapart

 

 

 

 

Title:

SVP and CFO

 

 

 

 

LENDER:

 

PICO HOLDINGS, INC.

 

 

 

 

 

By:

/s/ Max Webb

 

 

 

 

Title:

CFO

 

 

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DEBTOR:

 

Hyperfeed Technologies, Inc.

SECURED PARTY:

 

PICO Holdings, Inc.

 

EXHIBIT A

 

COLLATERAL DESCRIPTION ATTACHMENT
TO SECURED CONVERTIBLE PROMISSORY NOTE

 

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:

 

(a)                                all accounts (including health-care-insurance
receivables), chattel paper (including tangible and electronic chattel paper),
deposit accounts, documents (including negotiable documents), equipment
(including all accessions and additions thereto), general intangibles (including
payment intangibles and software), goods (including fixtures), instruments
(including promissory notes), inventory (including all goods held for sale or
lease or to be furnished under a contract of service, and including returns and
repossessions), investment property (including securities and securities
entitlements), letter of credit rights, money, and all of Debtor’s books and
records with respect to any of the foregoing, and the computers and equipment
containing said books and records;

 

(b)                               all common law and statutory copyrights and
copyright registrations, applications for registration, now existing or
hereafter arising, in the United States of America or in any foreign
jurisdiction, obtained or to be obtained on or in connection with any of the
forgoing, or any parts thereof or any underlying or component elements of any of
the forgoing, together with the right to copyright and all rights to renew or
extend such copyrights and the right (but not the obligation) of Secured Party
to sue in its own name and/or in the name of the Debtor for past, present and
future infringements of copyright;

 

(c)                                all trademarks, service marks, trade names
and service names and the goodwill associated therewith, together with the right
to trademark and all rights to renew or extend such trademarks and the right
(but not the obligation) of Secured Party to sue in its own name and/or in the
name of the Debtor for past, present and future infringements of trademark;

 

(d)                               all (i) patents and patent applications filed
in the United States Patent and Trademark Office or any similar office of any
foreign jurisdiction, and interests under patent license agreements, including,
without limitation, the inventions and improvements described and claimed
therein, (ii) licenses pertaining to any patent whether Debtor is licensor or 
licensee, (iii) income, royalties, damages, payments, accounts and accounts
receivable now or hereafter due and/or payable under and with respect thereto,
including, without limitation, damages and payments for past, present or future
infringements thereof, (iv) right (but not the obligation) to sue in the name of
Debtor and/or in the name of Secured Party for past, present and future
infringements thereof, (v) rights corresponding thereto throughout the world in
all jurisdictions in which such patents have been issued or applied for, and
(vi) reissues, divisions, continuations, renewals, extensions and
continuations-in-part with respect to any of the foregoing; and

 

(e)                                any and all cash proceeds and/or noncash
proceeds of any of the foregoing, including, without limitation, insurance
proceeds, and all supporting obligations and the security therefor or for any
right to payment.  All terms above have the meanings given to them in the
California Uniform Commercial Code, as amended or supplemented from time to
time, including revised Division 9 of the Uniform Commercial Code-Secured
Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July
1, 2004.

 

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EXHIBIT B

Copyrights

 

Description

 

Registration
Number

 

Registration
Date

 

None

 

 

 

 

 

 

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EXHIBIT C

Patents

 

Description

 

Registration/
Application
Number

 

Registration/
Application Date

 

None

 

 

 

 

 

 

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EXHIBIT D

Trademarks

 

Description

 

Registration/
Application
Number

 

Registration/
Application Date

 

None

 

 

 

 

 

 

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Schedule of Exceptions

 

Section G3

 

Borrower is a party to Senior Indebtedness (as defined in F1) which is secured
by Intellectual Property Collateral, among other things.

 

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