Exhibit 10.1

 

NOTE PURCHASE AGREEMENT

 

Among

 

XPLORE TECHNOLOGIES CORP.

 

XPLORE TECHNOLOGIES CORPORATION OF AMERICA

 

and

 

THE PURCHASERS

 

 

Dated February 27, 2009

 

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TABLE OF CONTENTS

 

1.

Purchase and Sale of the Notes and the Warrants

 

2

 

 

 

 

 

 

1.1

Authorization of Issuance of the Notes and the Warrants

 

2

 

1.2

Purchase and Sale of Initial Closing Notes and Initial Closing Warrants

 

2

 

1.3

Purchase and Sale of Additional Notes and Additional Warrants

 

2

 

1.4

Use of Proceeds

 

2

 

1.5

Initial Closing

 

2

 

1.6

Subsequent Closings

 

3

 

 

 

 

 

2.

Term of the Notes; Security for the Notes; Subordination; Priority

 

3

 

 

 

 

 

 

2.1

General

 

3

 

2.2

Security

 

3

 

2.3

Subordination

 

4

 

2.4

Pari Passu with Fall 2008 Notes

 

4

 

 

 

 

 

3.

Representations and Warranties of the Borrowers

 

4

 

 

 

 

 

 

3.1

Organization and Qualification

 

4

 

3.2

Certificate of Incorporation and Bylaws

 

4

 

3.3

Corporate Power and Authority

 

4

 

3.4

Capitalization

 

5

 

3.5

Authorization

 

5

 

3.6

Title to Properties and Assets; Leases; Insurance

 

5

 

3.7

Related-Party Transactions

 

6

 

3.8

Permits; Compliance with Applicable Laws

 

6

 

3.9

Proprietary Rights

 

6

 

3.10

Material Contracts

 

7

 

3.11

Absence of Undisclosed Liabilities

 

7

 

3.12

Absence of Conflicts

 

7

 

3.13

Litigation

 

8

 

3.14

Consents

 

8

 

3.15

Labor Relations; Employees

 

8

 

3.16

Employee Benefit Plans

 

8

 

3.17

Tax Returns, Payments and Elections

 

8

 

3.18

Brokers or Finders

 

9

 

3.19

Offering Exemption

 

9

 

3.20

Environmental Matters

 

9

 

3.21

Offering of Purchased Shares and Warrants

 

10

 

3.22

SEC Reports; Disclosure

 

10

 

3.23

Financial Statements

 

10

 

3.24

Suppliers and Customers

 

11

 

 

 

 

 

4.

Representations and Warranties of the Purchasers

 

11

 

 

 

 

 

 

4.1

Organization and Qualification

 

11

 

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4.2

Power and Authority

 

11

 

4.3

Authorization

 

11

 

4.4

Purchase Entirely for Own Account

 

12

 

4.5

Disclosure of Information

 

12

 

4.6

Investment Experience

 

12

 

4.7

Accredited Investor

 

12

 

4.8

Restricted Securities; Legends

 

12

 

4.9

No General Solicitation

 

13

 

4.10

Absence of Conflicts

 

13

 

4.11

Brokers or Finders

 

13

 

 

 

 

 

5.

Conditions of the Parties

 

13

 

 

 

 

 

 

5.1

Conditions of Purchasers’ Obligations at any Closing

 

13

 

5.2

Conditions of Initial Purchasers’ Obligations at the Initial Closing

 

14

 

5.3

Conditions of Additional Purchasers’ Obligations at any Subsequent Closing

 

15

 

5.4

Conditions of Borrowers’ Obligations at any Closing

 

15

 

 

 

 

 

6.

Events of Default and Remedies

 

16

 

 

 

 

 

 

6.1

Events of Default

 

16

 

6.2

Exercise of Remedies

 

18

 

6.3

Waiver of Defaults

 

18

 

 

 

 

 

7.

Debt Covenants

 

18

 

 

 

 

 

 

7.1

General

 

18

 

 

 

 

 

8.

Indemnification

 

18

 

 

 

 

 

 

8.1

General Indemnification

 

18

 

8.2

Indemnification Principles

 

18

 

8.3

Claim Notice; Right to Defend

 

19

 

 

 

 

 

9.

Certain Definitions

 

19

 

 

 

 

 

10.

[RESERVED]

 

24

 

 

 

 

 

11.

Miscellaneous

 

24

 

 

 

 

 

 

11.1

Survival of Representations and Warranties

 

24

 

11.2

Successors and Assigns

 

24

 

11.3

Governing Law

 

24

 

11.4

Counterparts

 

24

 

11.5

Titles and Subtitles

 

24

 

11.6

Notices

 

24

 

11.7

Expenses

 

25

 

11.8

Consents, Amendments and Waivers

 

25

 

11.9

Severability

 

25

 

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11.10

Entire Agreement

 

25

 

11.11

Delays or Omissions

 

26

 

11.12

Facsimile and E-Mail Signatures

 

26

 

11.13

Other Remedies

 

26

 

11.14

Further Assurances

 

26

 

11.15

Exchanges; Lost, Stolen or Mutilated Notes and Warrants

 

26

 

11.16

Termination

 

27

 

11.17

Pro Rata

 

27

 

11.18

Appointment and Authorization of Phoenix Venture Fund LLC as Agent

 

27

 

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Exhibit & Schedules List

 

Exhibit A

 

-

 

Form of Note

Exhibit B

 

-

 

Form of Warrant

Exhibit C

 

-

 

Form of Amendment No. 1 to the Security Agreement

Exhibit D

 

-

 

Form of Subordination Agreement

Exhibit E

 

-

 

Debt Covenants

 

 

 

 

 

Schedule I

 

 

 

List of Initial Purchasers

Schedule II

 

 

 

List of Additional Purchasers

 

iv

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NOTE PURCHASE AGREEMENT

 

THIS NOTE PURCHASE AGREEMENT (this “Agreement”) is made on the 27th day of
February, 2009, by and among Xplore Technologies Corp., a Delaware corporation
(the “Parent”), Xplore Technologies Corporation of America, a Delaware
corporation and wholly-owned subsidiary of the Parent (the “Subsidiary” and
collectively with the Parent, the “Borrowers”), and the purchasers listed on
Schedule I hereto, each of which is herein referred to as an “Initial Purchaser”
and the purchasers listed from time to time on Schedule II hereto, each of which
is herein referred to as an “Additional Purchaser”, and collectively, as the
“Purchasers”.

 

W I T N E S S E T H:

 

WHEREAS, subject to the terms and conditions set forth herein, the Borrowers
desire to issue and sell to the Initial Purchasers on the Initial Closing Date
(i) secured subordinated promissory notes in the aggregate principal amount of
not greater than $1,500,000 maturing on the Maturity Date (each, an “Initial
Closing Note” and, collectively, the “Initial Closing Notes”) and (ii) warrants
to purchase up to such number of shares of Common Stock as determined by
dividing (x) 100% of the aggregate principal amount of the Initial Closing Notes
purchased by such Initial Purchasers, by (y) the Warrant Exercise Price (each,
an “Initial Closing Warrant” and, collectively, the “Initial Closing Warrants”),
and the Initial Purchasers shall purchase the Initial Closing Notes and the
Initial Closing Warrants from the Borrowers on the terms and conditions set
forth herein;

 

WHEREAS, subject to the terms and conditions set forth herein, the Borrowers
desire to issue and sell to the Additional Purchasers on any Subsequent Closing
Date (i) secured subordinated promissory notes in the aggregate principal amount
which together with the aggregate principal amount of the Initial Closing Notes
does not exceed $1,500,000 maturing on the Maturity Date (each, an “Additional
Note” and, collectively, the “Additional Notes” and, together with the Initial
Closing Notes, the “Notes”) and (ii) warrants to purchase such number of shares
of Common Stock as determined by dividing (x) 100% of the aggregate principal
amount of the Additional Notes purchased by such Additional Purchasers, by
(y) the Warrant Exercise Price (each, an “Additional Warrant” and, collectively,
the “Additional  Warrants” and together with the Initial Closing Warrants, the
“Warrants”), and such Additional Purchasers shall purchase such Additional Notes
and such Additional Warrants from the Borrowers on the terms and conditions set
forth herein; and

 

WHEREAS, the board of directors of each of the Parent and of the Subsidiary has
approved the execution and delivery of this Agreement, all ancillary agreements
related hereto, and the transactions contemplated hereby.

 

NOW, THEREFORE, in consideration of the premises and agreements contained in
this Agreement, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, THE PARTIES HEREBY AGREE AS
FOLLOWS:

 

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1.                                       Purchase and Sale of the Notes and the
Warrants.

 

1.1                                 AUTHORIZATION OF ISSUANCE OF THE NOTES AND
THE WARRANTS.

 

(A)                                  SUBJECT TO THE TERMS AND CONDITIONS OF THIS
AGREEMENT, ON OR PRIOR TO THE INITIAL CLOSING DATE, THE BORROWERS SHALL HAVE
AUTHORIZED THE ISSUANCE AND SALE TO THE INITIAL PURCHASERS OF (I) THE INITIAL
CLOSING NOTES, IN THE FORM ATTACHED HERETO AS EXHIBIT A, AND (II) THE INITIAL
CLOSING WARRANTS, IN THE FORM ATTACHED HERETO AS EXHIBIT B.

 

(B)                                 SUBJECT TO THE TERMS AND CONDITIONS OF THIS
AGREEMENT, ON OR PRIOR TO ANY SUBSEQUENT CLOSING DATE, THE BORROWERS SHALL HAVE
AUTHORIZED THE ISSUANCE AND SALE TO THE ADDITIONAL PURCHASERS OF (I) ALL
ADDITIONAL NOTES TO BE ISSUED AT ANY SUBSEQUENT CLOSING IN THE FORM ATTACHED
HERETO AS EXHIBIT A, AND (II) THE ADDITIONAL WARRANTS, IN THE FORM ATTACHED
HERETO AS EXHIBIT B.

 

1.2                                 Purchase and Sale of Initial Closing Notes
and Initial Closing Warrants.   Subject to the terms and conditions of this
Agreement, each Initial Purchaser, severally and not jointly, agrees to purchase
at the Initial Closing, and the Borrowers agree to issue and sell to each such
Initial Purchaser at the Initial Closing (i) an Initial Closing Note, dated as
of the Initial Closing Date in the original principal amount equal to the dollar
amount set forth opposite such Initial Purchaser’s name under the heading
“Initial Closing Note Purchase Price” on Schedule I hereto and (ii) Initial
Closing Warrants for such shares of Common Stock as set forth opposite such
Initial Purchaser’s name under the heading “Number of Initial Closing Warrant
Shares” on Schedule I hereto, in exchange for the amount set forth opposite such
Initial Purchaser’s name under the heading “Initial Closing Note Purchase Price”
on Schedule I hereto.

 

1.3                                 Purchase and Sale of Additional Notes and
Additional Warrants.  At any time and from time to time, but in no event later
than ninety (90) days after the Initial Closing Date, one or more Additional
Purchasers may purchase at one or more Subsequent Closings, (i) Additional
Notes, the aggregate purchase price of which, together with the aggregate
purchase price of the Initial Closing Notes, shall not exceed $1,500,000 and
(ii) Additional Warrants for the number of shares of Common Stock as determined
by dividing (x) 100% of the principal amount of such Additional Notes purchased
by such Additional Purchasers by the Warrant Exercise Price. Schedule II
attached hereto shall be amended from time to time concurrent with each
Subsequent Closing to include the names of the Additional Purchasers purchasing
Additional Notes and Additional Warrants at such Subsequent Closing, as well as
the purchase price of the Additional Notes, and  the number of shares of Common
Stock that can be purchased on exercise of the Additional Warrants.  The
aggregate purchase price for the Notes and Warrants shall not exceed $1,500,000.

 

1.4                                 Use of Proceeds.  The Borrowers agree to use
the net proceeds from the sale and issuance of the Notes and Warrants pursuant
to this Agreement for working capital, product development, and other general
corporate purposes.

 

1.5                                 Initial Closing.  The purchase and sale of
the Initial Closing Notes and the Initial Closing Warrants shall take place at
the offices of Pillsbury Winthrop Shaw Pittman LLP, 1540 Broadway, New York, New
York 10036, promptly upon the satisfaction or waiver of the

 

2

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closing conditions set forth in Section 5.1, 5.2 and 5.4 hereto, but not later
than February 27, 2009, or on such other date and at such other time as the
Borrowers and Phoenix Venture Fund LLC, as Agent for the Purchasers (the
“Agent”), mutually agree upon in writing (which time and place is designated as
the “Initial Closing”).  The date of the Initial Closing is referred to herein
as the “Initial Closing Date.”  At the Initial Closing, the Borrowers shall
deliver to each Initial Purchaser (i) Initial Closing Notes, in an original
principal amount equal to the dollar amount set forth opposite such Initial
Purchaser’s name under the heading “Initial Closing Note Purchase Price” on
Schedule I hereto and (ii) Initial Closing Warrants entitling such Initial
Purchaser to purchase the number of shares of Common Stock set forth opposite
such Initial Purchaser’s name under the heading “Number of Initial Closing
Warrant Shares” on Schedule I hereto, all against payment in the amounts set
forth opposite such Initial  Purchaser’s name under the heading “Initial Closing
Note Purchase Price” on Schedule I hereto, by wire transfer of immediately
available funds to such account as the Borrowers designate.

 

1.6                                 Subsequent Closings.  Upon the purchase of
any Additional Notes and Additional Warrants subject to the satisfaction or
waiver of the closing conditions set forth in Sections 5.1, 5.3 and 5.4,
Subsequent Closings shall take place at the offices of Pillsbury Winthrop Shaw
Pittman LLP, 1540 Broadway, New York, New York 10036, on such date and at such
time as the Borrowers and the Agent, acting on behalf of the Purchasers,
mutually agree upon in writing (each, a “Subsequent Closing” and collectively,
the “Subsequent Closings”).  The date of each applicable Subsequent Closing is
referred to herein as a “Subsequent Closing Date.” At each Subsequent Closing,
the Borrowers shall deliver to each Additional Purchaser (i) an Additional Note,
dated as of such Subsequent Closing Date, in an original principal amount equal
to the dollar amount set forth opposite such Additional Purchaser’s name under
the heading “Additional Note Purchase Price” on Schedule II hereto, which shall
be updated by the Borrower and the Agent, acting on behalf of the Purchasers,
from time to time as necessary upon each Subsequent Closing, with respect to
such Additional Purchaser and (ii) Additional Warrants for the number of shares
of Common Stock set forth opposite such Additional Purchaser’s name under the
heading “Number of Additional Closing Warrant Shares” in Schedule II hereto.

 

2.                                       Term of the Notes; Security for the
Notes; Subordination; Priority.

 

2.1                                 General.  The Notes shall be issued in the
aggregate principal amount of up to $1,500,000 and shall bear interest, and
otherwise be in the form attached hereto as Exhibit A.  Payment of all principal
and accrued and unpaid interest on any Note shall be made in full no later than
the Maturity Date.

 

2.2                                 Security.  The Notes shall be equally and
ratably secured by all of the assets of the Borrowers pursuant an amendment (the
“Amendment No. 1 to the Security Agreement”), in substantially the form attached
hereto as Exhibit C, to that certain Security Agreement, dated as of
September 5, 2008, among the Borrowers and the Agent (the “Security Agreement”),
pursuant to such Security Agreement the Borrowers have granted to the Agent,
acting on behalf of the purchasers of the Fall 2008 Notes (as defined below), a
security interest in all of the assets of the Borrowers, subject to the
Permitted Liens.  Amendment No. 1 to the Security Agreement will be entered into
on or prior to the Initial Closing Date by the Borrowers and the Agent, acting
on behalf of the Purchasers, and shall provide the benefits of the security
interest in the Borrowers’ assets to the Purchasers.

 

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2.3                                 Subordination.  The right of repayment of
principal of and interest on the Notes and the security interest of the
Purchasers in the assets of the Borrowers shall be subordinated to (a) the
rights and security interest of Silicon Valley Bank (“SVB”) under the Loan and
Security Agreement by and between SVB and the Subsidiary dated as of
September 15, 2005, as amended (as the same may from time to time be further
amended, modified, supplemented or restated, the “Senior Credit Agreement”), in
accordance with the Subordination Agreement in substantially the form attached
hereto as Exhibit D (the “Subordination Agreement) and (b) the rights of any
Senior Lender in connection with any Senior Credit Facility reasonably
acceptable to the Agent, acting on  behalf of the Purchasers, pursuant to a
subordination agreement containing terms no less favorable, as a whole, to the
Purchasers than the terms of the Subordination Agreement and shall be subject to
the Permitted Liens.

 

2.4                                 Pari Passu with Fall 2008 Notes.  The right
of repayment of principal and interest on the Notes and to the distribution of
any Collateral shall rank pari passu with the right of repayment of principal
and interest on the subordinated secured notes issued by the Borrowers in
September and October 2008 in the aggregate principal amount of $3,000,000 (the
“Fall 2008 Notes”).  The security interest of the Purchasers in the Notes shall
rank pari passu with the security interest of the purchasers of the Fall 2008
Notes in the assets of the Borrowers, whether upon liquidation or dissolution,
or otherwise.

 

3.                                       Representations and Warranties of the
Borrowers.

 

The Borrowers, jointly and severally, hereby represent and warrant to each
Purchaser as of the Initial Closing Date and in the case of any Additional
Purchasers as of such Subsequent Closing Date, the following, except as
expressly set forth on the Disclosure Schedule, specifically identifying or
cross-referencing the relevant Sections hereof, which Disclosure Schedule shall
be deemed to be part of the representations and warranties as if made hereunder:

 

3.1                                 Organization and Qualification.  Each of the
Borrowers is duly organized, validly existing and in good standing under the
Laws of the State of Delaware and has the requisite power and authority to own,
lease and operate its assets, properties and business and to carry on its
business as it is now being conducted or proposed to be conducted.  Each of the
Borrowers is duly qualified as a foreign corporation to transact business, and
is in good standing, in each jurisdiction where it owns or leases real property
or maintains employees or where the nature of its activities make such
qualification necessary, except where such failure to qualify could not
reasonably be expected to have a Material Adverse Effect.

 

3.2                                 Certificate of Incorporation and Bylaws. 
The Parent has delivered to the Agent, acting on behalf of the Purchasers, true,
correct, and complete copies of the certificate of incorporation of the Parent
and the Subsidiary as in effect on the date hereof (each a “Certificate of
Incorporation” and collectively the “Certificates of Incorporation”) and each of
their bylaws as in effect on the date hereof (each a “Bylaw” and collectively
the “Bylaws”).

 

3.3                                 Corporate Power and Authority.  Each of the
Borrowers has all requisite corporate power and authority to execute and deliver
the Loan Documents and this Agreement to which it is a party.  The Borrowers
have all requisite corporate power and authority to issue and sell the Notes and
the Warrants to the Purchasers hereunder.  Each of the Borrowers has all

 

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requisite corporate power and authority to carry out and perform its obligations
under the terms of this Agreement and the Loan Documents.  Each of the Borrowers
has all requisite corporate power and authority to sell and issue the Notes and
the Warrants.

 

3.4                                 Capitalization.  Immediately prior to the
date hereof, the Parent is authorized to issue 410,000,000 shares of capital
stock of which (i) 300,000,000 are designated as Common Stock, of which
85,105,778 shares are issued and outstanding (ii) and 110,000,000 are designated
as Preferred Stock, of which (A) 64,000,000 are designated as Series A Preferred
Stock of which 63,178,777 shares are issued and outstanding, (B) 10,000,000 of
which are designated Series B Preferred Stock of which 9,000,277 shares are
issued and outstanding, (C) 20,000,000 of which are designated Series C
Preferred Stock of which 15,274,000 shares are issued and outstanding.  The
Parent owns all of the issued and outstanding capital stock of the Subsidiary.

 

3.5                                 Authorization.  The execution, delivery and
performance by each Borrower of this Agreement and the Loan Agreements, the
sale, issuance and delivery of the Notes and the Warrants and the performance of
all of the obligations of the Borrowers under this Agreement and each of the
Loan Documents have been authorized by each Borrower’s Board of Directors, no
other corporate action on the part of any Borrower and no other corporate or
other approval or authorization is required on the part of any Borrower or any
other Person, by Law or otherwise, in order to make this Agreement and the Loan
Documents the valid, binding and enforceable obligations (subject to (i) Laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors, and (ii) rules of Law governing specific performance, injunctive
relief, or other equitable remedies) of the Borrowers, as the case may be. This
Agreement and each of the Loan Documents, when executed and delivered by each of
the Borrowers that is a party thereto, will constitute a valid and legally
binding obligation of such Borrower, enforceable against such Borrower in
accordance with its respective terms, subject to (i) Laws of general application
relating to bankruptcy, insolvency, and the relief of debtors, and (ii) rules of
Law governing specific performance, injunctive relief, or other equitable
remedies.

 

3.6                                 Title to Properties and Assets; Leases;
Insurance.

 

(A)                                  NEITHER BORROWER CURRENTLY OWNS ANY REAL
PROPERTY NOR HAS EVER OWNED ANY REAL PROPERTY.  EACH OF THE BORROWERS HAS GOOD
AND MARKETABLE TITLE TO OR HAS A VALID LEASEHOLD INTEREST IN, OR LICENSE TO USE,
ALL OF THE PROPERTY OR ASSETS USED BY IT OR LOCATED ON ITS PREMISES AND
NECESSARY FOR THE CONDUCT OF BUSINESS AS PRESENTLY CONDUCTED, FREE AND CLEAR OF
ALL LIENS, OTHER THAN PERMITTED LIENS.

 

(B)                                 WITH RESPECT TO THE INSURANCE POLICIES AND
FIDELITY BONDS COVERING THE ASSETS, BUSINESS, EQUIPMENT, PROPERTIES, OPERATIONS,
EMPLOYEES, OFFICERS AND DIRECTORS OF EACH BORROWER, THERE IS NO CLAIM BY EITHER
BORROWER PENDING UNDER ANY OF SUCH POLICIES OR BONDS AS TO WHICH COVERAGE HAS
BEEN DENIED OR DISPUTED BY THE UNDERWRITERS OF SUCH POLICIES OR BONDS WHICH
COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.  ALL PREMIUMS
DUE AND PAYABLE UNDER ALL SUCH POLICIES AND BONDS HAVE BEEN PAID AND EACH
BORROWER, AS APPLICABLE, IS OTHERWISE IN COMPLIANCE IN ALL MATERIAL RESPECTS
WITH THE TERMS OF SUCH POLICIES AND BONDS.  NEITHER BORROWER HAS ANY KNOWLEDGE
OF ANY THREATENED TERMINATION OF, OR MATERIAL PREMIUM INCREASE WITH RESPECT TO,
ANY OF SUCH POLICIES.  EACH BORROWER MAINTAINS INSURANCE IN SUCH AMOUNTS,

 

5

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INCLUDING (AS APPLICABLE) SELF-INSURANCE, RETAINAGE AND DEDUCTIBLE ARRANGEMENTS,
AND OF SUCH A CHARACTER AS IS REASONABLE FOR COMPANIES ENGAGED IN THE SAME OR
SIMILAR BUSINESS SIMILARLY SITUATED.

 

3.7                                 Related-Party Transactions.  No employee,
officer, shareholder, director or consultant of the Borrowers or member of the
immediate family (defined as parents, spouse, siblings or lineal descendants) of
any such officer or director is indebted to either of the Borrowers for borrowed
money, and neither Borrower is indebted for borrowed money (or committed to make
loans or extend or guarantee credit) to any of them other than for reimbursement
of expenses incurred in connection with their service to such Borrower, and
amounts accrued but not yet due to employees and other service providers. To the
Knowledge of the Borrowers, except as provided for in this Agreement and the
Loan Documents and except as set forth in the SEC Reports, (a) no employee,
officer, shareholder, director or consultant of such Borrower or any member of
the immediate family of any such officer or director is, directly or indirectly,
interested in any Material Contract or has any other material business
relationship with any Borrower, except stock ownership in or employment with a
Borrower and (b) no officer, director of such Borrower or any member of the
immediate family of such officer or director has any material business
relationship with any competitor of such Borrower.

 

3.8                                 Permits; Compliance with Applicable Laws. 
Each Borrower has all franchises, permits, licenses, authorizations, approvals,
registrations and any similar authority necessary for the conduct of its
business as now being conducted by it except for those the absence of which
could not reasonably be expected to have a Material Adverse Effect (the
“Permits”).  Neither Borrower is in violation in any material respect of, or
default in any material respect under, any such Permits. All such Permits are in
full force and effect, and to the Borrower’s Knowledge, no violations in any
material respect have been recorded in respect of any such Permits; no
proceeding is pending or, to the Borrower’s Knowledge, threatened to revoke or
limit any such Permit; and no such Permit will be suspended, cancelled or
adversely modified as a result of the execution and delivery of this Agreement
and the Loan Documents.  Each Borrower is in compliance in all respects with all
applicable Laws, except where the failure to so comply could not reasonably be
expected to have a Material Adverse Effect.

 

3.9                                 Proprietary Rights.  Each Borrower is the
sole owner, free and clear of any Liens, other than Permitted Liens, or has a
valid license, without the payment of any royalty (except with respect to
off-the-shelf software that is licensed by such Borrower) and otherwise on
commercially reasonable terms, to, all Proprietary Rights material to the
business of such Borrower.  As used herein, the term “Proprietary Rights” means
each Borrower’s patents, trademarks, trade names, service marks, logos, designs,
formulations, copyrights, and other trade rights and all registrations and
applications therefor, all know-how, trade secrets, technology or processes,
research and development, all Internet domain addresses, Web sites and computer
programs, data bases and software documentation and all other intellectual
property owned, licensed or otherwise used by such Borrower (other than
off-the-shelf software that is licensed by such Borrower).  Neither Borrower has
received any written demand, claim, notice or inquiry from any person or entity
in respect of the Proprietary Rights material to the business of such Borrower
which challenges, threatens to challenge or inquires as to whether there is any
basis to challenge, the validity of, or the rights of such Borrower in such
Proprietary Rights, and neither Borrower has  Knowledge of any basis for any
such challenge.  To each Borrower’s Knowledge,

 

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such Borrower is not in violation or infringement of, and has not violated or
infringed, any intellectual property rights of any other person or entity.  To
such Borrower’s Knowledge no third party is infringing on the rights of such
Borrower in and to such Proprietary Rights.

 

3.10                           Material Contracts.  (a)  All material agreements
of each Borrower (collectively, the “Material Contracts”) are included as
exhibits to the Parent’s filings with the SEC.  The SEC Reports disclose all
financing arrangements of the Borrowers relating to the assets or liabilities of
the Borrowers.

 

(B)                                 ASSUMING THE DUE EXECUTION AND DELIVERY BY
THE OTHER PARTIES THERETO, EACH OF SUCH MATERIAL CONTRACTS IS AS OF THE DATE
HEREOF LEGAL, VALID AND BINDING, AND IN FULL FORCE AND EFFECT, AND ENFORCEABLE
IN ACCORDANCE WITH ITS TERMS, SUBJECT TO (I) LAWS OF GENERAL APPLICATION
RELATING TO BANKRUPTCY, INSOLVENCY, AND THE RELIEF OF DEBTORS, AND (II) RULES OF
LAW GOVERNING SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF, OR OTHER EQUITABLE
REMEDIES.  THERE IS NO MATERIAL BREACH, VIOLATION OR DEFAULT BY A BORROWER UNDER
ANY SUCH MATERIAL CONTRACT, AND TO EACH BORROWER’S KNOWLEDGE, (X) NO MATERIAL
CONTRACT HAS EXPIRED OR BEEN TERMINATED IN ACCORDANCE WITH ITS TERMS AND (Y) NO
EVENT (INCLUDING, WITHOUT LIMITATION, THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT) HAS OCCURRED WHICH, WITH NOTICE OR LAPSE OF TIME OR BOTH, WOULD
(A) CONSTITUTE A MATERIAL BREACH, VIOLATION OR DEFAULT BY A BORROWER UNDER ANY
SUCH MATERIAL CONTRACT, OR (B) GIVE RISE TO ANY LIEN (OTHER THAN A PERMITTED
LIEN) OR RIGHT OF TERMINATION, MODIFICATION, CANCELLATION, PREPAYMENT,
SUSPENSION, LIMITATION, REVOCATION OR ACCELERATION AGAINST A BORROWER UNDER ANY
SUCH MATERIAL CONTRACT, WHICH EXPIRATION, TERMINATION OR EVENT WOULD CAUSE A
MATERIAL ADVERSE EFFECT.  EXCEPT AS DISCLOSED IN THE SEC REPORTS, NEITHER
BORROWER IS AND, TO THE SUCH BORROWER’S KNOWLEDGE, NO OTHER PARTY TO ANY OF SUCH
MATERIAL CONTRACT IS IN ARREARS IN RESPECT OF THE PERFORMANCE OR SATISFACTION OF
ANY MATERIAL TERMS OR CONDITIONS ON ITS PART TO BE PERFORMED OR SATISFIED UNDER
ANY OF SUCH MATERIAL CONTRACT, AND NEITHER BORROWER HAS AND, TO SUCH BORROWER’S
KNOWLEDGE, NO OTHER PARTY THERETO HAS GRANTED OR BEEN GRANTED ANY MATERIAL
WAIVER OR INDULGENCE UNDER ANY OF SUCH MATERIAL CONTRACT OR REPUDIATED ANY
PROVISION THEREOF.

 

3.11                           Absence of Undisclosed Liabilities.  Except as
set forth in the SEC Reports or arising in the ordinary course since the date of
the most recent balance sheet filed with the SEC, neither Borrower has any
liabilities of any type, whether absolute or contingent.

 

3.12                           Absence of Conflicts.  Neither Borrower is in
violation of or default under any provision of its Certificate of Incorporation
or its Bylaws.  The execution, delivery, and performance of, and compliance with
the Loan Documents and this Agreement, and the consummation of the transactions
contemplated hereby and thereby, have not and will not:

 

(A)                                  VIOLATE, CONFLICT WITH OR RESULT IN A
BREACH OF ANY PROVISION OF OR CONSTITUTE A DEFAULT (OR AN EVENT WHICH, WITH
NOTICE OR LAPSE OF TIME OR BOTH, WOULD CONSTITUTE A DEFAULT) UNDER, OR RESULT IN
THE TERMINATION OF, OR ACCELERATE THE PERFORMANCE REQUIRED BY, ANY OF THE TERMS,
CONDITIONS OR PROVISIONS OF (I) BORROWER’S CERTIFICATE OF INCORPORATION OR ITS
BYLAWS, OR (II) ANY MATERIAL CONTRACT, OR RESULT IN THE CREATION OF ANY LIEN
(OTHER THAN A PERMITTED LIEN OR THE LIENS GRANTED UNDER THE SECURITY AGREEMENT)
UPON ANY OF THE ASSETS, PROPERTIES OR BUSINESS OF EITHER BORROWER; OR

 

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(B)                                 VIOLATE ANY JUDGMENT, RULING, ORDER, WRIT,
INJUNCTION, AWARD, DECREE, OR ANY LAW OR REGULATION OF ANY COURT OR FEDERAL,
STATE, COUNTY OR LOCAL GOVERNMENT OR ANY OTHER GOVERNMENTAL, REGULATORY OR
ADMINISTRATIVE AGENCY OR AUTHORITY WHICH IS APPLICABLE TO EITHER BORROWER OR ANY
OF THEIR ASSETS, PROPERTIES OR BUSINESSES.

 

3.13                           Litigation.  Except as disclosed in the SEC
Reports, there is no action, claim, litigation, tax or compliance audit, suit or
proceeding, regulatory or administrative enforcement action or governmental
inquiry or investigation, pending, or, to such Borrower’s Knowledge, any threat
thereof, against such Borrower or any of their officers or directors or the
assets of either Borrower.  To the Borrower’s Knowledge, there is no reason to
believe that any of the foregoing may occur which, in the aggregate, could
reasonably be expected to have a Material Adverse Effect.  Neither Borrower is
subject to any outstanding judgment, order or decree directed against such
Borrower or any officer or director of any thereof.

 

3.14                           Consents.  No consent, approval, waiver or
authorization, or designation, declaration, notification, or filing with any
person or entity (governmental or private), on the part of a Borrower is
required in connection with the valid execution, delivery and performance of the
Loan Documents or this Agreement, the offer, sale or issuance of the Notes and
Warrants (other than such notifications or filings required under applicable
federal or state securities Laws, if any), except for such consents, approvals,
waivers, authorizations, designations, declarations, notifications, or filings
that will be received prior to or as of the Initial Closing Date.

 

3.15                           Labor Relations; Employees.  Each Borrower is in
compliance in all material respects with all Laws relating to the employment of
labor and classification of persons as employees.

 

3.16                           Employee Benefit Plans.  (a)  Except as set forth
in the SEC Reports, the Borrowers have no employment agreements or labor or
collective bargaining agreements and there are no employee benefit or
compensation plans, agreements, arrangements or commitments (including “employee
benefit plans,” as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”)) maintained by either Borrower for
any employees of such Borrower or with respect to which such Borrower has
liability, or makes or has an obligation to make contributions (each a “Company
Employee Plan” and together the “Company Employee Plans”).

 

(B)                                 EACH COMPANY EMPLOYEE PLAN BY ITS TERMS AND
OPERATION IS IN COMPLIANCE IN ALL MATERIAL RESPECTS WITH ALL APPLICABLE LAWS AND
ALL REQUIRED FILINGS, IF ANY, WITH RESPECT TO SUCH COMPANY EMPLOYEE PLAN HAS
BEEN MADE.  THE EVENTS CONTEMPLATED BY THIS AGREEMENT (EITHER ALONE OR TOGETHER
WITH ANY OTHER EVENT) WILL NOT (I) ENTITLE ANY EMPLOYEES TO SEVERANCE PAY,
UNEMPLOYMENT COMPENSATION, OR OTHER SIMILAR PAYMENTS UNDER ANY COMPANY EMPLOYEE
PLAN OR LAW, (II) ACCELERATE THE TIME OF PAYMENT OR VESTING OR INCREASE THE
AMOUNT OF BENEFITS DUE UNDER ANY COMPANY EMPLOYEE PLAN OR COMPENSATION TO ANY
EMPLOYEES OF THE BORROWERS OR (III) RESULT IN ANY PAYMENTS (INCLUDING PARACHUTE
PAYMENTS) UNDER ANY COMPANY EMPLOYEE PLAN OR LAW BECOMING DUE TO ANY EMPLOYEE.

 

3.17                           Tax Returns, Payments and Elections.  Each
Borrower has filed all tax returns and reports (including information returns
and reports) as required by Law except to the

 

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extent that the failure to so file did not and could not reasonably be expected
to have a Material Adverse Effect, and such tax returns and reports are true and
correct in all material respects.  Each Borrower has paid or made provision for
payment of all taxes and other assessments shown as due on such returns.  The
provision for taxes of each Borrower as shown in the Financial Statements (as
hereinafter defined) is adequate in all material respects for all taxes,
assessments and governmental charges due or accrued as of the date thereof with
respect to its business, properties and operations.  Neither Borrower has
elected pursuant to the Internal Revenue Code of 1986, as amended (the “Code”),
to be treated as a Subchapter S corporation pursuant to Section 1362(a) or a
collapsible corporation pursuant to Section 341(f) of the Code, nor has a
Borrower made any other elections pursuant to the Code (other than elections
that relate solely to methods of accounting, depreciation or amortization) that
could reasonably be expected to have a Material Adverse Effect.  Neither
Borrower has had any tax deficiency proposed or assessed against it by the
Internal Revenue Service or any other foreign, federal, state or local taxing
authority and none have been asserted in writing or, to a Borrower’s Knowledge,
threatened at any time for additional taxes.  Neither Borrower has executed any
waiver of any statute of limitations on the assessment or collection of any tax
or governmental charge and none of the foreign, federal, state or local income
or franchise tax or sales or use tax returns have ever been audited by
governmental authorities.  Since December 31, 2008, neither Borrower has
incurred any taxes, assessments or governmental charges other than in the
ordinary course of business.

 

3.18                           Brokers or Finders. Except for John Thomas
Financial, Inc., neither Borrower has incurred, or will incur, directly or
indirectly, as a result of any action taken by either Borrower, any liability
for brokerage or finders’ fees or agents’ commissions or any similar charges in
connection with this Agreement or the issuance of the Notes and the Warrants or
any transaction contemplated hereby or thereby.  The Borrowers agree to
indemnify and hold harmless each Purchaser from any liability for any commission
or compensation in the nature of a finder’s fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Borrowers
or any of their respective officers, employees or representatives is
responsible.

 

3.19                           Offering Exemption.  Assuming the truth and
accuracy of the representations and warranties contained in Section 5, the offer
and sale of the Notes and the Warrants as contemplated hereby and the issuance
and delivery to the Purchasers of the Notes and the Warrants are exempt from
registration under the Securities Act of 1933, as amended (the “Securities
Act”), and will be registered or qualified (or exempt from registration or
qualification) under applicable state securities and “blue sky” Laws, as
currently in effect.

 

3.20                           Environmental Matters.

 

(A)                                  EACH BORROWER COMPLIES AND HAS AT ALL TIMES
COMPLIED WITH ALL FEDERAL, STATE AND LOCAL LAWS, JUDGMENTS, DECREES, ORDERS,
CONSENT AGREEMENTS, AUTHORIZATIONS, PERMITS, LICENSES, RULES, REGULATIONS,
COMMON OR DECISION LAW (INCLUDING, WITHOUT LIMITATION, PRINCIPLES OF NEGLIGENCE
AND STRICT LIABILITY) RELATING TO THE PROTECTION, INVESTIGATION OR RESTORATION
OF THE ENVIRONMENT (INCLUDING, WITHOUT LIMITATION, NATURAL RESOURCES) OR THE
HEALTH OR SAFETY MATTERS OF HUMANS AND OTHER LIVING ORGANISMS, INCLUDING THE
RESOURCE CONSERVATION AND RECOVERY ACT, AS AMENDED, THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, THE
SUPERFUND AMENDMENTS AND REAUTHORIZATION ACT OF 1986, AS AMENDED,

 

9

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THE FEDERAL CLEAN WATER ACT, AS AMENDED, THE FEDERAL CLEAN AIR ACT, AS AMENDED,
THE TOXIC SUBSTANCES CONTROL ACT, OR ANY STATE AND LOCAL ANALOGUE (HEREINAFTER
“ENVIRONMENTAL LAWS”), EXCEPT WHERE THE FAILURE TO COMPLY COULD NOT REASONABLY
BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.

 

(B)                                 NEITHER BORROWER HAS KNOWLEDGE OF ANY CLAIM,
AND HAS NOT RECEIVED NOTICE OF A WRITTEN COMPLAINT, ORDER, DIRECTIVE, CLAIM,
REQUEST FOR INFORMATION OR CITATION, AND TO SUCH BORROWER’S  KNOWLEDGE NO
PROCEEDING HAS BEEN INSTITUTED RAISING A CLAIM AGAINST SUCH BORROWER INDICATING
OR ALLEGING ANY DAMAGE TO THE ENVIRONMENT OR ANY LIABILITY OR OBLIGATION UNDER
OR VIOLATION OF ANY ENVIRONMENTAL LAW AND (II) NEITHER BORROWER IS SUBJECT TO
ANY ORDER, DECREE, INJUNCTION OR OTHER DIRECTIVE OF ANY GOVERNMENTAL AUTHORITY.

 

3.21                           Offering of Purchased Shares and Warrants.  No
form of general solicitation or general advertising was used by the Borrowers or
any of their agents or representatives in connection with the offer and sale of
the Notes and the Warrants.

 

3.22                           SEC Reports; Disclosure.  (a)  The Parent has
filed all required forms, reports and documents with the Securities and Exchange
Commission (the “SEC”) since June 22, 2007, each of which has complied in all
material respects with all applicable requirements of the Securities Act and the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the
rules and regulations promulgated thereunder, each as in effect on the date such
forms, reports and documents were filed.  The Parent has made available to the
Purchasers, in the form filed with the SEC (including any amendments thereto)
its (i) Annual Report on Form 10-K for the year ended March 31, 2008;
(ii) Quarterly Reports on Form 10-Q for the quarterly periods ended June 30,
2008, September 30, 2008 and December 31, 2008; (iii) Current Reports on
Form 8-K dated April 3, 2008, April 4, 2008, April 24, 2008, June 4, 2008,
June 6, 2008, August 12, 2008, August 14, 2008, September 4, 2008, September 11,
2008, October 6, 2008 and October 27, 2008 and (iv) all definitive proxy
statements relating to the Parent’s meeting of shareholders (whether annual or
special) held since June 22, 2007 (collectively, the “SEC Reports”).

 

(B)                                 NONE OF (I) THIS AGREEMENT (INCLUDING,
WITHOUT LIMITATION, THE DISCLOSURE SCHEDULE AND THE SCHEDULES AND EXHIBITS
ATTACHED HERETO), (II) ANY LOAN DOCUMENT, OR (III) THE SEC REPORTS CONTAINS ANY
UNTRUE STATEMENT OF A MATERIAL FACT OR OMITS TO STATE A MATERIAL FACT NECESSARY
IN ORDER TO MAKE THE STATEMENTS CONTAINED HEREIN IN LIGHT OF THE CIRCUMSTANCES
UNDER WHICH THEY WERE MADE NOT MISLEADING.  THERE IS NO FACT WHICH, TO THE
KNOWLEDGE OF EITHER BORROWER, HAS NOT BEEN DISCLOSED TO THE PURCHASERS, WHICH
COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON THE ABILITY OF
EITHER BORROWER TO PERFORM ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS OR THIS
AGREEMENT.

 

3.23                           Financial Statements.  Included in the SEC
Reports are the audited financial statements of the Borrowers as at and for the
years ended March 31, 2008, 2007 and the unaudited financial statements of the
Borrowers for the fiscal quarters ended June 30, 2008, September 30, 2008 and
December 31, 2008 (the “Financial Statements”).  The Financial Statements have
been prepared in accordance with GAAP and fairly present the financial condition
and operating results of the Borrowers on a Consolidated basis as of the dates
and for the periods, indicated therein, except that the unaudited financial
statements as at and for the quarters ended June 30, 2008, September 30, 2008
and December 31, 2008 are subject to normal

 

10

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year-end adjustments and do not contain all notes required under GAAP.  Except
as set forth in the Financial Statements, the Borrowers have no liabilities,
obligations or commitments of any nature (whether accrued, absolute, contingent,
unliquidated or otherwise, due or to become due and regardless of when
addressed), which are required to be included in the Financial Statements in
accordance with GAAP other than (a) liabilities that have arisen in the ordinary
course of business since the date of the Parent’s most recent quarterly report
on Form 10-Q that are not reasonably be expected to have a Material Adverse
Effect and (b) obligations to perform after the date hereof any contracts or
agreements which have been disclosed or which are not required to be disclosed
in the SEC Reports because such contracts and agreements are not material to the
Borrowers.

 

3.24                           Suppliers and Customers.  Since December 31,
2008, none of the Borrowers’ suppliers, vendors, or customers has:
(i) terminated or cancelled a Material Contract or material business
relationship with any Borrower; (ii) threatened in writing to terminate or
cancel a Material Contract or material business relationship with any Borrower;
(iii) expressed dissatisfaction in writing with the performance of a Borrower
with respect to a Material Contract or material business relationship with any
Borrower; or (iv) demanded in writing any material modification, termination or
limitation of a Material Contract or material business relationship with any
Borrower (excluding any contracts or business relationship which, if so
terminated, cancelled, modified or limited, would not reasonably be expected to
result in a Material Adverse Effect).

 

4.                                       Representations and Warranties of the
Purchasers.  As of the Initial Closing Date or any Subsequent Closing Date, as
the case may be, each  Purchaser severally and not jointly hereby represents and
warrants to the Borrowers that:

 

4.1                                 Organization and Qualification.  Each
Purchaser, if such person is not an individual, is duly organized, validly
existing and in good standing under the Laws of its jurisdiction of
incorporation or organization to carry on its business as it is now being
conducted or proposed to be conducted.

 

4.2                                 Power and Authority.  Each Purchaser has all
requisite power and authority (or if such Purchaser is an individual, the legal
capacity) to execute and deliver the Loan Documents and this Agreement to which
it is a party, to purchase the Notes and the Warrants from the Borrowers
hereunder, and to carry out and perform its obligations under the terms of the
Loan Documents and this Agreement.

 

4.3                                 Authorization.  The execution, delivery and
performance by such Purchaser of the Loan Documents and this Agreement to which
it is a party, and the performance of all of the obligations of such Purchaser
under each of such Loan Documents and this Agreement have been duly and validly
authorized, and no other action, approval or authorization is required on the
part of such Purchaser or any Person by Law or otherwise in order to make the
Loan Documents and this Agreement the valid, binding and enforceable obligations
(subject to (i) Laws of general application relating to bankruptcy, insolvency,
and the relief of debtors, and (ii) rules of Law governing specific performance,
injunctive relief, or other equitable remedies) of such  Purchaser that is a
party thereto.  Each of the Loan Documents and this Agreement, when executed and
delivered by such Purchaser that is a party thereto, will constitute a valid and

 

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legally binding obligation of such Purchaser, enforceable against such Purchaser
in accordance with its terms subject to: (i) Laws of general application
relating to bankruptcy, insolvency, and the relief of debtors, and (ii) rules of
Law governing specific performance, injunctive relief, or other equitable
remedies.

 

4.4                                 Purchase Entirely for Own Account.  The
Notes and the Warrants will be acquired for investment for such Purchaser’s own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof.  Such Purchaser’s address is listed on
Schedule I and II, as applicable, attached hereto.  Such Purchaser is aware that
the Borrowers are issuing the Notes and the Warrants pursuant to Section 4(2) of
the Securities Act and Regulation D promulgated thereunder without complying
with the registration provisions of the Securities Act or other applicable
federal or state securities laws.  Such Purchaser is also aware that the
Borrowers are relying upon, among other things, the representations and
warranties of such Purchaser contained in this Agreement for purposes of
complying with Regulation D.

 

4.5                                 Disclosure of Information.  Each Purchaser
represents that the Borrowers have made available to such Purchaser, at a
reasonable time prior to the date of this Agreement, an opportunity to (a) ask
questions and receive answers from the Borrowers regarding the terms and
conditions of the offering of the Notes and the Warrants and the business,
properties and financial condition of the Borrowers, all of which questions (if
any) have been answered to the reasonable satisfaction of such Purchaser, and
(b) obtain additional information, all of which was furnished by the Borrowers
to the reasonable satisfaction of such Purchaser.  The foregoing, however, does
not limit or modify the representations and warranties of the Borrowers in
Section 3 of this Agreement or the right of the Purchasers to rely thereon.

 

4.6                                 Investment Experience.  Such Purchaser
acknowledges that it is able to fend for itself, can bear the economic risk of
its investment, and has such knowledge and experience in investing in companies
similar to the Borrowers and in financial or business matters such that it is
capable of evaluating the merits and risks of the investment in the Notes and
the Warrants.  Such Purchaser has made the determination to enter into this
Agreement and the Loan Agreements and the other agreements contemplated hereby
and to acquire the Notes and the Warrants based upon its own independent
evaluation and assessment of the value of the Borrowers and its present and
prospective business prospects.

 

4.7                                 Accredited Investor.  Such Purchaser is an
“accredited investor” within the meaning of SEC Rule 501 of Regulation D, as
presently in effect.

 

4.8                                 Restricted Securities; Legends.  Such
Purchaser recognizes that the Notes and the Warrants will not be registered
under the Securities Act or other applicable federal or state securities laws. 
Such Purchaser understands that the Notes and the Warrants it is purchasing are
characterized as “restricted securities” under the federal securities laws
inasmuch as they are being acquired from the Borrowers in a transaction not
involving a public offering.  Such Purchaser acknowledges that it may not to
sell or transfer the Notes and the Warrants unless such Notes and Warrants are
registered under the Securities Act and under any other applicable securities
laws and that certificates evidencing the Purchased  Securities will bear the
following legend or similar legend as applicable:

 

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THIS SECURITY AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED UPON THE
EXERCISE OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION AND
REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM
UNDER THE ACT AND THE RULES AND REGULATIONS THEREUNDER AND SUCH APPLICABLE STATE
SECURITIES LAWS.

 

4.9                                 No General Solicitation.  Such Purchaser
acknowledges that the Notes and the Warrants were not offered to such Purchaser
by means of: (a) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar medium, or broadcast over
television or radio, or (b) any other form of general solicitation or
advertising.

 

4.10                           Absence of Conflicts.  Such Purchaser’s
execution, delivery, and performance of, and compliance with the Loan Documents
and this Agreement, and the consummation of the transactions contemplated hereby
and thereby, have not and will not:

 

(A)                                  VIOLATE, CONFLICT WITH OR RESULT IN A
BREACH OF ANY PROVISION OF OR CONSTITUTE A DEFAULT (OR AN EVENT WHICH, WITH
NOTICE OR LAPSE OF TIME OR BOTH, WOULD CONSTITUTE A DEFAULT) UNDER, OR RESULT IN
THE TERMINATION OF, OR ACCELERATE THE PERFORMANCE REQUIRED BY, ANY OF THE TERMS,
CONDITIONS OR PROVISIONS OF (I) ITS CERTIFICATE/ARTICLES OF FORMATION OR
ORGANIZATION OR ANY OF ITS OTHER FORMATION OR ORGANIZATIONAL DOCUMENTS (IF ANY),
OR (II) ANY MATERIAL CONTRACT TO WHICH IT IS A PARTY, OR RESULT IN THE CREATION
OF ANY LIEN UPON ANY OF THE ASSETS, PROPERTIES OR BUSINESS OF SUCH PURCHASER; OR

 

(B)                                 VIOLATE ANY JUDGMENT, RULING, ORDER, WRIT,
INJUNCTION, AWARD, DECREE, OR ANY LAW OR REGULATION OF ANY COURT OR FEDERAL,
STATE, COUNTY OR LOCAL GOVERNMENT OR ANY OTHER GOVERNMENTAL, REGULATORY OR
ADMINISTRATIVE AGENCY OR AUTHORITY WHICH IS APPLICABLE TO SUCH PURCHASER OR ANY
OF ITS ASSETS, PROPERTIES OR BUSINESSES.

 

4.11                           Brokers or Finders.  Such Purchaser has not
incurred, nor will it incur, directly or indirectly, as a result of any action
taken by such Purchaser, any liability for brokerage or finders’ fees or agents’
commissions or any similar charges in connection with this Agreement or the
issuance of the Notes and the Warrants or any transaction contemplated hereby or
thereby.  Such Purchaser agrees to indemnify and hold harmless the Borrowers
from any liability for any commission or compensation in the nature of a
finders’ fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Purchaser, or any of its respective officers,
employees or representatives is responsible.

 

5.                                       Conditions of the Parties.

 

5.1                                 Conditions of Purchasers’ Obligations at any
Closing.  The obligations of each Purchaser under Section 1 of this Agreement
are subject to the satisfaction by the Borrowers on or before such Closing of
each of the following conditions:

 

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(A)                                  REPRESENTATIONS AND WARRANTIES.  THE
REPRESENTATIONS AND WARRANTIES OF THE BORROWERS CONTAINED IN SECTION 3 SHALL BE
TRUE AND CORRECT ON AND AS OF THE INITIAL CLOSING DATE AND SHALL BE TRUE AND
CORRECT IN ALL MATERIAL RESPECTS ON AND AS OF ANY SUBSEQUENT CLOSING DATE WITH
THE SAME FORCE AND EFFECT AS THOUGH SUCH REPRESENTATIONS AND WARRANTIES HAD BEEN
MADE ON SUCH DATE.

 

(B)                                 PERFORMANCE.  THE BORROWERS SHALL HAVE
PERFORMED AND COMPLIED WITH ALL CONDITIONS CONTAINED IN THIS AGREEMENT THAT ARE
REQUIRED TO BE PERFORMED OR COMPLIED WITH BY IT ON OR BEFORE SUCH CLOSING.

 

(C)                                  NO MATERIAL ADVERSE EFFECT; OFFICER’S
CERTIFICATE.  NO MATERIAL ADVERSE EFFECT SHALL HAVE OCCURRED BETWEEN THE DATE
HEREOF AND SUCH CLOSING DATE AND THE PRESIDENT AND/OR CHIEF EXECUTIVE OFFICER OF
EACH BORROWER SHALL DELIVER TO THE AGENT, ACTING ON BEHALF OF THE PURCHASERS, AT
EACH SUCH CLOSING A CERTIFICATE STATING THAT THE CONDITIONS SPECIFIED IN
SECTIONS 5.1(A), (B) AND (C) HAVE BEEN FULFILLED.

 

(D)                                 CONSENTS AND APPROVALS.  ALL AUTHORIZATIONS,
APPROVALS, PERMITS, OR CONSENTS, IF ANY, OF ANY GOVERNMENTAL AUTHORITY OR
REGULATORY BODY OF THE UNITED STATES OR OF ANY STATE OR ANY CREDITOR OF THE
BORROWERS OR ANY OTHER PERSON THAT ARE REQUIRED IN CONNECTION WITH THE LAWFUL
ISSUANCE AND SALE OF THE NOTES AND THE WARRANTS AT SUCH CLOSING PURSUANT TO THIS
AGREEMENT SHALL BE DULY OBTAINED AND EFFECTIVE AS OF EACH SUCH CLOSING AND THE
PURCHASE AND PAYMENT OF THE NOTES AND THE WARRANTS TO BE PURCHASED BY THE
PURCHASERS AT EACH SUCH CLOSING ON THE TERMS AND CONDITIONS AS PROVIDED HEREIN
SHALL NOT VIOLATE ANY APPLICABLE LAW.

 

(E)                                  GOOD STANDING; QUALIFICATION TO DO
BUSINESS.  THE PARENT SHALL HAVE DELIVERED TO THE AGENT, ACTING ON BEHALF OF THE
PURCHASERS, CERTIFICATES OF GOOD STANDING WITH RESPECT TO EACH BORROWER DATED AS
OF A DATE NO EARLIER THAN 15 DAYS PRIOR TO THE ANY SUCH CLOSING FROM THE
JURISDICTION OF INCORPORATION OF SUCH BORROWER.

 

(F)                                    SECRETARY’S CERTIFICATE.  THE PARENT
SHALL HAVE DELIVERED TO THE AGENT, ACTING ON BEHALF OF THE PURCHASERS, A
CERTIFICATE EXECUTED BY THE SECRETARY OF EACH BORROWER DATED SUCH CLOSING DATE
CERTIFYING WITH RESPECT TO (I) A COPY OF THE SUCH BORROWER’S CERTIFICATE OF
INCORPORATION AND ITS BYLAWS AS AMENDED TO AND IN EFFECT ON SUCH CLOSING DATE
AND THAT SUCH BORROWER IS NOT IN VIOLATION OF OR DEFAULT UNDER ANY PROVISION OF
ITS CERTIFICATE OF INCORPORATION OR BYLAW AS OF AND ON SUCH CLOSING DATE,
(II) BOARD RESOLUTIONS OF SUCH BORROWER AUTHORIZING THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT AND THE LOAN DOCUMENTS.

 

(G)                                 COMPLIANCE WITH COVENANTS.  ON ANY SUCH
CLOSING DATE THE BORROWERS SHALL BE IN COMPLIANCE WITH EACH OF THE COVENANTS SET
FORTH IN SECTION 7.

 

5.2                                 Conditions of Initial Purchasers’
Obligations at the Initial Closing.  In addition to the conditions set forth in
Section 5.1, the obligations of each Initial Purchaser under Section 1.2 of this
Agreement are subject to the satisfaction by the Borrowers on the Initial
Closing Date of each of the following conditions:

 

(A)                                  AMENDMENT NO. 1 TO THE SECURITY AGREEMENT. 
THE BORROWERS SHALL HAVE EXECUTED AND DELIVERED TO THE AGENT AMENDMENT NO. 1 TO
THE SECURITY AGREEMENT.

 

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(B)                                 SUBORDINATION AGREEMENT.  THE BORROWERS
SHALL HAVE EXECUTED AND DELIVERED TO THE INITIAL PURCHASERS THE SUBORDINATION
AGREEMENT.

 

(C)                                  INITIAL CLOSING NOTES.  THE BORROWERS SHALL
DELIVER TO EACH INITIAL PURCHASER ITS RESPECTIVE INITIAL CLOSING NOTE.

 

(D)                                 INITIAL CLOSING WARRANTS.  THE BORROWERS
SHALL DELIVER TO EACH INITIAL PURCHASER ITS RESPECTIVE INITIAL CLOSING WARRANTS.

 

(E)                                  SVB CONSENT.  THE BORROWERS SHALL HAVE
RECEIVED THE WRITTEN CONSENT OF SVB REASONABLY ACCEPTABLE TO THE AGENT, ACTING
ON BEHALF OF THE PURCHASERS, WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT.

 

(F)                                    ADMINISTRATIVE FEE TO AGENT.  THE
BORROWERS SHALL HAVE PAID TO THE AGENT, ACTING ON BEHALF OF THE PURCHASER, OR
ITS DESIGNEE, AN ADMINISTRATIVE FEE EQUAL TO TWO PERCENT (2%) OF THE AGGREGATE
AMOUNT OF NOTES BEING PURCHASED ON THE INITIAL CLOSING DATE.

 

5.3                                 Conditions of Additional Purchasers’
Obligations at any Subsequent Closing.  In addition to the conditions set forth
in Section 5.1, the obligations of each Additional Purchaser under Section 1.3
of this Agreement are subject to the satisfaction by the Borrowers on each
Subsequent Closing Date of the following conditions:

 

(A)                                  SUPPLEMENTAL SCHEDULE II.  ON OR BEFORE ANY
SUBSEQUENT CLOSING DATE, THE PARENT SHALL DELIVER TO THE AGENT, ACTING ON BEHALF
OF EACH ADDITIONAL PURCHASER, A SUPPLEMENT TO SCHEDULE II REFLECTING THE AMOUNT
OF THE NOTES AND THE WARRANTS THAT THE BORROWERS WILL ISSUE TO EACH ADDITIONAL
PURCHASER ON SUCH SUBSEQUENT CLOSING DATE AND THE AGGREGATE PURCHASE PRICE
THEREFOR.

 

(B)                                 ADDITIONAL NOTES.  THE PARENT SHALL DELIVER
TO THE AGENT, ACTING ON BEHALF OF EACH ADDITIONAL PURCHASER, SUCH ADDITIONAL
PURCHASER’S ADDITIONAL NOTES.

 

(C)                                  ADDITIONAL WARRANTS.  WITH RESPECT TO ANY
SUBSEQUENT CLOSING, THE PARENT SHALL DELIVER TO THE AGENT, ACTING ON BEHALF OF
EACH ADDITIONAL PURCHASER, SUCH ADDITIONAL PURCHASER’S ADDITIONAL WARRANTS.

 

(D)                                 SUBORDINATION AGREEMENT.  THE BORROWERS
SHALL HAVE EXECUTED AND DELIVERED TO EACH ADDITIONAL PURCHASER THE SUBORDINATION
AGREEMENT.

 

(E)                                  ADMINISTRATIVE FEE TO AGENT.  THE BORROWERS
SHALL HAVE PAID TO THE AGENT, ACTING ON BEHALF OF THE PURCHASER, OR ITS
DESIGNEE, AN ADMINISTRATIVE FEE EQUAL TO TWO PERCENT (2%) OF THE AGGREGATE
AMOUNT OF NOTES BEING PURCHASED ON ANY SUBSEQUENT CLOSING DATE.

 

5.4                                 Conditions of Borrowers’ Obligations at any
Closing.  The obligations of the Borrowers to consummate the transactions
contemplated by this Agreement are subject to the satisfaction by the Purchasers
on or before any such Closing of each of the following conditions:

 

(A)                                  REPRESENTATIONS AND WARRANTIES.  THE
REPRESENTATIONS AND WARRANTIES OF THE EACH PURCHASERS CONTAINED IN SECTION 4
SHALL BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS ON AND AS

 

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OF SUCH CLOSING WITH THE SAME FORCE AND EFFECT AS THOUGH SUCH REPRESENTATIONS
AND WARRANTIES HAD BEEN MADE ON AND AS OF THE DATE OF SUCH CLOSING; PROVIDED,
HOWEVER, THAT REPRESENTATIONS AND WARRANTIES THAT CONTAIN A MATERIALITY
QUALIFICATION SHALL BE TRUE AND CORRECT IN ALL RESPECTS.

 

(B)                                 PERFORMANCE.  EACH PURCHASER SHALL HAVE
PERFORMED AND COMPLIED WITH ALL CONDITIONS CONTAINED IN THIS AGREEMENT THAT ARE
REQUIRED TO BE PERFORMED OR COMPLIED WITH BY IT ON OR BEFORE SUCH CLOSING.

 

(C)                                  CONSENTS AND APPROVALS.  ALL
AUTHORIZATIONS, APPROVALS, OR PERMITS, IF ANY, OF ANY GOVERNMENTAL AUTHORITY OR
ANY OTHER PERSON THAT ARE REQUIRED IN CONNECTION WITH THE LAWFUL ISSUANCE AND
SALE OF THE NOTES AND THE WARRANTS TO SUCH PURCHASER PURSUANT TO THIS AGREEMENT
SHALL BE DULY OBTAINED AND EFFECTIVE AS OF SUCH CLOSING AND THE PURCHASE AND
PAYMENT OF THE NOTES AND THE WARRANTS TO BE PURCHASED BY THE PURCHASERS AT SUCH
CLOSING ON THE TERMS AND CONDITIONS AS PROVIDED HEREIN SHALL NOT VIOLATE ANY
APPLICABLE LAW.

 

(D)                                 PURCHASE PRICE.  THE PURCHASERS SHALL HAVE
DELIVERED TO THE BORROWERS THE APPLICABLE PURCHASE PRICE FOR THE NOTES AND THE
WARRANTS BEING PURCHASED ON SUCH CLOSING DATE.

 

(E)                                  SUBORDINATION AGREEMENT. EACH PURCHASER
SHALL HAVE EXECUTED AND DELIVERED TO THE BORROWERS AND SVB THE SUBORDINATION
AGREEMENT.

 

(F)                                    AMENDMENT NO. 1 TO THE SECURITY
AGREEMENT.  THE AGENT SHALL HAVE EXECUTED AND DELIVERED TO THE BORROWERS
AMENDMENT NO. 1 TO THE SECURITY AGREEMENT.

 

6.                                       Events of Default and Remedies.

 

6.1                                 Events of Default.  So long as the Notes are
outstanding an Event of Default with respect to the Notes shall mean the
occurrence and existence of one or more of the following events or conditions
(for any reason, whether voluntary, involuntary or effected or required by any
Law applicable to the Borrowers):

 

(A)                                  THE BORROWERS FAIL TO PAY WHEN DUE AND
PAYABLE ANY PORTION OF THE NOTE INDEBTEDNESS AT STATED MATURITY, UPON
ACCELERATION OR OTHERWISE.

 

(B)                                 THE BORROWERS FAIL OR NEGLECT TO PERFORM,
KEEP, OR OBSERVE IN ANY MATERIAL RESPECT ANY TERM, PROVISION, CONDITION,
COVENANT OR AGREEMENT CONTAINED IN THIS AGREEMENT OR ANY LOAN DOCUMENT AND SUCH
FAILURE OR NEGLECT (OTHER THAN THOSE SET FORTH IN SECTION 2 OF EXHIBIT E) TO
PERFORM REMAINS IN EFFECT FOR A PERIOD OF 10 DAYS.

 

(C)                                  ANY MATERIAL PORTION OF THE BORROWERS’
ASSETS IS SEIZED, ATTACHED, SUBJECTED TO A WRIT OR DISTRESS WARRANT, IS LEVIED
UPON OR COMES INTO THE POSSESSION OF ANY JUDICIAL OFFICER UNLESS SUCH ACTION IS
STAYED AND SUCH ATTACHMENT IS DISMISSED WITHIN 30 DAYS.

 

(D)                                 IF AN EVENT OF DEFAULT OCCURS IN PAYMENT OR
PERFORMANCE OF ANY OBLIGATION IN FAVOR OF ANY PERSON FROM WHOM THE BORROWERS
HAVE BORROWED MONEY AGGREGATING IN EXCESS OF $300,000 WHICH WOULD ENTITLE THE
HOLDER TO ACCELERATE REPAYMENT OF THE BORROWED MONEY, AND SUCH DEFAULT IS NOT
WAIVED IN WRITING WITHIN 10 DAYS OF THE OCCURRENCE OF SUCH DEFAULT.

 

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(E)                                  EITHER BORROWER INSTITUTES PROCEEDINGS TO
BE ADJUDICATED AS BANKRUPT OR INSOLVENT, OR THE CONSENT BY SUCH BORROWER TO THE
INSTITUTION OF BANKRUPTCY OR INSOLVENCY PROCEEDINGS AGAINST IT, OR THE FILING BY
IT OF A PETITION OR ANSWER OR CONSENT SEEKING REORGANIZATION OR RELIEF UNDER ANY
APPLICABLE FEDERAL, PROVINCIAL OR STATE LAW RELATING TO BANKRUPTCY, INSOLVENCY,
REORGANIZATION OR RELIEF OF DEBTORS, OR THE CONSENT BY IT TO THE FILING OF ANY
SUCH PETITION OR TO THE APPOINTMENT UNDER ANY SUCH LAW OF A RECEIVER,
LIQUIDATOR, ASSIGNEE, TRUSTEE, SEQUESTRATOR (OR OTHER SIMILAR OFFICIAL) OF SUCH
BORROWER OR OF SUBSTANTIALLY ALL OF ITS PROPERTY, OR THE MAKING BY IT OF A
GENERAL ASSIGNMENT FOR THE BENEFIT OF CREDITORS, OR THE ADMISSION BY IT IN
WRITING OF ITS INABILITY TO PAY ITS DEBTS GENERALLY AS THEY BECOME DUE.

 

(F)                                    IF THERE IS THE ENTRY OF A DECREE OR
ORDER BY A COURT HAVING JURISDICTION IN THE PREMISES ADJUDGING EITHER BORROWER
AS BANKRUPT OR INSOLVENT, OR APPROVING AS PROPERLY FILED A PETITION SEEKING
REORGANIZATION, ARRANGEMENT OR ADJUSTMENT OF OR IN RESPECT OF SUCH BORROWER
UNDER ANY APPLICABLE LAW RELATING TO BANKRUPTCY, INSOLVENCY, REORGANIZATION OR
RELIEF OF DEBTORS, OR APPOINTING UNDER ANY SUCH LAW A RECEIVER, LIQUIDATOR,
ASSIGNEE, TRUSTEE, SEQUESTRATOR (OR OTHER SIMILAR OFFICIAL) OF SUCH BORROWER OR
OF SUBSTANTIALLY ALL OF ITS PROPERTY, OR ORDERING PURSUANT TO ANY SUCH LAW THE
WINDING-UP OR LIQUIDATION OF ITS AFFAIRS, AND THE CONTINUANCE OF ANY SUCH
DECREE, PETITION, APPOINTMENT OR ORDER UNSTAYED AND IN EFFECT FOR A PERIOD OF 45
CONSECUTIVE DAYS.

 

(G)                                 IF ANY ACT, MATTER OR THING IS DONE TO, OR
ANY ACTION OR PROCEEDING IS LAUNCHED OR TAKEN TO, TERMINATE THE CORPORATE
EXISTENCE OF EITHER BORROWER, WHETHER BY WINDING-UP, SURRENDER OF CHARTER OR
OTHERWISE.

 

(H)                                 IF EITHER BORROWER CEASES TO CARRY ON ITS
BUSINESS OR MAKES OR PROPOSES TO MAKE ANY SALE OF ITS ASSETS IN BULK OR ANY SALE
OF ITS ASSETS OUT OF THE USUAL COURSE OF ITS BUSINESS.

 

(I)                                     IF ANY JUDGMENT OR ORDER FOR THE PAYMENT
OF MONEY IN EXCESS OF $200,000 SHALL BE RENDERED AGAINST EITHER BORROWER AND
EITHER (I) ENFORCEMENT PROCEEDINGS SHALL HAVE BEEN COMMENCED BY ANY CREDITOR
UPON SUCH JUDGMENT OR ORDER, OR (II) THERE SHALL BE ANY PERIOD OF 10 CONSECUTIVE
DAYS DURING WHICH A STAY OF ENFORCEMENT OF SUCH JUDGMENT OR ORDER, BY REASON OF
A PENDING APPEAL OR OTHERWISE, SHALL NOT BE IN EFFECT.

 

(J)                                     IF ANY ACTION IS TAKEN OR POWER OR RIGHT
BE EXERCISED BY ANY GOVERNMENTAL AUTHORITY WHICH HAS A MATERIAL ADVERSE EFFECT
ON EITHER BORROWER.

 

(K)                                  IF THERE SHALL OCCUR OR ARISE ANY CHANGE
(OR ANY CONDITION, EVENT OR DEVELOPMENT INVOLVING A PROSPECTIVE CHANGE) IN THE
BUSINESS, OPERATIONS, AFFAIRS, ASSETS, LIABILITIES (INCLUDING ANY CONTINGENT
LIABILITIES THAT MAY ARISE THROUGH OUTSTANDING PENDING OR THREATENED LITIGATION
OR OTHERWISE), CAPITALIZATION, FINANCIAL CONDITION, LICENSES, PERMITS, RIGHTS OR
PRIVILEGES, WHETHER CONTRACTUAL OR OTHERWISE, OR PROSPECTS OF EITHER BORROWER
WHICH, IN THE JUDGMENT OF THE AGENT, ACTING ON BEHALF OF THE PURCHASERS, ACTING
REASONABLY, HAS OR IS REASONABLY EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON
ANY BORROWER OR ON ITS ABILITY TO PERFORM ITS OBLIGATIONS HEREUNDER OR UNDER THE
LOAN DOCUMENTS.

 

(L)                                     ANY REPRESENTATION OR WARRANTY MADE OR
DEEMED TO BE MADE BY THE BORROWERS IN THIS AGREEMENT OR ANY LOAN DOCUMENT SHALL
PROVED TO HAVE BEEN MISLEADING IN ANY MATERIAL RESPECT AT THE TIME THAT IT WAS
MADE.

 

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6.2                                 EXERCISE OF REMEDIES.  IF AN EVENT OF
DEFAULT HAS OCCURRED AND IS CONTINUING HEREUNDER:

 

(A)                                  THE AGENT, ACTING ON BEHALF OF THE
PURCHASERS, MAY DECLARE THE ENTIRE UNPAID NOTE INDEBTEDNESS, IMMEDIATELY DUE AND
PAYABLE, WITHOUT PRESENTMENT, NOTICE OR DEMAND, ALL OF WHICH ARE HEREBY
EXPRESSLY WAIVED BY THE BORROWERS; AND

 

(B)                                 THE AGENT, ACTING ON BEHALF OF THE
PURCHASERS, MAY EXERCISE ANY REMEDY PERMITTED BY THIS AGREEMENT, OR THE LOAN
DOCUMENTS OR AT LAW OR IN EQUITY.

 

6.3                                 Waiver of Defaults.  No Event of Default
shall be waived by the Purchasers except in a writing signed by an officer of
the Agent, acting on behalf of the Purchasers.  No waiver of any Event of
Default shall extend to any other or further Event of Default.

 

7.                                       Debt Covenants.

 

7.1                                 General.  So long as the Notes are
outstanding, each Borrower jointly and severally covenants and agrees that,
until all Note Indebtedness has been paid in full, it will comply with the
covenants set forth in Exhibit E attached hereto.

 

8.                                       INDEMNIFICATION.

 

8.1                                 General Indemnification.  Each of the
Borrowers shall jointly and severally indemnify, defend and hold each Purchaser,
its affiliates and their respective officers, directors, partners (general and
limited), employees, agents, attorneys, successors and assigns (each a
“Purchaser Entity”) harmless from and against all Losses incurred, suffered or
arising out or by reason of any matter relating, directly or indirectly, to this
Agreement or any other Loan Document, unless such Losses are the result of the
gross negligence, willful misconduct or fraud of such Purchaser Entity.  Each
Purchaser, severally and not jointly, shall indemnify, defend and hold the
Borrowers, their respective officers, directors, employees, agents, attorneys,
successors and assigns (each a “Borrower Entity”) harmless against all Losses as
a result of the breach of any of the representations, warranties, covenants or
agreements made by such Purchaser in this Agreement or any of the Loan
Documents, unless such Losses are a result of the gross negligence, willful
misconduct or fraud of such Borrower Entity.

 

8.2                                 Indemnification Principles.  For purposes of
this Section 8, “Losses” shall mean each and all of the following items: 
claims, losses (including, without limitation, losses of earnings), liabilities,
obligations, payments, damages (actual, punitive or consequential to the extent
provided in this Section 8.2), charges, judgments, fines, penalties, amounts
paid in settlement, costs and expenses (including, without limitation, interest
which may be imposed in connection therewith, costs and expenses of
investigation, actions, suits, proceedings, demands, assessments and reasonable
fees, expenses and disbursements of counsel, consultants and other experts). 
Each Purchaser and the Borrowers hereby agree that Losses shall not include
punitive or consequential damages except to the extent that such Losses are the
result of the gross negligence, willful misconduct or fraud of the party from
whom the indemnification is being sought (the “Indemnifying Party”).

 

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8.3                                 Claim Notice; Right to Defend.  A party
seeking indemnification (the “Indemnified Party”) under this Section 8 shall
promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the Indemnifying Party a claim notice
relating to such Loss (a “Claim Notice”).  Each Claim Notice shall specify the
nature of the claim, the applicable provision(s) of this Agreement or other
instrument under which the claim for indemnity arises, and, if possible, the
amount or the estimated amount thereof.  No failure or delay in giving a Claim
Notice (so long as the same is given prior to expiration of the representation
or warranty upon which the claim is based) and no failure to include any
specific information relating to the claim (such as the amount or estimated
amount thereof) or any reference to any provision of this Agreement or other
instrument under which the claim arises shall affect the obligation of the
Indemnifying Party unless such failure materially and adversely prejudices the
Indemnifying Party.  If such Loss relates to the commencement of any action or
proceeding by a third person, the Indemnified Party shall give a Claim Notice to
the Indemnifying Party regarding such action or proceeding and the Indemnifying
Party shall be entitled to participate therein. After the delivery of notice
from the Indemnifying Party to the Indemnified Party of its election to assume
the defense of such action or proceeding, the Indemnifying Party shall not be
liable (except to the extent the proviso to this sentence is applicable, in
which event it will be so liable) to the Indemnified Party under this Section 8
for any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof, provided that each Indemnified Party
shall have the right to employ separate counsel to represent it and assume its
defense (in which case, the Indemnifying Party shall not represent it) in the
event the Indemnifying Party has not assumed the defense thereof within 10 days
of receipt of notice of such claim or commencement of action, and in which case
the fees and expenses of one such separate counsel shall be paid by the
Indemnifying Party.  If any Indemnified Party employs such separate counsel it
will not enter into any settlement agreement which is not approved by the
Indemnifying Party, such approval not to be unreasonably withheld.  If the
Indemnifying Party so assumes the defense thereof, it may not agree to any
settlement of any such claim or action as the result of which any remedy or
relief, other than monetary damages for which the Indemnifying Party shall be
responsible hereunder, shall be applied to or against the Indemnified Party,
without the prior written consent of the Indemnified Party which consent shall
not be unreasonably withheld.  In any action hereunder as to which the
Indemnifying Party has assumed the defense thereof with counsel reasonably
satisfactory to the Indemnified Party, the Indemnified Party shall continue to
be entitled to participate in the defense thereof, with counsel of its own
choice, but, except as set forth above, the Indemnifying Party shall not be
obligated hereunder to reimburse the Indemnified Party for the costs thereof.

 

9.                                       Certain Definitions.  For the purposes
of this Agreement the following terms will have the following meanings:

 

“Additional Note(s)” shall have the meaning ascribed to it in the preliminary
paragraph.

 

“Additional Purchaser(s)” shall have the meaning ascribed to it in the
preliminary paragraph.

 

“Additional Warrant(s)” shall have the meaning ascribed to it in the recitals.

 

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“Affiliate(s)” shall mean, with respect to any Person, any other Person directly
or indirectly controlling (including but not limited to all directors and
executive officers of such Person), controlled by, or under direct or indirect
common control with such Person.  A Person shall be deemed to control a
corporation for the purposes of this definition if such Person possesses,
directly or indirectly, the power (i) to vote 10% or more of the securities
having ordinary voting power for the election of directors of such corporation
or (ii) to direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.

 

“Agreement” shall have the meaning ascribed to it in the preliminary paragraph.

 

“Amendment No. 1 to the Security Agreement” shall have the meaning ascribed to
it in Section 2.2.

 

“Borrowers”  shall have the meaning ascribed to it in the preliminary paragraph.

 

“Borrower Entity” shall have the meaning ascribed to it in Section 8.1.

 

“Business Day” shall mean any day other than a Saturday, Sunday, public holiday
under the Laws of the State of New York or any other day on which banking
institutions are authorized to close in New York City.

 

“Bylaw(s)” shall have the meaning ascribed to it in Section 3.2.

 

“Certificate(s) of Incorporation” shall have the meaning ascribed to it in
Section 3.2.

 

“Claim Notice” shall have the meaning ascribed to it in Section 8.3.

 

“Closing” shall mean each of the Initial Closing and any Subsequent Closing.

 

“Closing Date” shall mean each of the Initial Closing Date and any Subsequent
Closing Date.

 

“Code” shall have the meaning ascribed to it in Section 3.17.

 

“Collateral” shall have the meaning ascribed to it in Section 11.18(a)

 

“Company Employee Plan(s)” shall have the meaning ascribed to it in
Section 3.16(a).

 

“Common Stock” shall mean the common stock, par value $.001 per share, of the
Parent.

 

“Consolidated” shall mean, when used with reference to any financial term in
this Agreement, the aggregate for two or more Persons of the amounts signified
by such term for all such Persons determined on a consolidated basis in
accordance with GAAP.  Unless otherwise

 

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specified herein, references to consolidated financial statements or data of
Parent includes consolidation with its subsidiaries in accordance with GAAP.

 

“Default” shall mean an event which, with the passage of time or giving of
notice, will constitute an Event of Default.

 

“Environmental Laws” shall have the meaning ascribed to it in Section 3.20(a).

 

“ERISA” shall have the meaning ascribed to it in Section 3.16(a).

 

“Event of Default” shall have the meaning ascribed to it in Section 6.1.

 

“Exchange Act” shall have the meaning ascribed to it in Section 3.22(a).

 

“Fall 2008 Notes” shall have the meaning ascribed to it in Section 2.4.

 

“Financial Statements” shall have the meaning ascribed to it in Section 3.23.

 

“GAAP” shall mean generally accepted accounting principles for financial
reporting in the United States, applied on a consistent basis.

 

“Governmental Authority” shall mean any government or political subdivision or
any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.

 

“Hereof”, “hereto”, “hereunder” and similar terms shall refer to this Agreement
and not to any particular paragraph or provision of this Agreement.

 

“Indemnified Party” shall have the meaning ascribed to it in Section 8.3.

 

“Indemnifying Party” shall have the meaning ascribed to it in Section 8.2.

 

“Initial Closing” shall have the meaning ascribed to it in Section 1.5.

 

“Initial Closing Date” shall have the meaning ascribed to it in Section 1.5.

 

“Initial Closing Note(s)” shall have the meaning ascribed to it in the recitals.

 

“Initial Closing Warrant(s)” shall have the meaning ascribed to it in the
recitals.

 

“Initial Purchaser(s)” shall have the meaning ascribed to it in the preliminary
paragraph.

 

“Knowledge” shall mean with respect to each Borrower, the knowledge, after
diligent investigation, of the directors, executive officers and other senior
management of such Borrower and of the person or persons in such entity with
responsibility for the matter with respect to which the knowledge is applicable.

 

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“Law” shall mean any foreign, federal, state or local law, statute, rule,
regulation, ordinance, code, directive, writ, injunction, decree, judgment or
order applicable to the Borrowers.

 

“Loan Documents” shall mean the Notes, the Security Agreement, Amendment No. 1
to the Security Agreement, the Subordination Agreement, the Warrants and all
agreements related hereto and thereto.

 

“Losses” shall have the meaning ascribed to it in Section 8.2.

 

“Lien(s)” shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, including any conditional sale or title retention arrangement, and
any assignment, deposit arrangement or lease intended as, or having the effect
of, security.

 

“Material Adverse Effect” shall mean an effect which is materially adverse to
the business, assets, properties, operations, results of operations or condition
(financial or otherwise) of each of the Borrowers individually or of the
Borrowers taken as a whole (excluding general economic conditions or acts of war
or terrorism).

 

“Material Contracts” shall have the meaning ascribed to it in Section 3.10(a).

 

“Maturity Date” shall mean, with respect to any Note, December 31, 2010.

 

“Note Indebtedness” shall mean without duplication principal, interest, fees,
expenses and other charges or other indebtedness related to the Notes and
indemnification obligations with respect to the Notes, whether direct or
indirect, absolute or contingent, of the Borrowers to any of the Purchasers or
to the Agent, acting on behalf of the Purchasers, in any manner and at any time,
whether evidenced by the Notes or arising under this Agreement, due or hereafter
to become due, now owing or that may be hereafter incurred by the Borrowers to,
any of the Purchasers or the Agent, acting on behalf of the Purchasers, and any
judgments that may hereafter be rendered on such indebtedness or any part
thereof, with interest according to the rates and terms specified, or as
provided by Law, and any and all consolidation, amendments, renewals,
replacements, substitutions or extensions of any of the foregoing.

 

“Notes” shall have the meaning ascribed to it in the recitals.

 

“Parent” shall have the meaning ascribed to it in the preliminary paragraph.

 

“Permits” shall have the meaning ascribed to it in Section 3.8.

 

“Permitted Liens” shall mean the following: (i) mechanics’, materialmen’s or
similar inchoate Liens arising or incurred in the ordinary course of business
relating to liabilities not yet due and payable; (ii) Liens for current taxes
not yet delinquent, or the validity of which is being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
foreclosure or enforcement of such Liens and where adequate reserves are
established and maintained in accordance with generally accepted accounting
principles; (iii) Liens or pledges in connection with workmen’s compensation,
unemployment insurance or other social

 

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security obligations; (iv) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of alike nature incurred in the ordinary course of
business, (v) Liens in favor of the Senior Lenders or otherwise permitted by the
Senior Credit Facility, and (vi) the following Liens evidenced by UCC-1 filings
(1) Lien in favor of CIT Bank regarding all computer equipment and peripherals
referenced in the Loan Agreement #007139097-005 dated August 24, 2005, and
secured by UCC-1 filing number 52719061, (2) Lien in favor of Susquehanna
Patriot Commercial Leasing Corp regarding all personal property and/or
equipment, and fixtures, which is the subject of the Equipment Lease Agreement
number 22453001 and secured by UCC-1 filing number 53947794 and 60763821, and
(3) Lien in favor of Coactiv Capital Partners LLC regarding all personal
property and/or equipment, and fixtures, which is the subject of the Equipment
Lease Agreement number 22453002 and secured by UCC-1 filing number 60768762 and
72950326.

 

“Person” shall mean an individual, corporation, limited liability company,
partnership, trust, incorporated or unincorporated organization, joint venture,
joint stock company, or a government or any agency or political subdivision
thereof or other entity of any kind.

 

“Proprietary Rights” shall have the meaning ascribed to it in Section 3.9.

 

“Purchasers” shall have the meaning ascribed to it in the preliminary paragraph.

 

“Purchaser Entity” shall have the meaning ascribed to it in Section 8.1.

 

“SEC” shall have the meaning ascribed to it in Section 3.22(a).

 

“SEC Reports” shall have the meaning ascribed to it in Section 3.22(a).

 

“Securities Act” shall have the meaning ascribed to it in Section 3.19.

 

“Security Agreement” shall have the meaning ascribed to it in Section 2.2.

 

“Senior Credit Agreement” shall have the meaning ascribed to it in Section 2.3.

 

“Senior Credit Facility” shall mean, at any time, the credit facility evidencing
Senior Indebtedness.

 

“Senior Indebtedness” means indebtedness under the Senior Credit Agreement,
indebtedness under any future Senior Credit Facility approved by the Agent,
acting on behalf of the Purchasers, and all indebtedness under the Wistron
Agreement.

 

“Senior Lender” means each holder of Senior Indebtedness.

 

“Subordination Agreement” shall have the meaning ascribed to it in Section 2.3.

 

“Subsidiary” shall have the meaning ascribed to it in the preliminary paragraph.

 

“Subsequent Closing(s)” shall have the meaning ascribed to it in Section 1.6.

 

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“Subsequent Closing Date” shall have the meaning ascribed to it in Section 1.6.

 

“Warrant Exercise Price” shall mean the lower of (i) $0.10 per share, or
(ii) the volume weighted average trading price of the Company’s Common Stock for
the 5 trading days prior to the Initial Closing Date.

 

“Warrants” shall have the meaning ascribed to it in the recitals.

 

“Wistron Agreement” Turnkey Design and Manufacturing Agreement, dated July 1,
2003, by and between the Subsidiary and Wistron Corporation.

 

10.                                 [RESERVED].

 

11.                                 Miscellaneous.

 

11.1                           Survival of Representations and Warranties.  The
representations and warranties of the Borrowers and Purchasers contained in or
made pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Loan Documents.

 

11.2                           Successors and Assigns.  Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties (including transferees of any the Notes and the Warrants).  Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.

 

11.3                           Governing Law.  This Agreement and the Loan
Documents shall be construed and enforced in accordance with, and the rights of
the parties shall be governed by, the laws of the State of New York, excluding
the application of any conflicts of laws principles which would require the
application of the Laws of another state.  Each of the parties hereto hereby
irrevocably consents to the (non-exclusive) jurisdiction of the courts of the
State of New York and of any Federal court located therein in connection with
any suit, action or other proceeding arising out of or relating to this
Agreement or the Loan Documents and waives any objection to venue in the State
of New York.

 

11.4                           Counterparts.  This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

 

11.5                           Titles and Subtitles.  The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.

 

11.6                           Notices.  All notices and other communications
required or permitted hereunder shall be in writing.  Notices shall be delivered
personally, via recognized overnight courier (such as Federal Express, UPS or
Airborne Express) or via certified or registered mail.  Notices may be delivered
via facsimile or e-mail, provided that by no later than two days

 

24

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thereafter such notice is confirmed in writing and sent via one of the methods
described in the previous sentence.  Notices shall be addressed as follows:

 

(A)                                  IF TO AN INITIAL PURCHASER, TO SUCH INITIAL
PURCHASER’S ADDRESS SET FORTH ON SCHEDULE I HERETO; OR AT SUCH OTHER ADDRESS OR
FACSIMILE NUMBER AS SUCH INITIAL PURCHASER SHALL HAVE FURNISHED TO THE PARENT IN
WRITING; OR

 

(B)                                 IF TO AN ADDITIONAL PURCHASER, TO SUCH
ADDITIONAL PURCHASER’S ADDRESS SET FORTH ON SCHEDULE II HERETO, OR AT SUCH OTHER
ADDRESS OR FACSIMILE NUMBER AS SUCH ADDITIONAL PURCHASER SHALL HAVE FURNISHED TO
THE PARENT IN WRITING; OR

 

(C)                                  IF TO THE AGENT, TO PHOENIX VENTURE FUND
LLC, 110 EAST 59TH STREET, SUITE 1901, NEW YORK, NY 10022, FACSIMILE NUMBER
(212) 319-4970, ATTENTION: PHILIP S. SASSOWER, OR AT SUCH OTHER ADDRESS OR
FACSIMILE NUMBER AS SUCH ADDITIONAL PURCHASER SHALL HAVE FURNISHED TO THE PARENT
IN WRITING; OR

 

(D)                                 IF TO THE BORROWERS, TO XPLORE TECHNOLOGIES
CORP., 14000 SUMMIT DRIVE, SUITE 900, AUSTIN, TEXAS 78728, FACSIMILE NUMBER
(512) 336-7791, ATTENTION: MICHAEL J. RAPISAND, OR AT SUCH OTHER ADDRESS OR
FACSIMILE NUMBER AS THE PARENT SHALL HAVE FURNISHED IN WRITING TO THE AGENT,
ACTING ON BEHALF OF THE PURCHASERS.

 

All notices shall be effective upon receipt.

 

11.7                           Expenses  The Borrowers shall pay all reasonable
legal fees and expenses incurred by Agent as representative of the Purchasers in
connection with this Agreement and the transactions contemplated herein whether
or not a Closing occurs.

 

11.8                           Consents, Amendments and Waivers. Subject to
Section 11.18 hereof, any term of this Agreement may be amended, and the
observance of any term hereof may be waived (either generally or in a particular
instance), only with the written consent of the Agent, acting on behalf of the
Purchasers, and the Borrowers.  Any amendment or waiver effected in accordance
with this Section 11.8 or Section 11.18 shall be binding upon each of the
parties hereto.

 

11.9                           Severability.  Whenever possible, each provision
of this Agreement will be interpreted in such manner as to be effective and
valid under applicable Law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable Law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction to the greatest
extent possible to carry out the intentions of the parties hereto.

 

11.10                     Entire Agreement.  Each party hereby acknowledges that
no other party or any other person or entity has made any promises, warranties,
understandings or representations whatsoever, express or implied, not contained
in this Agreement and the Loan Documents and acknowledges that it has not
executed this Agreement or the Loan Documents in reliance upon any such
promises, representations, understandings or warranties not contained herein or
therein and that this Agreement and the Loan Documents supersede all prior
agreements and understandings between the parties with respect thereto.  There
are no promises, covenants or

 

25

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undertakings other than those expressly set forth or provided for in this
Agreement and the Loan Documents.

 

11.11                     Delays or Omissions.  No delay or omission to exercise
any right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such nonbreaching or nondefaulting party nor shall it
be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring.

 

11.12                     Facsimile and E-Mail Signatures.  Any signature
page delivered by a fax machine or email shall be binding to the same extent as
an original signature page, with regard to any agreement subject to the terms
hereof or any amendment thereto.  Any party who delivers such a signature
page agrees to deliver promptly an original counterpart to each party to whom
the faxed or emailed signature page was sent.

 

11.13                     Other Remedies.  In addition to those remedies
specifically set forth herein and in the Loan Documents, if any, the Agent, on
behalf of the Purchasers, may proceed to protect and enforce the rights of any
party under this Agreement and the Loan Documents either by suit in equity
and/or by action at law, including, but not limited to, an action for damages as
a result of any such breach and/or an action for specific performance of any
such covenant or agreement contained in this Agreement or in the Loan
Documents.  No right or remedy conferred upon or reserved under this Agreement
or the Loan Documents is intended to be exclusive of any other right or remedy,
and every right and remedy shall be cumulative and in addition to every other
right and remedy given under this Agreement and the Loan Documents or now and
hereafter existing under applicable Law.

 

11.14                     Further Assurances.  At any time or from time to time
after any Closing, the Borrowers, on the one hand, and the Purchasers, on the
other hand, agree to cooperate with each other, and at the request of the other
party, to execute and deliver any further instruments or documents and to take
all such further action as the other party may reasonably request in order to
evidence or effectuate the consummation of the transactions contemplated hereby
relating to the purchase contemplated herein and to otherwise carry out the
intent of the parties hereunder.

 

11.15                     Exchanges; Lost, Stolen or Mutilated Notes and
Warrants.  Upon surrender by any Purchaser to the Borrowers of any Note or
Warrant, the Borrowers at their expense shall issue in exchange therefor, and
deliver to such Purchaser, a replacement Note, or Warrant. Upon receipt of
evidence satisfactory to the Borrowers of the loss, theft, destruction or
mutilation of any Note or Warrant and in case of any such loss, theft or
destruction, upon delivery of an indemnity agreement, satisfactory to the
Borrowers, or in case of any such mutilation, upon surrender and cancellation of
such Note or Warrant, the Borrowers shall issue and deliver to such Purchaser a
new Note or Warrant of like tenor, in lieu of such lost, stolen or mutilated
Note or Warrant.

 

26

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11.16                     Termination.  This Agreement may be terminated at any
time prior to the Initial Closing by mutual agreement of the Borrowers and all
Initial Purchasers set forth in writing; provided that Section 11.7 shall
survive any such termination.

 

11.17                     Pro Rata.  Each Purchaser agrees that, for the benefit
of the other Purchasers, any proceeds received by such Purchaser as a result of
the exercise of rights and remedies under this Agreement will be divided, pro
rata, among all Purchasers including the purchasers of the Fall 2008 Notes in
relation to the aggregate principal amount held by such purchasers.

 

11.18                     Appointment and Authorization of Phoenix Venture Fund
LLC as Agent

 

(A)                                  APPOINTMENT.  EACH PURCHASER HEREBY
IRREVOCABLY APPOINTS AND AUTHORIZES THE AGENT TO (I) BE ITS ATTORNEY IN ITS NAME
AND ON ITS BEHALF TO EXERCISE ALL RIGHTS AND POWERS GRANTED TO THE PURCHASERS,
AND/OR THE AGENT, ACTING ON BEHALF OF THE PURCHASERS, UNDER THIS AGREEMENT AND
THE LOAN DOCUMENTS, TOGETHER WITH SUCH POWERS AS ARE REASONABLY INCIDENTAL
THERETO (INCLUDING ENTERING INTO ANY AMENDMENT, WAIVER OR MODIFICATION SUBJECT
TO SECTION 11.18(B)), AND (II) TO HOLD, DISPOSE, OR OTHERWISE DEAL WITH THE
COLLATERAL (AS DEFINED IN THE SECURITY AGREEMENT) FOR ITS OWN BENEFIT AND THE
PRO RATA BENEFIT OF THE PURCHASERS, SUBJECT TO THE TERMS AND CONDITIONS OF THE
OBLIGATIONS OF THE AGENT AS PROVIDED IN THIS AGREEMENT AND IN THE LOAN
DOCUMENTS.

 

(B)                                 EXCEPTIONS TO GENERAL APPOINTMENT. 
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE AGENT AND THE
BORROWERS SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT AND APPROVAL OF THE
PURCHASERS HOLDING AT LEAST 51% OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES
THEN OUTSTANDING (THE “MAJORITY PURCHASERS”), AMEND, MODIFY, TERMINATE OR OBTAIN
A WAIVER OF ANY PROVISION OF THIS AGREEMENT, OR ANY OTHER LOAN DOCUMENT WHICH
WILL HAVE THE EFFECT OF (I) REDUCING THE PRINCIPAL AMOUNT OF ANY NOTES OR OF ANY
PAYMENT REQUIRED TO BE MADE TO THE HOLDERS THEREOF, OR MODIFYING THE TERMS OF A
PAYMENT OR PREPAYMENT THEREOF OR (II) REDUCING THE RATE OR EXTENDING THE TIME
FOR PAYMENT OF PRINCIPAL OR INTEREST UNDER ANY NOTES OR (III) RELEASING ANY
COLLATERAL.

 

(C)                                  NO ACTION.  THE AGENT SHALL BE FULLY
JUSTIFIED IN FAILING OR REFUSING TO TAKE ANY ACTION UNDER THIS AGREEMENT, ANY
OTHER LOAN DOCUMENT OR ANY OTHER RELATED DOCUMENT OR ANY OTHER DOCUMENT OR
INSTRUMENT REFERRED TO OR PROVIDED FOR HEREIN OR THEREIN UNLESS IT SHALL FIRST
RECEIVE SUCH ADVICE OR CONCURRENCE OF THE MAJORITY PURCHASERS AS IT DEEMS
APPROPRIATE, OR IT SHALL FIRST BE INDEMNIFIED TO ITS SATISFACTION BY THE
PURCHASERS AGAINST ANY AND ALL LIABILITY AND EXPENSE WHICH MAY BE INCURRED BY IT
BY REASON OF TAKING OR CONTINUING TO TAKE ANY SUCH ACTION.  THE AGENT SHALL IN
ALL CASES BE FULLY PROTECTED FROM THE PURCHASERS IN ACTING, OR IN REFRAINING
FROM ACTING, UNDER THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY OTHER RELATED
DOCUMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO OR PROVIDED FOR HEREIN
OR THEREIN IN ACCORDANCE WITH  REQUEST OF THE MAJORITY PURCHASERS, AND SUCH
REQUEST AND ANY ACTION TAKEN OR FAILURE TO ACT PURSUANT THERETO SHALL BE BINDING
UPON ALL THE PURCHASERS AND ALL FUTURE HOLDERS OF THE NOTES.

 

(D)                                 NO FIDUCIARY RELATIONSHIP, LIMITATION OF
RESPONSIBILITY.  NOTWITHSTANDING ANY PROVISION TO THE CONTRARY ELSEWHERE IN THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, THE AGENT SHALL NOT HAVE ANY DUTIES OR
RESPONSIBILITIES, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN OR

 

27

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THEREIN, OR ANY FIDUCIARY RELATIONSHIP WITH ANY PURCHASER, AND NO IMPLIED
COVENANTS, FUNCTIONS, RESPONSIBILITIES, DUTIES, OBLIGATIONS OR LIABILITIES SHALL
BE READ INTO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY OTHER RELATED
DOCUMENT OR OTHERWISE EXIST AGAINST THE AGENT.  THE AGENT (WHICH TERM SHALL
INCLUDE ITS AFFILIATES AND ITS OWN AND ITS AFFILIATES’ OFFICERS, DIRECTORS,
PARTNERS, SHAREHOLDERS, EMPLOYEES AND AGENTS) SHALL NOT BE RESPONSIBLE TO THE
PURCHASERS FOR (I) ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES CONTAINED IN
THIS AGREEMENT OR ANY LOAN DOCUMENT OR FOR THE FAILURE BY A BORROWER OR ANY
OTHER PARTY TO PERFORM ITS OBLIGATIONS HEREUNDER OR THEREUNDER AND SHALL NOT BY
REASON OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BE A TRUSTEE FOR ANY
PURCHASER, (II) ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT HEREUNDER OR UNDER
ANY OTHER LOAN DOCUMENT OR UNDER ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO OR
PROVIDED FOR HEREIN OR THEREIN OR IN CONNECTION HEREWITH OR THEREWITH, EXCEPT
FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR (III) ANY RECITALS,
STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY A BORROWER OR ANY OFFICER OR
OFFICIAL OF A BORROWER OR ANY OTHER PARTY CONTAINED IN THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY OTHER RELATED DOCUMENT, OR IN ANY CERTIFICATE OR OTHER
DOCUMENT OR INSTRUMENT REFERRED TO OR PROVIDED FOR IN, OR RECEIVED BY ANY OF
THEM UNDER, THIS AGREEMENT, ANY LOAN DOCUMENT, OR ANY OTHER RELATED DOCUMENT, OR
FOR THE VALUE, LEGALITY, VALIDITY, EFFECTIVENESS, GENUINENESS, ENFORCEABILITY OR
SUFFICIENCY OF THIS AGREEMENT, ANY LOAN DOCUMENT, OR ANY OTHER RELATED DOCUMENT
OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO OR PROVIDED FOR HEREIN OR
THEREIN, FOR THE PERFECTION OR PRIORITY OF ANY LIEN SECURITY FOR THE NOTES OR
FOR ANY FAILURE BY A BORROWER TO PERFORM ANY OF ITS OBLIGATIONS HEREUNDER OR
THEREUNDER.  THE AGENT SHALL NOT BE UNDER ANY OBLIGATION TO ANY PURCHASER TO
ASCERTAIN OR TO INQUIRE AS TO THE OBSERVANCE OR PERFORMANCE OF ANY OF THE
AGREEMENTS CONTAINED IN, OR CONDITIONS OF, THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR ANY OTHER RELATED DOCUMENT OR ANY OTHER DOCUMENT OR INSTRUMENT
REFERRED TO OR PROVIDED FOR HEREIN OR THEREIN, OR TO INSPECT THE PROPERTIES,
BOOKS OR RECORDS OF THE A BORROWER.

 

(E)                                  RELIANCE.  AS BETWEEN THE PURCHASERS AND
THE AGENT, THE AGENT SHALL BE ENTITLED TO RELY, AND SHALL BE FULLY PROTECTED IN
RELYING UPON ANY PROMISSORY NOTE, WRITING, RESOLUTION, NOTICE, CONSENT,
CERTIFICATE, AFFIDAVIT, LETTER, TELECOPY, TELEX OR TELETYPE MESSAGE, STATEMENT,
ORDER OR OTHER DOCUMENT OR CONVERSATION BELIEVED BY IT TO BE GENUINE AND CORRECT
AND TO HAVE BEEN SIGNED, SENT OR MADE BY THE PROPER PERSON(S),
ORGANIZATION(S) OR ENTITY OR ENTITIES AND UPON ADVICE AND STATEMENTS OF LEGAL
COUNSEL (INCLUDING, WITHOUT LIMITATION, COUNSEL TO THE BORROWERS OR ANY OF
THEM), INDEPENDENT ACCOUNTANTS AND OTHER EXPERTS SELECTED BY THE AGENT.  THE
AGENT MAY DEEM AND TREAT THE PAYEE OF ANY NOTE AS THE OWNER THEREOF FOR ALL
PURPOSES UNLESS A WRITTEN NOTICE OF ASSIGNMENT OR TRANSFER THEREOF SHALL HAVE
BEEN FILED WITH THE AGENT.

 

(F)                                    KNOWLEDGE OF EVENTS OF DEFAULT.  THE
AGENT SHALL NOT BE DEEMED TO HAVE KNOWLEDGE OR NOTICE OF THE OCCURRENCE OF ANY
EVENT OF DEFAULT UNLESS THE AGENT HAS RECEIVED NOTICE FROM A PURCHASER OR A
BORROWER REFERRING TO THIS AGREEMENT, OR A LOAN DOCUMENT, DESCRIBING SUCH EVENT
OF DEFAULT AND STATING THAT SUCH NOTICE IS A “NOTICE OF DEFAULT”.  IN THE EVENT
THAT THE AGENT RECEIVES SUCH A NOTICE, THE AGENT SHALL GIVE NOTICE THEREOF TO
THE PURCHASERS.

 

(G)                                 ACKNOWLEDGMENTS, REPRESENTATIONS AND
WARRANTIES OF PURCHASERS TO AGENT.  EACH PURCHASER EXPRESSLY ACKNOWLEDGES THAT
NEITHER THE AGENT NOR ANY OF ITS OFFICERS, DIRECTORS, PARTNERS, SHAREHOLDERS,
EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES HAVE MADE ANY REPRESENTATIONS
OR WARRANTIES TO IT AND THAT NO ACT BY THE AGENT HEREAFTER TAKEN, INCLUDING ANY
REVIEW OF THE AFFAIRS OF THE BORROWERS OR ANY AFFILIATE OF THE BORROWERS, SHALL
BE DEEMED TO CONSTITUTE ANY REPRESENTATION OR WARRANTY BY THE AGENT TO ANY
PURCHASER.  EACH PURCHASER

 

28

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REPRESENTS TO THE AGENT THAT IT HAS, INDEPENDENTLY AND WITHOUT RELIANCE UPON THE
AGENT OR ANY OTHER PURCHASER, AND BASED ON SUCH DOCUMENTS AND INFORMATION AS IT
HAS DEEMED APPROPRIATE, MADE ITS OWN APPRAISAL OF AND INVESTIGATION INTO THE
BUSINESS, OPERATIONS, PROPERTY, FINANCIAL AND OTHER CONDITION AND
CREDITWORTHINESS OF THE BORROWERS AND THEIR AFFILIATES AND MADE ITS OWN DECISION
TO PURCHASE THE NOTES AND WARRANTS HEREUNDER AND ENTER INTO THIS AGREEMENT. 
EACH PURCHASER ALSO REPRESENTS THAT IT SHALL, INDEPENDENTLY AND WITHOUT RELIANCE
UPON THE AGENT OR ANY OTHER PURCHASER, AND BASED ON SUCH DOCUMENTS AND
INFORMATION AS IT SHALL DEEM APPROPRIATE AT THE TIME, CONTINUE TO MAKE ITS OWN
CREDIT ANALYSIS, APPRAISALS AND DECISIONS IN TAKING OR NOT TAKING ACTION UNDER
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OTHER RELATED DOCUMENT AND TO
MAKE SUCH INVESTIGATION AS IT DEEMS NECESSARY TO INFORM ITSELF AS TO THE
BUSINESS, OPERATIONS, PROPERTY, FINANCIAL AND OTHER CONDITION AND
CREDITWORTHINESS OF THE BORROWERS AND THEIR AFFILIATES.  EXCEPT FOR NOTICES,
REPORTS AND OTHER DOCUMENTS EXPRESSLY REQUIRED TO BE FURNISHED TO THE PURCHASERS
BY THE AGENT HEREUNDER AND UNDER THE LOAN DOCUMENTS, THE AGENT SHALL HAVE NO
DUTY OR RESPONSIBILITY TO PROVIDE ANY PURCHASER WITH ANY CREDIT OR OTHER
INFORMATION CONCERNING THE BUSINESS, OPERATIONS, PROPERTY, CONDITION (FINANCIAL
OR OTHERWISE), PROSPECTS OR CREDITWORTHINESS OF THE BORROWERS OR ANY AFFILIATE
OF THE BORROWERS WHICH MAY COME INTO THE POSSESSION OF THE AGENT OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES.

 

(H)                                 PURCHASERS INDEMNIFICATION.  THE PURCHASERS
AGREE TO INDEMNIFY THE AGENT IN ITS CAPACITY AS SUCH (TO THE EXTENT NOT
REIMBURSED BY THE BORROWERS AND WITHOUT LIMITING THE OBLIGATION OF THE BORROWERS
TO DO SO), RATABLY IN ACCORDANCE WITH THE AGGREGATE PRINCIPAL AMOUNT OF THE
NOTES HELD BY THE PURCHASERS FOR ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS
OF ANY KIND AND NATURE WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST THE AGENT IN ITS CAPACITY AS SUCH (INCLUDING BY ANY PURCHASER)
ARISING OUT OF OR BY REASON OF ANY INVESTIGATION IN OR IN ANY WAY RELATING TO OR
ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT PROVIDED, THAT NO
PURCHASER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PARTY TO BE INDEMNIFIED.  THE
AGREEMENTS IN THIS SECTION 11.18 SHALL SURVIVE THE PAYMENT OF THE NOTES AND ALL
OTHER AMOUNTS PAYABLE HEREUNDER.

 

(I)                                     AGENT IN ITS INDIVIDUAL CAPACITY, AND
NOT AS AGENT.  THE AGENT AND ITS AFFILIATES MAY MAKE LOANS TO, ACCEPT DEPOSITS
FROM AND GENERALLY ENGAGE IN ANY KIND OF BUSINESS WITH THE BORROWERS AS THOUGH
THE AGENT WERE NOT THE AGENT.  WITH RESPECT TO ITS NOTES PURCHASED HEREUNDER THE
AGENT SHALL HAVE THE SAME RIGHTS AND POWERS UNDER THIS AGREEMENT, THE LOAN
DOCUMENTS AND ANY RELATED DOCUMENT AS ANY PURCHASER AND MAY EXERCISE THE SAME AS
THOUGH IT WERE NOT THE AGENT, AND THE TERMS “PURCHASER” AND “PURCHASERS” SHALL
INCLUDE THE AGENT IN ITS INDIVIDUAL CAPACITY.

 

(J)                                     AGENT’S ABILITY TO EMPLOY AGENTS AND
ATTORNEYS-IN-FACT.  THE AGENT MAY EMPLOY AGENTS AND ATTORNEYS-IN-FACT AND SHALL
NOT BE RESPONSIBLE, EXCEPT AS TO MONEY OR SECURITIES RECEIVED BY IT OR ITS
AUTHORIZED AGENTS, FOR THE NEGLIGENCE OR MISCONDUCT OF ANY SUCH AGENTS OR
ATTORNEYS-IN-FACT SELECTED AND MONITORED BY IT WITH REASONABLE CARE.

 

(K)                                  RESIGNATION OF AGENT.  THE AGENT MAY RESIGN
AS AGENT UPON 30 DAYS’ WRITTEN NOTICE TO THE PURCHASERS AND THE BORROWERS.  IF
THE AGENT SHALL RESIGN AS AGENT UNDER THIS AGREEMENT AND THE LOAN DOCUMENTS,
THEN THE MAJORITY PURCHASERS SHALL APPOINT FROM AMONG THE PURCHASERS OR THEIR
AFFILIATES A SUCCESSOR AGENT FOR THE PURCHASERS, WHICH SUCCESSOR AGENT SHALL

 

29

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(UNLESS AN EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING) BE APPROVED
BY THE BORROWERS (WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED),
WHEREUPON SUCH SUCCESSOR AGENT SHALL SUCCEED TO THE RIGHTS, POWERS AND DUTIES OF
THE AGENT, AND THE TERM “AGENT” SHALL MEAN SUCH SUCCESSOR AGENT EFFECTIVE UPON
SUCH APPOINTMENT AND APPROVAL, AND THE FORMER AGENT’S RIGHTS, POWERS AND DUTIES
AS AGENT SHALL BE TERMINATED, WITHOUT ANY OTHER OR FURTHER ACT OR DEED ON THE
PART OF SUCH FORMER AGENT OR ANY OF THE PARTIES TO THIS AGREEMENT, THE LOAN
DOCUMENT OR ANY HOLDERS OF THE NOTES.  IF NO SUCCESSOR AGENT HAS ACCEPTED
APPOINTMENT AS AGENT BY THE DATE THAT IS 30 DAYS FOLLOWING A RETIRING AGENT’S
NOTICE OF RESIGNATION, THE RETIRING AGENT’S RESIGNATION SHALL NEVERTHELESS
THEREUPON BECOME EFFECTIVE AND THE PURCHASERS (TAKING ACTIONS BY APPROVAL OF THE
MAJORITY PURCHASERS) SHALL ASSUME AND PERFORM ALL OF THE DUTIES OF THE AGENT
HEREUNDER UNTIL SUCH TIME, IF ANY, AS THE PURCHASERS APPOINT A SUCCESSOR AGENT
AS PROVIDED FOR ABOVE.  AFTER ANY RETIRING AGENT’S RESIGNATION AS AGENT, THE
PROVISIONS OF THIS SECTION 11.18 SHALL INURE TO ITS BENEFIT AS TO ANY ACTIONS
TAKEN OR OMITTED TO BE TAKEN BY IT WHILE IT WAS AGENT UNDER THIS AGREEMENT AND
THE LOAN DOCUMENTS.

 

(L)                                     BORROWER’S ABILITY TO RELY ON AGENT’S
AUTHORITY. THE BORROWERS SHALL BE ENTITLED TO RELY UPON ANY CERTIFICATE, NOTICE
OR OTHER DOCUMENT OR OTHER ADVICE, STATEMENT OR INSTRUCTION PROVIDED TO IT BY
AGENT PURSUANT TO THIS AGREEMENT OR THE LOAN DOCUMENTS, AND THE BORROWERS SHALL
GENERALLY BE ENTITLED TO DEAL WITH AGENT WITH RESPECT TO MATTERS UNDER THIS
AGREEMENT OR THE LOAN DOCUMENTS WHICH AGENT IS AUTHORIZED TO DEAL WITH WITHOUT
ANY OBLIGATION WHATSOEVER TO SATISFY ITSELF AS TO THE AUTHORITY OF AGENT TO ACT
ON BEHALF OF THE PURCHASERS AND WITHOUT ANY LIABILITY WHATSOEVER TO THE
PURCHASERS FOR RELYING UPON ANY CERTIFICATE, NOTICE OR OTHER DOCUMENT OR OTHER
ADVICE, STATEMENT OR INSTRUCTION PROVIDED TO IT BY AGENT, NOTWITHSTANDING ANY
LACK OF AUTHORITY OF AGENT TO PROVIDE THE SAME.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

30

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

 

The Borrowers:

 

 

 

 

 

XPLORE TECHNOLOGIES CORP.

 

 

 

 

 

 

 

By:

 

 

 

Name:

Michael J. Rapisand

 

 

Title:

Chief Financial Officer and
Secretary

 

 

 

 

 

 

 

XPLORE TECHNOLOGIES
CORPORATION OF AMERICA

 

 

 

 

 

 

 

By:

 

 

 

Name:

Michael J. Rapisand

 

 

Title:

Chief Financial Officer and
Secretary

 

Signature Page to Note Purchase Agreement

 

--------------------------------------------------------------------------------

 

 

 

The Initial Purchasers:

Dollar Amount of Initial Closing Notes and
Warrants to be Purchased:

 

 

 

 

 

$

By:

 

 

Name:

 

Title:

 

Signature Page to Note Purchase Agreement

 

--------------------------------------------------------------------------------

 

 

The Additional Purchasers:

Dollar Amount of Additional Notes and
Warrants to be Purchased:

 

 

 

 

 

$

By:

 

 

Name:

 

Title:

 

Signature Page to Note Purchase Agreement

 

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EXHIBIT C

 

AMENDMENT NO. 1 TO THE SECURITY AGREEMENT

 

This Amendment No. 1 (this “Amendment”), dated as of February 27, 2009, to the
Security Agreement dated as of September 5, 2008 (as amended, restated,
supplemented or otherwise modified from time to time, including all exhibits and
schedules thereto, the “Security Agreement”) by Xplore Technologies Corp., a
Delaware corporation (the “Parent”), Xplore Technologies Corporation of America,
a Delaware corporation (the “Subsidiary” and, collectively with the Parent, the
“Borrowers”), and Phoenix Venture Fund LLC, a Delaware limited liability
company, as agent for the Purchasers (as defined below) (in such capacity, the
“Collateral Agent”).  Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to such terms in the Security Agreement
and/or the Note Purchase Agreements.

W I T N E S S E T H:

WHEREAS, pursuant to that certain Note Purchase Agreement, dated September 5,
2008 (the “Fall 2008 Note Purchase Agreement”), the purchasers listed on the
schedules thereto (the “Fall 2008 Purchasers”) purchased, and the Borrowers
issued and sold to the Fall 2008 Purchasers, secured subordinated promissory
notes in an aggregate original principal amount of $3,000,000 (each
individually, a “Fall 2008 Note”);

WHEREAS, the Borrowers and the Collateral Agent, as agent for the Fall 2008
Purchasers, entered into the Security Agreement, whereby the Borrowers granted
the Collateral Agent a security interest in the Collateral (as defined in the
Security Agreement) for the ratable benefit of each of the Fall 2008 Purchasers;

WHEREAS, pursuant to a Note Purchase Agreement, dated February 27, 2009 (the
“February 2009 Note Purchase Agreement” and, collectively with the Fall 2008
Note Purchase Agreement, the “Note Purchase Agreements”), the purchasers listed
on the schedules thereto from time to time (the “February 2009 Purchasers”) will
purchase, and the Borrowers have agreed to issue and sell to the February 2009
Purchasers, secured subordinated promissory notes (each individually, a
“February 2009 Note” and, collectively with the Fall 2008 Notes, the “Notes”) in
an aggregate original principal amount of up to $1,500,000;

WHEREAS, the Borrowers and the Collateral Agent, as agent for the Fall 2008
Purchasers and the February 2009 Purchasers, desire to amend the Security
Agreement pursuant to Section 18 thereof on the terms and conditions set forth
herein to, among other things, expand the definition of Secured Obligations (as
defined therein) to include the Note Indebtedness as defined in the February
2009 Note Purchase Agreement and to provide that the Collateral is being held
for the pro rata benefit of each of the Fall 2008 Purchasers and February 2009
Purchasers; and

WHEREAS, the Majority Purchasers (as defined in the Fall 2008 Note Purchase
Agreement) have consented to this Amendment in accordance with the requirements
of the Fall 2008 Note Purchase Agreement.

 

C-1

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NOW, THEREFORE, for and in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in order to induce the February 2009 Purchasers to purchase
the February 2009 Notes as provided in the February 2009 Note Purchase
Agreement, the Borrowers and the Collateral Agent hereby agree as follows:

1.     Amendment to the Preliminary Statements of the Security Agreement.  The
Security Agreement is hereby amended by deleting the Preliminary Statements in
their entirety and inserting in lieu thereof the following:

“1.           The Borrowers and the Collateral Agent, as agent for the
Purchasers (as defined herein), desire to enter into this Security Agreement on
the terms and conditions set forth herein to grant the Collateral Agent a
security interest in the Collateral (as defined herein) for the ratable benefit
of each of the Purchasers.

2.             Pursuant to that certain Note Purchase Agreement, dated September
5, 2008 (the “Fall 2008 Note Purchase Agreement”), the purchasers listed on the
schedules thereto (the “Fall 2008 Purchasers”) purchased, and the Borrowers
issued and sold to the Fall 2008 Purchasers, secured subordinated promissory
notes in an aggregate original principal amount of $3,000,000 (each
individually, a “Fall 2008 Note”).

3.             PURSUANT TO A NOTE PURCHASE AGREEMENT, DATED FEBRUARY 27, 2009
(THE “FEBRUARY 2009 NOTE PURCHASE AGREEMENT” AND, COLLECTIVELY WITH THE FALL
2008 NOTE PURCHASE AGREEMENT, THE “NOTE PURCHASE AGREEMENTS”), THE PURCHASERS
LISTED ON THE SCHEDULES THERETO FROM TIME TO TIME (THE “FEBRUARY 2009
PURCHASERS”) WILL PURCHASE, AND THE BORROWERS HAVE AGREED TO ISSUE AND SELL TO
THE FEBRUARY 2009 PURCHASERS, SECURED SUBORDINATED PROMISSORY NOTES (EACH
INDIVIDUALLY, A “FEBRUARY 2009 NOTE” AND, COLLECTIVELY WITH THE FALL 2008 NOTES,
THE “NOTES”) IN AN AGGREGATE ORIGINAL PRINCIPAL AMOUNT OF UP TO $1,500,000.

4.             EACH OF THE FALL 2008 PURCHASERS AND THE FEBRUARY 2009 PURCHASERS
SHALL BE REFERRED TO HEREIN INDIVIDUALLY, AS A “PURCHASER” AND, COLLECTIVELY, AS
THE “PURCHASERS.”

5.             PURSUANT TO THE NOTE PURCHASE AGREEMENTS, EACH PURCHASER
IRREVOCABLY APPOINTED AND AUTHORIZED THE COLLATERAL AGENT TO (I) BE ITS ATTORNEY
IN ITS NAME AND ON ITS BEHALF TO EXERCISE ALL RIGHTS AND POWERS GRANTED TO THE
PURCHASERS UNDER THE NOTE PURCHASE AGREEMENTS, THIS AGREEMENT AND THE LOAN
DOCUMENTS, TOGETHER WITH SUCH POWERS AS ARE REASONABLY INCIDENTAL THERETO, AND
(II) HOLD THE COLLATERAL FOR THE PRO RATA BENEFIT OF THE PURCHASERS, SUBJECT TO
THE TERMS AND CONDITIONS OF THE OBLIGATIONS OF THE AGENT AS PROVIDED IN THE NOTE
PURCHASE AGREEMENTS, THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

6.             IT WAS A CONDITION PRECEDENT TO THE OBLIGATION OF THE FALL 2008
PURCHASERS TO PURCHASE THE FALL 2008 NOTES AS PROVIDED IN THE FALL 2008 NOTE
PURCHASE AGREEMENT THAT THE BORROWERS GRANTED THE SECURITY INTEREST CONTEMPLATED
BY THIS SECURITY AGREEMENT.

7.             IT IS A CONDITION PRECEDENT TO THE OBLIGATION OF THE FEBRUARY
2009 PURCHASERS TO PURCHASE THE FEBRUARY 2009 NOTES AS PROVIDED IN THE FEBRUARY
2009 NOTE

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PURCHASE AGREEMENT THAT THE BORROWERS SHALL HAVE GRANTED THE SECURITY INTEREST
CONTEMPLATED BY THIS SECURITY AGREEMENT.”

2.     Amendment to the references to the Note Purchase Agreement in the
Security Agreement.  The Security Agreement is hereby amended by deleting the
term “Note Purchase Agreement” wherever it may appear and inserting the term
“Note Purchase Agreements” in lieu thereof.

3.     Amendment to Section 2 of the Security Agreement.  Section 2 of the
Security Agreement is hereby amended to expand the definition of “Secured
Obligations” to expressly include the Note Indebtedness under the February 2009
Note Purchase Agreement.

4.     Amendment to Section 11 of the Security Agreement.  Section 11(a) of the
Security Agreement is hereby amended by adding the following sentence:

“The parties hereto agree that the Collateral Agent holds the Collateral for the
pro rata benefit of the Fall 2008 Purchasers and the February 2009 Purchasers,
whether upon liquidation of the Collateral, distribution of the proceeds
thereof, or otherwise.”

5.     Agreement Remains in Force.  Except as expressly amended hereby, the
Security Agreement remains unmodified and in full force and effect.

6.     Counterparts; Facsimile.  This Amendment may be executed in multiple
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same
instrument.  Delivery of a counterpart hereof by facsimile transmission or by
e-mail transmission shall be as effective as delivery of a manually executed
counterpart hereof.

7.     Governing Law.  This Amendment shall be construed in accordance with and
governed by the laws of the State of New York, without regard to the conflict of
laws principles thereof.

[Remainder of this page intentionally left blank.]

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

 

BORROWERS:

 

 

 

 

XPLORE TECHNOLOGIES CORP.

 

 

 

 

By:

 

 

 

Name:

Michael J. Rapisand

 

 

Title:

Chief Financial Officer and Secretary

 

 

 

 

 

 

 

XPLORE TECHNOLOGIES

 

CORPORATION OF AMERICA

 

 

 

 

By:

 

 

 

Name:

Michael J. Rapisand

 

 

Title:

Chief Financial Officer and Secretary

 

 

 

 

 

 

 

COLLATERAL AGENT:

 

 

 

 

PHOENIX VENTURE FUND LLC

 

 

 

 

By:

SG Phoenix Ventures LLC,

 

 

its Managing Member

 

 

 

 

By:

 

 

 

Name:

Philip Sassower

 

 

Title:

Member

 

 

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EXHIBIT D

 

SUBORDINATION AGREEMENT

This Subordination Agreement is made by and between each of the undersigned
creditors (each a "Creditor" and, collectively, “Creditors”), and SILICON VALLEY
BANK, a California-chartered bank, with its principal place of business at
3003 Tasman Drive, Santa Clara, California 95054 (“Bank”).  This Subordination
Agreement shall be deemed to have been made between Bank and each Creditor who
becomes a party hereto as of the date that each such Creditor executes a
counterpart signature page to this Subordination Agreement.

Recitals

A.            XPLORE TECHNOLOGIES CORPORATION OF AMERICA (“Borrower”) has
requested and/or obtained certain loans or other credit accommodations from Bank
to Borrower which are or may be from time to time secured by assets and property
of Borrower.  XPLORE TECHNOLOGIES CORP., a Delaware corporation (“Guarantor” and
together with Borrower, each a “Credit Party” and collectively, the “Credit
Parties”), has executed that certain Unconditional Guaranty in favor of Bank
dated as of April 22, 2005 (the “Guaranty”), guarantying all amounts owing from
Borrower to Bank and Guarantor has granted Bank a security interest in all of
Guarantor’s assets pursuant to that certain Security Agreement dated as of
September 5, 2008 (the "Security Agreement”).

B.            Each Creditor has extended loans or other credit accommodations to
the Credit Parties, and/or may extend loans or other credit accommodations to
the Credit Parties from time to time.

C.            In order to induce Bank to extend credit to Borrower and, at any
time or from time to time, at Bank’s option, to make such further loans,
extensions of credit, or other accommodations to or for the account of Borrower,
or to purchase or extend credit upon any instrument or writing in respect of
which a Credit Party may be liable in any capacity, or to grant such renewals or
extension of any such loan, extension of credit, purchase, or other
accommodation as Bank may deem advisable, each Creditor is willing to
subordinate, subject to the terms and conditions hereof: (i) all of the Credit
Parties’ indebtedness for borrowed money to such Creditor, whether presently
existing or arising in the future (the “Subordinated Debt”) to all of the Credit
Parties’ indebtedness and obligations to Bank; and (ii) all of such Creditor’s
security interests, if any, to all of Bank’s security interests in the Credit
Parties’ property.

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

1.             Subject to the terms and conditions hereof, each Creditor
subordinates to Bank any security interest or lien that such Creditor may have
in any property of the Credit Parties.  Notwithstanding the respective dates of
attachment or perfection of the security interest of such Creditor and the
security interest of Bank, the security interest of Bank in (i) the Collateral,
as defined in that certain Loan and Security Agreement between Borrower and Bank
dated as of September 15, 2005, as amended by that certain First Amendment to
Loan and Security Agreement by and between Bank and Borrower dated as of
November 28, 2005, that certain Letter amending Loan and Security Agreement by
and between Bank and Borrower dated as of March 30, 2006, that certain Second
Amendment to Loan and Security Agreement by and between Bank and Borrower dated
as of May 15, 2006, that certain Third Amendment to Loan and Security Agreement
by and between Bank and Borrower dated as of February 28, 2007, that certain
Fourth Amendment to Loan and Security Agreement by and between Bank and Borrower
dated as of March 28, 2008, that certain Fifth Amendment to Loan and Security
Agreement by and between Bank and Borrower dated as of May 27, 2008, that
certain Sixth Amendment to Loan and Security Agreement by and between Bank and
Borrower dated as of August 6, 2008, that certain Seventh Amendment to Loan and
Security Agreement by and between Bank and Borrower dated as of August 29,  2008
and that certain Eighth Amendment to Loan and Security Agreement by and between
Bank and Borrower dated as of September 30,  2008 (the “Loan Agreement”) and
(ii) the Collateral, as defined in the Security Agreement (collectively, the
“Collateral”), shall at all times be senior to the security interest of such
Creditor.   The Loan Agreement, the Guaranty and the Security Agreement shall
collectively be referred to herein as the “Loan Documents”.

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2.             All Subordinated Debt is subordinated in right of payment to all
obligations of the Credit Parties to Bank now existing or hereafter arising,
together with all costs of collecting such obligations (including attorneys’
fees), including, without limitation, all interest accruing after the
commencement by or against a Credit Party of any bankruptcy, reorganization or
similar proceeding, and all obligations under the Loan Documents (the “Senior
Debt”).

3.             No Creditor will demand or receive from the Credit Parties (and
the Credit Parties will not pay to any Creditor) all or any part of the
Subordinated Debt, by way of payment, prepayment, setoff, lawsuit or otherwise,
nor will any Creditor exercise any remedy with respect to the Collateral, nor
will any Creditor accelerate the Subordinated Debt, or commence, or cause to
commence, prosecute or participate in any administrative, legal or equitable
action against the Credit Parties, until such time as both (i) the Senior Debt
is paid in full and (ii)Bank has no commitment or obligation to lend any further
funds to Borrower under the Loan Documents.  The foregoing notwithstanding,
provided that an Event of Default, as defined in the Loan Agreement, has not
occurred and is not continuing and would not exist immediately after such
payment, (i) Creditors shall be entitled to receive each regularly scheduled,
non-accelerated payment of non-default interest as and when due and payable and
(ii) Creditors shall be entitled to receive prepayments of principal and
interest provided such payments are made solely with the proceeds of the sale of
a Credit Party’s equity securities, in either case, in accordance with the terms
of those certain Notes executed by the Credit Parties in favor of Creditors
pursuant to that certain Note Purchase Agreement between the Credit Partiers and
the Creditors dated as of February 27, 2009.  Nothing in the foregoing paragraph
shall prohibit a Creditor from converting all or any part of the Subordinated
Debt into equity securities of a Credit Party.

4.             Each Creditor shall promptly deliver to Bank in the form received
(except for endorsement or assignment by such Creditor where required by Bank)
for application to the Senior Debt any payment, distribution, security or
proceeds received by such Creditor with respect to the Subordinated Debt other
than in accordance with this Agreement.

5.             In the event of a Credit Party’s insolvency, reorganization or
any case or proceeding under any bankruptcy or insolvency law or laws relating
to the relief of debtors, these provisions shall remain in full force and
effect, and Bank’s claims against the Credit Parties and the estate of the
Credit Parties shall be paid in full before any payment is made to any Creditor.

6.             Until the Senior Debt is paid in full and Bank’s arrangements to
lend any funds to Borrower under the Loan Documents have been terminated, each
Creditor irrevocably appoints Bank as such Creditor’s attorney-in-fact, and
grants to Bank a power of attorney with full power of substitution, in the name
of such Creditor or in the name of Bank, for the use and benefit of Bank, with
notice to such Creditor, to perform at Bank’s option the following acts in any
bankruptcy, insolvency or similar proceeding involving a Credit Party:

(i)            To file the appropriate claim or claims in respect of the
Subordinated Debt on behalf of such Creditor if such Creditor does not do so
prior to 30 days before the expiration of the time to file claims in such
proceeding and if Bank elects, in its sole discretion, to file such claim or
claims; and

(ii)           To accept or reject any plan of reorganization or arrangement on
behalf of such Creditor and to otherwise vote such Creditor’s claims in respect
of any Subordinated Debt in any manner that Bank deems appropriate for the
enforcement of its rights hereunder.

7.             Each Creditor shall immediately affix a legend to the instruments
evidencing the Subordinated Debt stating that the instruments are subject to the
terms of this Agreement.  By the execution of this Agreement, each Creditor
hereby authorizes Bank to amend any financing statements filed by such Creditor
against either of the Credit Parties as follows: “In accordance with a certain
Subordination Agreement by and among the Secured Party, the Debtor and Silicon
Valley Bank, the Secured Party has subordinated any security interest or lien
that Secured Party may have in any property of the Debtor to the security
interest of Silicon Valley Bank in all assets of the Debtor, notwithstanding the

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respective dates of attachment or perfection of the security interest of the
Secured Party and Silicon Valley Bank.”

8.             No amendment of the documents evidencing or relating to the
Subordinated Debt shall directly or indirectly modify the provisions of this
Agreement in any manner which might terminate or impair the subordination of the
Subordinated Debt or the subordination of the security interests or liens that
Creditors may have in any property of the Credit Parties.  By way of example,
such instruments shall not be amended to (i) increase the rate of interest with
respect to the Subordinated Debt, or (ii) accelerate the payment of the
principal or interest or any other portion of the Subordinated Debt.  Bank shall
have the sole and exclusive right to restrict or permit, or approve or
disapprove, the sale, transfer or other disposition of Collateral except in
accordance with the terms of the Senior Debt. Upon written notice from Bank to
Creditors of Bank's agreement to release its lien on all or any portion of the
Collateral in connection with the sale, transfer or other disposition thereof by
Bank in accordance with the terms of the Loan Documents (or by a Credit Party
with consent of Bank), each Creditor shall be deemed to have also, automatically
and simultaneously, released its lien on such Collateral, and each Creditor
shall upon written request by Bank, immediately take such action as shall be
necessary or appropriate to evidence and confirm such release.  All proceeds
resulting from any such sale, transfer or other disposition shall be applied
first to the Senior Debt until payment in full thereof, with the balance, if
any, to the Subordinated Debt, or to any other entitled party.  If any Creditor
fails to release its lien as required hereunder, such Creditor hereby appoints
Bank as attorney in fact for such Creditor with full power of substitution to
release such Creditor's liens as provided hereunder.  Such power of attorney
being coupled with an interest shall be irrevocable.

9.             All necessary action on the part of each Creditor, its officers,
directors, partners, members and shareholders, as applicable, necessary for the
authorization of this Agreement and the performance of all obligations of such
Creditor hereunder has been taken.  Additionally, the execution, delivery and
performance of and compliance with this Agreement will not result in any
material violation or default of any term of any of Creditors’ charter,
formation or other organizational documents (such as Articles or Certificate of
Incorporation, bylaws, partnership agreement, operating agreement, etc.).

10.           If, at any time after payment in full of the Senior Debt any
payments of the Senior Debt must be disgorged by Bank for any reason (including,
without limitation, the bankruptcy of a Credit Party), this Agreement and the
relative rights and priorities set forth herein shall be reinstated as to all
such disgorged payments as though such payments had not been made and each
Creditor shall immediately pay over to Bank all payments received with respect
to the Subordinated Debt to the extent that such payments would have been
prohibited hereunder.  At any time and from time to time, without notice to any
Creditor, Bank may take such actions with respect to the Senior Debt as Bank, in
its sole discretion, may deem appropriate, including, without limitation,
terminating advances to Borrower, increasing the principal amount, extending the
time of payment, increasing applicable interest rates, renewing, compromising or
otherwise amending the terms of any documents affecting the Senior Debt and any
collateral securing the Senior Debt, and enforcing or failing to enforce any
rights against a Credit Party or any other person.  No such action or inaction
shall impair or otherwise affect Bank’s rights hereunder. Each Creditor waives
any benefits of California Civil Code Sections 2809, 2810, 2819, 2845, 2847,
2848, 2849, 2850, 2899 and 3433.

11.           This Agreement shall bind any successors or assignees of Creditors
and shall benefit any successors or assigns of Bank.  This Agreement shall
remain effective until such time as both (i) the Senior Debt is paid in full and
(ii) Bank has no commitment or obligation to lend any further funds to Borrower
under the Loan Documents. This Agreement is solely for the benefit of Creditors
and Bank and not for the benefit of the Credit Parties or any other party.

12.           Each Creditor hereby agrees to execute such documents and/or take
such further action as Bank may at any time or times reasonably request in order
to carry out the provisions and intent of this Agreement, including, without
limitation, ratifications and confirmations of this Agreement from time to time
hereafter, as and when requested by Bank.

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13.           This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
one instrument.

14.           This Agreement shall be governed by and construed in accordance
with the laws of the State of California, without giving effect to conflicts of
laws principles.  Creditors and Bank submit to the exclusive jurisdiction of the
state and federal courts located in Santa Clara County, California in any
action, suit, or proceeding of any kind, against it which arises out of or by
reason of this Agreement.  CREDITORS AND BANK WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court.  The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive.  The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers.  All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed.  If during the course of any dispute, a party desires to
seek provisional relief, but a judge has not been appointed at that point
pursuant to the judicial reference procedures, then such party may apply to the
Santa Clara County, California Superior Court for such relief.  The proceeding
before the private judge shall be conducted in the same manner as it would be
before a court under the rules of evidence applicable to judicial proceedings. 
The parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings.  The private judge shall oversee discovery and may enforce
all discovery rules and order applicable to judicial proceedings in the same
manner as a trial court judge.  The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to the California Code of Civil Procedure § 644(a).  Nothing in
this paragraph shall limit the right of any party at any time to exercise
self-help remedies, foreclose against collateral, or obtain provisional
remedies.  The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.

15.           This Agreement represents the entire agreement with respect to the
subject matter hereof, and supersedes all prior negotiations, agreements and
commitments.  No Creditor is relying on any representations by Bank or either of
the Credit Parties in entering into this Agreement, and each Creditor has kept
and will continue to keep itself fully apprised of the financial and other
condition of the Credit Parties.  This Agreement may be amended only by written
instrument signed by Creditors and Bank.

16.           In the event of any legal action to enforce the rights of a party
under this Agreement, the party prevailing in such action shall be entitled, in
addition to such other relief as may be granted, all reasonable costs and
expenses, including reasonable attorneys’ fees, incurred in such action.

17.           For so long as this Subordination Agreement is in full force an
effect, the Subordinated Debt shall constitute “Permitted Indebtedness” and the
liens granted to the Creditors in the property of the Credit Parties shall
constitute “Permitted Liens” pursuant to the Loan Documents.

[Signature page follows.]

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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
written below.

“Creditor”

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

 

Title

 

 

 

 

 

 

 

 

Dated:

 

 

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
written below.

 

“Bank”

 

SILICON VALLEY BANK

 

By:

 

 

 

 

 

 

 

 

Title

 

 

 

 

 

 

 

 

Dated:

 

 

 

 

 

The undersigned approve of the terms of this Agreement.

 

 

“Borrower”

 

XPLORE TECHNOLOGIES CORPORATION OF AMERICA

 

 

 

By:

 

 

 

 

 

 

 

 

Title:

 

 

 

 

 

 

 

 

Dated:

 

 

 

 

 

 

 

 

“Guarantor”

 

XPLORE TECHNOLOGIES CORP.

 

 

 

By:

 

 

 

 

 

 

 

 

Title:

 

 

 

 

 

 

 

 

Dated:

 

 

 

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