Exhibit 10.2

 

SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT

 

THIS SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”) is made
and entered into as of September 22, 2004, by and among Commercial Credit Group
Inc., a Delaware corporation (the “Company”), and each of those entities,
severally and not jointly, whose names are set forth on the Schedule of
Investors attached hereto as Schedule A (which entities are hereinafter
collectively referred to as the “Investors” and each individually as an
“Investor”).

 

R E C I T A L S

 

WHEREAS, the Company has authorized the offer and sale of up to an aggregate of
Sixty Thousand (60,000) shares (collectively, the “Shares”) of its Series A-1
Preferred Stock, par value $.00001 per share (the “Series A-1 Preferred Stock”)
for a total purchase price of Six Million Dollars ($6,000,000);

 

WHEREAS, the Investors desire to purchase the Shares on the terms and conditions
set forth herein; and

 

WHEREAS, the Company desires to issue and sell the Shares to the Investors on
the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

 

1.  Agreement to Sell and Purchase the Shares.

 

1.1  Authorization of Shares.  The Company has authorized (a) the sale, issuance
and delivery of the Shares to the Investors and (b) the issuance and delivery of
the shares of the Company’s Common Stock, par value $.00001 per share (“Common
Stock”), issuable upon conversion of the Shares (collectively, the “Conversion
Shares”).  The Shares and the Conversion Shares shall have the rights,
preferences, privileges and restrictions set forth in the Amended and Restated
Certificate of Incorporation of the Company, in the form attached hereto as
Exhibit A (the “Restated Charter”), which Restated Charter shall be filed with
the Secretary of State of the State of Delaware prior to the Initial Closing (as
defined in Section 2.1).

 

1.2  Sale and Purchase.

 

(a)  Initial Closing.  Subject to the terms and conditions of this Agreement, at
the Initial Closing, the Company will sell, issue and deliver to each Investor,
severally and not jointly, and each Investor will purchase from the Company,
severally and not jointly, the number of Shares set forth opposite such
Investor’s name on Schedule A under the heading “Initial Closing Shares” (the
“Initial Closing Shares”) at a purchase price of $100.00 per Share.

 

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(b)  Subsequent Closings.  Subject to the terms and conditions of this
Agreement, at one or more Subsequent Closings (as defined in Section 2.2), the
Company will sell, issue and deliver to each Investor, severally and not
jointly, and each Investor will purchase from the Company, severally and not
jointly, up to the number of Shares set forth opposite each Investor’s name on
Schedule A under the heading “Subsequent Closing Shares” (the “Subsequent
Closing Shares”) at a purchase price of $100.00 per Share.

 

1.3  Use of Proceeds.  The Company will use the proceeds from the sale of the
Series A-1 Preferred Stock to the Investors and the proceeds from the sale of
shares of its Series A-2 Preferred Stock (the “Series A-2 Preferred Stock”) to
Daniel J. McDonough, Kevin T. McGinn, W.J. Mattocks and Richard W. Radom
(collectively, the “Founders”) pursuant to that certain Series A-2 Stock
Purchase Agreement to be entered into among the Company and the Founders prior
to or concurrently with the Initial Closing (the “Founders Purchase Agreement”)
for (a) expenses related to the Initial Closing and the completion of the Senior
Debt Facility (as hereinafter defined), as more fully set forth on Schedule
1.3(a); (b) start-up expenses in an amount not to exceed One Hundred and Fifteen
Thousand Dollars ($115,000) as detailed in the Company’s business plan attached
hereto as Schedule 1.3(b) (the “Business Plan”); (c) reasonable and customary
expenses related to the Subsequent Closings; (d) working capital and loan and
leasing activities in accordance with the Business Plan; or (e) as otherwise may
be approved by the Board of Directors of the Company (the “Board”); provided,
however, notwithstanding the foregoing, in no event shall any such proceeds be
used to reduce indebtedness or make payments to any affiliate or stockholder of
the Company other than in ordinary arm’s length transactions that have been
approved by the Board.

 

2.  Initial Closing, Delivery and Payment.

 

2.1  Initial Closing.  The initial closing of the sale and purchase of the
Shares under this Agreement (the “Initial Closing”) shall take place as soon as
possible after the execution and delivery hereof at a time and place that is
mutually convenient to the Company and the Investors (the date of the Initial
Closing is sometimes hereinafter referred to as the “Closing Date”).  In lieu of
convening in person for the purpose of conducting the Initial Closing, the
Company and the Investors may mutually agree to effect the execution and
delivery of this Agreement, the Related Agreements (as defined in Section 3.1)
and any other documents required to complete the Initial Closing by means of an
exchange of facsimile signatures with original copies to follow by overnight
courier service.   Notwithstanding anything contained herein to the contrary,
the purchase price for the Initial Closing Shares allocated to Envest II LLC
(“Envest”) may be paid at any time within thirty (30) days after the date hereof
(assuming that the Initial Closing occurs prior to such date); provided,
however, the Company shall not deliver to Envest certificates for such Initial
Closing Shares until such purchase price has been paid.  Envest recognizes and
acknowledges that the other Investors and the Company are relying on the
aforesaid covenant and agreement by Envest in connection with their decision to
complete the Initial Closing hereunder.  As security for the duties and
obligations of Envest to acquire its Initial Closing Shares in accordance with
the provisions of this Section 2.1, Envest shall, concurrently with the Initial
Closing, deposit the sum of Two Hundred Thousand Dollars ($200,000) (the “Envest
Escrow”) into escrow with the Company, which Envest Escrow shall (i) be applied
on account of the purchase price due from Envest in respect of the Initial
Closing Shares acquired by Envest pursuant hereto and (ii) be forfeited to the
Company in the event that Envest fails to acquire the

 

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Initial Closing Shares in accordance with the provisions of this Section 2.1 and
such failure is not attributable to any breach by the Company of its duties and
obligations hereunder, all of which shall be set forth in a letter agreement by
and between Envest and the Company that is reasonably satisfactory to the
parties thereto.

 

2.2  Subsequent Closings.  At any time within twenty-four (24) months after the
Initial Closing, upon a determination of the need for additional funding by the
Board of Directors of the Company, the Company may give no less than twenty (20)
days’ notice to the Investors (a “Funding Notice”) of the time and place of one
or more closings at which the Company shall sell, and the Investors shall
purchase, on terms and conditions contained in this Agreement, the Subsequent
Closing Shares.  The Funding Notice shall set forth: (i) the number of
Subsequent Closing Shares to be purchased by each Investor and the aggregate
purchase price payable by each Investor (it being understood that each Investor
shall be required to purchase its pro-rata share of such Subsequent Closing
Shares); (ii) the wire transfer instructions for the Company to which the
purchase price for the Subsequent Closing Shares shall be delivered by the
Investors; (iii) a certificate from an authorized officer of the Company to the
effect that the conditions precedent set forth in Section 5.3 hereof have been
satisfied, other than the conditions set forth in Section 5.3(f) (which shall be
satisfied concurrently with or as soon as possible after the purchase price has
been paid in respect of the Subsequent Closing Shares); and (iv) the manner in
which the proceeds of the sale of the Subsequent Closing Shares being purchased
will be used by the Company (which shall be in accordance with Section 1.3
hereof).  The dates of the purchase and sale of the Subsequent Closing Shares
are collectively referred to in this Agreement as the “Subsequent Closing Dates”
and the closing or closings as the “Subsequent Closings.”

 

2.3  Delivery and Payment.  At the Initial Closing and each of the Subsequent
Closings, subject to the terms and conditions of this Agreement, the Company
will deliver to each Investor a certificate representing the number of Shares to
be purchased by such Investor at the Initial Closing or Subsequent Closing, as
appropriate, against payment of the purchase price therefor by wire transfer of
immediately available funds to an account designated in writing by the Company
not less than two (2) business days prior to the Initial Closing or Subsequent
Closing, as appropriate.

 

3.  Representations and Warranties.  The Company represents and warrants to each
Investor as of the date hereof and as of the Closing Date and each of the
Subsequent Closing Dates that the statements contained in this Section 3 are
true and correct, except as set forth in the Schedule of Exceptions attached to
this Agreement (it being agreed that the Company may amend the Schedule of
Exceptions as of the Closing Date and each of the Subsequent Closing Dates to
reflect matters arising between the date hereof or the Subsequent Closing Date,
as appropriate, and each of the Subsequent Closing Dates).  The Schedule of
Exceptions shall be arranged in numbered paragraphs and each exception shall be
deemed to qualify the specific numbered section of this Agreement which is
referenced in the applicable exception.

 

3.1  Organization, Good Standing and Qualification.

 

(a)  The Company is a corporation duly organized, validly existing and in good
standing under the Laws (as defined in Section 3.15) of the State of Delaware. 
The Company has all requisite corporate power and authority to own and operate
its properties and assets, to

 

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execute and deliver this Agreement, the Investor Rights Agreement in the form
attached hereto as Exhibit B (the “Investor Rights Agreement”) and the
Stockholders’ Agreement in the form attached hereto as Exhibit C (the
“Stockholders’ Agreement,” and together with the Investor Rights Agreement, the
“Related Agreements”), to issue and sell the Shares and the Conversion Shares,
to carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as currently conducted and as proposed to be conducted. 
The Company is duly qualified and in good standing in the State of North
Carolina and in all jurisdictions in which the nature of its activities and of
its properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so would not have a
Material Adverse Effect on the Company.  For purposes of this Agreement, the
phrase “Material Adverse Effect” shall mean any material adverse change in or
effect (financial or other) on the Company’s business, results of operations,
assets, liabilities, prospects or financial condition.

 

(b)  The Company will not, as of the Initial Closing or any Subsequent Closing,
be in violation or default of any term of its Restated Charter or Bylaws.  The
execution, delivery, and performance of this Agreement and the Related
Agreements by the Company, and the sale, issuance and delivery of the Shares
pursuant hereto and of the issuance and delivery of the Conversion Shares
pursuant to the Restated Charter, will not, with or without the passage of time
or giving of notice, result in any such violation, or be in conflict with or
constitute a default under its Restated Charter or Bylaws.

 

(c)  The minute books of the Company provided to counsel for the Investors and
made available for inspection and copying by each Investor contain a complete
summary of all meetings of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.

 

3.2  Subsidiaries.  The Company does not own or control any equity security or
other interest of any other corporation, limited partnership or other business
entity.  The Company is not a participant in any joint venture, partnership or
similar arrangement.

 

3.3  Capitalization.

 

(a)  The authorized capital stock of the Company as of the Initial Closing
consist of (i) one million  (1,000,000) shares of Common Stock, one hundred
thirty-four thousand fifty (134,050) shares of which are issued and outstanding,
and (ii) Seventy-One Thousand Four Hundred and Ninety-Four (71,494) shares of
Preferred Stock, of which Sixty Thousand (60,000) will be designated Series A-1
Preferred Stock and Eleven Thousand Four Hundred and Ninety-Four (11,494) will
be designated as Series A-2 Preferred Stock. Immediately prior to the Initial
Closing, there will be no shares of Series A-1 Preferred Stock or shares of
Series A-2 Preferred Stock issued and outstanding.  Schedule 3.3(a) sets forth
the issued and outstanding shares of Common Stock and Preferred Stock
immediately following the Initial Closing, including all Common Stock issued and
outstanding on as-converted, fully-diluted basis, assuming the purchase and sale
of all of the Initial Closing Shares hereunder and the purchase and sale of the
Series A-2 Preferred Stock under the Founders’ Purchase Agreement. Such
capitalization table identifies by name and number of securities owned, each
stockholder and other holder of the Company’s outstanding securities and
convertible securities.

 

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(b)  Under the Company’s Equity Compensation Plan (the “Plan”), which Plan shall
be established after the Initial Closing pursuant to the provisions of Section
5.4(b) hereof, Forty-Four Thousand Six Hundred and Eighty-Four (44,684) shares
of Common Stock are available for issuance as of the Closing Date, of which no
shares of Common Stock are issued as restricted stock or are subject to options
granted and outstanding as of the Closing Date.  No employee, officer, director
or consultant has options or any other securities that provide for accelerated
vesting upon a “Change of Control Transaction” (as defined in the Restated
Charter) or termination of employment or service or any other event, except for
those vesting or similar provisions contained in those certain Buy-Sell
Agreements (collectively, the “Buy-Sell Agreement”) to be entered into on or
before the Initial Closing by and between the Company and each of the Founders.

 

(c)  Other than the shares reserved for issuance under the Plan, and except as
may be issued pursuant to this Agreement, the Related Agreements and under the
Founders’ Purchase Agreement, there are no outstanding options, warrants, rights
(including conversion or preemptive rights, rights of first refusal and phantom
stock rights), proxy, voting, transfer restriction or stockholder agreements, or
agreements of any kind for the purchase or acquisition from the Company of any
of its securities.  No person or entity has any right to acquire any securities
of the Company or any option or warrant to acquire any securities of the Company
based on any broker, finder or investment banking type relationship with or with
respect to the Company.

 

(d)  Except as required pursuant to the Investor Rights Agreement, the Company
is not under any obligation, and has not granted any rights, to “register” (as
defined in the Investor Rights Agreement) any of the Company’s presently
outstanding securities or any of its securities that may hereafter be issued. 
Except as contemplated in the Stockholders’ Agreement or the Buy-Sell Agreement,
no stockholder of the Company has entered into any agreement with respect to the
voting or transfer of equity securities of the Company.

 

(e)  All issued and outstanding shares of the Company’s Common Stock (i) have
been duly authorized and validly issued and are fully paid and nonassessable and
(ii) were issued in accordance with all applicable securities Laws, including,
without limitation, the registration requirements of the Securities Act of 1933,
as amended (the “Securities Act”), and applicable state securities Laws (such
state securities Laws, together with the Securities Act, the “Acts”) or pursuant
to an exemption from such registration requirements.

 

(f)  The rights, preferences and privileges of the Shares will be as stated in
the Restated Charter.  The Conversion Shares, with respect to issued and
outstanding Shares, have been duly and validly reserved for issuance. When
issued in compliance with the provisions of this Agreement and the Restated
Charter, the Shares and the Conversion Shares will be (i) validly issued, fully
paid and nonassessable (ii) issued in compliance with applicable federal and
state securities Laws and (iii) except as set forth in the Related Agreements,
will be free of any mortgage, pledge, lien, conditional sale agreement, security
agreement, encumbrance or other charge (collectively, “Liens”); provided,
however, that the Shares and the Conversion Shares may be subject to
restrictions on transfer under state and/or federal securities Laws.

 

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3.4  Authorization; Binding Obligations.  All corporate action on the part of
the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder and thereunder at the Initial Closing
and Subsequent Closings and the authorization, sale, issuance and delivery of
the Shares pursuant hereto and the issuance and delivery of the Conversion
Shares pursuant to the Restated Charter has been taken.  This Agreement has
been, and the Related Agreements will be, when executed and delivered at the
Initial Closing, duly executed and delivered by the Company and constitute or,
in the case of the Related Agreement, will constitute, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other Laws of general application affecting
enforcement of creditors’ rights, (b) as limited by general principles of equity
that restrict the availability of equitable remedies, and (c) to the extent that
the enforceability of the indemnification provisions in the Investor Rights
Agreement may be limited by applicable Laws.

 

3.5  Financial Statements.

 

(a)  The Company has delivered to the Investors financial projections and pro
forma financial statements describe on Schedule 3.5 (collectively, the
“Projections”).  The Projections were prepared in good faith and are based on
the Company’s experience in the industry and on assumptions of fact and opinion
as to future events which the Company, on the date of issuance of the
Projections and on the date hereof, made in good faith and believes to be
reasonable; provided, however, the representation and warranty made in this
Section 3.5(a) shall not constitute a guarantee or warranty that the Company
will achieve any of the financial results projected in the Projections.

 

(b)  All financial statements required to be delivered to the Investors under
the Related Agreements prior to the Initial Closing or any Subsequent Closing
(collectively, the “Financial Statements”), shall be complete and correct in all
material respects and have been prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”) applied on a consistent basis throughout
the periods indicated (with the exception of footnotes that may be required by
GAAP).  The Financial Statements shall fairly present, in all material respects,
the financial condition and operating results of the Company as of the dates,
and for the periods, indicated therein, subject to normal year-end audit
adjustments, none of which will be material in amount.  All other information
required to be delivered to the Investors prior to any Subsequent Closing under
the Related Agreements shall be complete and accurate in all material respects.

 

3.6  Liabilities.  Except as (a) disclosed on, or reflected or reserved against
in, the Financial Statements; (b) current liabilities incurred in the ordinary
course of the Company’s business since the date of the most recent Financial
Statements or (c) performance obligations under agreements to which the Company
is a party incurred in the ordinary course of the Company’s business and not
required under GAAP to be reflected in the financial statements of the Company
which, in the cases of paragraphs (a) and (b), individually and in the aggregate
will not have a Material Adverse Effect, the Company does not have and is not
subject to any liability or obligation of any nature, whether accrued, absolute,
contingent, or otherwise, asserted or unasserted, known or unknown (including,
without limitation, liabilities as guarantor or

 

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otherwise with respect to obligations of others, or liabilities for taxes due or
then accrued or to become due).

 

3.7  Agreements.

 

(a)  Schedule 3.7(a) sets forth a list of agreements, understandings,
arrangements or other commitments, written or oral, to which the Company is a
party or by which it is bound, (i) that are terminable without the consent of
the Company and that, if terminated, would have a Material Adverse Effect on the
Company, or (ii) that involve or may involve (A) obligations (contingent or
otherwise) of the Company, or payments to the Company, in each case in excess of
$5,000, or (B) the license of any Intellectual Property (as defined below) by
the Company to any third party or by a third party to the Company (other than
off the shelf shrink wrap licenses), (C) provisions restricting or affecting the
development, manufacture or distribution of the Company’s products or services,
(D) indemnification by the Company with respect to infringement of proprietary
rights or (E) any other agreement, understanding or instrument to which the
Company is a party or by which it is bound that is material to the Company (the
items described in (i) and (ii) above, collectively, the “Material Contracts”). 
The Material Contracts are in full force and effect and are valid, binding and
enforceable in accordance with their terms.  The Company has furnished to the
Investors complete and correct copies of all such Material Contracts.

 

(b)  The Company is not and has never been a party to, as a contractor or
subcontractor, and is not making and has never made, any bid or proposal with
respect to, any government contract.

 

(c)  Neither the Company nor, to the best of the Company’s knowledge, any other
party is in material violation or default under any Material Contract and no
event has occurred which with notice, lapse of time or both would constitute a
violation default thereunder. The execution, delivery, and performance of this
Agreement and the Related Agreements by the Company, and the sale, issuance and
delivery of the Shares pursuant hereto and of the issuance and delivery of the
Conversion Shares pursuant to the Restated Charter, will not, with or without
the passage of time or giving of notice, result in any such violation, or be in
conflict with or constitute a default under any Material Contract.

 

(d)  Schedule 3.7(d) sets forth a list of all agreements, understandings,
arrangements or other commitments, written or oral, made by any Founder which
(i) are for the benefit of the Company, (ii) obligate the Company in any way or
(iii) otherwise affect the business of the Company (collectively, the “Founder
Agreements”).  The Founders have assigned all Founder Agreements (and their
right, title and interest thereunder) to the Company. All such assignments of
the Founder Agreements are enforceable, binding and in full effect.  The Founder
Agreements are binding and enforceable by the Company according to their
respective terms.

 

3.8  Obligations to Related Parties.  Except as set forth in (i) the Buy-Sell
Agreement, (ii) the four (4) separate Employment Agreements to be entered into
on or before the Initial Closing between the Company and each of the Founders
(collectively, the “Founders’ Employment Agreements”), and (iii) the Related
Agreements, the Company has no obligations to

 

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executive officers, directors, stockholders or employees of the Company other
than for standard employee benefits made generally available to all employees. 
Except as set forth on Schedule 3.8, none of the executive officers, directors
or stockholders of the Company, or any members of their immediate families, are
indebted to the Company or, to the best of the Company’s knowledge, have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation which competes with the Company, other than passive
investments in publicly traded companies (representing less than one percent of
such company) which may compete with the Company.  No executive officer or
director or member of their immediate families or, to the best of the Company’s
knowledge, any stockholder, is, directly or indirectly, interested in any
Material Contract with the Company.  The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.  For
purposes of this Agreement, the phrases “knowledge of the Company” or “to the
best of the Company’s knowledge” or words of similar import, mean the knowledge
of any director, officer, or Founder of the Company, including facts of which
directors, officers, and/or Founders, in the reasonably prudent exercise of
their duties, should be aware.

 

3.9  Changes.  Since the later of the date on the Projections or the date of any
audited Financial Statements delivered to the Investors, there has not been:

 

(a)  Any event that has had or could reasonably be expected to have a Material
Adverse Effect on the Company;

 

(b)  Any resignation or termination of any executive officer, key employee or
group of employees of the Company, except as approved by the Board;

 

(c)  Any damage, destruction or loss, whether or not covered by insurance, with
respect to the properties and assets of the Company;

 

(d)  Any waiver or compromise by the Company of a valuable right or of a
material debt owed to it in excess of $25,000, except as approved by the Board;

 

(e)  Any loans made by the Company to any stockholder, employee, executive
officer or director of the Company, other than advances made in the ordinary
course of business;

 

(f)  Any material change in any compensation arrangement or agreement with any
employee, executive officer, director or stockholder, except as approved by the
Board;

 

(g)  Any declaration or payment of any dividend or other distribution of the
assets of the Company;

 

(h)  Any labor organization activity related to the Company;

 

(i)  Any debt for borrowed money incurred, assumed or guaranteed by the Company,
except (i) those for immaterial amounts and for current liabilities incurred in
the ordinary course of business, (ii) under the Senior Debt Facility, or (iii)
amounts approved by the Board;

 

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(j)  Any sale, mortgage, pledge, transfer, lease or other assignment of any
Intellectual Property (as defined in Section 3.11(i)) owned by the Company,
other than licenses of the Company’s software and products on a non-exclusive
basis in the ordinary course of business;

 

(k)  Any material change in any Material Contract, except as approved by the
Board;

 

(l)  Any sale, mortgage, pledge, transfer, lease or other assignment of any of
its tangible assets outside of the ordinary course of business, except as
approved by the Board;

 

(m)  Any capital expenditure in excess of $25,000, except as approved by the
Board; or

 

(n)  Any arrangement or commitment by the Company to do any of the acts
described in subsection (a) through (m) above, except as approved by the Board.

 

3.10  Real and Personal Property.

 

(a)  Real Property.  The Company does not own any real property.  All of the
real property leased by the Company (the “Leased Real Property”) is identified
in Schedule 3.10(a).  The schedule of Leased Real Property set forth in Schedule
3.10(a) is a complete, accurate, and correct list of the Company’s Leased Real
Property.  Each of the leases for the Leased Real Property set forth in Schedule
3.10(a) is in full force and effect and has not been modified, amended, or
altered, in writing or otherwise.  Neither the Company nor, to the best of the
Company’s knowledge, any other party thereto is in default under any of said
leases, nor has any event occurred which, with the giving of notice or the
passage of time, or both, would give rise to a default.

 

(b)  Personal Property.  The Company has good title (or valid leasehold estates
in the case of leased property and assets) to all of its personal property and
assets and all such personal property and assets are in good working condition. 
None of such personal property or assets is subject to any Lien, except as set
forth on Schedule 3.10(b) (the “Permitted Liens”).  The Financial Statement
reflect all personal property and assets of the Company (other than assets
disposed of in the ordinary course of business since the date of the Financial
Statements), and such properties and assets are sufficient for the Company to
conduct the business of the Company as currently conducted and as proposed to be
conducted.

 

3.11  Intellectual Property.

 

(a)  The Company owns, or is licensed or otherwise possesses enforceable rights
to use, all Intellectual Property (as defined below) used in or necessary for
the conduct of its business as currently conducted and as proposed to be
conducted.  There are no claims or demands pending by any other person
pertaining to any of such Intellectual Property nor, to the best of the
Company’s knowledge, is there a claim or demand threatened, and no proceedings
have been instituted or, to the best of the Company’s knowledge, threatened
which challenge the rights of the Company with respect to such Intellectual
Property.

 

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(b)  With respect to Intellectual Property that is owned by the Company, all
such Intellectual Property is owned free and clear of Liens, other than
Permitted Liens. All patents, patent applications, trademarks, trademark
applications, trademark registrations, service marks, service work applications,
service mark registrations, and registered copyrights which are owned by the
Company are listed in Schedule 3.11(b).  All such patents, patent applications,
trademarks, trademark registrations, trademark applications, and registered
copyrights have been duly registered in, filed in or issued by the United States
Patent and Trademark Office, the United States Register of Copyrights, or the
corresponding offices of other jurisdictions as identified on Schedule 3.11(b),
and have been properly maintained and renewed in accordance with all applicable
provisions of Law and administrative regulations of the United States and each
such jurisdiction.

 

(c)  All licenses or other agreements under which the Company is granted rights
in Intellectual Property of any third person are listed in Schedule 3.11(c). 
All such licenses or other agreements are in full force and effect, there is no
default by the Company or, to the best of the Company’s knowledge, by any other
party thereto, and all of the rights of the Company thereunder are freely
transferable without restriction or royalty of any kind (including, without
limitation, to any successor-in-interest as a result of a merger, consolidation,
asset sale or similar transaction resulting in a change of control).  The
licensors under said licenses and other agreements have and, at the time of the
grant of such licenses or agreements, had all requisite power and authority to
grant the rights purported to be conferred thereby.  The execution, delivery,
and performance of this Agreement and the Related Agreements by the Company, and
the sale, issuance and delivery of the Shares pursuant hereto and of the
issuance and delivery of the Conversion Shares pursuant to the Restated Charter,
will not, with or without the passage of time or giving of notice, impair or
otherwise affect the rights of the Company under any such license or agreement.

 

(d)  All licenses or other agreements under which the Company has granted rights
to others in its Intellectual Property are listed in Schedule 3.11(d).  All such
licenses or other agreements are in full force and effect, there is no default
by the Company or, to the best of the Company’s knowledge, by any other party
thereto, and all of the rights of the Company thereunder are freely transferable
without restriction or royalty of any kind (including, without limitation, to
any successor-in-interest as a result of a merger, consolidation, asset sale or
similar transaction resulting in a change of control). The execution, delivery,
and performance of this Agreement and the Related Agreements by the Company, and
the sale, issuance and delivery of the Shares pursuant hereto and of the
issuance and delivery of the Conversion Shares pursuant to the Restated Charter,
will not, with or without the passage of time or giving of notice, impair or
otherwise affect the rights of the Company under any such license or agreement.

 

(e)  The Company has taken all commercially reasonable measures required to
establish and preserve its ownership of all Intellectual Property developed by,
or on behalf of, the Company.  The Company has required all current and former
employees and all consultants and independent contractors having access to, or
who were involved in the development of, any of the Intellectual Property owned
or developed by the Company, to execute enforceable agreements that provide
valid written assignment of all inventions and developments conceived or created
by them in the course of their employment or services, and all such persons are
in compliance with such agreements.  The Company has no knowledge of any
infringement by

 

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others of any of its Intellectual Property.  The Company does not believe it is
or will be necessary to use any inventions of any of its employees (or persons
it intends to hire) made prior to their employment by the Company.  All current
and former employees and all consultants and independent contractors hired by
the Company having access to confidential or proprietary information of the
Company have agreed to maintain the confidentiality of all confidential and
proprietary information of the Company and of any information of third parties
received by the Company under an obligation of confidentiality.

 

(f)  To the best of the Company’s knowledge, the Company has not infringed, does
not infringe and, by conducting its business as currently conducted or as
proposed to be conducted, will not infringe, in any material respect, or
unlawfully or wrongfully use the Intellectual Property of any third person.  No
proceeding charging the Company with infringement of any Intellectual Property
of any third person has been filed or, to the best of the Company’s knowledge,
is threatened to be filed, except as set forth on Schedule 3.11(f).  There
exists no unexpired patent or, to the best of the Company’s knowledge, patent
application which includes claims that would be infringed by or otherwise
adversely affect the products, activities, or business of the Company as
currently conducted or as proposed to be conducted.

 

(g)  The Company is not making unauthorized use of any confidential information
or trade secrets of any person, including without limitation, any former
employer of any past or present employee of the Company.  Except as set forth on
Schedule 3.11(g), neither the Company nor any employee of the Company is
obligated under any duty or agreement (including any license, confidentiality
agreement, covenant or commitment of any nature), or subject to any judgment,
decree or order of any court or administrative agency, that would interfere in
any manner with the use of their best efforts to promote the interests of the
Company or that would conflict with the Company’s business as now conducted or
proposed to be conducted.  To the best of the Company’s knowledge, no employee
or consultant is in violation of any proprietary information or assignment of
inventions agreement, or in any such similar agreement, with any former employer
or contractor, and the carrying on of the Company’s business and the conduct of
the Company’s business as proposed will not conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, such
agreements.

 

(h)  Schedule 3.11(h) sets forth a list of all licenses or other agreements
under which any Founder is granted rights in Intellectual Property which (i) are
for the benefit of the Company, (ii) obligate the Company in any way or (iii)
otherwise affect the business of the Company (collectively, the “Founder
Intellectual Property Agreements”).  The Founders have assigned all Founder
Intellectual Property Agreements (and all right, title and interest thereunder)
to the Company.  All such assignments of the Founder Intellectual Property
Agreements are enforceable, binding and in full effect.  The Founder
Intellectual Property Agreements are binding and enforceable by the Company
according to their respective terms.

 

(i)  As used in this Agreement, the term “Intellectual Property” means (i)
inventions (whether or not patentable), trade secrets, technical data,
databases, customer lists, designs, tools, methods, processes, technology,
ideas, know how and other confidential or proprietary information and materials;
(ii) trade marks and service marks (whether or not registered), applications for
trade marks and service marks, trade names, logos, trade dress and

 

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other proprietary indicia and all goodwill associated therewith; (iii)
documentation, advertising copy, marketing materials, specifications, mask
works, drawings, graphics, databases, recordings and other works of authorship,
whether or not protected by copyright; (iv) source code, object code, data and
operating files, user manuals, documentation, flow charts, algorithms,
compilers, development tools, maintenance records and other materials related to
computer programs; (v) internet web-sites and domain names; and (vi) all forms
of legal rights and protections that may be obtained for, or may pertain to, the
Intellectual Property set forth in clauses (i) through (v) in any country of the
world, including, without limitation, all letters patent, patent applications,
provisional patents, design patents, PCT filings and other rights to inventions
or designs, all registered and unregistered copyrights in both published and
unpublished works, trade secret rights, mask works, moral rights or other
literary property or authors rights, rights regarding trademarks and other
proprietary indicia, and all applications, registrations, issuances, divisions,
continuations, renewals, reissuances and extensions of the foregoing.

 

3.12  Litigation.  Except as set forth on Schedule 3.12, (a) there is no
litigation, arbitration, mediation or proceeding or investigation pending or, to
the best of the Company’s knowledge, threatened against the Company or affecting
any of its properties or assets or against any officer, director, or Founder of
the Company in his or her capacity as an officer, director or employee of the
Company, or which may call into question the validity or hinder the
enforceability of this Agreement or any Related Agreement or the transactions
contemplated hereby and thereby, (b) to the best of the Company’s knowledge,
there has not occurred any event nor does there exist any condition on the basis
of which any such litigation, arbitration, mediation proceeding or investigation
might be properly instituted or commenced, (c) the Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality and (d) there is no action or
suit by the Company pending or, to the best of the Company’s knowledge,
threatened against others.

 

3.13  Tax Returns and Payments.  The Company has filed on a timely basis all tax
returns and reports as and when required by Law. Such tax returns and reports
correctly and completely reflect the Company’s liability for taxes and all other
information required to be reported thereon.  The Company has paid all taxes and
other assessments due to be paid before the Initial Closing. The Company has
adequately provided for, in its books of account and related records, liability
for all unpaid taxes, being current taxes not yet due and payable. The Company
has not been advised that any of its returns, federal, state or other, has been
or is being audited, or of any deficiency in assessment in its federal, state or
other taxes.  All taxes and other assessments and levies which the Company is
required to withhold or collect have been withheld and collected and have been
paid over to the proper governmental authorities when required.

 

3.14  Employees and Consultants.

 

(a)  Except as approved by the Board after the Initial Closing, the Company does
not maintain or contribute to any employee benefit plan, pension plan, stock
option, bonus or incentive plan, severance pay policy or agreement, deferred
compensation agreement, or any similar plan or agreement (an “Employee Benefit
Plan”).  No other corporation, trade, or business exists which would be treated
together with the Company as a single “employer” under the provisions of Section
414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the
“Code”).  Each Employee Benefit Plan has been and is currently administered in

 

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compliance with its constituent documents and all reporting, disclosure and
other requirements of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), and the Code and any other Law applicable to such Employee
Benefit Plan. There are no unfunded obligations of the Company under any
retirement, pension, profit-sharing, deferred compensation plan or similar
program, and any employee contributions withheld from payroll have been timely
and fully contributed to the appropriate Employee Benefit Plan as required under
applicable Law. The Company is not required to make any payments or
contributions to any Employee Benefit Plan pursuant to any collective bargaining
agreement or any applicable labor relations Law.  The Company has never
maintained or contributed to any Employee Benefit Plan providing or promising
any health or other nonpension benefits to terminated employees (other than
continuation coverage, at the maximum applicable premium permitted to be charged
by the Company, required under Section 4980B of the Code, or Section 601 of the
ERISA).

 

(b)  Schedule 3.14(b) sets forth a list of (i) all salaried employees of the
Company, together with each such employee’s position, date of employment,
salary, and any other compensation payable to such employee (including, without
limitation, compensation payable pursuant to bonus, deferred compensation or
commission arrangements), and (ii) each contract, commitment, arrangement, or
understanding, whether oral or written, relating to the employment of, or the
performance of services by, any employee, consultant, or independent
contractor.  The Company is not delinquent in payments to any of its employees
or consultants for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees or consultants.  The Company is in
compliance, in all material respects, with all applicable Laws, agreements,
orders, and consent decrees respecting labor, employment, immigration, fair
employment practices, terms and conditions of employment, and wages and hours. 
The Company has no collective bargaining agreements with any of its employees. 
There is no labor union organizing activity pending or, to the best of the
Company’s knowledge, threatened with respect to the Company.  There are no
charges of employment discrimination or unfair labor practices or any strikes,
slowdowns, stoppages of work, or any other concerted interference with normal
operations, pending or, to the best of the Company’s knowledge, threatened
against or involving the Company.

 

(c)  To the best of the Company’s knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business conducted by
the Company; and to the best of the Company’s knowledge after due inquiry, the
continued employment by the Company of its present employees, and the
performance of the Company’s contracts with its independent contractors, will
not result in any such violation.  Except as set forth on Schedule 3.14(c), the
Company has not received notice alleging that any such violation has occurred. 
Except as set forth on Schedule 3.14(c), no employee of the Company has been
granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company.  To the best
of the Company’s knowledge, no executive officer, Key Employee or group of
employees intends to terminate his, her or their employment with the Company,
nor does the Company have a present intention to terminate the employment of any
executive officer, Key Employee or group of employees.

 

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3.15  Compliance with Laws; Authorizations.

 

(a)  The Company has complied in all material respects with each, and is not in
violation of, any law, statute, regulation, rule, ordinance or order (“Laws”),
including environmental Laws, to which the Company or its business, operations,
employees, assets or properties are or have been subject.  No event has occurred
or circumstances exist that (with or without the passage of time or the giving
of notice) may result in a material violation of, conflict with or failure on
the part of the Company to comply with, any Law.  The Company has not received
notice regarding any violation of, conflict with, or failure to comply with, any
Law. The execution, delivery, and performance of this Agreement and the Related
Agreements by the Company, and the sale, issuance and delivery of the Shares
pursuant hereto and of the issuance and delivery of the Conversion Shares
pursuant to the Restated Charter, will not, with or without the passage of time
or giving of notice, result in any such violation, or be in conflict with or
constitute a default under any Law.

 

(b)  The Company owns, holds, possesses or lawfully uses in the operation of its
business all franchises, licenses, permits and registrations (“Authorizations”)
which are required or otherwise necessary for it to conduct its business as
currently conducted or as proposed to be conducted or for the ownership and use
of the assets owned or used by the Company in the conduct of its business, free
and clear of all Liens, other than Permitted Liens.  Such Authorizations are
valid and in full force and effect and none of such Authorizations will be
terminated or impaired or become terminable as a result of the transactions
contemplated by this Agreement or the Related Agreements.  All Authorizations
are listed in Schedule 3.15(b).  No event has occurred or circumstances exist
that, with or without the passage of time or the giving of notice, may result in
a violation of, conflict with, failure on the part of the Company to comply with
the terms of, or the revocation, withdrawal, termination, cancellation,
suspension or modification of any Authorization.  The Company has not received
notice regarding any violation of, conflict with, failure to comply with the
terms of, or any revocation, withdrawal, termination, cancellation, suspension
or modification of, any Authorization.  The Company is not in default and has
not received notice of any claim of default, with respect to any Authorization.

 

3.16  Offering Valid.  Assuming the accuracy of the representations and
warranties of the Investors contained in Section 4.2 hereof, the offer, sale,
issuance and delivery of the Shares and the Conversion Shares will be exempt
from the registration requirements of the Securities Act, and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities Laws.

 

3.17  Insurance.  The Company has insurance policies with respect to its
business and properties, on both a per occurrence and an aggregate basis, as are
customarily carried by persons engaged in the same or similar businesses as the
Company.  There is no default by the Company, or to the best of the Company’s
knowledge, by any insurance carrier of such policies, or event which could give
rise to a default under any such policy.

 

3.18  Real Property Holding Company.  The Company is not a United States real
property holding company within the meaning of Section 897(c)(2) of the Code.

 

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3.19  Qualified Small Business Stock.  The Series A-1 Preferred Stock sold
hereunder constitutes “qualified small business stock” as defined in Section
1202(c) of the Code. The Company shall use diligent efforts to comply with the
reporting requirements of Section 1202(d)(1)(C) of the Code and any related
regulations promulgated thereby.  In addition, within a reasonable time (which
shall not exceed thirty (30) days after any Investor delivers to the Company a
written request therefor), the Company shall deliver to such Investor a written
statement informing the Investor whether, to the best of the Company’s
knowledge, such Investor’s interest in the Company constitutes “qualified small
business stock” as defined in Section 1202(c) of the Code.  The Company’s
obligation to furnish a written statement pursuant to this Section 3.19 shall
continue notwithstanding the fact that a class of the Company’s securities may
be traded on an established securities market.  As of the Closing Date, the
Company is a “qualified small business” within the meaning of Section 1202(d) of
the Code, meets the “active business requirement” of Section 1202(e) of the Code
and has made no “significant redemptions” within the meaning of Section
1202(c)(3)(B) of the Code.

 

3.20  Investment Company Act.  The Company is not an “investment company” within
the meaning of the Investment Company Act of 1940, as amended nor is the Company
directly or indirectly controlled by or acting on behalf of any person which is
an “investment company.”

 

3.21  Disclosure.  The representations and warranties made or contained in this
Agreement and the schedules and exhibits hereto, and the certificates executed
or delivered in connection herewith, when taken together, do not and shall not
contain any untrue statement of a material fact and do not and shall not omit to
state a material fact required to be stated therein or necessary in order to
make such representations and warranties not misleading in light of the
circumstances in which they were made or delivered.  There have been no events
or transactions, or facts or information which have not been disclosed herein or
in a schedule hereto which have or could reasonably be expected to have a
Material Adverse Effect.

 

4.  Representations and Warranties of Investors.  Each Investor, severally as to
itself and not jointly, hereby represents and warrants to the Company as of the
date hereof and as of the Closing Date and each Subsequent Closing Date that the
statements contained in this Section 4 are true and correct as follows.

 

4.1  Requisite Power and Authority.  Such Investor has all necessary power and
authority to execute and deliver this Agreement and the Related Agreements and
to carry out their provisions.  All action on such Investor’s part required for
the execution and delivery of this Agreement and the Related Agreements has been
taken.  Upon their execution and delivery, this Agreement and the Related
Agreements will be duly executed and delivered by such Investor and constitute
valid and binding obligations of such Investor, enforceable in accordance with
their respective terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other Laws of general application
affecting enforcement of creditors’ rights, (b) as limited by general principles
of equity that restrict the availability of equitable remedies and (c) to the
extent that the enforceability of the indemnification provisions of the Investor
Rights Agreement may be limited by applicable Laws.

 

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4.2  Investment Representations.  Such Investor is an “accredited investor” as
such term is defined in Rule 501 of Regulation D promulgated under the
Securities Act. Such Investor is purchasing the Shares and Conversion Shares for
its own account, for investment purposes only and has no current arrangements or
understandings for the resale or distribution to others and will only resell
such Shares and Conversion Shares any part thereof pursuant to a registration or
an available exemption under applicable Law.  Such Investor acknowledges that
the offer and sale of the Shares and Conversion Shares have not been registered
under the Securities Act or the securities Laws of any state or other
jurisdiction, and that the Shares and Conversion Shares are being offered and
sold pursuant to an exemption from registration contained in the Securities Act,
and cannot be disposed of unless they are subsequently registered under the
Securities Act and any applicable state Laws or an exemption from such
registration is available.  Such Investor understands and agrees that the Shares
and the Conversion Shares will bear a legend substantially similar to the legend
set forth below in addition to any other legend that may be required by
applicable Law, the Restated Charter, the Bylaws, and the Related Agreements, as
the same may be amended from time to time, or by any agreement between the
Company and such Investor:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT (A)
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR (B) IN A TRANSACTION WHICH IS
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS.

 

4.3  No Conflicts.  The execution, delivery and performance by such Investor of
this Agreement and each Related Agreement and the transactions contemplated
thereby does not and will not (a) conflict with, violate or result in any
default under the organizational documents of the Investor,  (b) with or without
the giving of notice or the lapse of time, or both, result in any violation or
breach of, or constitute a default under, or result in any right to accelerate
or result in the creation of any Liens pursuant to, or right of termination
under, any material contract to which such Investor is a party or by which such
Investor or any of its property is bound, or (c) conflict with or violate any
requirement of Law to which such Investor is subject, which could reasonably be
expected to have a material adverse effect upon such Investor’s ability to
perform its duties and obligations under this Agreement and the Related
Agreements.

 

4.4  Consents.  The execution, delivery and performance by such Investor of this
Agreement and the Related Agreements and the consummation of the transactions
contemplated thereby do not and will not require the consent or approval of, or
notice to, or other action of any Governmental Authority or other third party,
which consent or approval, as appropriate, has not been obtained.

 

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4.5  Litigation.  There is no litigation, arbitration, mediation or proceeding
or investigation pending or, to the knowledge of each Investor, threatened
against such Investor or affecting any of its properties or assets or against
any officer, director, or employee of such Investor in his or her capacity as an
officer, director or employee of the Investor, that could reasonably be expected
to have a material adverse effect upon such Investor’s ability to perform its
duties and obligations under this Agreement and the Related Agreements or which
may call into question the validity or hinder the enforceability of this
Agreement or any Related Agreement or the transactions contemplated hereby and
thereby; nor has there occurred any event nor does there exist any condition on
the basis of which any such litigation, arbitration, mediation proceeding or
investigation might be properly instituted or commenced. Such Investor is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality could reasonably be
expected to have a material adverse effect upon such Investor’s ability to
perform its duties and obligations under this Agreement and the Related
Agreements. There is no action or suit by such Investor pending or, to such
Investor’s knowledge, threatened against others could reasonably be expected to
have a material adverse effect upon such Investor’s ability to perform its
duties and obligations under this Agreement and the Related Agreements.

 

4.6  Broker’s, Finder’s or Similar Fees.  There are no brokerage commissions,
finder’s fees or similar fees or commissions payable in connection with the
transactions contemplated hereby, or by any other Related Agreements to which
such Investor is a party, based on any agreement, arrangement or understanding
with such Investor or any action taken by such Investor.

 

4.7  Residence.  If such Investor is an individual, then the Investor resides in
the state or province identified in the address of such Investor on the
signature pages hereof; if such Investor is a partnership, corporation, limited
liability company or other entity, then the office or offices of such Investor
in which its principal place of business is located is the address or addresses
of such Investor set forth on the signature pages hereof.

 

5.  Conditions to Closings; Post-Closing Covenants.

 

5.1  Conditions to Obligations of the Investors for Initial Closing.  Each
Investor’s obligation to purchase the Initial Shares at the Initial Closing is
subject to the satisfaction or waiver, on or prior to the Closing Date, of the
following conditions:

 

(a)  Representations and Warranties.  The representations and warranties made by
the Company in Section 3 hereof shall be true and correct as of the Closing Date
as if they had been made on and as of the Closing Date.

 

(b)  Performance of Obligations.  The Company shall have performed all
obligations required herein to be performed by it on or prior to the Initial
Closing.

 

(c)  Compliance Certificate.  The Company shall have delivered to the Investors
a Compliance Certificate, executed by the President of the Company, dated as of
the Closing Date, to the effect that the conditions specified in subsections (a)
and (b) of this Section 5.1 have been satisfied.

 

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(d)  No Material Adverse Change.  There shall have been no event that has had,
or could be reasonably expected to have, a Material Adverse Effect on the
Company.

 

(e)  Regulatory Approvals.  All authorizations, approvals and permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required to be obtained on or prior to the Initial Closing in
connection with the issuance of and sale of the Shares pursuant to this
Agreement shall have been duly obtained and shall be effective as of the Initial
Closing.

 

(f)  Secretary’s Certificate; Corporate Documents.  The Investors shall have
received from the Secretary of the Company a certificate having attached
thereto: (i) the Restated Charter as in effect at the time of the Initial
Closing (and evidence of the filing thereof with the Secretary of State of the
State of Delaware), (ii) the Company’s Bylaws as in effect at the time of the
Initial Closing, (iii) resolutions approved by the Board of Directors
authorizing the transactions contemplated hereby, (iv) resolutions approved by
the Company’s stockholders authorizing the filing of the Restated Charter, and
(v) good standing certificates with respect to the Company from the applicable
authority(ies) in Delaware and any other jurisdiction in which the Company is
qualified to do business, dated a recent date before the Initial Closing.

 

(g)  Investor Rights Agreement.  The Investor Rights Agreement shall have been
executed and delivered by the Company and the other parties thereto.

 

(h)  Stockholders’ Agreement.  The Stockholders’ Agreement shall have been
executed and delivered by the Company and the Founders.

 

(i)  Buy-Sell Agreements.  A Buy-Sell Agreement shall have been executed and
delivered by the Company and each Founder and shall be in the form of Exhibit
D-1 through Exhibit D-4 attached hereto, as appropriate.

 

(j)  Board of Directors.  Upon the Initial Closing, the authorized size of the
Board shall be four (4), and the Board shall consist of Daniel J. McDonough,
David Apple, Kevin Wilson, and John Morgan, with a fifth member to be appointed
thereto after the Initial Closing in accordance with the Stockholders’
Agreement.

 

(k)  Legal Opinion.  The Investors shall have received from legal counsel to the
Company an opinion addressed to them, which is reasonably satisfactory, in form
and substance, to the Investors.

 

(l)  Founders’ Employment Agreements.  The Founders’ Employment Agreements shall
have been executed and delivered by the Company and the Founders and shall be
satisfactory, in form and substance, to the Investors.

 

(m)  Senior Debt Facility.  The Company and Wells Fargo Foothill, Inc.  (in its
capacity as arranger and administrative agent, “Wells Fargo”; the lender or
lenders with respect to which Wells Fargo serves as administrative agent, the
“Senior Lender”) shall have executed and delivered to one another loan documents
(collectively, the “Senior Loan Documents”) satisfactory to the Investors
pertaining to a revolving credit facility being made available by the Senior
Lender to the Company in the maximum amount of Twenty Million Dollars

 

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($20,000,000) (the “Senior Debt Facility”) pursuant to the provisions of the
Senior Loan Documents.

 

(n)  Purchase of Series A-2 Preferred Stock.  The Founders shall have purchased
the Series A-2 Preferred Stock as provided in the Founders Purchase Agreement
and the Founders Purchase Agreement shall be reasonably satisfactory, in form
and substance, to the Investors.

 

(o)  Key Man Life Insurance.  The Company shall have obtained and delivered to
the Investors a copy of a key man life insurance policy on the life of Daniel J.
McDonough in the amount of $3,000,000 with the proceeds payable to the Company.

 

(p)  McDonough Indemnity.  The McDonough Indemnity shall be reasonably
satisfactory, in form and substance, to the Investors.

 

(q)  Initial Closing.  The Initial Closing shall have occurred by October 15,
2004.

 

5.2  Conditions to Obligations of the Company for the Initial Closing and
Subsequent Closings.  The Company’s obligation to issue and sell the Shares at
the Initial Closing and the Subsequent Closings, as applicable, is subject to
the satisfaction or waiver, on or prior to the Closing Date and each of the
Subsequent Closing Dates, as applicable, of the following conditions:

 

(a)  Representations and Warranties.  The representations and warranties made by
the Investors in Section 4 hereof shall be true and correct as of the Closing
Date and each of the Subsequent Closing Dates, as applicable, with the same
force and effect as if they had been made on and as of the Closing Date and each
of the Subsequent Closing Dates, as applicable.

 

(b)  Performance of Obligations.  Such Investors shall have performed all
obligations required herein to be performed by such Investors on or prior to the
Initial Closing and the Subsequent Closings, as applicable.

 

(c)  Regulatory Approvals.  All authorizations, approvals and permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required to be obtained on or prior to the Initial Closing and
the Subsequent Closings, as applicable, in connection with the issuance of and
sale of the Shares being acquired pursuant to this Agreement shall have been
duly obtained and shall be effective as of the Initial Closing and the
Subsequent Closings, as applicable.

 

(d)  Stockholders’ Agreement.  The Stockholders’ Agreement shall have been
executed and delivered by the Investors.

 

(e)  McDonough Indemnity.  The Company shall have executed and delivered to and
in favor of Daniel J. McDonough (“McDonough”) an agreement (the “McDonough
Indemnity”) under which it shall indemnify, defend and hold McDonough harmless
from all loss, expenses, damages, and claims arising under any validity (or
similar) agreement executed and

 

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delivered by McDonough in favor of the Senior Lender, with such exceptions
thereto and exclusions therefrom as may be mutually satisfactory to McDonough
and the Company.

 

5.3  Conditions to Obligations of the Investors for Subsequent Closings.  Each
Investor’s obligation to purchase Subsequent Closing Shares at the Subsequent
Closing applicable thereto is subject to the satisfaction or waiver, on or prior
to the applicable Subsequent Closing Date, of the following conditions:

 

(a)  Funding Notice.  The Company shall have executed and delivered a Funding
Notice to the Investors, together with the officer’s certificate required
thereby, which officer’s certificate shall include reasonably satisfactory
evidence that a Funding Event (as defined below) has occurred.

 

(b)  Funding Event.  Either: (i) the proceeds from the sale of the Subsequent
Closing Shares shall be required by the Company to (A) satisfy a leverage ratio
or similar financial covenant imposed by the Senior Lender under the Senior Loan
Documents or (B) cure or prevent a payment or other default under the Senior
Loan Documents, provided that the Senior Lender has agreed to continue to
provide the Company with credit availability under the Senior Debt Facility and
(if applicable) waive the default under the Senior Loan Documents in the case of
a Funding Event described in this clause (i); or (ii) the Board shall have
determined that it requires the capital resulting from the sale of the
Subsequent Closing Shares (in either case, a “Funding Event”).

 

(c)  Legal Investment.  The sale and issuance of the Subsequent Closing Shares
to be purchased at the Subsequent Closing shall be legally permitted by all laws
and regulations to which Investors and the Company are subject.

 

(d)  Performance of Obligations.  The Company shall have performed, in all
material respects, all obligations required herein to be performed by the
Company on or prior to the Subsequent Closing.

 

(e)  Consents, Permits and Waivers.  The Company shall have obtained any and all
consent, permits and waivers necessary or appropriate for consummation of the
transactions contemplated by the Subsequent Closing (except for such as may be
properly obtained following the Subsequent Closing).

 

(f)   Delivery of Certificates.  The Investors shall have received from the
Company certificates evidencing the Subsequent Closing Shares to be issued and
sold to the Investors as of the Subsequent Closing and registered in the name of
each Investor, against delivery to the Company by each Investor of a wire
transfer in the amount of the purchase price for the Subsequent Closing Shares
purchased by each such Investor at the Subsequent Closing.

 

(g)  Initial Closing.  The Initial Closing shall have occurred.

 

5.4  Certain Post-Closing Covenants.  The Company covenants and agrees as to
take the following actions after the Initial Closing:

 

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(a)  Confidentiality and Related Agreements.  The Company shall require all
future employees and consultants having access to, or who are, were or will be
involved in the development of, any of the Intellectual Property owned or
developed (or to be developed) by the Company, to execute agreements under which
such employees and consultants (i) agree to maintain the confidentiality of all
confidential and proprietary information of the Company and (ii) provide
assignments of all inventions and developments conceived or created by them in
the course of their employment or services, which form of agreement shall be
approved by the Board.  The agreements required to be executed pursuant to this
Section 5.4(a) shall be executed concurrently with the employment or engagement,
as appropriate, of the employee or consultant by the Company.

 

(b)  Adoption of Plan.  The Company shall formulate and adopt the Plan as soon
as practicable after the Initial Closing with the approval of the Board.

 

6.  Miscellaneous.

 

6.1  Governing Law.  This Agreement shall be governed, construed and interpreted
in accordance with the Laws of the State of Delaware, without giving effect to
principles of conflicts of Law or choice of Law that would cause the substantive
Laws of any other jurisdiction to apply.  The Company irrevocably submits and
consents to the jurisdiction of any Delaware state court or federal court
sitting in Delaware over any action or proceeding arising out of or relating to
the Agreement or the other Related Agreements, and the Company hereby
irrevocably agrees that all claims in respect of any such action or proceeding
may be heard and determined in such courts.

 

6.2  Survival; Indemnification of Investors.

 

(a)  The representations, warranties, covenants and agreements made in this
Agreement, the Schedule of Exceptions, any Related Agreement or any other
agreement, certificate, document or instrument furnished pursuant hereto shall
survive any investigation made by any Investor and the closing of the
transactions contemplated hereby and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Investors or the Company, as appropriate.

 

(b)  The Company hereby agrees to hold harmless and indemnify the Investors, the
Investors’ direct and indirect subsidiaries, affiliated entities and
corporations, and each of their partners, executive officers, directors,
employees, stockholders, agents and representatives (collectively, referred to
as the “Investor Indemnitees”) against any and all damages, liabilities, losses,
costs and expenses (including reasonable attorneys’ fees and expenses), whether
or not arising out of third-party claims, based upon, or arising out of, or
relating to, (i) any inaccuracy in, or any breach by the Company of, any
representation or warranty contained in this Agreement, the Schedule of
Exceptions, any Related Agreement or any other agreement, certificate, document
or instrument furnished pursuant hereto, or (ii) any breach of any covenant or
agreement by the Company contained in this Agreement, the Schedule of
Exceptions, any Related Agreement or any other agreement, certificate, document
or instrument furnished pursuant hereto (collectively, the “Indemnifiable
Claims”) ; provided that the Company shall not be liable under this Section 6.2 
to an Investor Indemnitee for: (i) any amount paid in settlement

 

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of claims without the Company’s prior written consent (which consent shall not
be unreasonably withheld); (ii) to the extent that it is judicially determined
that such Indemnifiable Claims resulted from the willful misconduct or gross
negligence of such Investor Indemnitee; or (iii) to the extent that it is
determined that such Indemnifiable Claims resulted from the material breach by
such Investor Indemnitee of any representation, warranty, covenant or other
agreement of such Investor Indemnitee contained in this Agreement or any Related
Agreement or any other contract to which it is a party; provided, that if an
Investor Indemnitee is reimbursed hereunder for any expenses, such reimbursement
of expenses shall be refunded to the extent it is judicially determined that the
Indemnifiable Claim in question resulted from (i) the willful misconduct or
gross negligence of such Investor Indemnitee or (ii) the material breach by such
Investor Indemnitee of any representation, warranty, covenant or other agreement
of such Investor Indemnitee contained in this Agreement or the Related
Agreements.

 

(c)  The Company shall reimburse, promptly following request therefor, all
reasonable expenses incurred by an Investor Indemnitee in connection with any
Indemnifiable Claim, including, without limitation, any threatened, pending or
completed action, suit, arbitration, investigation or other proceeding arising
out of, or relating to, any Indemnifiable Claim.

 

(d)  Each Investor Indemnitee under this Section 6.2 will, promptly after the
receipt of notice of the commencement of any action, investigation, claim or
other proceeding against such Investor Indemnitee in respect of which indemnity
may be sought from the Company under this Section 6.2, notify the Company in
writing of the commencement thereof. The failure by any Investor Indemnitee to
so notify the Company of any such action shall not relieve the Company from any
liability which it may have to such Investor Indemnitee unless, and only to the
extent that, such omission results in the Company’s forfeiture of substantive
rights or defenses or the Company is otherwise irrevocably prejudiced in
defending such proceeding. In case any such action, claim or other proceeding
shall be brought against any Investor Indemnitee and it shall notify the Company
of the commencement thereof, the Company shall be entitled to assume the defense
thereof at its own expense, with counsel reasonably satisfactory to the Investor
Indemnitee; provided that any Investor Indemnitee may, at its own expense,
retain separate counsel to participate in such defense.  The Company agrees that
it will not, without the prior written consent of the holders holding at least a
majority of the issued and outstanding Shares, settle, compromise or consent to
the entry of any judgment in any pending or threatened claim, action or
proceeding relating to the matters contemplated hereby (if any Investor
Indemnitee is a party thereto or has been actually threatened to be made a party
thereto) unless such settlement, compromise or consent includes an unconditional
release of the Investors and each other Investor Indemnitee from all liability
arising or that may arise out of such claim, action or proceeding.  The Company
shall not be liable for any settlement of any claim, action or proceeding
effected against an Investor Indemnitee without the prior written consent of the
Company.

 

(e)  The rights to indemnification set forth in this Section 6.2 are in addition
to, and not in limitation of, all rights and remedies to which the Investors may
be entitled. All remedies, either under this Agreement, the Related Agreements,
the Restated Charter, by Law, or otherwise afforded to any party, shall be
cumulative and not alternative.

 

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6.3  Amendment and Waiver.  Any provision of this Agreement may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only by the written consent
of (a) the Company, and (b) Investors owning not less than 66 2/3% of the shares
of Common Stock issued or issuable upon conversion of the Series A-1 Preferred
Stock owned (or subscribed for) by all Investors (the “Required Investors”). Any
amendment or waiver effected in accordance with this Section 6.3 shall be
binding upon the Company and each Investor, and their respective successors and
assigns. For purposes of this Section 6.3, any reference to “66 2/3% of the
shares of Common Stock issued or issuable upon conversion of Series A-1
Preferred Stock” shall exclude all shares of Common Stock issuable upon payment
of Accruing Dividends, assuming for purposes of this calculation that all
Accruing Dividends are paid in cash in lieu of the issuance of Common Stock. 
The term “Accruing Dividends” shall have the meanings given to such term in the
Restated Charter, as the same may be amended and/or restated from time to time.

 

6.4  Entire Agreement.  This Agreement, the exhibits and schedules hereto, and
the Related Agreements delivered pursuant hereto constitute the entire agreement
among the parties relative to the specific subject matter hereof and thereof.

 

6.5  Notices.  All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given: (a) upon personal delivery to the party
to be notified; (b) when sent by confirmed telex, facsimile or electronic mail
if sent during normal business hours of the recipient, if not, then on the next
business day; (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) the next
business day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.  All
communications shall be sent to the Company at the address or facsimile number
set forth on its signature page hereto and to each Investor at the address or
facsimile number set forth on Schedule A hereto or at such other address as the
Company or each Investor may designate by ten (10) days’ advance written notice
to the other parties hereto.

 

6.6  Severability.  In the event one or more of the provisions of this Agreement
should, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein.

 

6.7  Expenses.  Each party shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of the
Agreement; provided, however, that, if the Initial Closing occurs, the Company
shall, at the Initial Closing, reimburse to the Investors, an amount not to
exceed Seventy-Five Thousand Dollars ($75,000), for fees and expenses incurred
in connection with this transaction.

 

6.8  Broker’s Fees.  The Company shall be solely responsible for the payment of
all broker fees to Anderson LeNeave & Co. and Kropschot Financial Services. 
Each party represents and warrants that other than Anderson LeNeave & Co. and
Kropschot Financial Services, no agent, broker, investment banker, person or
firm acting on behalf of or under the authority of such party is or will be
entitled to any broker’s or finder’s fee or any other commission directly or
indirectly in connection with the transactions contemplated herein.  The

 

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Company agrees to indemnify each Investor against any fee or commission payable
by such Investor for which the Company is responsible, and each Investor agrees
to indemnify the Company against any fee or commission payable by the Company
for which such Investor is responsible.

 

6.9  Exculpation Among Investors.  Each Investor acknowledges that it is not
relying upon any person, firm, or corporation, other than the Company and its
executive officers and directors, in making its investment or decision to invest
in the Company.  Each Investor agrees that no Investor nor the respective
controlling persons, executive officers, directors, partners, agents, or
employees of any Investor shall be liable to any other Investor for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the Shares and Conversion Shares.

 

6.10  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.

 

6.11  Successors and Assigns.  The provisions hereof shall inure to the benefit
of, and be binding upon, the successors and assigns of the parties hereto.

 

6.12  Titles and Subtitles.  The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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[SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof.

 

 

COMMERCIAL CREDIT GROUP INC.

 

 

 

 

 

By:

/s/ Daniel J. McDonough

 

Name:

Daniel J. McDonough

 

Title:

President and Chief Executive Officer

 

 

 

Address:

 

212 South Tryon Street

 

Suite 1400

 

Charlotte, NC 28281

 

Attention: Mr. Daniel J. McDonough

 

Telephone:

 

Facsimile:

 

 

 

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WINMARK CORPORATION

 

 

 

 

 

By:

/s/ John Morgan

 

Name:

John Morgan

 

Title:

Authorized Officer

 

 

 

Address:

 

4200 Dahlberg Drive, Suite 100

 

Minneapolis, MN 55422-4837

 

Attention:

Mr. John Morgan

 

Telephone:

(763) 520-8404

 

Facsimile:

(763) 520-8410

 

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List of Exhibits

 

Exhibit A

-

Amended and Restated Certificate of Incorporation

 

 

 

Exhibit B

-

Investor Rights Agreement

 

 

 

Exhibit C

-

Stockholders’ Agreement

 

 

 

Exhibit D

-

Buy-Sell Agreements

 

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