Unassociated Document


    Exhibit
10.13


    


    SECURITIES
PURCHASE AGREEMENT

    


    between

    


    CORNERSTONE
ONDEMAND, INC.

     


    and

    


    IRONWOOD
EQUITY FUND LP

    


    Dated
as of March 31, 2009


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    Table of
Contents

    


    
      
        
          	
                  SECURITIES
      PURCHASE AGREEMENT

                	
                  1

                
	 
      	 	 
      	 
      
	
                  ARTICLE
      1

                	 	
                  DEFINITIONS

                	
                  1

                
	 
      	 	 
      	 
      
	
                  1.01

                	 	
                  Definitions

                	
                  1

                
	
                  1.02

                	 	
                  Accounting
      Terms; Financial Statements

                	
                  13

                
	
                  1.03

                	 	
                  Other
      Terms Defined in UCC

                	
                  13

                
	
                  1.04

                	 	
                  Other
      Interpretive Provisions

                	
                  13

                
	
                  1.05

                	 	
                  Knowledge
      of the Obligors

                	
                  14

                
	 
      	 	 
      	 
      
	
                  ARTICLE
      2

                	 	
                  PURCHASE
      AND SALE OF THE SECURITIES

                	
                  14

                
	 
      	 	 
      	 
      
	
                  2.01

                	 	
                  Purchase and Sale of
      the
      Note

                	
                  14

                
	
                  2.02

                	 	
                  Purchase
      and Sale of Warrant

                	
                  14

                
	
                  2.03

                	 	
                  Fees
      at Closing

                	
                  14

                
	
                  2.04

                	 	
                  Closing

                	
                  15

                
	
                  2.05

                	 	
                  Reserved

                	
                  15

                
	
                  2.06

                	 	
                  Joint
      and Several

                	
                  15

                
	 
      	 	 
      	 
      
	
                  ARTICLE
      3

                	 	
                  CONDITIONS
      TO THE OBLIGATIONS OF THE PURCHASER TO PURCHASE THE
    SECURITIES

                	
                  15

                
	 
      	 	 
      	 
      
	
                  3.01

                	 	
                  Representations
      and Warranties

                	
                  15

                
	
                  3.02

                	 	
                  Compliance
      with this Agreement

                	
                  15

                
	
                  3.03

                	 	
                  Secretary’s
      Certificates

                	
                  16

                
	
                  3.04

                	 	
                  Purchase
      of Securities Permitted by Applicable Laws

                	
                  16

                
	
                  3.05

                	 	
                  Opinion
      of Counsel

                	
                  16

                
	
                  3.06

                	 	
                  Reserved

                	
                  16

                
	
                  3.07

                	 	
                  Consents
      and Approvals

                	
                  16

                
	
                  3.08

                	 	
                  No
      Material Judgment or Order

                	
                  16

                
	
                  3.09

                	 	
                  Good
      Standing Certificates

                	
                  17

                
	
                  3.10

                	 	
                  No
      Litigation

                	
                  17

                
	
                  3.11

                	 	
                  Series
      E Purchase Documents

                	
                  17

                
	
                  3.12

                	 	
                  Senior
      Loan Documents

                	
                  17

                
	
                  3.13

                	 	
                  SBA
      Forms and Regulatory Representation Letter

                	
                  17

                
	
                  3.14

                	 	
                  Solvency
      Certificate; Insurance

                	
                  17

                
	
                  3.15

                	 	
                  Other
      Documents

                	
                  17

                
	 
      	 	 
      	 
      
	
                  ARTICLE
      4

                	 	
                  CONDITIONS
      TO THE OBLIGATIONS OF THE COMPANY TO ISSUE AND SELL THE
      SECURITIES

                	
                  18

                
	 
      	 	 
      	 
      
	
                  4.01

                	 	
                  Representations
      and Warranties

                	
                  18

                
	
                  4.02

                	 	
                  Compliance
      with this Agreement

                	
                  18

                


        

      

    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

    


    
      
        
          	
                  ARTICLE
      5

                	 	
                  REPRESENTATIONS
      AND WARRANTIES OF THE OBLIGORS

                	
                  18

                
	 
      	 	 
      	 
      
	
                  5.01

                	 	
                  Organization,
      Good Standing and Qualification

                	
                  18

                
	
                  5.02

                	 	
                  Subsidiaries

                	
                  19

                
	
                  5.03

                	 	
                  Capitalization

                	
                  19

                
	
                  5.04

                	 	
                  Authorization

                	
                  20

                
	
                  5.05

                	 	
                  Financial
      Statements

                	
                  21

                
	
                  5.06

                	 	
                  Changes

                	
                  21

                
	
                  5.07

                	 	
                  Agreements;
      Action

                	
                  22

                
	
                  5.08

                	 	
                  Intellectual
      Property

                	
                  23

                
	
                  5.09

                	 	
                  Title
      to Properties and Assets; Liens

                	
                  23

                
	
                  5.10

                	 	
                  Compliance
      with Other Instruments

                	
                  24

                
	
                  5.11

                	 	
                  Litigation

                	
                  24

                
	
                  5.12

                	 	
                  Governmental
      Consent

                	
                  25

                
	
                  5.13

                	 	
                  Permits

                	
                  25

                
	
                  5.14

                	 	
                  Offering

                	
                  25

                
	
                  5.15

                	 	
                  Broker’s,
      Finder’s or Similar Fees

                	
                  25

                
	
                  5.16

                	 	
                  Tax
      Returns and Payments

                	
                  25

                
	
                  5.17

                	 	
                  Operating
      Company

                	
                  26

                
	
                  5.18

                	 	
                  Investment
      Company/Government Regulations

                	
                  26

                
	
                  5.19

                	 	
                  Labor
      Relations and Employment Agreements

                	
                  26

                
	
                  5.20

                	 	
                  Employee
      Benefit Plans

                	
                  26

                
	
                  5.21

                	 	
                  Obligations
      to Related Parties

                	
                  26

                
	
                  5.22

                	 	
                  Insurance

                	
                  27

                
	
                  5.23

                	 	
                  Environmental
      Laws; Safety Laws

                	
                  27

                
	
                  5.24

                	 	
                  Disclosure

                	
                  27

                
	
                  5.25

                	 	
                  Small
      Business Concern

                	
                  27

                
	
                  5.26

                	 	
                  Small
      Business Matters as to Use of Proceeds

                	
                  28

                
	
                  5.27

                	 	
                  No
      Default or Breach

                	
                  28

                
	
                  5.28

                	 	
                  Solvency

                	
                  28

                
	
                  5.29

                	 	
                  Transaction
      Payments

                	
                  28

                
	
                  5.30

                	 	
                  Foreign
      Assets Control Regulations, etc.

                	
                  28

                
	
                  5.31

                	 	
                  Series
      E Purchase Documents

                	
                  29

                
	 
      	 	 
      	 
      
	
                  ARTICLE
      6

                	 	
                  REPRESENTATIONS
      AND WARRANTIES OF THE PURCHASER

                	
                  29

                
	 
      	 	 
      	 
      
	
                  6.01

                	 	
                  Authorization;
      No Contravention

                	
                  29

                
	
                  6.02

                	 	
                  Binding
      Effect

                	
                  29

                
	
                  6.03

                	 	
                  No
      Legal Bar

                	
                  29

                
	
                  6.04

                	 	
                  Purchase
      for Own Account

                	
                  29

                
	
                  6.05

                	 	
                  Restricted
      Securities

                	
                  30

                
	
                  6.06

                	 	
                  Capacity
      to Protect Interests

                	
                  30

                
	
                  6.07

                	 	
                  Corporate
      Existence and Power

                	
                  30

                
	
                  6.08

                	 	
                  Broker’s,
      Finder’s or Similar Fees

                	
                  30

                
	
                  6.09

                	 	
                  Governmental
      Authorization; Third Party Consent

                	
                  31

                


        

      

    


    
      
         


      

      
        -iii-

        
          

        

      

      
         


      

    

    


    
      
        
          	
                  ARTICLE
      7

                	 	
                  INDEMNIFICATION

                	
                  31

                
	 
      	 	 
      	 
      
	
                  7.01

                	 	
                  Indemnification

                	
                  31

                
	
                  7.02

                	 	
                  Procedure;
      Notification

                	
                  32

                
	 
      	 	 
      	 
      
	
                  ARTICLE
      8

                	 	
                  AFFIRMATIVE
      COVENANTS

                	
                  33

                
	 
      	 	 
      	 
      
	
                  8.01

                	 	
                  Financial
      Statements and Other Information

                	
                  33

                
	
                  8.02

                	 	
                  Preservation
      of Corporate Existence

                	
                  36

                
	
                  8.03

                	 	
                  Payment
      of Obligations

                	
                  36

                
	
                  8.04

                	 	
                  Compliance
      with Laws

                	
                  36

                
	
                  8.05

                	 	
                  Reserved

                	
                  37

                
	
                  8.06

                	 	
                  Inspection

                	
                  37

                
	
                  8.07

                	 	
                  Payment
      of Note

                	
                  37

                
	
                  8.08

                	 	
                  Maintenance
      of Properties; Insurance

                	
                  37

                
	
                  8.09

                	 	
                  Reserved

                	
                  38

                
	
                  8.10

                	 	
                  Use
      of Proceeds

                	
                  38

                
	
                  8.11

                	 	
                  Observation
      Rights

                	
                  38

                
	
                  8.12

                	 	
                  Reserved

                	
                  38

                
	
                  8.13

                	 	
                  SBA
      Compliance

                	
                  39

                
	
                  8.14

                	 	
                  SBIC
      Regulatory Provisions for the Benefit of Purchaser

                	
                  39

                
	
                  8.15

                	 	
                  Post
      Closing Matters

                	
                  40

                
	
                  8.16

                	 	
                  Intellectual
      Property

                	
                  40

                
	 
      	 	 
      	 
      
	
                  ARTICLE
      9

                	 	
                  NEGATIVE
      COVENANTS

                	
                  40

                
	 
      	 	 
      	 
      
	
                  9.01

                	 	
                  Fundamental
      Changes; Consolidations, Mergers and Acquisitions

                	
                  40

                
	
                  9.02

                	 	
                  Transactions
      with Affliates

                	
                  41

                
	
                  9.03

                	 	
                  No
      Inconsistent Agreements

                	
                  41

                
	
                  9.04

                	 	
                  Limitation
      on Indebtedness

                	
                  41

                
	
                  9.05

                	 	
                  Limitation
      on Liens

                	
                  42

                
	
                  9.06

                	 	
                  Dispositions
      of Assets

                	
                  44

                
	
                  9.07

                	 	
                  Limitations
      on Restricted Payments

                	
                  44

                
	
                  9.08

                	 	
                  Employee
      Benefit Plans

                	
                  45

                
	
                  9.09

                	 	
                  Business
      Activities; Change of Legal Status and Organizational
      Documents

                	
                  45

                
	
                  9.10

                	 	
                  Investments

                	
                  45

                
	
                  9.11

                	 	
                  Reserved

                	
                  46

                
	
                  9.12

                	 	
                  Fiscal
      Year

                	
                  46

                
	
                  9.13

                	 	
                  Modification
      of Senior Indebtedness

                	
                  46

                
	
                  9.14

                	 	
                  Limitations
      on Layering

                	
                  46

                
	 
      	 	 
      	 
      
	
                  ARTICLE
      10

                	 	
                  PREPAYMENT

                	
                  47

                
	 
      	 	 
      	 
      
	
                  10.01

                	 	
                  Payment
      in Respect of Note

                	
                  47

                
	
                  10.02

                	 	
                  Optional
      Prepayment

                	
                  47

                
	
                  10.03

                	 	
                  Mandatory
      Prepayment

                	
                  47

                


        

      

    


    
      
         


      

      
        -iv-

        
          

        

      

      
         


      

    

    


    
      
        
          	
                  ARTICLE
      11

                	 	
                  COLLATERAL

                	
                  47

                
	 
      	 	 
      	 
      
	
                  11.01

                	 	
                  Security
      Interests

                	
                  47

                
	
                  11.02

                	 	
                  Financing
      Statements

                	
                  47

                
	
                  11.03

                	 	
                  Landlord
      Waivers; Collateral in the Possession of a Warehouseman or
      Bailee

                	
                  49

                
	
                  11.04

                	 	
                  Preservation
      of the Collateral

                	
                  49

                
	
                  11.05

                	 	
                  Other
      Actions as to any and all Collateral

                	
                  50

                
	
                  11.06

                	 	
                  Equipment
      and Inventory

                	
                  50

                
	
                  11.07

                	 	
                  Condition
      of Inventory and Equipment

                	
                  51

                
	
                  11.08

                	 	
                  Expenses
      of the Purchaser

                	
                  51

                
	
                  11.09

                	 	
                  Notices

                	
                  51

                
	
                  11.10

                	 	
                  Insurance,
      Discharge of Taxes, Etc.

                	
                  52

                
	
                  11.11

                	 	
                  Waiver
      and Release by Obligors

                	
                  52

                
	
                  11.12

                	 	
                  Records
      and Reports

                	
                  52

                
	
                  11.13

                	 	
                  Further
      Assurances

                	
                  52

                
	
                  11.14

                	 	
                  Continuing
      Collateral

                	
                  53

                
	
                  11.15

                	 	
                  Set-Off

                	
                  53

                
	
                  11.16

                	 	
                  Reserved

                	
                  53

                
	
                  11.17

                	 	
                  Accounts

                	
                  53

                
	
                  11.18

                	 	
                  Letters
      of Credit, Chattel Paper and Instruments

                	
                  53

                
	
                  11.19

                	 	
                  Electronic
      Chattel Paper and Transferable Records

                	
                  54

                
	
                  11.20

                	 	
                  Commercial
      Tort Claims

                	
                  55

                
	 
      	 	 
      	 
      
	
                  ARTICLE
      12

                	 	
                  DEFAULT

                	
                  55

                
	 
      	 	 
      	 
      
	
                  12.01

                	 	
                  Nonpayment
      of Obligations

                	
                  55

                
	
                  12.02

                	 	
                  Misrepresentation

                	
                  55

                
	
                  12.03

                	 	
                  Nonperformance

                	
                  55

                
	
                  12.04

                	 	
                  Default
      under Investment Documents

                	
                  56

                
	
                  12.05

                	 	
                  Default
      under Other Debt

                	
                  56

                
	
                  12.06

                	 	
                  Reserved

                	
                  56

                
	
                  12.07

                	 	
                  Bankruptcy,
      Insolvency, etc.

                	
                  56

                
	
                  12.08

                	 	
                  Judgments

                	
                  57

                
	
                  12.09

                	 	
                  Change
      in Control

                	
                  57

                
	
                  12.10

                	 	
                  Collateral
      Impairment

                	
                  57

                
	
                  12.11

                	 	
                  Reserved

                	
                  57

                
	
                  12.12

                	 	
                  Subordinated
      Debt

                	
                  57

                
	
                  12.13

                	 	
                  Validity
      of Investment Documents

                	
                  57

                
	
                  12.14

                	 	
                  Criminal
      Indictment

                	
                  57

                
	
                  12.15

                	 	
                  Validity
      of Liens

                	
                  57

                
	 
      	 	 
      	 
      
	
                  ARTICLE
      13

                	 	
                  REMEDIES

                	
                  58

                
	 
      	 	 
      	 
      
	
                  13.01

                	 	
                  Possession
      and Assembly of Collateral

                	
                  58

                
	
                  13.02

                	 	
                  Sale
      of Collateral

                	
                  59

                
	
                  13.03

                	 	
                  Standards
      for Exercising Remedies

                	
                  59

                
	
                  13.04

                	 	
                  UCC
      and Offset Rights

                	
                  60

                
	
                  13.05

                	 	
                  Additional
      Remedies

                	
                  60

                


        

      

    


    
      
         


      

      
        -v-

        
          

        

      

      
         


      

    

    


    
      
        
          	
                  13.06

                	 	
                  Attorney-in-Fact

                	
                  61

                
	
                  13.07

                	 	
                  Verification
      of Accounts; Lockbox

                	
                  62

                
	
                  13.08

                	 	
                  No
      Marshaling

                	
                  63

                
	
                  13.09

                	 	
                  Application
      of Proceeds

                	
                  63

                
	
                  13.10

                	 	
                  No
      Waiver

                	
                  63

                
	 
      	 	 
      	 
      
	
                  ARTICLE
      14

                	 	
                  MISCELLANEOUS

                	
                  64

                
	 
      	 	 
      	 
      
	
                  14.01

                	 	
                  Survival
      of Representations and Warranties

                	
                  64

                
	
                  14.02

                	 	
                  Tax
      Withholding

                	
                  64

                
	
                  14.03

                	 	
                  Notices

                	
                  64

                
	
                  14.04

                	 	
                  Successors
      and Assigns

                	
                  65

                
	
                  14.05

                	 	
                  Amendment
      and Waiver

                	
                  65

                
	
                  14.06

                	 	
                  Signatures;
      Counterparts

                	
                  66

                
	
                  14.07

                	 	
                  Headings

                	
                  66

                
	
                  14.08

                	 	
                  GOVERNING
      LAW

                	
                  66

                
	
                  14.09

                	 	
                  JURISDICTION,
      JURY TRIAL WAIVER, PJR WAIVER, ETC.

                	
                  66

                
	
                  14.10

                	 	
                  Severability

                	
                  67

                
	
                  14.11

                	 	
                  Entire
      Agreement

                	
                  67

                
	
                  14.12

                	 	
                  Certain
      Expenses

                	
                  68

                
	
                  14.13

                	 	
                  Publicity

                	
                  68

                
	
                  14.14

                	 	
                  Further
      Assurances

                	
                  68

                
	
                  14.15

                	 	
                  No
      Strict Construction

                	
                  68

                


        

      

    

    


    Schedules and
Exhibits

    


    Disclosure
Schedule

     

    
      
        	
                Exhibit
      A-l

              	
                Form
      of Senior Subordinated Promissory Note

              
	 
      	 
      
	
                Exhibit
      A-2

              	
                Form
      of Warrant

              
	 
      	 
      
	
                Exhibits

              	
                Form
      of Legal Opinion

              
	 
      	 
      
	
                Exhibit
      C

              	
                Form
      of Compliance Certificate

              


      

    


    
      
         


      

      
        -vi-

        
          

        

      

      
         


      

    


    SECURITIES
PURCHASE AGREEMENT

    


    This
SECURITIES PURCHASE
AGREEMENT, dated as of March 31, 2009, between CORNERSTONE ONDEMAND, INC., a
Delaware corporation (the “Company”), and
IRONWOOD EQUITY FUND LP,
a Delaware limited partnership (the “Purchaser”).

    


    RECITALS

    


    A.       
The Company desires to sell to the Purchaser, and the Purchaser desires to
purchase from the Company, a senior subordinated promissory note substantially
in the form attached hereto as Exhibit
A-l (the “Note”),
due March 30, 2014, in the aggregate principal amount of $4,000,000.00,
and the Company desires to sell to the Purchaser, and the Purchaser desires to
purchase from the Company, a warrant substantially in the form attached hereto
as Exhibit
A-2 (the “Warrant”)
to purchase shares of Series E Convertible Preferred Stock of the
Company, in each case upon the terms and subject to the representations,
warranties and conditions herein set forth.

    


    AGREEMENT

    


    NOW, THEREFORE, in consideration of the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:

    


    ARTICLE
1

    DEFINITIONS

    


    1.01      
Definitions. As used in this Agreement,
and unless the context requires a different meaning, the following terms have
the meanings indicated:

    


    “Affiliate”
means with respect to any Person (the “Initial
Person”) any Person (a) directly
or indirectly controlling, controlled by, or under common control with, the
Initial Person, (b) directly or indirectly owning or holding ten percent (10%)
or more of any Capital Securities in the Initial Person, or (c) ten percent
(10%) or more of whose voting Capital Securities is directly or indirectly owned
or held by the Initial Person. For purposes of this definition, “control”
(including with correlative meanings, the terms “controlling” “controlled by” and under “common control with”) means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

    


    “Agreement”
means this Agreement, including the exhibits and schedules attached
hereto, as the same may be amended, supplemented or modified in accordance with
the terms hereof.

    


    “Articles of
Incorporation” means, as
to any Person, the Articles of Incorporation or any similar document, including
any amendments, of such Person as in effect on the Closing Date. Unless the
context in which it is used shall otherwise require, Articles of Incorporation
of the Company means the Restated Certificate of Incorporation of the Company as
in effect on the Closing Date.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    “Asset
Disposition” means the sale, lease, exclusive license, assignment or
other transfer for value by any Obligor to any Person (other than any other
Obligor) of any asset or right of such Obligor or any Subsidiary thereof
(including, the loss, destruction or damage of any thereof or any actual or
threatened (in writing to such Obligor) condemnation, confiscation, requisition,
seizure or taking thereof), other than any sale, lease or license in the
ordinary course of business.

    


    “Bankruptcy Code”
means Title 11 of the United States Code (11 U.S.C. Section 101 et seq.), as amended from time to
time.

    


    “Books and
Records” has the meaning given to such term in Section 11.01
(b)(v).

    


    “Business Day”
means any day other than a Saturday, Sunday or other day on which
commercial banks in Hartford, Connecticut are authorized or required by law or
executive order to close.

    


    “Capital Asset”
means, with respect to any Obligor or any of its Subsidiaries, any asset
that should, in accordance with GAAP, be classified and accounted for as a fixed
or capital asset on a consolidated balance sheet of such Obligor and its
Subsidiaries, and shall include all assets acquired with Capital
Expenditures.

    


    “Capital
Expenditures” means, with respect to any Obligor, amounts paid or
Indebtedness incurred by such Obligor or any of its Subsidiaries in connection
with (a) the purchase or lease by such Obligor or any of its Subsidiaries of
Capital Assets that would be required to be capitalized and shown on the balance
sheet of such Obligor in accordance with GAAP or (b) the lease of any assets by
such Obligor or any of its Subsidiaries as lessee under any Synthetic Lease to
the extent that such assets would have been Capital Assets had the Synthetic
Lease been treated for accounting purposes as a Capital Lease.

    


    “Capital Lease”
means, with respect to any Obligor, any lease (or other arrangement
conveying the right to use) of any real or personal property, or a combination
thereof, that should, in accordance with GAAP, be classified and accounted for
as a capital lease on a consolidated balance sheet of such Obligor or any of its
Subsidiaries.

    


    “Capital Lease
Obligations” of any Person means the obligations of such Person to pay
rent or other amounts under any Capital Lease. For the purposes of this
Agreement, the amount of such obligations at any time shall be the capitalized
amount thereof at such time determined in accordance with GAAP consistently
applied. The determination of Capital Lease Obligations at the relevant time of
determination with respect to any Obligor and its Subsidiaries shall be made on
a consolidated basis in accordance with GAAP consistently applied.

    


    “Capital
Securities” means (a) in the case of a corporation, capital stock, (b) in
the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of capital
stock, (c) in the case of a partnership, partnership interests (whether general
or limited), (d) in the case of a limited liability company, membership
interests or units, and (e) any other interest or participation that confers on
a Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person; provided that “Capital
Securities” shall not include any Indebtedness that is convertible into
or exchangeable for capital stock of the Company.


    
      
         


      

      
        -2-

        
          

        

      

      
         


      

    


    “CERCLA ”
has the meaning set forth in the definition of “Environmental
Laws” below.

    


    “Change of
Control” means, as to the Company, the consummation of (a) the failure of
the holders of Capital Securities of the Company as of the Closing Date and
their Permitted Transferees to maintain beneficial ownership and control,
directly or indirectly, of more than fifty percent (50%) of the voting power of
all Capital Securities of the Company, whether as a result of a merger or
consolidation or otherwise; (b) the failure of the holders of Capital Securities
of the Company as of the Closing Date and their Permitted Transferees to
maintain voting control of the Governing Board of the Company, whether as a
result of a merger or consolidation or otherwise; (c) the sale or other
disposition of all or substantially all (i.e. 25% or more in any Fiscal Year) of
the assets of the Company or one or more of its Subsidiaries that, individually
or in the aggregate, constitute a material part of the business, operations or
assets of the Company and its Subsidiaries, taken as a whole; or (d) any
liquidation, dissolution or winding up of the Company or one or more of its
Subsidiaries that, individually or in the aggregate, constitute a material part
of the business, operations or assets of the Company and its Subsidiaries, taken
as a whole; provided that it
shall not constitute a “Change of Control” if any event described in clauses
(a) or (b) above occurs as a result of a bona fide equity financing with venture
capitalists primarily for the purpose of providing capital to the business and
not for the repurchase of Capital Securities or other equity from the Company's
institutional, angel or other venture capitalist investors. As used herein,
“beneficial ownership” shall have the meaning provided in Rule 13d-3 of the
Commission promulgated under the Securities Exchange Act of 1934.

    


    “Closing” has the meaning set forth in Section
2.04. 

     

    “Closing Date”
has the meaning set forth in Section 2.04. 

     

    “Code”
means the Internal Revenue Code of 1986, as amended.

    


    “Collateral”
means all property of the Obligors that serves as collateral for any of
the Obligations under Article 11 or otherwise.

    


    “Collateral
Access Agreement” means a waiver of lien or other such agreement in form
and substance reasonably satisfactory to the Purchaser pursuant to which a
mortgagee or lessor of real property on which Collateral is stored or otherwise
located, or a warehouseman, processor or other bailee of Inventory or other
property owned by any Obligor, acknowledges the Liens of the Purchaser and
subordinates or waives any Liens held by such Person on such property, and, in
the case of any such agreement with a mortgagee or lessor, permits the Purchaser
reasonable access to and use of such real property following the occurrence and
during the continuance of an Event of Default to assemble, complete and sell any
collateral stored or otherwise located thereon.

    


    “Collateral
Account” has the meaning given
to such term in Section 13.07(b).

    


    “Commission”
means the Securities and Exchange Commission or any similar agency then
having jurisdiction to enforce the Securities Act.


    
      
         


      

      
        -3-

        
          

        

      

      
         


      

    


    “Commonly
Controlled Entity” means, as to any Obligor, an entity, whether or not
incorporated, which is under common control with such Obligor within the meaning
of Section 4001 of ERISA or is part of a group which includes such Obligor and
which is treated as a single employer under Section 414 of the
Code.

    


    “Company”
has the meaning given to such term in the Preamble.

    


    “Compliance
Certificate” has the meaning given in Section 8.01(c).

    


    “Condition of the
Obligors” means the assets, business, properties, operations, and
financial condition of the Obligors and their Subsidiaries, taken as a
whole.

    


    “Contractual
Obligations” means, as to any Person, any provision of any security
issued by such Person or of any agreement, instrument, undertaking, contract,
indenture, mortgage, deed of trust or other arrangement (whether in writing or
otherwise) to which such Person is a party or by which it or any of such
Person's property is bound.

    


    “Default”
means an event, condition or circumstance the occurrence of which would,
with the giving of notice or the passage of time or both, constitute an Event of
Default.

    


    “Default Rate”
has the meaning for such term set forth in the Note.

    


    “Defined Benefit
Plan” means a defined benefit plan within the meaning of Section 3(35) of
ERISA or Section 414(j) of the Code, whether funded or unfunded, qualified or
non-qualified (whether or not subject to ERISA or the Code).

    


    “Distribution”
means, as to any Obligor, the declaration or payment of any dividend on
or in respect of any class of any Capital Securities of such Obligor or any of
its Subsidiaries, other than dividends payable solely in any Capital Securities
of such Obligor or any of the Subsidiaries not having any preference with
respect to distributions or return of capital; the purchase, redemption, or
other retirement of any class of any Capital Securities in such Obligor or any
Subsidiary thereof (or rights, warrants or options exercisable or convertible in
such Capital Securities), directly or indirectly through a Subsidiary of such
Obligor or otherwise; the return of capital by such Obligor or any Subsidiary
thereof to its holders of Capital Securities, as such; or any other distribution
on or in respect of any class of any Capital Securities of such Obligor or its
Subsidiaries.

    


    “Domestic
Subsidiary” means any Subsidiary of an Obligor that is incorporated or
organized under the laws of the United States of America, any state thereof or
the District of Columbia.


    
      
         


      

      
        -4-

        
          

        

      

      
         


      

    


    “Environmental
Laws” means any applicable past, present or future federal, state,
territorial, provincial, foreign or local law, common law doctrine, rule, order,
decree, judgment, injunction, license, permit or regulation relating to
environmental matters, including those pertaining to land use, air, soil,
surface water, ground water (including the protection, cleanup, removal,
remediation or damage thereof), public or employee health or safety or any other
environmental matter, together with any other laws (federal, state, territorial,
provincial, foreign or local) relating to emissions, discharges, releases or
threatened releases of, or exposure to, any pollutant or contaminant including,
medical, chemical, biological, biohazardous or radioactive waste and materials,
into ambient air, land, surface water, groundwater, personal property or
structures, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transportation, discharge or handling of any
contaminant, including, the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. 9601 et
seq.) (“CERCLA”),
the Hazardous Material Transportation Act (49 U.S.C. 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. 6901 et
seq.) (“RCRA”),
the Federal Water Pollution Control Act (33 U.S.C. 1253 et seq.), the Clean Air Act (42 U.S.C.
1251 et seq.), the Toxic
Substances Control Act (15 U.S.C. 2601 et seq.), and the Occupational Safety
and Health Act (29 U.S.C. 651 et
seq.), and any analogous federal, or state or local laws, statutes and
regulations promulgated thereunder as such laws have been, or are, amended,
modified or supplemented heretofore or from time to time hereafter until the
payment by the Obligors of all principal of and interest on the Note and payment
and performance of all other Obligations.

    


    “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended
from time to time.

    


    “ERISA Affiliate”
means, with respect to any Person, a corporation that is or was a member
of a controlled group of corporations with such Person within the meaning of
Section 4001(a) or (b) of ERISA or Section 414(b) of the Code, a trade or
business (including a sole proprietorship, partnership, trust, estate or
corporation) that is under common control with such Person within the meaning of
Section 414(c) of the Code, or a trade or business which together with such
Person is treated as a single employer under Section 414(m) or (o) of the
Code.

    


    “Event of
Default” has the meaning set forth in Article 12.

    


    “Exchange Act”
means the Securities Exchange Act of 1934, as amended.

    


    “Excluded
Collateral” means (a) all equipment or other property financed by a
nonaffiliated third party whose Liens are Liens of the type described in Section
9.05(g), provided that
any such equipment or other property shall only be regarded as “Excluded
Collateral”during
such time that such equipment or other property is subject to such third party's
Liens; (b) voting stock of a controlled foreign corporation (as that term is
defined in the Code) (a “CFC”)
solely to the extent that such stock represents more than 65% of the
outstanding voting stock of such CFC; (c) any rights or interest in any
contract, lease, permit, license, charter or license agreement covering real or
personal property of any Obligor or any of its Subsidiaries, if under the terms
of such contract, lease, permit, license, charter or license agreement, or
applicable law with respect thereto, the grant of a security interest or Lien
therein is prohibited as a matter of law or under the terms of such contract,
lease, permit, license, charter or license agreement and such prohibition has
not been waived or the consent of the other party to such contract, lease,
permit, license, charter or license agreement has not been obtained; and (d) any
and all Intellectual Property.

    


    “Financial
Statements” has the meaning set forth in
Section 5.05(a).


    
      
         


      

      
        -5-

        
          

        

      

      
         


      

    


    “Fiscal Year”
means, as to any Obligor, the fiscal year of such Obligor ending on
December 31 (unless otherwise expressly set forth in writing from such Obligor
to the Purchaser).

    


    “Foreign
Subsidiary” means any Subsidiary of the Obligors other than a Domestic
Subsidiary.

    


    “Fully-diluted
Basis” means, as to any Obligor, the Capital Securities of such Obligor
outstanding assuming the conversion or exchange of all outstanding convertible
or exchangeable securities and the exercise of all outstanding warrants, options
or other rights to subscribe for or purchase any Capital Securities of such
Obligor. For purposes of this definition, all of the Management Options shall be
deemed to be outstanding as of the Closing Date, whether or not any or all of
such options shall have actually been granted as of such date.

    


    “Funded Debt”
means, with respect to any Person, without duplication, all Indebtedness
for borrowed money evidenced by notes, bonds, debentures, or similar evidences
of Indebtedness that by its terms matures more than one year from, or is
directly or indirectly renewable or extendible at such Person's option under a
revolving credit or similar agreement obligating the lender or lenders to extend
credit over a period of more than one year from the date of creation thereof,
and specifically including Capital Lease Obligations, current maturities of
long-term debt, revolving credit and short-term debt extendible beyond one year
at the option of the debtor, and also including, in the case of the Obligors,
the Senior Indebtedness and the Obligations and, without duplication,
Indebtedness consisting of guaranties of Funded Debt of other
Persons.

    


    “GAAP”
means generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.

    


    “Governing Board”
means, with respect to any Person, the board of directors or board of
managers (or any similar governing body) of such Person, or unless the context
otherwise requires, any authorized committee of the board of directors or board
of managers (or such similar body) of such Person. Unless otherwise specified,
“Governing
Board” of the Company means its
Board of Directors.

    


    “Governmental
Approvals” means all authorizations, consents, permits, approvals,
licenses, exemptions and other qualifications of, registrations and filings
with, and reports to, all Governmental Authorities.

    


    “Governmental
Authority” means the government of any nation, state, city, locality or
other political subdivision of any thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, regulation or compliance (including any department, commission,
board, bureau, agency or instrumentality thereof) and any corporation or other
entity owned or controlled, through stock or capital ownership or otherwise, by
any of the foregoing.


    
      
         


      

      
        -6-

        
          

        

      

      
         


      

    


    “Guarantor”
means any Domestic Subsidiary created or acquired by any of the Obligors
following the Closing Date.

    


    “Guaranty”
means each unconditional guaranty of the Obligors' obligations under the
Note and this Agreement, in form and substance satisfactory to the Purchaser,
executed by a Guarantor in favor of the Purchaser and its successors and
assigns.

    


    “Holding Company”
means, as to any Person, a corporation having ordinary voting power, by
the direct or indirect ownership of Voting Securities of such Person (other than
stock or such other ownership interests having such power only by reason of the
happening of a contingency) or otherwise, to elect a majority of the Governing
Board of such Person, or otherwise having control, directly or indirectly, of
the management of such Person.

    


    “Indebtedness”
As to any Person and whether recourse is secured by or is otherwise
available against all or only a portion of the assets of such Person and whether
or not contingent, but without duplication:

      


    (a)         every
obligation of such Person for money borrowed;

    


    (b)         every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses;

    


    (c)         every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person;

    


    (d)         every
obligation of such Person issued or assumed as the deferred purchase price of
property or services (excluding trade accounts payable or accrued liabilities
arising in the ordinary course of business which are not overdue or which are
being contested in good faith);

    


    (e)         every
Capital Lease Obligation;

    


    (f)          every
obligation of such Person under any lease (a “Synthetic
Lease”) treated as an operating
lease under GAAP and as a loan or financing for U.S. income tax
purposes;

    


    (g)         obligations
arising out of sales by such Person of (i) Accounts or General Intangibles for
money due or to become due, (ii) Chattel Paper, Instruments or Documents
creating or evidencing a right to payment of money or (iii) other receivables
(collectively “receivables”),
whether pursuant to a purchase facility or otherwise, other than in connection
with the disposition of the business operations of such Person relating thereto
or a disposition of defaulted receivables for collection and not as a financing
arrangement, and together with any obligation of such Person to pay any
discount, interest, fees, indemnities, penalties, recourse, expenses or other
amounts in connection therewith;


    
      
         


      

      
        -7-

        
          

        

      

      
         


      

    


    (h)         every
obligation of such Person under any forward contract, futures contract, swap,
option or other financing agreement or arrangement (including, without
limitation, caps, floors, collars and similar agreements), the value of which is
dependent upon interest rates, currency exchange rates, commodities or other
indices (a “derivative
contract”);

    


    (i)          every
obligation in respect of Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent that such
Person is liable therefor as a result of such Person's ownership interest in or
other relationship with such entity, except to the extent that the terms of such
Indebtedness provide that such Person is not liable therefor and such terms are
enforceable under applicable law; and

    


    (j)          every
obligation, contingent or otherwise, of such Person guaranteeing, or having the
economic effect of guarantying or otherwise acting as surety for, any obligation
of a type described in any of clauses (a) through (j) (the “primary obligation”)
of another Person (the “primary obligor”), in
any manner, whether directly or indirectly, and including, without limitation,
any obligation of such Person (i) to purchase or pay (or advance or supply funds
for the purchase of) any security for the payment of such primary obligation,
(ii) to purchase property, securities or services for the purpose of assuring
the payment of such primary obligation, or (iii) to maintain working capital,
equity capital or other financial statement condition or liquidity of the
primary obligor so as to enable the primary obligor to pay such primary
obligation.

    


    The
“amount” or “principal amount” of any Indebtedness at any time of determination
represented by: (i) any Indebtedness, issued at a price that is less than the
principal amount at maturity thereof, shall be the amount of the liability in
respect thereof determined in accordance with GAAP; (ii) any Capital Lease shall
be the principal component of the aggregate rentals obligation under such
Capital Lease payable over the term thereof that is not subject to termination
by the lessee; (iii) any sale of receivables shall be the amount of unrecovered
capital or principal investment of the purchaser (other than, with respect to
the Indebtedness of any Obligor, such Obligor or any of its wholly-owned
Subsidiaries) thereof, excluding amounts representative of yield or interest
earned on such investment; (iv) any Synthetic Lease shall be the stipulated loss
value, termination value or other equivalent amount; and (v) any derivative
contract shall be the maximum amount of any termination or loss payment required
to be paid by such Person if such derivative contract were, at the time of
determination, to be terminated by reason of any event of default or early
termination event thereunder, whether or not such event of default or early
termination event has in fact occurred.

    


    “Intellectual
Property” means the collective reference to all use and ownership rights
in any intellectual property, whether arising under United States, multinational
or foreign laws or otherwise, including, without limitation, trade secrets,
copyrights, patents, service marks and trademarks, and all registrations and
applications for registration therefor, trade names, domain names, technology,
know-how, goodwill and processes; and all extensions, renewals, divisions,
reissues, continuations and continuations-in-part of any of the foregoing; and
all rights to sue for past, present and future infringement of the
foregoing.


    
      
         


      

      
        -8-

        
          

        

      

      
         


      

    


    “Investment”
means, as to any Obligor, (i) any direct or indirect purchase or other
acquisition by such Obligor or any of its Subsidiaries of any beneficial
interest in, including Capital Securities of, any other Person (other than a
Person that prior to the relevant purchase or acquisition was a Subsidiary of
such Obligor), or (ii) any direct or indirect loan, advance or capital
contribution by such Obligor or any of its Subsidiaries to any other Person
(other than a Subsidiary of such Obligor), including all Indebtedness and
accounts receivable from that other Person that are not current assets or did
not arise from sales to that other Person in the ordinary course of business.
The amount of any Investment shall be the original cost of such Investment plus
the cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment.

    


    “Investment
Documents” means, collectively, this Agreement, the Note, the Warrant,
each Guaranty, the Senior Loan Subordination Agreement, and each other document,
agreement and instrument executed and delivered in connection with this
Agreement.

    


    “IRS”
means the Internal Revenue Service of the United States or any successor
thereto.

    


    “Key Man Life
Insurance Policy” has the meaning given to such term in Section
8.08(c).

    


    “Lien”
means any mortgage, deed of trust, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge, priority,
right or other security interest including those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a Capital Lease Obligation, or any financing lease
having substantially the same economic effect as any of the
foregoing.

    


    “Lockbox”
has the meaning given to such term in Section 13.07(b).

    


    “Management
Options” means the options to purchase shares of Capital Securities of
the Company granted to management and key employees of the Company and its
Subsidiaries.

    


    “Material Adverse
Effect” means a material adverse effect on (a) the Condition of the
Obligors, (b) the ability of any Obligor to perform its obligations when such
obligations are required to be performed, under this Agreement, the Note, the
Warrant or any other Investment Document, or (c) the enforceability of this
Agreement, the Note, the Warrant or any other Investment Documents or the
material rights and remedies of the Purchaser hereunder or
thereunder.

    


    “Multiemployer
Plan” means a multiemployer plan within the meaning of Section 3(37) or
4001(a)(3) of ERISA or Section 414(f) of the Code.

    


    “Net Proceeds”
means, as to any Asset Disposition, cash proceeds received by any Obligor
from such Asset Disposition (including insurance proceeds, awards of
condemnation, and payments under notes or other debt securities received in
connection with such Asset Disposition), net of (x) the costs of such sale,
lease, transfer or other disposition (including Taxes attributable to such sale,
lease or transfer), and (y) amounts applied to repayment of Indebtedness secured
by a Lien on the asset or property disposed.

    


    “Note” has
the meaning set forth in the Recitals hereof.


    
      
         


      

      
        -9-

        
          

        

      

      
         


      

    


    “Obligations”
means, as to any Obligor, any and all loans, advances, indebtedness,
liabilities, obligations, covenants or duties of such Obligor to the Purchaser
of any kind or nature arising under this Agreement, the Note, or any other
Investment Documents (other than the Warrant), and any and all extensions and
renewals thereof, and modifications and amendments thereto, whether now existing
or hereafter arising, whether under any present or future document, agreement or
other instrument, and whether or not evidenced by a writing and specifically
including but not being limited to, unpaid principal, plus all accrued and
unpaid interest thereon, together with all fees, expenses, commissions, charges,
penalties and other amounts owing by or chargeable to such Obligor under this
Agreement, the Note, or any other Investment Documents (other than the Warrant)
as and when the same shall become due and payable, whether at maturity, by
acceleration or otherwise.

    


    “Obligors”
means the Company and any Subsidiary which is a party to any Investment
Document, individually or collectively.

    


    “PBGC”
means the Pension Benefit Guaranty Corporation established pursuant to
Section 4002(a) of ERISA.

    


    “Pension Plan”
means, as to any Obligor, any Plan, other than a Multiemployer Plan,
which is subject to the provisions of Title IV of ERISA or Section 412 of the
Code and which (a) is maintained for employees of such Obligor or any of its
Subsidiaries or any ERISA Affiliate thereof, or (b) has at any time within the preceding six years
been maintained for the employees of such Obligor or any current or former ERISA
Affiliate thereof.

    


    “Permitted
Encumbrance” has the meaning set forth in Section 9.05.

    


    “Permitted
Investment” hasthe meaning set
forth in Section 9.10.

    


    “Permitted
Transferee” means, with respect to any Person, (i) any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person of the first party, and (ii) any
investment fund or investment entity that is managed by the same Person as such
specified Person of the first part.

    


    “Person”
means any individual, firm, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, Governmental Authority or other entity of any kind, and
shall include any successor (by merger or otherwise) of such
entity.

    


    “Plans”
means, as to any Obligor, at any particular time, any employee benefit
plan which is covered by Title IV of ERISA and in respect of which such Obligor
or any of its Subsidiaries or a Commonly Controlled Entity is (or, if such plan
were terminated at such time, would under Section 4069 of ERISA be deemed to be)
an “employer” as defined in Section 3(5) of ERISA.

    


    “Purchaser”
has the meaning set forth in the Preamble.

    


    “RCRA” has
the meaning set forth in the definition of  “Environmental
Laws”.


    
      
         


      

      
        -10-

        
          

        

      

      
         


      

    


    “Requirements of
Law” means, as to any Person, provisions of the certificate of
incorporation and bylaws or other organizational or governing documents of such
Person, and each law, treaty, code, rule, regulation, right, privilege,
qualification, license or franchise or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject or pertaining to any or all of the transactions contemplated or referred
to herein.

    


    “Responsible
Officer” means, as to any Obligor, any of the following: the chief
executive officer, chief financial officer, vice president, treasurer or any
other officer of such Obligor reasonably acceptable to the
Purchaser.

    


    “Restricted
Payment” means, as to any Person: (i) any dividend or other distribution,
direct or indirect, on account of any class of any Capital Securities of such
Person or any of its Subsidiaries now or hereafter outstanding, provided that (x) a
dividend/distribution payable by any Obligor or a Subsidiary of an Obligor
solely in shares/units of any class of Capital Securities to the holders of such
class and (y) the payment of dividends or distributions to any Obligor or any
Subsidiaries thereof by any other Obligor or Subsidiary of such Obligor shall
not be considered Restricted Payments; (ii) any redemption, retirement, sinking
fund or similar payment, purchase or other acquisition for value, direct or
indirect, of any class of any Capital Securities of that Person now or hereafter
outstanding; (iii) any payment or prepayment of interest on, principal of,
premium, if any, redemption, purchase, retirement, defeasance, sinking fund or
similar payment with respect to, any Subordinated Debt (except as expressly
permitted pursuant to the applicable subordination agreement); and (iv) any
payment made to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of Capital Securities of
such Person or any of its Subsidiaries now or hereafter
outstanding.

    


    “SBA Regulatory
Representation Letter” means the letter from the Purchaser to the Company
dated as of the date hereof and titled “SBA Regulatory Representation
Letter”.

    


    “Securities”
means, collectively, the Note and the Warrant.

    


    “Securities Act”
means the Securities Act of 1933, as amended from time to
time.

    


    “Senior
Indebtedness” means all Indebtedness of the Obligors currently
outstanding or incurred in the future pursuant to the Senior Loan Documents and
all Indebtedness, if any, incurred in the replacement, refinancing, or refunding
thereof in accordance with the Senior Loan Subordination Agreement; provided that in no
event shall the principal amount of the Senior Indebtedness exceed the amounts
set forth in the Senior Loan Subordination Agreement; provided further
that, notwithstanding the foregoing proviso, the Company may increase the amount
of Senior Indebtedness outstanding owing to Senior Lender to an aggregate
principal amount equal to $5,000,000 in term debt plus the greater of (i) $2,500,000 and
(ii) 80% of Eligible Accounts (as defined in the Senior Credit Agreement) in the
form of a revolving credit facility.


    
      
         


      

      
        -11-

        
          

        

      

      
         


      

    


    “Senior Lender”
means Comerica Bank or any successor or assign thereof and any Person
with whom the Company refinances the Senior Indebtedness (provided that such
successor or assign or other Person is subject to the Senior Loan Subordination
Agreement).

    


    “Senior Credit
Agreement” means that certain Loan and Security Agreement by and between
the Senior Lender and the Company, dated as of September 12, 2007, as the same
may be amended, restated, supplemented, extended, refinanced, renewed, replaced
or otherwise modified from time to time (subject, however, to the terms of the
Senior Loan Subordination Agreement).

    


    “Senior Loan
Documents” means the Senior Credit Agreement and all notes, security
agreements, pledge agreements, guarantees, mortgages and other loan documents
related thereto, in each case as amended from time to time.

    


    “Senior Loan
Subordination Agreement” means the subordination agreement to be entered
into by and among the Obligors and the Purchaser, as subordinated creditor, and
the Senior Lender (or such other holder of the Senior Indebtedness), as senior
creditor, as the same may be amended, modified and/or supplemented from time to
time.

    


    “Series E
Investment” means the sale of the Company's Series E Convertible
Preferred Stock as contemplated by the Series E Purchase Documents.

    


    “Series E
Purchase Agreement” means that certain Series E Preferred Stock and
Warrant Purchase Agreement dated as of January 30, 2009 by and among the Company
and certain investors named therein regarding the Company's sale and issuance of
its Series E Convertible Preferred Stock.

    


    “Series E
Purchase Documents” means, collectively, the Series E Purchase Agreement
and any and all documents and agreements executed and delivered in connection
with the issuance by the Company for cash of not less than $8,500,000 of its
Series E Convertible Preferred Stock as contemplated by the Series E Purchase
Agreement.

    


    “Solvent”
means, as to any Person on a particular date, that such Person (a) has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage and is able to pay its debts as
they mature, (b) owns property having a value, both at fair valuation and at
present fair saleable value, greater than the amount required to pay its
probable liabilities (including contingencies), and (c) does not believe that it
will incur debts or liabilities beyond its ability to pay such debts or
liabilities as they mature.

    


    “Subordinated Debt” means any portion of
the Indebtedness of any Obligor which is subordinated to the Obligations in a
manner satisfactory to the Purchaser, including right and time of payment of
principal and interest.

    


    “Subsidiary”
means, as to any Person, a corporation, partnership, limited liability
company or other entity of which the Voting Securities (other than Capital
Securities having such power only by reason of the happening of a contingency)
to elect a majority of the Governing Board of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly by such Person of the first part. Unless
otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries”
in this Agreement shall refer to a Subsidiary or Subsidiaries of each
Obligor.


    
      
         


      

      
        -12-

        
          

        

      

      
         


      

    


    “Synthetic Lease”
has the meaning set forth in subsection (h) of the definition of 
“Indebtedness”.

    


    “Tax”
means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code §59A), customs
duties, franchise profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on-minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto.

    


    “Uniform
Commercial Code” or the “UCC” means
the Uniform Commercial Code as in effect in the state of Delaware from time to
time.

    


    “Voting
Securities” of any Person as of any date means the Capital Securities of
such Person that is at the time entitled to vote in the election of the
Governing Board of such Person.

    


    “Warrant”
has the meaning set forth in the Recitals.

    


    1.02    
  Accounting
Terms; Financial Statements. All accounting terms used
herein and not expressly defined in this Agreement shall have the respective
meanings given to them in conformance with GAAP. Financial statements and other
information furnished after the date hereof pursuant to this Agreement or the
other Investment Documents shall be prepared in accordance with GAAP as in
effect at the time of such preparation.

    


    1.03    
  Other
Terms Defined in UCC.
All other capitalized words and phrases used herein and not otherwise
specifically defined herein shall have the respective meanings assigned to such
terms in the UCC, to the extent the same are used or defined
therein.

    


    1.04  
    Other Interpretive
Provisions.

    


    (a)          The
meanings of defined terms are equally applicable to the singular and plural
forms of the defined terms. Whenever the context so requires, the neuter gender,
includes the masculine and feminine, the single number includes the plural, and
vice versa, and in particular the word “Obligor”
shall be so construed.

    


    (b)          Section
and Schedule references are to this Agreement unless otherwise specified. The
words “hereof”, “herein” and
“hereunder” and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to any section include all subsections, unless otherwise
expressly stated.

    


    (c)          The
term “including” is not limiting, and means “including, without limitation”. The
term “or” is used in the inclusive sense of “and/or”.


    
      
         


      

      
        -13-

        
          

        

      

      
         


      

    


    (d)          In
the computation of periods of time from a specified date to a later specified
date, the word “from” means “from and including”; the words “to” and “until”
each mean “to but excluding”, and the word “through” means “to and
including”.

    


    (e)          Unless
otherwise expressly provided herein, (i) references to agreements (including
this Agreement and the other Investment Documents) and other contractual
instruments shall be deemed to include all subsequent amendments, restatements,
supplements and other modifications thereto, but only to the extent such
amendments, restatements, supplements and other modifications are not prohibited
by the terms of any Investment Document, and (ii) references to any law, statute
or regulation shall be construed as including all statutory and regulatory
provisions amending, replacing, supplementing or interpreting such statute or
regulation.

    


    (f)          To
the extent any of the provisions of the other Investment Documents are
inconsistent with the terms of this Agreement, the provisions of this Agreement
shall govern.

    


    (g)         This
Agreement and the other Investment Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and each shall be
performed in accordance with its terms.

    


    1.05    
  Knowledge
of the Obligors. All references to the
knowledge of the Obligors or to facts known by any of the Obligors (or words,
provisions or phrases to similar effect) shall mean actual knowledge or notice
of any director or executive officer of the Company or any other Obligor, or any
division of the Company or any other Obligor.

    


    ARTICLE
2

    PURCHASE AND SALE OF THE
SECURITIES

    


    2.01   
   Purchase
and Sale of the Note.
Subject to the terms and conditions herein set forth, the Company agrees
that it will issue and sell to the Purchaser, and the Purchaser agrees that it
will acquire from the Company on the Closing Date, the Note, appropriately
completed in conformity herewith. The aggregate purchase price of such Note
shall be FOUR MILLION AND NO/100 U.S. DOLLARS ($4,000,000.00).

    


    2.02   
   Purchase
and Sale of Warrant.
Subject to the terms and conditions herein set forth, the Company agrees
that it will issue and sell to the Purchaser, and the Purchaser agrees that it
will acquire from the Company on the Closing Date, the Warrant, appropriately
completed in conformity herewith. The aggregate purchase price for the Warrant
shall be $155,000 for purposes of original issue discount.

    


    2.03     
 Fees at
Closing.
On the Closing Date, the Obligors shall (a) pay to the Purchaser a closing fee
of $40,000.00 ($25,000 of which was received prior to the Closing) and (b)
reimburse up to $40,000 of the reasonable out-of-pocket expenses (including,
fees, charges and disbursements of counsel and consultants) of the Purchaser
incurred in connection with (i) the negotiation and execution and delivery of
this Agreement and the other Investment Documents and their due diligence
investigation, and (ii) the transactions contemplated by this Agreement and the
other Investment Documents, which payments shall be made by wire transfer of
immediately available funds to an account or accounts designated by the
Purchaser.


    
      
         


      

      
        -14-

        
          

        

      

      
         


      

    


    2.04   
   Closing. The purchase and issuance of
the Securities shall take place at the closing (the “Closing”)
to be held on March 31, 2009 (the “Closing Date”)
or such other date or time as is mutually agreed by the parties hereto.
At the Closing, the Obligors shall deliver the Note and Warrant to the Purchaser
against delivery by the Purchaser to the Obligors of the purchase price
therefor. Payment of such purchase prices shall be by wire transfer to an
account or accounts designated by the Company, in writing.

    


    2.05  
    Reserved.

    


    2.06   
   Joint and
Several. Each
Obligor acknowledges that it is jointly and severally liable for all of the
Obligations under this Agreement, the Note and the other Investment Documents.
Each Obligor expressly understands, agrees and acknowledges that (i) the
Obligors are all entities affiliated by common ownership, (ii) the Purchaser
will be lending against, and relying on a lien upon, substantially all of the
Obligors' assets even though the proceeds of any particular loan made hereunder
may not be advanced directly to a particular Obligor, and (iii) all of the
representations, warranties, covenants, obligations, conditions, agreements and
other terms contained in the Investment Documents shall be applicable to, shall
be deemed made or granted, and shall be binding upon each Obligor, on a joint
and several basis.

    


    ARTICLE
3

    CONDITIONS
TO THE

    OBLIGATIONS
OF THE PURCHASER

    TO PURCHASE THE
SECURITIES

    


    The
obligation of the Purchaser to purchase the Securities and to pay the purchase
price therefor at the Closing and to perform any obligations hereunder shall be
subject to the satisfaction as determined by, or waived by, the Purchaser of the
following conditions on or before the Closing Date; provided, however, that any
waiver of a condition shall not be deemed a waiver of any breach of any
representation, warranty, agreement, term or covenant or of any
misrepresentation by the Obligors.

    


    3.01   
   Representations
and Warranties. The representations and
warranties of the Obligors contained in the Investment Documents (including
Article 5 hereof) or in any certificate delivered in connection therewith shall
be true and correct in all material respects at and as of the date hereof and
the Closing Date as if made at and as of such date (except to the extent such
representations and warranties relate to an earlier date, in which case such
representations and warrants shall be true and correct in all material respects
as of such date), and the Purchaser shall have received at the Closing a
certificate to the foregoing effect, dated the Closing Date, and executed by a
Responsible Officer of the Company on behalf of itself and the other
Obligors.

    


    3.02   
   Compliance
with this Agreement.
The Obligors shall have performed and complied in all material respects
with all of their agreements and conditions set forth or contemplated herein
that are required to be performed or complied with by such party on or before
the Closing Date, and the Purchaser shall have received at the Closing a
certificate to the foregoing effect, dated the Closing Date, and executed by a
Responsible Officer of the Company on behalf of itself and the other
Obligors.


    
      
         


      

      
        -15-

        
          

        

      

      
         


      

    


    3.03  
    Secretary's
Certificates. The Purchaser shall have received certificates from each
Obligor, dated the Closing Date and signed by a Responsible Officer of such
Obligor, certifying (a) that the attached copies of such Obligor's Articles of
Incorporation and by-laws (or equivalents), and resolutions of the Governing
Board approving the Investment Documents to which it is a party and the
transactions contemplated hereby and thereby are alt true, complete and correct
and remain unamended and in full force and effect, and (b) the incumbency and
signature of each officer of such Obligor executing any Investment Document to
which it is a party or any other document delivered in connection herewith and
therewith on behalf of such Obligor.

    


    3.04  
    Purchase
of Securities
Permitted by Applicable Laws. The acquisition of and payment for the
Securities to be acquired by the Purchaser hereunder and the consummation of the
transactions contemplated hereby and by the Investment Documents (a) shall not
be prohibited by any Requirement of Law, (b) shall not subject the Purchaser to
any penalty or other onerous condition under or pursuant to any Requirement of
Law, and (c) shall be permitted by all Requirements of Law to which the
Purchaser or the transactions contemplated by or referred to herein or in the
Investment Documents are subject; and the Purchaser shall have received such
certificates or other evidence as it may reasonably request to establish
compliance with this condition.

    


    3.05   
   Opinion
of Counsel.
The Purchaser shall have received an opinion of outside counsel to the Obligors,
dated as of the Closing Date and addressed to the Purchaser, relating to the
transactions contemplated herein, substantially in the form attached hereto as
Exhibit B.

    


    3.06  
    Reserved.

    


    3.07   
   Consents
and Approvals. All consents, exemptions, authorizations, or other actions
by, or notices to, or filings with, all Governmental Authorities and other
Persons in respect of all Requirements of Law and with respect to those
Contractual Obligations of each Obligor necessary, desirable, or required in
connection with the execution, delivery or performance (including, the payment
of interest on the Note) by each Obligor or enforcement against each Obligor of
the Investment Documents to which it is a party shall have been obtained and be
in full force and effect, except to the extent a Material Adverse Effect would
not reasonably be expected to occur, and the Purchaser shall have been furnished
with appropriate evidence thereof, and all waiting periods shall have lapsed
without extension or the imposition of any conditions or
restrictions.

    


    3.08   
   No
Material
Judgment or Order. There shall not be on the Closing Date any judgment or
order of a court of competent jurisdiction or any ruling of any Governmental
Authority or any condition imposed under any Requirement of Law which, in the
reasonable judgment of the Purchaser, would prohibit the purchase of the
Securities hereunder or subject the Purchaser to any penalty or other onerous
condition under or pursuant to any Requirement of Law if the Securities were to
be purchased hereunder.


    
      
         


      

      
        -16-

        
          

        

      

      
         


      

    


    3.09   
   Good
Standing Certificates.
The Obligors shall have delivered to the Purchaser as of the Closing Date, good
standing certificates of each for their respective jurisdictions of formation
and all other jurisdictions where each is qualified to conduct
business.

    


    3.10  
    No
Litigation. No
action, suit or proceeding before any court or any Governmental Authority shall
have been commenced or, to the knowledge of the Obligors, been threatened in
writing, no investigation by any Governmental Authority shall have been
commenced and, to the knowledge of the Obligors, no action, suit or proceeding
by any Governmental Authority shall have been threatened in writing against
the Purchaser or any of the Obligors
(i) seeking to restrain, prevent or change the transactions contemplated hereby
or questioning the validity or legality of any of such transactions, or (ii)
which would, if resolved adversely to the Obligors, severally or in the
aggregate, be reasonably expected to result in a Material Adverse
Effect.

    


    3.11  
    Series E
Purchase Documents.
The Purchaser shall have received a certificate of the Secretary of the
Company attaching true and complete copies of each of the Series E
Purchase Documents. The Series E Investment and other transactions contemplated
by the Series E Purchase Documents shall have been consummated substantially in
accordance with the respective terms and conditions thereof, except for waivers
of conditions consented to by the parties thereto.

    


    3.12  
    Senior
Loan Documents.
The Purchaser shall have received a certificate of the Secretary of the
Company attaching true and complete copies of each of the Senior Loan Documents
and certifying that (a) such documents have been executed in substantially the
form approved by the Governing Board, (b) such documents have not been amended
and are in full force and effect, and (c) no Obligor is in default in the
performance or compliance with any of the terms or provisions thereof, except as
has previously been disclosed to Purchaser in the Disclosure
Schedule.

    


    3.13    
  SBA Forms
and Regulatory Representation Letter. The Small Business
Administration Forms 480, 652 and 1031 and SBA Regulatory Representation Letter
shall have been duly executed and/or acknowledged by all parties
thereto.

    


    3.14    
  Solvency
Certificate; Insurance.
The Purchaser shall have received:

    


    (a)         a
certificate from a Responsible Officer of each Obligor stating that such Obligor
is Solvent after giving effect to the transactions contemplated to occur under
the Investment Documents; and

    


    (b)         evidence
of insurance complying with the requirements of Section 8.08 for the business
and properties of each Obligor and its Subsidiaries.

    


    3.15    
  Other
Documents. The
Purchaser shall have received true, complete and correct copies of such
agreements, schedules, exhibits, certificates, documents, financial information
and filings as it may request in connection with or relating to the transactions
contemplated hereby and under the Investment Documents, all in form and
substance reasonably satisfactory to the Purchaser, including the execution by
the Company of each Investment Document to which it is a party.


    
      
         


      

      
        -17-

        
          

        

      

      
         


      

    


    ARTICLE
4

    CONDITIONS
TO THE OBLIGATIONS

    OF THE COMPANY TO ISSUE AND
SELL THE SECURITIES

    


    The
obligations of the Company to issue and sell the Securities and to perform its
other obligations hereunder relating thereto shall be subject to the
satisfaction as determined by, or waived by, the Company of the following
conditions on or before the Closing Date:

    


    4.01     
 Representations
and Warranties.
The representations and warranties of the Purchaser contained in Article
6 hereof shall be true and correct in all material respects at and as of the
date hereof and the Closing Date as if made at and as of such date (except to
the extent such representations and warranties relate to an earlier date, in
which case such representations and warrants shall be true and correct in all
material respects as of such date).

    


    4.02    
  Compliance
with this Agreement.
The Purchaser shall have performed and complied with in all material
respects all of its agreements and conditions set forth or contemplated herein
that are required to be performed or complied with by the Purchaser on or before
the Closing Date.

    


    ARTICLE
5

    REPRESENTATIONS AND
WARRANTIES OF THE OBLIGORS

    


    Except as
set forth on the Disclosure
Schedule delivered to the
Purchaser at the Closing, which exceptions contained therein shall be deemed to
be representations and warranties as if made hereunder (and which Disclosure
Schedule shall be organized by
the appropriate Sections and subsections of this Article 5), the Obligors hereby jointly and
severally represent and warrant to the Purchaser (unless the context otherwise
requires, after giving effect to the transactions contemplated by the Investment
Documents) as follows:

    


    5.01     
 Organization,
Good Standing and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each other Obligor is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its formation. Each Obligor has the
requisite corporate or other organizational power and authority to, and all
corporate/organizational action on the part of such Obligor, its officers,
directors, managers, members, partners and stockholders (as applicable) has been
taken that is necessary to, own and operate its properties and assets, to carry
on its business as presently conducted, to execute and deliver the Investment
Documents to which it is a party, to issue and sell the Securities, and to
perform its obligations pursuant to the Investment Documents to which it is a
party. Each Obligor is qualified to do business as a foreign entity and is in
good standing in each jurisdiction where the failure to be so qualified could
reasonably be expected to have a Material Adverse Effect. Except as otherwise
disclosed in the Disclosure
Schedule, none of
the Obligors has done business under any name other than specified on the
signature page hereof (or joinder hereto or applicable Guaranty), and each
Obligor's exact legal name is as set forth on the signature page hereof (or
joinder hereto or applicable Guaranty). The chief executive office of each
Obligor is located at the address indicated in Section 14.03 (except to the
extent that the Obligors otherwise notify Purchaser).


    
      
         


      

      
        -18-

        
          

        

      

      
         


      

    


    5.02     
 Subsidiaries. As of the Closing Date, the
Company does not own or control, directly or indirectly, any interest in any
corporation, partnership, limited liability company, association or other
business entity, and the Company is not a participant in any joint venture,
partnership or similar arrangement.

    


    5.03    
  Capitalization.

    


    (a)          Immediately
prior to the Closing, the authorized capital stock of the Company will consist
of 42,947,250 shares of Common Stock, $0.0001 par value (the “Common Stock”),
of which 8,455,025 shares are issued and outstanding, and 29,242,009
shares of Preferred Stock, $0.0001 par value (the “Preferred
Stock”), (i) 7,723,640 of which are designated Series A Preferred Stock,
3,223,640 shares of which are issued and outstanding, (ii) 2,600,000 of which
are designated Series B Preferred Stock, 2,600,000 shares of which are issued
and outstanding, (iii) 2,456,249 of which are designated Series C Preferred
Stock, 2,031,249 shares of which are issued and outstanding, (iv) 14,416,666 of
which are designated Series D Preferred Stock, 10,625,000 shares of which are
issued and outstanding, and (v) 6,545,454 of which are designated Series E
Preferred Stock (the “Series E
Preferred Stock”), 5,272,727 of which are issued and outstanding. The
Common Stock and each series of the Preferred Stock shall have the rights,
preferences, privileges and restrictions set forth in the Articles of
Incorporation.

    


    (b)         The
Company has duly and validly reserved:

    


    (i)          The
shares of Series E Preferred Stock issuable upon exercise of the Warrant (the
“Series E Warrant
Shares”); and

    


    (ii)         1,054,543
shares of Common Stock (as may be adjusted in accordance with the provisions of
the Articles of Incorporation) for issuance upon conversion of the Series E
Warrant Shares (the “Conversion
Shares”); and 5,976,126 shares of Common Stock authorized for issuance to
employees, consultants and directors pursuant to its 1999 Stock Plan, under
which options to purchase 4,866,915 shares of Common Stock are issued and
outstanding hereof at the exercise prices set forth on the Disclosure
Schedule and
1,109,211 shares of Common Stock remain available for issuance to employees,
consultants and directors as of the date of this Agreement. All such outstanding
options have been issued in compliance with state and federal securities
laws.

    


    (c)          The
Disclosure
Schedule lists all holders of
outstanding capital stock of the Company as of the Closing Date.

    


    (d)          All
issued and outstanding shares of the Company's Common Stock and Preferred Stock
(i) have been duly authorized and validly issued and are fully paid and
nonassessable, and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.

    


    (e)          The
rights, preferences, privileges and restrictions of the Common Stock and
Preferred Stock are as stated in the Articles of Incorporation. Each series of
Preferred Stock is convertible into Common Stock on a one-for-one basis as of
the Closing Date, and the consummation of the transactions contemplated
hereunder will not result in any anti-dilution adjustment or other similar
adjustment to the outstanding shares of Preferred Stock.


    
      
         


      

      
        -19-

        
          

        

      

      
         


      

    


    (f)          No
stock plan, stock purchase, stock option or other agreement or understanding
between the Company and any holder of any Capital Securities or rights to
purchase Capital Securities of the Company provides for acceleration or other
changes in the vesting provisions or other terms of such agreement or
understanding as the result of: (i) termination of employment (whether actual or
constructive); (ii) any merger, consolidated sale of stock or assets, change in
control or any other transaction(s) by the Company; or (iii) the occurrence of
any other event or combination of events. The Company has never adjusted or
amended the exercise price of any stock options previously awarded, whether
through amendment, cancellation, replacement grant, repricing, or any other
means. The Company reasonably believes that the shares of Common Stock available
for future issuance shall be sufficient to meet the Company's equity incentive
needs for at least the twelve (12) month period following the Closing Date. The
Company has obtained an independent valuation of its Common Stock that meets
applicable requirements of Section 409A of the Code. No stock options, stock
appreciation rights or other equity-based awards issued or granted by the
Company are subject to the requirements of Section 409A of the
Code.

    


    (g)         The
Series E Warrant Shares, when issued and delivered and paid for in compliance
with the provisions of this Agreement and the Warrant, will be duly and validly
issued, fully paid and nonassessable. The Conversion Shares have been duly and
validly reserved and, when issued in compliance with the provisions of this
Agreement, the Articles of Incorporation, the Warrant and applicable law, will
be duly and validly issued, fully paid and nonassessable. The Warrant, the
Series E Warrant Shares and the Conversion Shares will be free of any Liens,
other than any Liens created by or imposed upon the Purchaser; provided, however, that the
Warrant, the Series E Warrant Shares and the Conversion Shares are subject to
restrictions on transfer under state or federal securities laws and as set forth
herein and in the Warrant. The Warrant, the Series E Warrant Shares and the
Conversion Shares are not subject to any preemptive rights or rights of first
refusal.

    


    (h)         Except
as otherwise set forth in the Disclosure Schedule, there are no options,
warrants or other rights, orally or in writing, to purchase or acquire any of
the Company's authorized and unissued Capital Securities.

    


    5.04   
   Authorization. All corporate/organizational
action on the part of each Obligor and its directors, officers, managers,
members, partners and stockholders (as applicable) necessary for (a) the
authorization, execution and delivery by each Obligor of this Agreement and each
other Investment Document to which it is a party, (b) the authorization, sale,
issuance and delivery of the Securities, and (c) the performance of all of the
obligations of each Obligor under this Agreement and each other Investment
Document to which it is a party has been taken prior to the Closing. As to any
Obligor, this Agreement and each other Investment Document to which it is a
party, does constitute, or when executed and delivered by such Obligor shall
constitute, valid and binding obligations of such Obligor, enforceable in
accordance with their terms, except (i) as limited by applicable laws relating
to bankruptcy, insolvency and the relief of debtors, (ii) as limited by rules of
law governing specific performance, injunctive relief or other equitable
remedies and by general principles, of equity, and (iii) to the extent the
indemnification provisions contained herein or therein may further be limited by
applicable laws and principles of public policy.


    
      
         


      

      
        -20-

        
          

        

      

      
         


      

    


    5.05    
  Financial
Statements.

    


    (a)          The
Company has delivered to the Purchaser the unaudited balance sheet, income
statement and statement of cash flow of the Company as of and for the periods
ended December 31, 2007 and December 31, 2008 and as of and for the two-month
period ended February 28, 2009 (the “Financial
Statements”). The Financial Statements are correct in all material
respects and present fairly the financial condition and operating results of the
Company as of the date(s) and during the period(s) indicated therein. The
Financial Statements have been prepared in accordance with GAAP (except for the
absence of footnotes and subject to customary year-end adjustments). Except as
set forth in the Financial Statements, the Company has no liabilities or
obligations, contingent or otherwise, that are required to be set forth in the
Financial Statements in accordance with GAAP, other than: (i) liabilities
incurred in the ordinary course of business and (ii) obligations and liabilities
which, individually or in the aggregate, are not material to the financial
condition or operating results of the Company.

    


    (b)         The
projections of the Company heretofore delivered to the Purchaser (i) were
prepared by the Company in the ordinary course of their respective operations
consistent with past practice, (ii) are the most current projections prepared by
the Company relating to the periods covered thereby, and (iii) are based on
assumptions which were reasonable when made and such assumptions and projections
are reasonable on the date hereof. The Company has not delivered to any Person
any later dated projections. Notwithstanding the foregoing, none of the Obligors
does represent or warrant that any Obligor will achieve any financial
projections provided to the Purchaser.

    


    5.06  
    Changes. Except as set forth on the
Disclosure
Schedule, since
December 31, 2008, other than as contemplated by the Investment Documents, there
has not been;

    


    (a)         any
change in the Condition of the Obligors from that reflected in the Financial
Statements, except changes in the ordinary course of business and those changes
which have not had a Material Adverse Effect;

    


    (b)         any
damage, destruction or loss, whether or not covered by insurance, that has had a
Material Adverse Effect;

    


    (c)         any
waiver by any Obligor of a valuable right or of a material debt owed
to
it;

    


    (d)         any
entry into, or any material change or amendment to, any material agreement by
which any Obligor or any of its assets or properties is bound or
subject;

    


    (e)         any
loans or guarantees made by any Obligor to or for the benefit of any of its
employees, officers, managers, partners or directors, or any members of their
immediate families, other than travel advances and other advances to employees
made in the ordinary course of its business;


    
      
         


      

      
        -21-

        
          

        

      

      
         


      

    


    (f)          any
sale, assignment or transfer of any material Intellectual Property or other
intangible assets;

    


    (g)         any
satisfaction or discharge of any Lien or claim, or any payment of any obligation
by any Obligor, except in the ordinary course of business or that has not had a
Material Adverse Effect;

    


    (h)         any
authorization, declaration, setting aside or payment or other distribution in
respect of any of any Obligor's Capital Securities, or any direct or indirect
redemption, purchase or other acquisition of any of such Capital Securities by
any Obligor;

    


    (i)          any
Lien created by any Obligor with respect to any of its material properties or
assets, except Liens for taxes not yet due or payable;

    


    (j)          any
capital expenditures or commitments therefor that aggregate in excess of
$350,000;

    


    (k)         any
steps taken to incorporate, organize or otherwise form any
Subsidiary;

    


    (l)          any
resignation or termination of employment of any officer or key employee of any
Obligor; and, to the knowledge of the Obligors, there does not exist any
impending resignation or termination of employment of any such officer or key
employee;

    


    (m)        any
material change in any compensation arrangement or agreement with any executive
officer, director, manager, member, partner or shareholder;

    


    (n)        
any receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of any Obligor;

    


    (o)        
to the knowledge of the Obligors, any other event or condition of any
character that has had a Material Adverse Effect; or

    


    (p)        
any agreement or commitment by any Obligor to do any of the things
described in this Section 5.06.

    


    5.07   
   Agreements; Action.

    


    (a)         The
Disclosure
Schedule sets forth all
agreements, understandings or proposed transactions between any Obligor and any
of its employees, officers, directors, members, managers, partners, or
Affiliates, or any Affiliate thereof, including without limitation any loans or
advances to any such Person in excess of $10,000, other than ordinary advances
to employees for travel expenses, and other than employment, confidentiality,
stock option and inventions agreements.


    
      
         


      

      
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    (b)         The
Disclosure
Schedule lists all agreements,
understandings, instruments, contracts, proposed transactions, judgments,
orders, writs or decrees to which any Obligor is a party or by which it is bound
that may involve (the “Material
Contracts”): (i) obligations (contingent or
otherwise) of, or payments by any Obligor in excess of, $350,000; or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from any Obligor outside of the ordinary course of business; or (iii) the
granting of any rights related to the development, manufacture, production,
assembly, licensing, marketing, sate or distribution of any Obligor's products
or services outside the ordinary course of business; or (iv) those five (5)
individual (x) licenses of any patent, copyright, trade secret or other
proprietary right to or from any Obligor in the ordinary course of business or
(y) grants of any rights related to the development, manufacture, production,
assembly, licensing, marketing, sale or distribution of any Obligor's products
or services in the ordinary course of business, which constitute the top five
(5) deals based upon the aggregate amounts payable or paid to or from any
Obligor with respect thereto in the consecutive 12-month period preceding the
Closing Date; or (v) indemnification by any Obligor with respect to
infringements of proprietary rights, except those listed in. To the best of the
Company's knowledge (without investigation), all Material Contracts are valid
and binding, and each party thereto is in compliance therewith. None of the
Obligors has received any written indication of an intention to terminate any
Material Contract by any of the parties to any such Material
Contract.

    


    (c)         
Since the date of the Financial Statements, the Company has not incurred
any Indebtedness in excess of $350,000, individually or in the
aggregate.

    


    5.08 
     Intellectual
Property. The
Obligors own and possess or have a license or other right to use (or can obtain
the right to use on commercially reasonable terms) all Intellectual Property as
is necessary for the conduct of the respective businesses of the Obligors,
without any infringement upon rights of others which could reasonably be
expected to have a Material Adverse Effect, and no material claim has been
asserted and is pending by any Person challenging or questioning the use of any
Intellectual Property or the validity or effectiveness of any Intellectual
Property nor does the Obligors know of any valid basis for any such claim. No
event has occurred which permits, or after notice or lapse of time or both would
permit, the revocation or termination of any such rights, except if any of such
events (either singly or in the aggregate) could not have a Material Adverse
Effect, and, to the Obligors' knowledge, none of the Obligors is liable to any
Person for infringement under Requirements of Law with respect to any such
rights as a result of its business operations.

    


    5.09 
     Title to Properties and
Assets; Liens.

    


    (a)         Each
Obligor has good and marketable title to its properties and assets, and has good
title to all its leasehold interests, in each case subject to no mortgage, deed
of trust, pledge, Lien, lease, encumbrance or charge, other than Permitted
Encumbrances. All material facilities, machinery, equipment, fixtures, vehicles
and other properties owned, leased or used by any Obligor are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used.

    


    (b)         Except
as set forth in the Disclosure
Schedule and
except for Collateral located at the Company's hosting location in Texas, all
Collateral with a value in excess of $350,000 is located solely in
California.


    
      
         


      

      
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    (c)          The
accounts receivable of any Obligor are bona fide existing obligations, and the
property or services giving rise to such accounts receivable has been delivered
or rendered to the account debtor thereof or its agent for immediate shipment to
and unconditional acceptance by such account debtor.

    


    (d)         The
Inventory of any Obligor is in all material respects of good and merchantable
quality, free from all material defects, except for Inventory for which adequate
reserves have been made.

    


    (e)          Other
than as disclosed in the Disclosure
Schedule, no Obligor, nor any of its respective
assets, are subject to the terms of any Material Contract under which the grant
of a security interest or Lien therein is prohibited as a matter of law or under
the terms of such Material Contract.

    


    5.10  
    Compliance
with Other Instruments. None of the
Obligors is in violation or default of any term of its Articles of
Incorporation, or of any term or provision of any material mortgage,
indebtedness, indenture, note, lease, contract, agreement, instrument, purchase
order, judgment, order, writ or decree to which it is party or by which it is
bound. None of the Obligors is in violation of any Requirements of Law
applicable to it, the violation of which would
have a Material Adverse Effect. The execution and delivery of this
Agreement and each other Investment Document to which it is a party, by each
Obligor, the performance by each Obligor of its obligations pursuant hereto and
thereto, the consummation of the transactions contemplated hereby and thereby
and the
issuance of the Securities will not, with or without the passage of time
and giving of notice, result in. any violation of, be in conflict with, or
constitute a default under, the Articles of Incorporation or Bylaws of
any Obligor, or any material agreement, contract, instrument, judgment, order,
writ, or decree, nor will it result in the creation of any material mortgage,
pledge, Lien, encumbrance or charge upon any of the properties or assets of any
Obligor (other than in favor of Purchaser) or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to any Obligor, its business or operations
or any of its assets or properties.

    


    5.11    
  Litigation. There are
no actions, suits, proceedings, arbitrations or investigations pending against
any Obligor or its properties (nor has any Obligor received written notice of
any threat thereof) or before any court or Governmental
Authority. The Obligors are not aware of any basis for any action, suit,
proceeding, arbitration or investigation that would question the validity of the
Investment Documents or the right of any Obligor to enter into them, or the right
of each Obligor to perform
its obligations contemplated thereby, or that, either individually or in the
aggregate, if determined adversely to any Obligor, would or could reasonably be
expected to have a Material Adverse Effect. None of the
Obligors is a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or Governmental Authority. There is no action,
suit or proceeding by any Obligor pending or which any Obligor intends to
initiate. The foregoing includes, without limitation, actions, suits or
proceedings pending or threatened in writing (or any basis therefor known to the
Obligors) involving the prior employment of any of the employees of any Obligor,
their use in connection with the business of any Obligor, or any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior
employers.


    
      
         


      

      
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    5.12      
Governmental
Consent. No
consent, approval or authorization of, or designation, declaration or filing
with, any Governmental Authority on the part of any Obligor is required in
connection with the valid execution and delivery of this Agreement, or any other
Investment Document to which it is a party, the offer, sale or issuance of the
Securities, or the consummation of any other transaction contemplated by this
Agreement or any other Investment Document, except (i) the filing of such
notices as may be required under the Securities Act and (ii) such filings as may
be required under applicable state securities laws, which will be timely filed
within the applicable periods therefor. Permits. Each
Obligor has all franchises, permits, licenses, and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack
of which would have a Material Adverse Effect, and believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as presently planned to be conducted. None of the Obligors is in
default in any material respect under any of such franchises, permits, licenses
or other similar authority.

    


    5.14    
  Offering. No form of general
solicitation or general advertising was used by any Obligor or its respective
representatives in connection with the offer or sale of the Securities. Assuming
the accuracy of the Purchaser's representations and warranties in Article 6, no
registration of the Securities pursuant to the provisions of the Securities Act
or the state securities or “blue sky”
laws will be required for the offer, sale or issuance of the
Securities as contemplated by this Agreement. Neither any Obligor nor any of its
Subsidiaries (i) is required to file periodic reports under the Exchange Act,
(ii) has any securities registered under the Exchange Act or (iii) has filed a
registration statement that has not yet become effective under the Securities
Act.

    


    5.15   
   Broker's,
Finder's or
Similar Fees. None of the Obligors owe any
fees or commissions of any kind, or know of any claim for any fees or
commissions, in connection with the transactions contemplated
hereby.

    


    5.16   
   Tax
Returns and
Payments. Each Obligor has timely
filed all material tax returns and reports (federal, state and local) pursuant
to all Requirements of Law. These returns and reports are true and correct in
all material respects. Each Obligor has paid all Taxes and other assessments
due, except those listed in the Disclosure
Schedule that any Obligor is contesting in good faith. The provision for
Taxes of the Company as shown in the Financial Statements is adequate for Taxes
due or accrued as of the date thereof. The Company has not elected pursuant to
the Code to be treated as an S corporation or a collapsible corporation pursuant
to Section 1362(a) or Section 341(f) of the Code, nor has it made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation, or amortization) that would have a Material
Adverse Effect. The Company has never had any Tax deficiency proposed or
assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any Tax or governmental
charge. None of the Company's federal income tax returns and none of its state
income or franchise tax or sales or use tax returns has ever been audited by any
Governmental Authority. Since the date of the Financial Statements, the Company
has made adequate provisions on its books of account for all Taxes, assessments,
and governmental charges with respect to its business, properties, and
operations for such period. The Company has withheld or collected from each
payment made to each of its employees, the amount of all Taxes, including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries. The Company has not been advised (a) that any of its
tax returns, federal, state or other, have been or are being audited as of the
date hereof, or (b) of any deficiency in assessment or proposed judgment to its
federal, state or other Taxes.


    
      
         


      

      
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    5.17  
    Operating Company. Each Obligor is “an entity
that is primarily engaged, directly or though a majority owned subsidiary or
subsidiaries, in the production or sale of a product or service other than the
investment of capital” within the meaning of the U.S. Department of Labor plan
asset regulations, 29 C.F.R. §2510.3-101.

    


    5.18  
    Investment
Company/Government Regulations.
No Obligor will be, upon consummation of the transactions contemplated by the
Investment Documents, an “investment company” within the meaning
of the Investment Company Act of 1940, as amended. No Obligor is subject to any
federal or state statute or regulation limiting its ability to incur
Indebtedness. No Obligor is engaged principally or as one of its activities in
the business of extending credit for the purpose of “purchasing” or “carrying”
any “margin stock” (as each such term is defined or used in Regulation U of the
Board of Governors of the Federal Reserve System). No part of the proceeds of
the Note will be used for purchasing or carrying margin stock or for any purpose
which violates, or which would be inconsistent with, the provisions of
Regulations U or X of such Board of Governors.

    


    5.19  
    Labor Relations
and Employment Agreements. No Obligor is, as of the
Closing Date, party to or bound by any collective bargaining agreement nor has
any labor union been recognized as the representative of its employees. There
are not any pending or, to the Obligors' knowledge, threatened or contemplated
strikes, work stoppage or other collective labor disputes involving its
employees.

    


    5.20   
   Employee Benefit
Plans.

    


    (a)          As
of the Closing Date, none of the Obligors or any ERISA Affiliate thereof
maintains or contributes to, or has any obligation under, any employee benefit
plans other than those identified on the Disclosure
Schedule.

    


    (b)          Each
Obligor (and each Subsidiary thereof) has met the minimum funding requirements
of ERISA with respect to any employee benefit plans subject to ERISA. No event
has occurred resulting from any Obligor's failure to comply with ERISA that is
reasonably likely to result in any Obligor incurring liability that could
reasonably be expected to have a Material Adverse Effect.


    
      
         


      

      
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    5.21  
    Obligations
to Related Parties.
No employee, officer, director, manager or, to the knowledge of the
Obligors, stockholder, member or partner of any Obligor or member of his or her
immediate family, or any Affiliate or Subsidiary of any Obligor or any other
Related Party (the “Related
Parties”), is indebted to any Obligor, nor is any Obligor indebted (or
committed to make loans or extend or guarantee credit) to any of the Related
Parties other than (i) for payment of salary to employees for services rendered,
(ii) reimbursement for reasonable expenses incurred on behalf of such Obligor
and (iii) to employees for other standard employee benefits made generally
available to all employees (including stock option agreements outstanding under
any stock option plan approved by the applicable Governing Board of such Obligor
and stock purchase agreements approved by the applicable Governing Board of such
Obligor). To the knowledge of the Obligors, none of the Related Parties has any
direct or indirect ownership interest in any Person which is an Affiliate of any
Obligor or with which any Obligor has a business relationship, or any Person
that directly competes with any Obligor, except in connection with the ownership
of no more than two percent (2%) of the capital stock of any publicly-traded
company. To the knowledge of the Obligors, no Related Party is, directly or
indirectly, interested in any Material Contract with any Obligor or any
Subsidiary or Affiliate thereof (other than such contracts as relate to any such
person's ownership of Capital Securities of such Obligor). None of the Obligors
is a guarantor or indemnitor of any Indebtedness of any Person.

    


    5.22  
    Insurance. Each Obligor has in full
force and effect insurance policies that comply with the criteria set forth in
Section 8.08 hereof. All such policies will not in any way be affected by, or
terminate or lapse by reason of any of the transactions contemplated in the
Investment Documents.

    


    5.23   
   Environmental
Laws; Safety Laws. To its knowledge, none of
the Obligors is in violation of any Environmental Laws or any applicable
statute, law, or regulation relating to occupational health and safety, which
violation could reasonably be expected to result in a Material Adverse Effect,
and to the knowledge of the Obligors, no material expenditures are or will be
required in order to comply with any such existing Environmental Laws or any
applicable statute, law, or regulation relating to occupational health and
safety.

    


    5.24   
   Disclosure.

    


    (a)          Agreement and Other
Documents. The Company has provided the Purchaser with all of the
information regarding the Company reasonably requested and without undue expense
that the Purchaser has requested for deciding
whether to purchase the Securities. To the knowledge of the Obligors, none of the
Investment Documents nor any other documents or certificates delivered in
connection herewith or therewith, when taken as a whole, contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made.

    


    (b)          Material Adverse
Effects. There is no fact known to the
Obligors which the
Company has not disclosed to the Purchaser in writing which could
reasonably be expected to result in a Material Adverse
Effect

    


    5.25   
   Small
Business Concern.
The representations of the Company contained in the
SBA Regulatory Representation Letter as to its status as a “Small Business” are true and correct
in all material respects as of the Closing Date.


    
      
         


      

      
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    5.26   
   Small
Business Matters
as
to Use
of
Proceeds. The
representations of the Company contained in the SBA Regulatory Representation
Letter relating to the use of proceeds from the sale of the Note and the Warrant
are true and correct in all material respects as of the Closing Date. The use of
proceeds from the Company's sale of the Note and the Warrant to the Purchaser
will be only for those purposes described in the SBA Regulatory Representation
Letter. If any Obligor breaches the foregoing representations or the
representation in Section 5.25 above in any material respect, then, in addition
to all other remedies available to the Purchaser, the Purchaser may demand that
the Obligors repurchase the Note and the Warrant acquired by the Purchaser at
the original purchase prices, plus accrued and unpaid interest (less any amount
of principal that has been previously paid). Upon the request of the Purchaser,
the Obligors shall furnish to the Purchaser promptly (and in any event within 20
days of such request) all information necessary in order for the Purchaser to
prepare and file SBA Form 468 and any other information requested or required by
any Governmental Body asserting jurisdiction over the Purchaser.

    


    5.27    
  No
Default or Breach. To the knowledge of each
Obligor, no event has occurred and is continuing or would result from the
incurring of obligations by any Obligor under any of the Investment Documents
which constitutes or, with the giving of notice or lapse of time or both, would
constitute an Event of Default. To the knowledge of each Obligor, no Obligor is
in default under or with respect to any Material Contract (including without
limitation each Series E
Purchase Document) in any material respect.

    


    5.28   
   Solvency. As of the Closing Date and
after giving effect to the transactions contemplated to occur under the
Investment Documents on or before the Closing, each Obligor and each of its
respective Subsidiaries will be Solvent.

    


    5.29  
    Transaction
Payments. Except
as set forth on the Disclosure
Schedule, neither the execution, delivery and
performance by any Obligor of this Agreement, nor the execution, delivery and
performance by any Obligor of any of the other Investment Documents, nor the
consummation of the transactions contemplated hereby shall require any payment
by any Obligor or any Affiliate thereof, in cash or kind, under any other
agreement, plan, policy, commitment or other arrangement. There are no
agreements, plans, policies, commitments or other arrangements with respect to
any compensation, benefits or consideration which will be materially increased,
or the vesting of benefits of which have been or will be materially accelerated,
as a result of this Agreement or the other Investment Documents or the
occurrence of any of the transactions contemplated hereby or thereby. There are
no payments or other benefits payable by any Obligor, the value of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement or the other Investment Documents.

    


    5.30   
   Foreign
Assets Control Regulations, etc. Neither the sale of the
Securities by the Company hereunder nor its use of the proceeds thereof will
violate the Trading with the Enemy Act, as amended, or any of the foreign assets
control regulations of the United States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) or any enabling legislation or executive order
relating thereto. Without limitation, none of the Obligors nor, to the best of
the Obligors' knowledge after due inquiry, any Person who or which owns a
controlling interest in or otherwise controls any of the Obligors, is (i) listed
on the Specially Designated Nationals and Blocked Persons List (the “SDN List”)
maintained by the Office of Foreign Assets Control (“OFAC”), Department of the Treasury,
and/or on any other similar list (“Other Lists”)
maintained by OFAC pursuant to any authorizing statute, Executive Order
or regulation (collectively, “OFAC Laws and
Regulations”), (ii) a “Designated
National” as defined in the Cuban Assets Control Regulations, 31 C.F.R.
Part 515 (“Cuban Designated Nationals”) (the SDN
List, the Other Lists and Cuban Designated Nationals are referred to herein,
collectively, as the “Lists”),
or (iii) a person designated under Section 1(b), (c) or (d) of Executive
Order No. 13224 (September 23, 2001), any related enabling legislation or any
other similar Executive Orders (collectively, the “Executive
Orders”).


    
      
         


      

      
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    5.31      
Series E
Purchase Documents. The transactions
contemplated by the Series E Purchase Agreement have been consummated
substantially in accordance with the respective terms and conditions thereof,
and, since such consummation, the Series E Purchase Documents have not been
amended or modified. No Investors (as defined by the Series E Purchase
Agreement) has notified the Company, or made any claim, that the Company has
breached any terms and conditions of the Series E Purchase
Documents.

    


    ARTICLE 6

    REPRESENTATIONS
AND

    WARRANTIES OF THE
PURCHASER

    


    The
Purchaser hereby represents and warrants as follows:

    


    6.01  
    Authorization;
No Contravention.
The execution, delivery and performance by it of this Agreement: (a) is within
its power and authority and has been duly authorized by all necessary
organizational action; (b) does not contravene the terms of its organizational
documents or any amendment thereof; and (c) will not violate, conflict with or
result in any breach or contravention of any of its Contractual Obligations, or
any order or decree directly relating to it.

    


    6.02   
   Binding
Effect. This
Agreement has been duly executed and delivered by it and this Agreement
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to
enforceability.

    


    6.03   
   No Legal
Bar. The
execution, delivery and performance of this Agreement by it will not violate any
Requirement of Law applicable to it.

    


    6.04    
  Purchase
for Own Account.
The Securities to be acquired by the Purchaser pursuant to this Agreement are
being or will be acquired for its own account and with no intention of
distributing or reselling such security or any part thereof in any transaction
that would be in violation of the securities laws of the United States of
America, or any state, without prejudice, however, to its right at all times to
sell or otherwise dispose of all or any part of the Securities, under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of its property being at all times within its
control. If the Purchaser should in the future decide to dispose of any part of
such securities, it understands and agrees that it may do so only in compliance
with the Securities Act and applicable state securities laws, as then in effect.
The Purchaser agrees to the imprinting of a legend on certificates representing
such securities to the following effect: “THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.”


    
      
         


      

      
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    6.05  
    Restricted
Securities. The
Purchaser understands that (i) the Securities have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(2)
thereof and have not been qualified under any state securities laws on the
grounds that the offering and sale of securities contemplated by this Agreement
are exempt from registration thereunder, and (ii) the Company's reliance on such
exemptions is predicated on the Purchaser's representations set forth herein.
The Purchaser understands that the resale of the Securities may be restricted
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act and registered under any state securities law or is exempt from
such registration.

    


    6.06   
   Capacity to Protect
Interests.

    


    (a)          The
Purchaser by reason of Purchaser's business or financial experience or the
business or financial experience of Purchaser's professional advisors who are
unaffiliated with and who are not compensated by the Company or any affiliate or
selling agent of the Company, directly or indirectly, could be reasonably
assumed to have the capacity to evaluate the merits and risks of an investment
in the Company and to protect Purchaser's own interests in connection with the
transactions contemplated by this Agreement. Based upon the representations and
warranties given by the Obligors under Article 5, the Purchaser is aware of the
Company's proposed business affairs and financial condition and has acquired
sufficient information about the Company to reach an informed and knowledgeable
decision to acquire the Securities.

    


    (b)          The
Purchaser is an “accredited investor” as defined in Rule 501(a) of Regulation D
under the Securities Act. The Purchaser is able to bear the economic risk of the
purchase of the Securities pursuant to the terms of this Agreement, including a
complete loss of the Purchaser's investment in the Securities.

    


    6.07       Corporate
Existence and Power.
The Purchaser is a duly organized and validly existing limited
partnership, and in good standing under the jurisdiction of its
formation.

    


    6.08       Broker's,
Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or
similar fees or commissions payable by the Purchaser in connection with
the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Purchaser or any action taken by it.


    
      
         


      

      
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    6.09     
 Governmental
Authorization; Third Party Consent. No approval, consent,
compliance, exemption, authorization, or other action by, or notice to, or
filing with, any Governmental Authority or any other Person in respect of any
Requirement of Law, and no lapse of a waiting period under a Requirement of Law,
is necessary or required in connection with the execution, delivery or
performance by the Purchaser or enforcement against it of this Agreement or the
transactions contemplated hereby.

    


    ARTICLE
7

    INDEMNIFICATION

    


    7.01      
Indemnification. In addition to all other
sums due hereunder or provided for in this Agreement, the Obligors agree to
jointly and severally indemnify and hold harmless the Purchaser and its
Affiliates, and each of their respective officers, directors, agents, employees,
Subsidiaries, partners, members, attorneys, accountants and controlling persons
(each, an “Indemnified
Party”) to the fullest extent permitted by law from and against any and
all losses, claims, damages, expenses (including, reasonable fees, disbursements
and other charges of counsel and costs of investigation incurred by an
Indemnified Party in any action or proceeding between any Obligor (or any of its
Subsidiaries) and such Indemnified Party (or Indemnified Parties) or between an
Indemnified Party (or Indemnified Parties) and any third party or otherwise) or
other liabilities, losses, or diminution in value (including all fees, costs and
expenses arising out of or incurred in connection with the enforcement of any of
the Investment Documents and collection of any payments due to the Purchaser
thereunder) (collectively, “Liabilities”)
resulting from or arising out of any breach of any representation or
warranty, covenant or agreement of the Obligors in this Agreement, the Note, or
the other Investment Documents, including without limitation, the failure to
make payment when due of amounts owing pursuant to this Agreement, the Note or
the other Investment Documents, on the due date thereof (whether at the
scheduled maturity, by acceleration or otherwise) or any legal, administrative
or other actions (including, actions brought by the Purchaser, any Obligor or
any of its Subsidiaries or any holders of equity or indebtedness of any Obligor
or any of its Subsidiaries or derivative actions brought by any Person claiming
through or in the name of any Obligor or any Subsidiary thereof), proceedings or
investigations (whether formal or informal), or written threats thereof, based
upon, relating to or arising out of the Investment Documents, the transactions
contemplated thereby, or any Indemnified Party's role therein or in the
transactions contemplated thereby or the use of proceeds of the Securities or
arising out of, or in any way relating to the violation of, noncompliance with
or liability under, any Environmental Law applicable to the operations of any of
the Obligors or any of their respective Subsidiaries or their respective
properties, or any orders, requirements or demands of Governmental Authorities
related thereto, including reasonable attorney's and consultant's fees,
investigation and laboratory fees, response costs, court costs and litigation
expenses; provided,
however, that the Obligors shall not be liable under this Section 7.01 to an Indemnified Party: (a) for
any amount paid by the Indemnified Party in settlement of claims by the
Indemnified Party without the Company's consent (which consent shall not be
unreasonably withheld or delayed), (b) to the extent that it is finally
judicially determined that such Liabilities resulted from the willful misconduct
or gross negligence of such Indemnified Party, or (c) to the extent that it is
finally judicially determined that such Liabilities resulted from the breach by
such Indemnified Party of any representation, warranty, covenant or other
agreement of such Indemnified Party contained in this Agreement; provided, further, that, if and
to the extent that such indemnification is unenforceable for any reason, the
Obligors shall make the maximum contribution to the payment and satisfaction of
such Liabilities which shall be permissible under applicable laws. In connection
with the obligation of the Obligors to indemnify for expenses as set forth
above, the Obligors further agree, upon presentation of appropriate invoices
containing reasonable detail, to reimburse each Indemnified Party for all such
expenses (including, fees, disbursements and other charges of counsel and costs
of investigation incurred by an Indemnified Party in any action or proceeding
between any Obligor (or any of its Subsidiaries) and such Indemnified Party (or
Indemnified Parties) or between an Indemnified Party (or Indemnified Parties)
and any third party or otherwise) as they are incurred by such Indemnified
Party; provided, however, that, if an
Indemnified Party is reimbursed hereunder for any expenses, such reimbursement
of expenses shall be refunded to the extent it is finally judicially determined
that the Liabilities in question resulted from (i) the willful misconduct or
gross negligence of such Indemnified Party, or (ii) the breach by such
Indemnified Party of any representation, warranty, covenant or other agreement
of such Indemnified Party contained in this Agreement or any other Investment
Document.


    
      
         


      

      
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    7.02     
 Procedure;
Notification.
Each Indemnified Party under this Article 7 will, promptly after the
receipt of notice of the commencement of any action, investigation, claim or
other proceeding against such Indemnified Party in respect of which indemnity
may be sought from the Obligors under this Article 7, notify the Company in
writing of the commencement thereof. The omission of any Indemnified Party so to
notify the Company of any such action shall not relieve any Obligor from any
liability which it may have to such Indemnified Party unless, and only to the
extent that, as to the indemnification obligations of each Obligor, such
omission results in such Obligor's forfeiture of substantive rights or defenses.
In case any such action, claim or other proceeding shall be brought against any
Indemnified Party 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 satisfactory to such Indemnified Party in its reasonable judgment;
provided, however, that any
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action, claim
or proceeding in which any Obligor, on the one hand, and an Indemnified Party,
on the other hand, is, or is reasonably likely to become, a party, such
Indemnified Party shall have the right to employ separate counsel at the
Obligors' expense and to control its own defense of such action, claim or
proceeding if, in the reasonable opinion of counsel to such Indemnified Party, a
conflict or potential conflict exists between any Obligor, on the one hand, and such
Indemnified Party, on the other hand, that would make such separate
representation advisable; provided, however, that in no
event shall any Obligor be required to pay fees and expenses under this Article
7 for more than one firm of attorneys in any jurisdiction in any
one legal action or group of related legal actions. Each Obligor agrees that it
will not, without the prior written consent of the relevant Indemnified Parties,
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 Indemnified Party 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 Purchaser and each other
Indemnified Party from all liability arising or that may arise out of such
claim, action or proceeding. No Obligor shall be liable for any settlement of
any claim, action or proceeding effected against an Indemnified Party without
the Company's written consent, which consent shall not be unreasonably withheld
or delayed. The rights accorded to Indemnified Parties hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise.


    
      
         


      

      
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    ARTICLE 8

    AFFIRMATIVE
COVENANTS

    


    Until the
payment by the Obligors of all principal of and interest on the Note and all
other amounts due to the Purchaser under this Agreement and the other Investment
Documents, including, all fees, expenses and amounts due in respect of indemnity
obligations under Article 7 (other than inchoate indemnity obligations), the
Obligors hereby jointly and severally covenant and agree with the Purchaser
(unless otherwise permitted in writing by the Purchaser) as
follows:

    


    8.01      
Financial
Statements and Other Information. Each Obligor shall maintain,
and cause each of its Subsidiaries to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP. The Obligors
shall deliver to the Purchaser each of the financial statements and other
reports described below:

    


    (a)          Periodic
Financial Information. As soon as available, and in any event
within thirty (30) days after the end of each calendar month, the Obligors shall
deliver the unaudited consolidated balance sheets and statements of income of
the Obligors and their respective Subsidiaries, as at the end of such month, and
within forty-five (45) days after the end of each fiscal quarter, the Obligors
shall deliver, unaudited stockholders' equity and cash flow for such quarter and
for the period from the beginning of the then current Fiscal Year to the end of
such quarter. The Obligors shall, within thirty (30) days after the end of each
month of each Fiscal Year, deliver to the Purchaser an aged analysis of all
outstanding accounts receivable of each Obligor; provided, however, that the
Obligors may discharge this obligation by delivering to the Purchaser any
accounts receivable aging report required under the Senior Credit Agreement at
the times set forth in the Senior Credit Agreement.

    


    (b)          Year-End Financial
Information. As soon as available and in any event within two hundred
seventy (270) days after the end of the Fiscal Year (commencing with the Fiscal
Year ending December 31, 2009), the Obligors shall deliver the consolidated
balance sheets of the Obligors and their respective Subsidiaries as at the end
of such year and the related consolidated statements of income, stockholders'
equity and cash flow for such Fiscal Year and (ii) a report with respect to the
financial statements from a firm of certified public accountants selected by the
Obligors, which report shall be issued pursuant to an audit conducted by such
firm of certified public accountants in conformity with GAAP. Such report shall
contain an “Unqualified” opinion (as such term is defined in AU Section 508.10
of the American Institute of Certified Public Accountants Professional
Standards); provided that such
opinion may have a “going concern” qualification as a consequence of any Obligor
not having at least 12 months of cash from the date of issuance of such
opinion.

    


    (c)          Compliance
Certificate. As soon as available and in any event within forty-five (45)
days after the end of each fiscal quarter of each Obligor, the Obligors shall
deliver or cause to be delivered a fully and properly completed compliance
certificate (in substantially the form attached hereto as Exhibit
C (or in such other form or substance as shall be satisfactory to the
Purchaser and referred to as a “Compliance
Certificate”) signed by the
chief executive officer or chief financial officer of each
Obligor.


    
      
         


      

      
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    (d)          Accountants' Reports.
Promptly upon receipt thereof by any Obligor, the Obligors shall deliver to the
Purchaser copies of all significant reports submitted by any Obligor's firm of
certified public accountants in connection with each annual, interim or special
audit or review of any type of the financial statements or related internal
control systems of any Obligor or its Subsidiaries made by such accountants,
including any comment letter submitted by such accountants to management in
connection with their services.

    


    (e)          Other Supplied
Information. If applicable, the Obligors shall deliver to the Purchaser
copies of all statements, reports and notices sent or made available generally
by any Obligor to its holders of Capital Securities or to any holders of
Subordinated Debt or to Senior Lender, and all reports on Forms 10-K and 10-Q
filed with the Commission.

    


    (f)         
 Projections. As soon
as practicable but in no event later than thirty (30) days before the end of
each Fiscal Year, beginning with the Fiscal Year commencing January 1, 2010, the
Obligors shall prepare and deliver to the Purchaser an annual business plan
including operating budget and such budgets, sales projections, operating plans
or other financial information generally prepared by the Company in the ordinary
course of business for the next succeeding Fiscal Year.

    


    (g)          Reserved.

    


    (h)          Events of Default,
Etc. Promptly upon the Obligors obtaining knowledge of any of the
following events or conditions, the Obligors shall deliver to the Purchaser
copies of all notices given or received by any Obligor or any of its
Subsidiaries with respect to any such event or condition and a certificate of
the Company's chief executive officer specifying the nature and period of
existence of such event or condition and what action the Obligors have taken,
are taking and propose to take with respect thereto: (i) any condition or event
that constitutes a Default, Event of Default or breach of any material provision
of this Agreement or any other Investment Document or any default or event of
default under the Senior Loan Documents and (ii) any notice that any Person has
given to the Obligors or any Subsidiary, or any other action, taken with respect
to a claimed default in any material agreement evidencing Indebtedness or any
other material agreement to which the Obligors or any Subsidiary is a
party.

    


    (i)        
  Litigation. Promptly
upon any officer of any of the Obligors obtaining knowledge of (i) the
institution of any material action, suit, proceeding, governmental investigation
or arbitration against or affecting any of the Obligors or any of its
Subsidiaries or any property of the Obligors or any of its Subsidiaries or
purporting to invalidate or enjoin this Agreement or any Investment Document not
previously disclosed by the Obligors to the Purchaser, or (ii) any material
development in any action, suit, proceeding, governmental investigation or
arbitration at any time pending against or affecting any of the Obligors or any
of their respective Subsidiaries or any property of any of the Obligors or any
of their respective Subsidiaries which, in each case, is reasonably expected to
have a Material Adverse Effect, the Obligors shall promptly give notice thereof
to the Purchaser and provide such other information as may be reasonably
available to them to enable the Purchaser and its respective counsel to evaluate
such matter; provided that no information need be provided to the extent it is
reasonably necessary to preserve the attorney-client privilege.


    
      
         


      

      
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    (j)          
Subsidiaries.
Not less than fifteen (15) days prior to creating a Subsidiary or acquiring the
stock of, or other equity interests in, a Person such that such Person will
become a Subsidiary, which Subsidiary will have assets or a book value in excess
of 10% of the Company's consolidated assets or book value (or if the assets or
book value of such Subsidiary and all other Domestic Subsidiaries that are not
Obligors exceeds 10% of the Company's consolidated assets or book value), as
applicable, or upon becoming aware that an existing Subsidiary has assets or a
book value in excess of 10% of the Company's consolidated assets or book value
(or if the assets or book value of such Subsidiary and all other Domestic
Subsidiaries that are not Obligors exceeds 10% of the Company's consolidated
assets or book value), as applicable, the Obligors shall notify the Purchaser of
their intention to create such Subsidiary or acquire such stock or equity
interests or change in status of an existing Subsidiary, and following such
notice the Obligors shall cause such Subsidiary, if such Subsidiary is a
Domestic Subsidiary, to execute a joinder to this Agreement and the other
Investment Documents, a Guaranty and other documents as the Purchaser may
reasonably request, in each case in form and substance reasonably satisfactory
to the Purchaser, whereupon such Subsidiary shall be deemed an “Obligor”
hereunder. No Obligor shall transfer, sell, assign, lease or license any
of its assets (including without limitation any Intellectual Property) to any
Domestic Subsidiary of any Obligor that meets the criteria set forth above, or
enter into any agreement with any such Domestic Subsidiary, unless and until
such Domestic Subsidiary is an “Obligor”
hereunder pursuant to the above. For the avoidance of doubt, no Foreign
Subsidiary is required to become an Obligor hereunder.

    


    (k)         
Notice of
Corporate Changes. The Obligors shall provide prompt written notice to
the Purchaser, which may be provided to the Observer, of any material change
after the Closing Date in the authorized and issued Capital Securities of the
Obligors or any of their respective Subsidiaries or any other material amendment
to its charter, operating agreement, by-laws or other organizational documents,
such notice, in each case, to identify the applicable jurisdictions, capital
structures or amendments as applicable.

    


    (l)         
 No Defaults. The
Company shall deliver to the Purchaser concurrently with the delivery of the
financial statements referred to in Section 8.01(b), a certificate of the
Company's chief financial officer stating that to his or her knowledge no Event
of Default shall have occurred during the period covered thereby, except as
specified in such certificate.

    


    (m)       
 Board Packages. The
Company shall also provide to the Purchaser copies of all notices, reports,
minutes, packages and consents delivered to the Governing Board thereof or any
committee (other than the compensation committee) thereof at the time and in the
manner as the same are so provided to such Governing Board or such committee
(other than the compensation committee); provided that the foregoing shall not
apply to the extent that it is reasonably necessary (i) to preserve the
attorney-client privilege, (ii) to prevent disclosure of confidential
proprietary information related to transactions with other portfolio companies
of the Purchaser in which the Purchaser has a material financial interest, or
(iii) to protect against disclosure of information related to the topic of
paying for, refinancing, repurchasing or redeeming the Note or any other matter
related to the Note.


    
      
         


      

      
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    (n)        
 Other Information.
With reasonable promptness, the Obligors shall deliver such other information
and data with respect to the Obligors or any of their Subsidiaries as from time
to time may be reasonably required by the Purchaser.

    


    8.02   
   Preservation
of Corporate Existence.
Each of the Obligors shall, and shall cause each of its Subsidiaries
to:

    


    (a)          preserve,
renew and maintain in full force and effect its corporate (or, as applicable,
limited liability partnership or other entity) existence except as permitted by
Section 9.01;

    


    (b)          keep
its material properties in good working order and condition (normal wear and
tear excepted), and from time to time make all needed repairs to, renewals of or
replacements of its material properties (except to the extent that any of such
properties are obsolete or are being replaced) so that the efficiency of its
business operations shall be fully maintained and preserved;

    


    (c)          file
or cause to be filed in a timely manner all reports,
applications, estimates and licenses that shall be required by each Governmental
Authority except to the extent that such failure to file would not reasonably be
expected to result in a Material Adverse Effect; and

    


    (d)          take
all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business.

    


    8.03    
  Payment
of Obligations.
Each of the Obligors, shall, and shall cause each of its Subsidiaries to,
pay, discharge or otherwise satisfy, at or before maturity, or before they
become delinquent, as the case may be, all their respective obligations and
liabilities, including without limitation:

    


    (a)          all
Tax liabilities, assessments and governmental charges or levies upon it or its
properties or assets, and any additional costs that are imposed as a result of
any failure to pay, discharge or otherwise satisfy such obligations, unless the
same are being contested in good faith by appropriate proceedings and adequate
reserves in accordance with GAAP are being maintained by any such Obligor or
Subsidiary;

    


    (b)          all
material lawful claims which any of the Obligors or any of their respective
Subsidiaries are obligated to pay, which are due and which, if unpaid, might by
law become a Lien upon its property, unless the same are being contested in good
faith by appropriate proceedings and adequate reserves in accordance with GAAP
are being maintained by any such Obligor or Subsidiary; and

    


    (c)          all
material payments of principal, interest and other material amounts when due on
Indebtedness.

    


    8.04    
  Compliance
with Laws. Each
of the Obligors shall comply, and shall cause each of its Subsidiaries to
comply, in all material respects with all Requirements of Law and with the
directions, orders, requirements and demands of each Governmental Authority
having jurisdiction over them or their business or property (including, all
applicable Environmental Laws), except to the extent that the failure to do so
would not reasonably be expected to result in a Material Adverse
Effect.


    
      
         


      

      
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    8.05        Reserved.

    


    8.06        Inspection. Each of the Obligors shall
permit, and shall cause its Subsidiaries to permit, representatives of the
Purchaser, from time to time (but not more than twice per calendar year unless
an Event of Default has occurred and is continuing in which case the foregoing
limitation shall not apply), and upon reasonable prior notice and during regular
business hours without disruption to the business of the applicable Obligor or
Subsidiary, to: (a) visit and inspect the properties of such Obligor or such
Subsidiary; (b) inspect, audit and make extracts from its books, records and
files, including management letters prepared by independent accountants; and (c)
discuss with each of the officers of such Obligor or such Subsidiary the
business, assets, liabilities, financial condition, results of operations and
business prospects of such Obligor or Subsidiary.

    


    8.07        Payment
of
Note. The Obligors shall pay the
principal of, premium on (if any), interest on and other amounts due in respect
of, the Note on the dates and in the manner provided in the Note.

    


    8.08    
  Maintenance of Properties;
Insurance.

    


    (a)          Reserved.

    


    (b)          Each
of the Obligors shall, and shall cause each of its Subsidiaries to, maintain or
cause to be maintained with financially sound and reputable insurers that have a
rating of “A” or better as established by Best's Rating Guide (or an equivalent
rating with such other publication of a similar nature as shall be in current
use), public liability and property damage insurance with respect to their
respective businesses and properties against loss or damage of the kinds, and in
amounts, customarily carried or maintained by companies of established
reputation engaged in similar businesses and will deliver evidence thereof to
Purchaser. Without limiting the foregoing, the Obligors shall establish by the
Closing Date, and maintain at all times thereafter, business interruption
insurance in an amount satisfactory to the Purchaser. All such property
insurance policies shall contain a lender's loss payable endorsement, in form
satisfactory to the Purchaser, showing the Purchaser as an additional loss
payee, and all liability insurance policies shall show the Purchaser as an
additional insured. All insurance policies shall provide that such may not be
canceled unless the insurance carrier gives at least 30 days prior written
notice of such cancellation to the Purchaser.

    


    (c)          The
Company shall obtain, by December 31, 2009, and, thereafter, until the Note is
indefeasibly paid in full in cash, maintain an insurance policy or policies on
the life of Adam Miller, with an aggregate death benefit to the Company of not
less than $5,000,000 (the “Key Man Life
Insurance Policy”), the premiums for which policy may be paid on a “split
dollar” basis. The portion of the benefits payable to the Company under the Key
Man Life Insurance Policy shall at all times be held for the benefit of the
Company and shall not be collaterally assigned to any Person without the prior
written consent of the Purchaser. Upon the request of the Purchaser, the Company
shall provide the Purchaser with evidence reasonably satisfactory to it of the
Company's compliance with this Section 8.08(c).


    
      
         


      

      
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    8.09        Reserved.

    


    8.10   
   Use of
Proceeds. The
Company shall use the proceeds of the sale of the Securities hereunder only as
follows: (i) for the payment of fees and expenses in connection with the
transactions contemplated hereunder and in the other Investment Documents and
(ii) for working capital purposes; provided that,
notwithstanding the foregoing, no Obligor shall use any of such proceeds for the
payment of the redemption price for any Obligor's redemption of any of its
Capital Securities from any Person.

    


    8.11   
   Observation
Rights.
Regardless of whether the Purchaser has a representative on the Governing Board
of any Obligor, the Purchaser shall be allowed to have Victor Budnick or Ted
Rice, or, if, at any time, neither individual is employed by the Purchaser, such
individual that is designated in writing by the Purchaser (the “Observer”)
to attend (without voting rights) each meeting of the Governing Board of
the Company as well as each meeting of each committee (other than the
compensation committee) of such Governing Board, including telephonic meetings
of such Governing Board or committee (other than the compensation committee)
thereof. The Company shall give the Observer written notice of any such meeting
of such Governing Board/committee (other than the compensation committee) at the
same time and in the same manner as notice is given to the members of such
Governing Board/committee (other than the compensation committee). Subject to
Section 8.01(m), the Observer shall also be provided with all written materials
and other information (including minutes of meetings) given to the members of
such Governing Board/committee (other than the compensation committee) in
connection with such meetings at the same time such materials and information
are given to the members of such Governing Board/committee (other than the
compensation committee). If the Company proposes to take any action by written
consent in lieu of a meeting of its Governing Board or committee (other than the
compensation committee), the Company shall give written notice thereof to the
Observer at the same time notice is delivered to such Governing Board or
committee (other than the compensation committee) of such consent describing in
reasonable detail the nature and substance of such action. The Obligors shall
promptly reimburse in full for all reasonable and documented out-of-pocket costs
and expenses actually incurred by one (1) Observer in attending up to two (2)
meetings (or committee (other than the compensation committee) meetings) of such
Governing Board in any calendar year, provided that the
Obligors shall not have an obligation to so reimburse for more than an aggregate
of $2,000 of costs and expenses per meeting. Notwithstanding the foregoing, the
Observer may be excluded from any meeting of the Governing Board (or audit
committee thereof) of the Company if such exclusion is reasonably necessary (i)
to preserve the attorney-client privilege, (ii) to prevent disclosure of
confidential proprietary information related to transactions with other
portfolio companies of the Purchaser in which the Purchaser has a material
financial interest, or (ii) to protect against disclosure of information related
to the topic of paying for, refinancing, repurchasing or redeeming the Note or
any other matter related to the Note.

    


    8.12   
   Reserved.


    
      
         


      

      
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    8.13   
   SBA
Compliance. The Obligors shall provide
the Purchaser with all information, data and other material required under the
SBA Regulatory Representation Letter.

    


    8.14   
   SBIC
Regulatory
Provisions for the Benefit of Purchaser. The Obligors agree that they
shall:

    


    (a)          Use of Proceeds.
Annually, in conjunction with the delivery of the audited financial statements
certified by the president, chief executive officer, treasurer or chief
financial officer of the Company, provide written statements sufficient to allow
the Purchaser to (i) determine the continuing eligibility of the Obligors
(within the meaning of the SBIC Regulations) and (ii) verify the use of the
proceeds of the financing under this Agreement by the Obligors. In addition to
any other rights granted hereunder, the Obligors shall grant the Purchaser and
the Small Business Administration access to its books and records for the
purpose of verifying the use of such proceeds and verifying the certifications
made by the Obligors in SBA Forms 480 and 652.

    


    (b)          Regulatory Violation.
Not commit, nor shall allow any Subsidiary or Affiliate to commit, a Regulatory
Violation (as defined below). Upon the occurrence of a Regulatory Violation or
in the event that the Purchaser determines in its reasonable good faith judgment
that a Regulatory Violation has occurred, in addition to any other rights and
remedies to which it is entitled (whether under this Agreement or any other
agreement, or otherwise), the Purchaser shall have the right, to the extent
required under SBIC Regulations, to demand in writing that the Obligors cure
such Regulatory Violation, and if such Regulatory Violation cannot be cured in a
timely manner, demand the immediate repurchase of the Note and the Warrant at a
price equal to the purchase price paid for such Note and Warrant (less any
principal payments made in respect thereof since the Closing Date), together
with any accrued and unpaid interest, and any other amounts due and payable
hereunder, by delivering written notice of such demand to the Company. The
Obligors shall pay the purchase price for the Note and the Warrant by a
cashier's or certified check or by wire transfer of immediately available funds
to the Purchaser within thirty (30) days after the Company's receipt of the
demand notice, and, upon such payment, the Purchaser shall deliver the Note or
other instruments evidencing the Note being repurchased duly endorsed for
transfer or accompanied by duly executed forms of assignment free of any adverse
claims. For purposes of this Agreement, “Regulatory
Violation” means a change in the principal business activity of any
Obligor to an ineligible business activity (within the meaning of the SBIC
Regulations), if such change occurs within one year after the date of the
initial financing hereunder.

    


    (c)          Economic Impact
Information. Promptly after the end of each Fiscal Year, deliver to the
Purchaser a written assessment of the economic impact of the Purchaser's
investment in the Company, specifying the full-time equivalent jobs created or
retained in connection with the investment, the impact of the Purchaser's
financing on the revenues and profits of each Obligor and on taxes paid by each
Obligor and its employees.

    


    (d)          Regulatory Compliance
Cooperation. The Obligors shall comply with their obligations under
Section 2(a) of the SBA Regulatory Representation Letter.


    
      
         


      

      
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    (e)         
Prohibition on
Control. Without the Purchaser's consent, no Obligor shall issue
securities to any Small Business Investment Company subsequent to the Closing
Date if such issuance would cause the Purchaser to be deemed a member of an
Investor Group in Control of any Obligor, as those terms are defined in Title
13, Code of Federal Regulations §107.865, for a period of seven years from the
date Control was initially acquired.

    


    8.15   
   Post
Closing Matters.
The Obligors shall satisfy the matters and items set forth on Schedule
8.15 of the
Disclosure
Schedule within the time periods
set forth on said Schedule
8.15.

    


    8.16   
   Intellectual
Property. Each
Obligor shall, and shall cause its Subsidiaries, to maintain, preserve and renew
all material Intellectual Property necessary for the conduct of its business as
and where the same is currently located as heretofore or as hereafter conducted
by it.

    


    ARTICLE
9

    NEGATIVE
COVENANTS

    


    Until the
payment by the Obligors of all principal of and interest on the Note and all
other amounts due at the time of payment of such principal and interest to the
Purchaser under this Agreement and the other Investment Documents, including,
all fees, expenses and amounts due at such time in respect of indemnity
obligations under Article 7 (other than inchoate indemnity obligations), the
Obligors hereby jointly and severally covenant and agree with the Purchaser as
follows:

    


    9.01      
Fundamental
Changes; Consolidations, Mergers and Acquisitions.    The Obligors shall not, and shall not permit any of
their Domestic Subsidiaries to, become a party to any merger, amalgamation or
consolidation, or agree to or effect any asset acquisition or stock acquisition
(other than the acquisition of assets in the ordinary course of business
consistent with past practices) except (a) the merger, consolidation, asset
acquisition or stock acquisition of one or more of the Domestic Subsidiaries
of any Obligor with and into or to such Obligor, or (b) the merger,
consolidation, asset acquisition or stock acquisition of two or more Domestic
Subsidiaries of any Obligor, or (c) if after giving effect to the merger,
consolidation, asset acquisition or stock acquisition, the Company will have at
least $4,000,000 in cash (including any cash used as collateral for any
letter of credit); so long as (in the case of clause (a), (b) or (c)): (i) the
successor formed by such consolidation or amalgamation or the survivor of such
merger or the purchaser of such stock or assets (the “Surviving
Subsidiary”), is a solvent
company organized under the laws of the United States of America or any state
thereof (including the District of Columbia); (ii) no Default or Event of
Default shall have occurred and be continuing either before or after giving
effect to such transaction; (iii) to the extent that the Surviving Subsidiary is
not then an Obligor, the Surviving Subsidiary shall become an Obligor hereunder
if required by Section 8.01(j); and (iv) prior to effecting any such merger,
consolidation, asset acquisition or stock acquisition, the Obligors shall have
delivered to the Purchaser the same information (financial or otherwise) that
the Obligors have delivered to the applicable Governing Board(s) with respect to
such transaction, as and when the same is delivered to such Governing
Board(s).


    
      
         


      

      
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    9.02    
  Transactions
with Affiliates.
Except as set forth on the Disclosure
Schedule, the Obligors shall not, and shall not permit any of their
Subsidiaries to, engage in any transaction with any Affiliate of any Obligor or
any of its other Subsidiaries (other than for services as employees, officers
and directors and transactions between Obligors and their Subsidiaries, subject,
however to Section 8.10(j)), including pursuant to any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any such Affiliate or any corporation, partnership, trust or
other entity in which any such Affiliate has, to the knowledge of the Obligors,
a substantial interest or is, to the knowledge of the Obligors, a member,
shareholder, director, trustee or partner, on terms more favorable to such
Person than would have been obtainable on an arm's-length basis in the ordinary
course of business.

    


    9.03  
    No
Inconsistent Agreements. Except for the Senior Loan
Documents and as set forth in the Senior Loan Subordination Agreement, the
Obligors shall not, and shall not permit any of their Subsidiaries to, enter
into any Contractual Obligation or enter into any amendment or other
modification to any currently existing Contractual Obligation of any Obligor, or
any of its Subsidiaries, which by its terms restricts or prohibits the ability
of any Obligor to pay the principal of or interest on the Note or to fully
satisfy all of the obligations under the Investment Documents of any Obligor or
any of its Subsidiaries.

    


    9.04 
     Limitation on
Indebtedness. The
Obligors shall not, and shall not permit any of their Subsidiaries to, create,
incur, assume, guarantee or be or remain liable, contingently or otherwise, with
respect to any Indebtedness other than the following (each, a “Permitted
Indebtedness”):

    


    (a)          Senior
Indebtedness;

    


    (b)          endorsements
for collection, deposit or negotiation and warranties of products or services,
in each case incurred in the ordinary course of business;

    


    (c)          Indebtedness
incurred in connection with the acquisition after the date hereof of any real or
personal property, including software, by the Obligors or any of their
Subsidiaries or under any Capital Lease, provided that the
aggregate principal amount of such Indebtedness incurred by the Obligors and
their Subsidiaries during the first two Fiscal Years after the Closing Date
shall not exceed, without duplication, $2,500,000 in the aggregate principal
amount at any time and during any other Fiscal Year shall not exceed, without
duplication $5,000,000 in the aggregate principal amount at any
time;

    


    (d)          Indebtedness
in respect of any interest rate protection arrangements entered into in the
ordinary course of business of the Obligors and not for speculative
purposes;

    


    (e)          Subordinated
Debt;

    


    (f)          Indebtedness
existing on the date hereof and listed and described on the Disclosure
Schedule;


    
      
         


      

      
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    (g)          Indebtedness
of any Subsidiary of any Obligor to any Obligor or any of its other Subsidiaries
and Indebtedness of any Obligor to any other Obligor or any Subsidiary of any
Obligor, not to exceed $2,000,000 in the aggregate principal amount at any
time;

    


    (h)          Indebtedness
with respect to letters of credit from any bank in an amount not to exceed
$500,000 at any time;

    


    (i)      
    Any other Indebtedness (secured or unsecured) not
exceeding $100,000 in the aggregate principal amount at any time;

    


    (j)          
Indebtedness with respect to surety bonds and similar obligations arising in the
ordinary course of business;

    


    (k)         
Indebtedness that constitutes a Permitted Investment;

    


    (1)       
  Indebtedness to trade creditors incurred in the ordinary course of
business;

    


    (m)        
Indebtedness owing pursuant to corporate credit cards incurred in the ordinary
course of business; and

    


    (n)         
Extensions, refinancings and renewals of any items of Permitted Indebtedness,
provided that the principal amount is not increased or the terms modified to
impose more burdensome terms upon any Obligor or any Subsidiary, as the case may
be.

    


    9.05       Limitation
on Liens. The
Obligors shall not, and shall not permit any of their Subsidiaries to: (a)
create or incur or suffer to be created or incurred or to exist any Lien, upon
any of its property or assets of any character whether now owned or hereafter
acquired, or upon the income or profits therefrom; (b) acquire, or agree or have
an option to acquire, any property or assets upon conditional sale or other
title retention or purchase money security agreement, device or arrangement; (c)
suffer to exist for a period of more than sixty (60) days after the same shall
have been incurred any Indebtedness or claim or demand against it that if unpaid
might by law or upon bankruptcy or insolvency, or otherwise, be given any
priority whatsoever over its general creditors; (d) enter into any Material
Contract under which the grant of a security interest or Lien therein is
prohibited as a matter of law or under the terms of such Material Contract; (e)
sell, assign, pledge or otherwise transfer any “receivables” as defined in
clause (g) of the definition of the term “Indebtedness”,
with or without recourse; or (f) enter into or permit to exist any
arrangement or agreement, enforceable under applicable law, which directly or
indirectly prohibits any Obligor or any of its Subsidiaries from creating or
incurring any Lien, other than (x) in favor of the Senior Lender under the
Senior Loan Documents (y) in favor of the Purchaser under the Investment
Documents and (z) other than customary anti-assignment provisions in leases and
licensing agreements entered into by the Obligors or such Subsidiary in the
ordinary course of its business; provided that any
Obligor or any of its Subsidiaries may create or incur or suffer to be created
or incurred or to exist the following (each, a “Permitted
Encumbrance”):

    


    (a)        
 Liens in favor of
any Obligor on all or part of the assets of any Subsidiary of such Obligor
securing Indebtedness owing by any such Subsidiary to such
Obligor;


    
      
         


      

      
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    (b)          Liens
to secure taxes, assessments and other government charges in respect of
obligations not overdue or that are being contested in good faith by appropriate
proceedings and for which adequate reserves are maintained, Liens on properties
to secure claims for labor, material or supplies in respect of obligations not
overdue or that are being contested in good faith by appropriate proceedings and
for which adequate reserves are maintained, or Liens to secure the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure indemnity, performance or other similar bonds for the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure statutory obligations (other than Liens arising under ERISA or
Environmental Laws) or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds;

    


    (c)          deposits
or pledges made in connection with, or to secure payment of, workmen's
compensation, unemployment insurance, old age pensions or other social security
obligations;

    


    (d)          Liens
of carriers, warehousemen, mechanics and materialmen, and other like Liens on
properties in existence less than 135 days from the date of creation thereof in
respect of obligations not overdue or that are being contested in good faith by
appropriate proceedings and for which adequate reserves are
maintained;

    


    (e)          encumbrances
on real estate consisting of easements, rights of way, zoning restrictions,
restrictions on the use of real property and defects and irregularities in the
title thereto, landlord's or lessor's Liens under leases to which any Obligor or
a Subsidiary of any Obligor is a party, and other minor Liens or encumbrances
none of which in the opinion of the Obligors interferes materially with the use
of the property affected in the ordinary conduct of business of the Obligors and
their Subsidiaries, which defects do not individually or in the aggregate have a
Material Adverse Effect;

    


    (f)    
      Liens existing on the date hereof and listed
on the Disclosure
Schedule hereto;

    


    (g)          purchase
money security interests in or purchase money mortgages on real or personal
property, including software, acquired after the date hereof to secure purchase
money indebtedness of the type and amount permitted by Section 9.04, incurred in
connection with the acquisition of such property, which security interests or
mortgages cover only the real or personal property, including software, so
acquired;

    


    (h)          Liens
in favor of the Senior Lender or the Purchaser;

    


    (i)
          Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clauses (b), (f), and (g), provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase;

    


    (j)         
 Liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default under Section 12.08 or 12.10;


    
      
         


      

      
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    (k)         
Liens in favor of customs and revenue authorities arising as a matter of
law to secure payments of custom duties in connection with the importation of
goods;

    


    (l)          
Liens on insurance proceeds securing the payment of financed insurance
premiums;

    


    (m)       
 Liens securing
Subordinated Debt;

    


    (n)         
banker's Liens, rights of setoff and similar Liens incurred on deposits
made in the ordinary course of business; and

    


    (o)         
Liens with respect to deposit or investment accounts to secure Indebtedness
permitted by clause (h) or (m) of the definition of Permitted
Indebtedness.

    


    9.06    
  Dispositions
of Assets. Except as otherwise set
forth in the Senior Loan Subordination Agreement, the Obligors shall not, and
shall not permit any of their Subsidiaries to, directly or indirectly, convey,
sell (pursuant to a sale/leaseback or otherwise), license, lease, sublease,
transfer or otherwise dispose of, or grant any Person an option to acquire, in
one transaction or a series of transactions, any of the property, business or
assets of any Obligor or any Subsidiary thereof, including the Capital
Securities of any Obligor (other than the Company) or any of its Subsidiaries
and any Intellectual Property of any Obligor, whether now owned or hereafter
acquired, except for (each, a “Permitted
Disposition”):

    


    (a)          the
sale, lease, transfer or other disposition of equipment and other assets for
fair value in the ordinary course of business;

    


    (b)          licenses
of its Intellectual Property in the ordinary course of business, and licenses of
its Intellectual Property in connection with joint venture/development
agreements with other Persons;

    


    (c)          transfers
of property, business or assets to another Obligor;

    


    (d)          transfers
of worn-out, obsolete or surplus equipment or other assets for fair value;
and

    


    (e)          other
assets that do not in the aggregate exceed $100,000 during any fiscal
year.

    


    9.07  
    Limitations
on Restricted Payments.
Neither the Obligors nor any of their Subsidiaries will make any
Restricted Payments; provided, that the
Subsidiaries may make Restricted Payments to an Obligor. Notwithstanding the
foregoing, this Section 9.07 shall not prohibit (i) the redemption or purchase
(in accordance with the terms of the Warrant) of the Warrant or any shares of
Capital Securities of the Company issued pursuant to the exercise of the
Warrant, (ii) the repurchase of Capital Securities of the Company from former
employees, directors or consultants of the Obligors pursuant to the terms of
restricted stock agreements and option agreements, (iii) repurchases of stock in
connection with the settlement of disputes with stockholders, (iv) the
conversion of convertible securities into other securities of the Company and
the payment of cash in lieu of issuing fractional shares or (v) repurchases of
up to $700,000 of the Company's stock from stockholders, so long any repurchase
from any officer of the Company does not reduce such officer's ownership of the
Company's Capital Securities (including any Capital Securities issuable upon
exercise of outstanding options that are then currently exercisable) by more
than 20%; provided that, with
respect to clauses (ii), (iii) and (v), no Event of Default has occurred and is
continuing as of the time of any such transaction, or would reasonably be
expected to exist after giving effect to any such transaction.


    
      
         


      

      
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    9.08  
    Employee
Benefit Plans.
Each Obligor and ERISA Affiliate shall meet the minimum funding requirements of
ERISA with respect to any employee benefit plans subject to ERISA.

    


    9.09   
   Business
Activities; Change of
Legal
Status and Organizational Documents.  No Obligor shall,
and shall not permit any Subsidiary to, (a) engage in any line of business other
than the businesses engaged in on the Closing Date by the Company and businesses
reasonably related thereto, or (b) change its name, its Organizational
Identification Number, if it has one, its type of organization, its jurisdiction
of organization or other legal structure without at least 10 days prior notice
to Purchaser.

    


    9.10  
    Investments. No Obligor shall, and shall
not permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments in (each a “Permitted
Investment”):

    


    (a)          marketable
direct or guaranteed obligations of the United States of America that mature
within one (1) year from the date of purchase;

    


    (b)          demand
deposits, certificates of deposit, money market accounts, bankers acceptances
and time deposits of (i) Senior Lender or (ii) United States banks having total
assets in excess of $500,000,000;

    


    (c)          securities
commonly known as “commercial paper” issued by a corporation organized and
existing under the laws of the United States of America or any state thereof
that at the time of purchase have been rated and the ratings for which are not
less than “P 1” if rated by Moody's Investors Service, Inc., and not less than
“A 1” if rated by Standard and Poor's Rating Group;

    


    (d)          Investments
existing on the date hereof and listed on the Disclosure
Schedule;

    


    (e)          Repurchases
of Capital Securities of the Company from former employees, directors or
consultants of the Company (i) in an aggregate amount not to exceed $1,000,000
in any fiscal year, provided that no Event of Default has occurred, is
continuing or would result after giving effect to the repurchases or (ii) in any
amount where the consideration for the repurchase is the cancellation of
indebtedness, owed by such former employee, director or consultant to the
Company regardless of whether an Event of Default exists;

    


    (f)          Investments
accepted in connection with a Permitted Disposition;


    
      
         


      

      
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    (g)          Investments
not to exceed $250,000 in the aggregate in any fiscal year consisting of (i)
travel advances and employee relocation loans and other employee loans and
advances in the ordinary course of business, and (ii) loans to employees,
officers or directors relating to the purchase of Capital Securities of the
Company pursuant to employee stock purchase plan agreements approved by the
Company's Governing Board;

    


    (h)          Investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent
obligations of, and other disputes with, customers or suppliers arising in the
ordinary course of any Obligor's or any of its Subsidiaries'
business;

    


    (i)      
    Investments consisting of notes receivable of, or
prepaid royalties and other credit extensions, to customers and suppliers who
are not Affiliates, in the ordinary course of business, provided that this
subparagraph (i) shall not apply to Investments of an Obligor in any
Subsidiary;

    


    (j)         
 Investments made
pursuant to an Obligor's investment policy as approved by such Obligor's
Governing Board, provided that such policy has been disclosed to and is
reasonably acceptable to
Purchaser;

    


    (k)        
 Joint ventures or
strategic alliances in the ordinary course of an Obligor's business consisting
of the non-exclusive licensing of technology, the development of technology or
the providing of technical support, provided that any cash investment by such
Obligor does exceed $500,000 in the aggregate in any fiscal year;

    


    (l)          
Investments permitted by Section 9.01;

     


    (m)         Investments
permitted by Section 9.07; and

      


    (n)         
Other Investments not to exceed $500,000 in any fiscal year.

    


    9.11   
   Reserved.

    


    9.12   
   Fiscal
Year. No Obligor
shall, nor shall it permit any of its Subsidiaries to, change its Fiscal Year
without prior notice to Purchaser.

    


    9.13    
  Modification
of Senior Indebtedness.
No Obligor shall, and shall not permit any of its Subsidiaries to, amend,
replace, refinance, refund or otherwise modify the Senior Indebtedness, except
as set forth in or contemplated by the Senior Loan Subordination Agreement or
the definition of “Senior Indebtedness”.

    


    9.14   
   Limitations
on Layering. No
Obligor shall, and shall not permit any of its Subsidiaries to, incur any
Indebtedness that is expressly (a) subordinate or junior in right of payment to
any Indebtedness arising under any Senior Indebtedness, and (b) senior in any
respect in right of payment to any Indebtedness arising under this Agreement and
the Note.


    
      
         


      

      
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    ARTICLE
10

    PREPAYMENT

     

    10.01     Payment
in Respect of
Note.
The Purchaser and any successor holder of the Note, by their acceptance thereof,
agree that, with respect to all sums received by them applicable to the payment
of principal of or interest on the Note, equitable adjustment will be made among
them so that, in effect, all such sums shall be shared ratably by all of the
holders of the Note whether received by voluntary payment, by realization upon
security, by the exercise of the right of set off, by counterclaim or
cross-action or by the enforcement of the Note. If any holder of the Note
receives any payment on its Note in excess of its pro rata portion, then such
holder receiving such excess payment shall purchase for cash from the other
holders an interest in its Note in such amounts as shall result in a ratable
participation by all of the holders in the aggregate unpaid amount of Note then
outstanding.

     

    10.02     Optional Prepayment. Subject to Section 6 of the Note, the
Obligors may prepay outstanding principal (together with accrued interest) on
the Note in accordance with the “Optional
Prepayment” provisions set forth in Section 4 of the Note.

     

    10.03     Mandatory
Prepayment.
Subject to Section 6 of the Note, the Obligors shall prepay outstanding
principal (together with accrued interest) on the Note in accordance with the
“Mandatory
Prepayment” provisions
set forth in Section 3 of the Note.

     

    ARTICLE
11

    COLLATERAL

     

    11.01     Security
Interests. As
security for the payment and performance of the Obligations, but subject to the
terms and conditions of the Senior Loan Subordination Agreement, the Obligors do
hereby pledge, collaterally assign, transfer, deliver and grant to the Purchaser
a continuing and unconditional security interest (subject only to the prior
Liens of the Senior Lender and Permitted Encumbrances) in and to any and all
property of the Obligors, of any kind or description, tangible or intangible,
wheresoever located and whether now existing or hereafter arising or acquired
(but specifically excluding the Excluded Collateral), including the following
(all of which property, along with the products and Proceeds therefrom, are
individually and collectively referred to as the “Collateral”):

     

    (a)       all
property of, or for the account of, the Obligors now or hereafter coming into
the possession, control or custody of, or in transit to, the Purchaser or any
agent or bailee for the Purchaser or any parent, Affiliate or Subsidiary of the
Purchaser (whether for safekeeping, deposit, collection, custody, pledge,
transmission or otherwise), including all earnings, dividends, interest, or
other rights in connection therewith and the products and proceeds therefrom,
including the proceeds of insurance thereon; and

     

    (b)       all
other property of the Obligors, whether now existing or hereafter arising or
acquired, and wherever now or hereafter located, together with all additions and
accessions thereto, substitutions, betterments and replacements therefor,
products and Proceeds therefrom, including the following:


    
      
         


      

      
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    (i)          all
Accounts and all Goods whose sale, lease or other disposition by the Obligors
has given rise to Accounts and have been returned to, or repossessed or stopped
in transit by, the Obligors, or rejected or refused by an Account
Debtor;

     

    (ii)         all
Inventory, including raw materials, work-in-process and finished
goods;

     

    (iii)       all
Goods (other than Inventory), including embedded software, Equipment, vehicles,
furniture and All Securities, Investment Property, Financial Assets and Deposit
Accounts;

     

    (iv)        all
Chattel Paper, Electronic Chattel Paper, Instruments, Documents, Letter of
Credit Rights, all proceeds of letters of credit, Health-Care-Insurance
Receivables, Supporting Obligations, notes secured by real estate, Commercial
Tort Claims (including those set forth in set forth on Schedule
11.01(a) of the Disclosure Schedule) and General
Intangibles, including Payment Intangibles;

     

    (v)          all
books, records, tapes, information, data, stored material, computer media,
passwords, access codes arising in connection with or related to any of the
Collateral (collectively, “Books and
Records”);

     

    (vi)        any
account maintained by any Obligor with the Senior Lender and all cash
held therein;

     

    (vii)       all
Rights of Payment (as defined in Section 11.01(c) below);

     

    (viii)      all
other assets of any Obligor (other than Excluded Collateral), whether or not
included in the Collateral identified in Section 11.01; and

     

    (ix)        all
Proceeds (whether cash Proceeds or noncash Proceeds) of the foregoing property,
including all insurance policies and proceeds of insurance payable by reason of
loss or damage to the foregoing property, including unearned premiums, and of
eminent domain or condemnation awards.

     

    (c)       The
Purchaser agrees that its security interest and its right of payment hereunder
are subordinated to the security interests and right of payment of the Senior
Lender under the Senior Loan Documents as provided (but only to the extent so
provided) in the Senior Loan Subordination Agreement. Notwithstanding anything
to the contrary in this Section 11.01, the Purchaser hereby acknowledges and
agrees that the Collateral specifically excludes the Excluded Collateral, provided, however, that,
notwithstanding the foregoing, the Collateral specifically includes all
Accounts, Proceeds and General Intangibles that consist of rights to payment
from the sale, licensing or disposition of all or any part of, or any rights in,
any Intellectual Property of any Obligor or any Material Contract under which
the grant of a security interest or Lien therein is prohibited as a matter of
law or under the terms of such Material Contract (collectively, the “Rights of
Payment”). Notwithstanding
the foregoing, if any judicial authority (including a U.S. Bankruptcy Court)
holds that a security interest in the underlying Intellectual Property is
necessary to have a security interest in any Right of Payment of any Obligor,
then the Collateral shall automatically (without any further action, notice or
consent), and effective as of the Closing Date, include the Intellectual
Property of the Obligors to the extent necessary to permit perfection of the
Purchaser’s security interest in the Rights of Payment.


    
      
         


      

      
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    11.02     Financing
Statements. The
Obligors shall, at the Purchaser’s request, at any time and from time to time,
execute and deliver to the Purchaser such financing statements, amendments and
other documents and, subject to the rights of the Senior Lender under the Senior
Loan Documents and the terms and conditions of the Senior Loan Subordination
Agreement, do such acts as the Purchaser reasonably deems necessary in order to
establish and maintain valid, attached and perfected security interests in the
Collateral in favor of the Purchaser, free and clear of all Liens and claims and
rights of third parties whatsoever, except for the prior Liens of the Senior
Lender and other Permitted Encumbrances. The Obligors hereby irrevocably
authorizes the Purchaser at any time, and from time to time, to file in any
jurisdiction any initial financing statements and amendments thereto without the
signature of the Obligors that (a) indicate the Collateral (i) is comprised of all assets of the
Obligors (other than the Excluded Collateral) or words of similar effect,
regardless of whether any particular asset comprising a part of the Collateral
falls within the scope of Article 9 of the Uniform Commercial Code of the
jurisdiction wherein such financing statement or amendment is filed, or (ii) as being of an equal or lesser
scope or within greater detail as the grant of the security interest set forth
herein, and (b) contain any other information required by Section 5 of Article 9
of the Uniform Commercial Code of the jurisdiction wherein such financing
statement or amendment is filed regarding the sufficiency or filing office
acceptance of any financing statement or amendment, including (i) whether the
Obligors is an organization, the type of organization and any Organizational
Identification Number issued to the Obligors, and (ii) in the case of a
financing statement filed as a fixture filing or indicating Collateral as
as-extracted collateral or timber to be cut, a sufficient description of the
real property to which the Collateral relates. The Obligors hereby agree that a
photocopy or other reproduction of this Agreement is sufficient for filing as a
financing statement and the Obligors authorize the Purchaser to file this
Agreement as a financing statement in any jurisdiction. The Obligors agree to
furnish any such information to the Purchaser promptly upon request. In
addition, the Obligors shall make appropriate entries on their books and records
disclosing the Purchaser’s security interests in the Collateral.

     

    11.03     Landlord Waivers; Collateral
in the Possession of a Warehouseman or Bailee.

     

    (a)       The
Obligors shall cause the owners and mortgagees of the leased location(s)
identified on Schedule
11.03 of the
Disclosure
Schedule to
execute and deliver to the Purchaser on the Closing Date (or within the time
periods set forth on Schedule
8.15 of the
Disclosure
Schedule) a Collateral Access
Agreement, and the Obligors shall be required to use commercially reasonable
efforts to deliver a Collateral Access Agreement for all leased locations which
any Obligor establishes after the Closing Date, and, with respect to any
existing location, upon the renewal, extension, modification or other amendment
of such lease.

     

    (b)       If any
of the Collateral at any time is in the possession of a warehouseman or bailee, the Obligors
shall promptly notify the Purchaser thereof, and shall promptly use commercially
reasonable efforts to obtain a Collateral Access Agreement.

     

    
      
        
        

      

      
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    11.04     Preservation
of the Collateral. Subject to the rights of the
Senior Lender under the Senior Loan Documents and the terms and conditions of
the Senior Loan Subordination Agreement, and after the occurrence and during the
continuance of an Event of Default, the Purchaser may, but is not required, to
take such actions from time to time as the Purchaser deems appropriate to
maintain or protect the Collateral. The Purchaser shall have exercised
reasonable care in the custody and preservation of the Collateral if the
Purchaser takes such action as any Obligor shall reasonably request in writing
which is not inconsistent with the Purchaser’s status as a secured party, but
the failure of the Purchaser to comply with any such request shall not be deemed
a failure to exercise reasonable care; provided, however, the
Purchaser’s responsibility for the safekeeping of the Collateral shall (i) be
deemed reasonable if such Collateral is accorded treatment substantially equal
to that which the Purchaser accords its own property, and (ii) not extend to matters beyond the
control of the Purchaser, including acts of God, war, insurrection, riot or
governmental actions. In addition, any failure of the Purchaser to preserve or
protect any rights with respect to the Collateral against prior or third
parties, or to do any act with respect to preservation of the Collateral, not so
requested by the Obligors, shall not be deemed a failure to exercise reasonable
care in the custody or preservation of the Collateral. The Obligors shall have
the sole responsibility for taking such action as may be necessary, from time to
time, to preserve all rights of the Obligors and the Purchaser in the Collateral
against prior or third parties. Without limiting the generality of the
foregoing, where Collateral consists in whole or in part of securities, the
Obligors represent to, and covenant with, the Purchaser that the Obligors have
made arrangements for keeping informed of changes or potential changes affecting
the securities (including rights to convert or subscribe, payment of dividends,
reorganization or other exchanges, tender offers and voting rights), and the
Obligors agree that the Purchaser shall have no responsibility or liability for
informing the Obligors of any such or other changes or potential changes or for
taking any action or omitting to take any action with respect
thereto.

     

    11.05     Other
Actions as
to any
and all
Collateral.
Subject to the terms and conditions of the Senior Loan Subordination Agreement,
the Obligors further agree to take any other action reasonably requested by the
Purchaser to ensure the attachment, perfection and first priority of (subject to
Permitted Encumbrances), and the ability of the Purchaser to enforce, the
Purchaser’s security interest in any and all of the Collateral, including (a)
causing the Purchaser’s name to be noted as secured party on any certificate of
title for a titled good if such notation is a condition to attachment,
perfection or priority of, or ability of the bank to enforce, the Purchaser’s
security interest in such Collateral, (b) complying with any provision of any
statute, regulation or treaty of the United States as to any Collateral if
compliance with such provision is a condition to attachment, perfection or
priority of, or ability of the Purchaser to enforce, the Purchaser’s security
interest in such Collateral, (c) obtaining governmental and other third party
consents and approvals, including any consent of any licensor, lessor or other
Person obligated on Collateral, (d) subject to Section 11.03, obtaining waivers
from mortgagees and landlords in form and substance satisfactory to the
Purchaser, and (e) taking all actions required by the UCC in effect from time to
time or by other law, as applicable in any relevant UCC jurisdiction, or by
other law as applicable in any foreign jurisdiction. The Obligors further agree
to indemnify and hold the Purchaser harmless against claims of any Persons not a
party to this Agreement concerning disputes arising over the
Collateral.


    
      
         


      

      
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    11.06     Equipment
and
Inventory.
Subject to the rights of the Senior Lender under the Senior Loan
Documents and the terms and conditions of the Senior Loan Subordination
Agreement, the Obligors jointly and severally represent, warrant and agree
that:

     

    (a)       each
Obligor is the absolute owner of its Inventory and Equipment (and the Documents
representing any such Inventory, and Equipment) other than Equipment that is
leased to such Obligor, subject only to the security interests created hereby
and other Permitted Encumbrances; and

     

    (b)       after
the occurrence of an Event of Default and so long as the same continues, the
Purchaser shall have the right to take possession of each Obligor’s Inventory,
subject only to the rights of the Senior Lender in accordance with the Senior
Loan Documents and the terms and conditions of the Senior Loan Subordination
Agreement; the Obligors shall repay the Purchaser promptly for all reasonable
costs of transportation, packing, storage and insurance of any such possession,
together with interest at the Default Rate, at the time that the Purchaser pays
such costs; and the Obligors’ liability to the Purchaser for such repayment,
together with such interest, shall be included in the Obligations.

     

    11.07     Condition
of Inventory and Equipment. The Obligors will promptly
notify the Purchaser of any casualty or similar event which results in a
material decline in the value of any substantial portion of its Inventory and Equipment. Subject
to the rights of the Senior Lender under the Senior Loan Documents and the terms
and conditions of the Senior Loan Subordination Agreement, each Obligor hereby
grants to the Purchaser, as additional security for payment of the Obligations,
a security interest in any and all monies due or to become due under, and any
and all other rights of any Obligor with respect to, any and all policies of
insurance covering the Collateral. Prior to the occurrence of an Event of
Default, the Obligors may use such insurance proceeds for the replacement,
restoration or repair of the Collateral. After the occurrence and during the
continuance of an Event of Default, the Purchaser may, subject to the rights of
the Senior Lender under the Senior Loan Documents and the terms and conditions
of the Senior Loan Subordination Agreement, (but need not) in its own name or in
any applicable Obligor’s name execute and deliver proofs of claim, receive such
monies, and settle or litigate any claim against the issuer of any such policy
and such Obligor shall direct the issuer to pay any such monies directly to the
Purchaser and the Purchaser, at its sole discretion and regardless of whether
the Purchaser exercises its right to collect insurance proceeds under this
sentence, may apply any insurance proceeds to the payment of the Obligations,
whether due or not, in accordance with Section 13.09, or the Purchaser may
permit such applicable Obligor to use such insurance proceeds for the
replacement, restoration or repair of the Collateral.

     

    11.08     Expenses
of the Purchaser.
Under and in accordance with Section 14.12, the Obligors shall reimburse
the Purchaser on demand for all reasonable fees and expenses (including the
reasonable fees and expenses of legal counsel) in connection with the
enforcement of the Purchaser’s rights to take possession of the
Collateral and the proceeds thereof and to hold, collect, render in compliance
with applicable laws and regulations,
including without limitation, Environmental Laws, prepare for sale, sell and
dispose of the Collateral. All obligations provided for in this Section 11.08
shall survive any termination of this Agreement and the repayment of the
Note.


    
      
         


      

      
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    11.09     Notices. If any notice of sale,
disposition or other intended action by the Purchaser with respect to the
Collateral is required by the Uniform Commercial Code or other applicable law,
any notice thereof sent to the applicable Obligor at the address listed in
Section 14.03 or such other address of such Obligor as any Obligor may from time
to time notify the Purchaser to be its address for notices hereunder, but only
after such notice is acknowledged in writing by the Purchaser, at least five (5)
Business Days prior to such action, shall constitute reasonable notice to such
Obligor.

     

    11.10     Insurance,
Discharge of Taxes,
Etc. Subject to the rights of the Senior Lender under the
Senior Loan Documents and the terms and conditions of the Senior Loan
Subordination Agreement, the Purchaser shall have the right, at any time and
from time to time, upon thirty (30) days notice to the Company
to:


     

    (a)       obtain
insurance covering any of the Collateral if the applicable Obligor fails to do
so in accordance with Section 8.08;

     

    (b)       make
any payment to discharge taxes, liens, security interests or other encumbrances
at any time levied or placed on any of the Collateral other than Permitted
Encumbrances; and

     

    (c)       pay
for the maintenance and preservation of any of the Collateral.

     

    Notwithstanding
the foregoing, upon the Company’s receipt of the above notice, the applicable
Obligor shall have the right to obtain, discharge or pay for any of the
foregoing within such 30-day period, provided that the
Purchaser shall have the continuing right to obtain, discharge or pay for any of
the foregoing prior to the expiration of such 30-day period in order to prevent
the material diminution in value of any material portion of the Collateral. The
Obligors shall reimburse the Purchaser, as the case may be, on demand, with
interest thereon at Default Rate, for any payment the Purchaser makes, or any
expense the Purchaser incurs, under this authorization.


     

    11.11     Waiver
and Release by Obligors.
Each of the Obligors:

     

    (a)       waives
protest of all commercial paper at any time held by the Purchaser on which any
Obligor is in any way liable, notice of nonpayment at maturity of any and all of
its Accounts, Instruments, Chattel Paper or General Intangibles and, except
where required hereby or by law, notice of action taken by the Purchaser;
and

     

    (b)       releases
the Purchaser from all claims for loss or damage caused by any failure to
collect any such Account, Instrument, Chattel Paper or General Intangible or by
any act or omission on the part of the Purchaser or their respective officers,
agents and employees, except for their gross negligence and willful
misconduct.

     

    11.12     Records
and Reports. Each
of the Obligors shall keep accurate and complete records in all respects of its
Accounts (and the collection thereof), Chattel Paper, Instruments, Documents,
Equipment, Inventory, and General Intangibles, and furnish the Purchaser such
information about such Accounts, Chattel Paper, Instruments, Documents,
Equipment, Inventory and General Intangibles as the Purchaser may reasonably
request.


    
      
         


      

      
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    11.13     Further
Assurances. From
time to time each Obligor shall execute and deliver to the Purchaser such
additional instruments as the Purchaser may reasonably request to effectuate the
purposes of this Agreement and to assure to the Purchaser, as secured party, a
security interest in the Collateral subject only to the Permitted Encumbrances.
Subject to the rights of the Senior Lender under the Senior Loan Documents, each
Obligor hereby irrevocably appoints the Purchaser as its attorney-in-fact to
take any action the Purchaser deems necessary to perfect or maintain perfection
of any security interest granted to the Purchaser herein or in connection
herewith, including the execution of any document on such Obligor’s
behalf.

     

    11.14     Continuing
Collateral. The
Purchaser shall be under no obligation to proceed first against any part of
the Collateral before proceeding against any other part of the Collateral. It is expressly agreed that all of the
Collateral stands as equal security for all of the Obligations and the Purchaser
shall have the right, after the occurrence and during the continuance of an
Event of Default, to proceed against or sell any or all of the Collateral in any
order, or simultaneously, as it, in its sole discretion, shall
determine.

     

    11.15     Set-Off. Subject to the
Senior Loan Subordination Agreement, the Obligors agree that the Purchaser will
have, and each Obligor hereby grants to the Purchaser, a right of set-off
against, a lien upon and a security interest in, all property of the Obligors
now or at any time in the Purchaser possession in any capacity
whatever.

     

    11.16     Reserved.

     

    11.17    
Accounts.

     

    (a)       With
respect to each of their Accounts, the Obligors represent that:

     

    (i)          such
Account is not evidenced by a judgment, an Instrument or Chattel Paper or
secured by a letter of credit (except (A) such judgment as has been assigned
to the Purchaser, or (B) such Instrument and Chattel Paper as has been endorsed
and delivered to the Purchaser, or (C) such letter of credit as has been
assigned and delivered to the Purchaser and represents a bona
fide completed transaction, subject, in each case, to the rights of the Senior
Lender under the Senior Loan Documents and the terms and conditions of the
Senior Loan Subordination Agreement,);

     

    (ii)         the
amount thereof shown on the Books and Records and on any list, invoice or
statement furnished to the Purchaser is owing to the applicable
Obligor;

     

    (iii)       the
title of the applicable Obligor to such Account and to any Goods represented
thereby is absolute, except for Permitted Encumbrances;

     

    (iv)        such
Account has not been transferred to any other Person other than for the Lien in
favor of the Senior Lender and Permitted Encumbrances, and no Person except the
applicable Obligor has any claim thereto or, with the sole exception of the
Purchaser therefore or the Senior Lender and holders of Permitted Encumbrances,
to the goods represented thereby; and


    
      
         


      

      
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    (v)        
no partial payment against such Account has been made by any Person except as
reflected in the Books and Records.

     

    11.18     Letters of Credit, Chattel
Paper and Instruments.

     

    (a)       Subject
to the rights of the Senior Lender under the Senior Loan Documents and the terms
and conditions of the Senior Loan Subordination Agreement, the Obligors jointly
and severally represent and warrant that they have delivered to the Purchaser
and covenants that they will deliver to the Purchaser promptly on receipt of all
counterparts designated as “originals” of:

     

    (i)          letters
of credit securing any of the Accounts of any Obligor;

     

    (ii)         any
of the Chattel Paper of any Obligor; and

     

    (iii)       any
of the Instruments of any Obligor now in any Obligor’s possession or hereafter
acquired, each properly assigned or endorsed over to the Purchaser, which
letters of credit, Chattel Paper and Instruments shall be held by the Purchaser
as security hereunder, or, at the Purchaser’s option, endorsed for payment
(except for such letters of credit, Chattel Paper or Instruments which are
delivered to the Senior Lender pursuant to the Senior Loan Documents, provided that the
Purchaser otherwise has a perfected security interest in such letters of credit,
Chattel Paper or Instruments and provided further that the applicable Obligor
delivers such letters of credit, Chattel Paper and or Instruments to the
Purchaser upon the Senior Lender’s release of its interest therein pursuant to
the Senior Loan Documents).

     

    (b)      The Obligors
shall remain solely responsible for the observance and performance of all of the
covenants and obligations under all of their Chattel Paper and Instruments, and
the Purchaser shall not be required to observe or perform any such covenants or
obligations.

     

    11.19     Electronic
Chattel
Paper and Transferable Records. If any Obligor at any
time hold
or acquire an interest in any electronic chattel paper or any
“transferable record”, as that term is defined in Section 201 of the federal
Electronic Signatures in Global and National Commerce Act, or in Section 16 of
the Uniform Electronic Transactions Act as in effect in any relevant
jurisdiction, the Obligors shall promptly notify the Purchaser thereof and, at
the request of the Purchaser, shall take such action as the Purchaser may
reasonably request (subject to the prior rights of the Senior Lender) to vest in
the Purchaser control under Section 9-105 of the UCC of such electronic chattel
paper or control under Section 201 of the federal Electronic Signatures in
Global and National Commerce Act or, as the case
may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect
in such jurisdiction, of such transferable record. The Purchaser agrees with the
Obligors that the Purchaser will arrange, pursuant to procedures satisfactory to
the Purchaser and so long as such procedures will not result in the Purchaser’s
loss
of control, for the Obligors to make alterations to the electronic
chattel paper or transferable record permitted under Section 9-105 of the UCC
or, as the case may be, Section 201 of the federal Electronic Signatures in
Global and National Commerce Act or Section 16 of the Uniform Electronic
Transactions Act for a party in control to make without loss of
control.


    
      
         


      

      
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    11.20     Commercial
Tort
Claims. If any Obligor shall
at any time hold or acquire a material Commercial Tort Claim, the Obligors shall
immediately notify the Purchaser of the details thereof in writing, which notice
may be provided to the Observer, and grant to the Purchaser (subject to the
prior rights of the Senior Lender) a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, in each case in form and
substance satisfactory to the Purchaser, and hereby authorizes the filing of,
and shall, at the Purchaser’s request, execute, any amendments hereto deemed
reasonably necessary by the Purchaser to perfect its security interest in such
Commercial Tort Claim.

     

    ARTICLE
12

    DEFAULT

     

    The
Obligors, without notice or demand of any kind shall be in default under this
Agreement upon the occurrence of any of the
following events (each an “Event of
Default”):

     

    12.01     Nonpayment
of
Obligations.
Any amount due and owing under the Note (including any Mandatory Prepayment) or
any of the Obligations, whether by its terms or as otherwise provided herein, is
not paid when the same shall become due and payable, whether at maturity or at a
date fixed for prepayment or by acceleration or otherwise, provided that, with
respect to any two (2) (but no more than two) individual payments that may
become due in any calendar year, the Obligor shall have a three (3) Business Day
grace period for such individual payments.

     

    12.02     Misrepresentation.
Any written warranty, representation, certificate or statement of any Obligor in
this Agreement, the other Investment Documents or any other agreement with the
Purchaser shall be false in any material respect when made or at any time
thereafter, or if any financial data or any other information now or hereafter
furnished to the Purchaser by or on behalf of any Obligor shall prove to be
false, inaccurate or misleading in any material respect.

     

    12.03     Nonperformance.

     

    (a)       Any failure to perform or default in the performance
of any covenant set forth Sections 8.02(a), 8.10, 8.11, 8.13, 8.14, 8.16, Article 9 or Article
11, which default shall continue for a period of 10 days;

     

    (b)       Any failure to perform or default in the performance of any
covenant set forth Sections 8.01 or 8.03 and, if capable of being cured, such
failure to perform or default in performance continues for a period of fifteen
(15) days after the
Obligors receive written notice thereof from the Purchaser,
and

     

    (c)       Any
failure to perform or default in the performance of any other covenant in this
Agreement and, if capable of being cured, such failure to perform or default in
performance continues for a period of thirty (30) days after the Obligors
receive written notice thereof from the Purchaser.


    
      
         


      

      
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    12.04     Default
under Investment Documents. Any material default under
any of the other Investment Documents, all of which covenants, conditions and
agreements contained therein are hereby incorporated in this Agreement by
express reference.

     

    12.05     Default
under Other Debt.
Any Obligor:

     

    (a)       Any
default under any instrument evidencing or relating to any Funded Debt of (or
guaranteed by) such Obligor or any of its Subsidiaries (except Senior
Indebtedness under the Senior Loan Agreement, which is provided for below),
which default is caused by a failure to pay principal of or premium, if any, or
interest on such Funded Debt before the expiration of the grace period provided
in such instrument or any other breach or default (or other event or condition)
shall occur under any such instrument, if the effect of such breach or default
(or such other event or condition) is to cause, or to permit the holder or
holders of the Funded Debt (or a Person on behalf of such holder or holders) to
cause (upon the giving of notice, the lapse of time or both, or otherwise), such
Funded Debt to become or be declared due and payable prior to its stated
maturity and the aggregate principal amount of all such Funded Debt in default
aggregates $1,000,000 or more, or such amount of Funded Debt the payment of
which would reasonably be expected to have a Material Adverse Effect; provided
that if such default is waived by such third party or parties prior to such time
as Purchaser has begun exercising its remedies hereunder, the default shall be
waived for purposes of this Section as well and shall not constitute an Event of
Default; or

     

    (b)      Any
default under any Senior Loan Document, which default is not cured or waived
within any applicable period of grace or cure.


     

    12.06     Reserved.

     

    12.07     Bankruptcy, Insolvency,
etc.


     

    (a)     
 An involuntary proceeding shall be
commenced or an involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of any Obligor or any of its
Subsidiaries, or of a substantial part of its property or assets, under Title 7
or 11 of the United States Code, as now constituted or hereafter amended, or any
other Federal or state bankruptcy, insolvency, receivership or similar law, (ii)
the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for any Obligor or any of its Subsidiaries, or for a substantial part
of its property or assets, or (iii) the winding up or liquidation of any Obligor
or any of its Subsidiaries; and such proceeding or petition shall continue
undismissed for 60 days, or an order or decree approving or ordering any of the
foregoing shall be entered.

     

    (b)       Any Obligor or any of its Subsidiaries shall (i)
voluntarily commence any proceeding or file any petition seeking relief under Title 7 or 11 of the United States Code,
as now constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in this Section 12.07, (iii)
apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for such Obligor or any of its
Subsidiaries, or for a substantial part of its property or assets, (iv) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors,
(vi) become unable, admit in writing its inability or fail generally to pay its
debts as they become due, or (vii) take any action for the purpose of effecting
any of the foregoing


    
      
         


      

      
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    12.08     Judgments. One or more judgments which
could reasonably be expected to result in a Material Adverse Effect shall be
rendered against any Obligor or any of its Subsidiaries and the same shall
remain undischarged for a period of 60 days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to levy upon assets or properties of any Obligor or any
of its Subsidiaries to enforce any such judgment.

     

    12.09     Change in
Control. Any
Change in Control occurs.

     

    12.10     Collateral
Impairment. The
entry of any judgment, decree, levy, attachment, garnishment or other process,
or the filing of any Lien against, any material portion of the Collateral and
such judgment or other process shall not have been, within sixty (60) days from the entry thereof, (i)
bonded over to the satisfaction of the Purchaser and appealed, (ii) vacated, or
(iii) discharged.

     

    12.11     Reserved.

     

    12.12     Subordinated
Debt.


     

    (a)       The
subordination provisions of any Subordinated Debt shall for any reason be
revoked or invalid or otherwise cease to be in full force and
effect.

     

    (b)       The
Obligations shall, for any reason, not have the priority contemplated by the
subordination provisions of the Subordinated Debt.


     

    12.13     Validity
of Investment Documents.
Any Investment Document for any reason, other than a partial or full
release in accordance with the terms thereof, ceases to be in full force and
effect or is declared to be null and void, or any Obligor denies that is has any
further liability under any Investment Document to which it is a party, or gives
notice to such effect.

     

    12.14     Criminal
Indictment. If (a) any Obligor is indicted under any criminal
statute or (b) any criminal or civil proceedings are commenced against any
Obligor by a governmental authority, which (with respect to clause (a) or (b),
(i) pursuant to applicable statutes or proceedings, the penalties or remedies
sought or available include forfeiture of any of the material property of any
Obligor and (ii) results in either (x) a conviction of any Obligor or (y) a
negotiated settlement under which any Obligor(s) are required to pay $1,000,000 in the
aggregate.

     

    12.15     Validity
of Liens. If any
Lien created under any of the Investment Documents ceases to be perfected and in
full force and effect, or any Obligor terminates, attempts to terminate or
contests the validity or enforceability of any of Lien.

     

    
      
        
        

      

      
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    ARTICLE
13

    REMEDIES

     

    Upon the
occurrence and during the continuance of an Event of Default, but subject to the
rights of the Senior Lender under the Senior Loan Documents and the terms and
conditions of the Senior Loan Subordination Agreement, the Purchaser shall have
all rights, powers and remedies set forth in the Investment Documents relating
to any of the Obligations or any security therefor, as a secured party under the
UCC or as otherwise provided at law or in equity, including those rights
hereinafter set forth in this Article 13. Without limiting the generality of the
foregoing, the Purchaser may, at its option upon the occurrence and during the
continuance of an Event of Default, subject to the rights of the Senior Lender
under the Senior Loan Documents and the terms and conditions of the Senior Loan
Subordination Agreement, declare its commitments to the Obligors to be
terminated and all Obligations to be immediately due and payable, provided, however, that, upon
the occurrence of an Event of Default under 12.07, subject to the rights of the
Senior Lender under the Senior Loan Documents and the terms and conditions of
the Senior Loan Subordination Agreement, all commitments of the Purchaser to the
Obligors shall immediately terminate and all Obligations shall be automatically
due and payable, all without demand, notice or further action of any kind
required on the part of the Purchaser. The Obligors hereby waive any and all
presentment, demand, notice of dishonor, protest, and all other notices and
demands in connection with the enforcement of Purchaser’s rights under the
Investment Documents, and hereby consent to, and waive notice of release, with
or without consideration, of any Collateral, notwithstanding anything contained
herein or in the Investment Documents to the contrary.

     

    13.01   
 Possession
and Assembly
of Collateral. Upon the occurrence and
during the continuance of an Event of Default, but subject to the rights of the
Senior Lender under the Senior Loan Documents and the terms and conditions of
the Senior Loan Subordination Agreement, the Purchaser may, without notice,
demand or legal process of any kind, take possession of any or all of the
Collateral (in addition to Collateral of which the Purchaser already has
possession), wherever it may be found, and for that purpose may pursue the same
wherever it may be found, and may at any time enter into any of any Obligor’s
premises where any of the Collateral may be or is supposed to be, and search
for, take possession of, remove, keep and store any of the Collateral until the
same shall be sold or otherwise disposed of, and the Purchaser shall have the
right to store and conduct a sale of the same in any premises of any Obligor
without cost to the Purchaser. At the Purchaser’s request, the Obligors will, at
the Obligors’ sole expense, assemble the Collateral and make it available to the
Purchaser at a place or places to be designated by the Purchaser which is
reasonably convenient to the Purchaser and the Obligors. At the request of the
Purchaser, after the occurrence and during the continuance of an Event of
Default, but subject to the rights of the Senior Lender under the Senior Loan
Documents and the terms and conditions of the Senior Loan Subordination
Agreement, each Obligor shall provide warehousing space in its own premises to
the Purchaser for the purpose of taking such Obligor’s Inventory and Equipment
into the custody of the Purchaser without removal thereof from such premises and
will erect such structures and post such signs as the Purchaser may reasonably
require in order to place such Inventory and Equipment under the exclusive
control of the Purchaser.


    
      
         


      

      
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    13.02     Sale of
Collateral. Upon the occurrence and during the continuance of an
Event of Default, but subject to the rights of the Senior Lender under the
Senior Loan Documents and the terms and conditions of the Senior Loan
Subordination Agreement, the Purchaser may sell any or all of the Collateral at
public or private sale, upon such terms and conditions as the Purchaser may deem
proper, and the Purchaser may purchase any or all of the Collateral at any such
sale. The Obligors acknowledge that the Purchaser may be unable to effect a
public sale of all or any portion of the Collateral because of certain legal or
practical restrictions and provisions which may be applicable to the Collateral
and, therefore, may be compelled to resort to one or more private sales to a
restricted group of offerees and purchasers in a commercially reasonable manner
in accordance with the Uniform Commercial Code. The Obligors consent to any such
private sale so made even though at places and upon terms less favorable than if
the Collateral were sold at public sale provided that such private sale is
conducted in a commercially reasonable manner. The Purchaser shall have no
obligation to clean-up or otherwise prepare the Collateral for sale. The
Purchaser may apply the net proceeds, after deducting all costs, expenses,
attorneys’ and paralegals’ fees incurred or paid at any time in the collection,
protection and sale of the Collateral and the Obligations, to the payment of the
Note or any of the other Obligations, returning the excess proceeds, if any, to
the Obligors. The Obligors shall remain liable for any amount remaining unpaid
after such application, with interest at the Default Rate. Any notification of
intended disposition of the Collateral required by law shall be conclusively
deemed reasonably and properly given if given by the Purchaser at least ten
(10) calendar days
before the date of such disposition. Each Obligor hereby confirms, approves and
ratifies all acts and deeds of the Purchaser relating to the foregoing, and each
part thereof, and expressly waives any and all claims of any nature, kind or
description which it has or may hereafter have against the Purchaser or its
representatives, by reason of taking, selling or collecting any portion of the
Collateral. The Obligors consent to releases of the Collateral at any time and
to sales of the Collateral in groups, parcels or portions, or as an entirety, as
the Purchaser shall deem appropriate. The Obligors expressly absolve the
Purchaser from any loss or decline in market value of any Collateral by reason
of delay in the enforcement or assertion or nonenforcement of any rights or
remedies under this Agreement except in the case of gross negligence or willful
misconduct by the Purchaser.


    
      
         


      

      
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    13.03     Standards
for Exercising Remedies.
Upon the occurrence and during the
continuance of an Event of Default, but subject to the rights of the Senior
Lender under the Senior Loan Documents and the terms and conditions of the
Senior Loan Subordination Agreement, to the extent that applicable law imposes
duties on the Purchaser to exercise remedies in a commercially reasonable
manner, the Obligors acknowledge and agree that it is not commercially
unreasonable for the Purchaser (a) to fail to incur expenses reasonably deemed
significant by the Purchaser to prepare Collateral for disposition or otherwise
to complete raw material or work-in-process into finished goods or other
finished products for disposition, (b) to fail to obtain third party consents
for access to Collateral to be disposed of, or to obtain or, if not required by
other law, to fail to obtain governmental or third party consents for the
collection or disposition of Collateral to be collected or disposed of, (c)
to fail to exercise
collection remedies against Account debtors or other Persons obligated on
Collateral or to remove liens or encumbrances on or any adverse claims against
Collateral, (d) to exercise collection remedies against Account debtors and
other Persons obligated on Collateral directly or through the use of collection
agencies and other collection specialists, (e) to advertise dispositions of
Collateral through publications or media of general circulation, whether or not
the Collateral is of a specialized nature, (f) to contact other Persons, whether
or not in the same business as the Obligors, for expressions of interest in
acquiring all or any portion of the Collateral, (g) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the collateral is of a specialized nature, (h) to dispose of
Collateral by utilizing internet sites that provide for the auction of
assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (i) to
dispose of assets in wholesale rather than retail markets, (j) to disclaim
disposition warranties, including any warranties of title, (k) to purchase
insurance or credit enhancements to insure the Purchaser against risks of loss,
collection or disposition of Collateral or to provide to the Purchaser a
guaranteed return from the collection or disposition of Collateral, or (l) to
the extent deemed appropriate by the Purchaser, to obtain the services of other
brokers, investment bankers, consultants and other professionals to assist the
Purchaser in the collection or disposition of any of the Collateral. The
Obligors acknowledge that the purpose of this section is to provide
non-exhaustive indications of what actions or omissions by the Purchaser would
not be commercially unreasonable in the Purchaser’s exercise of remedies against
the Collateral and that other actions or omissions by the Purchaser shall not be
deemed commercially unreasonable solely on account of not being indicated in
this section. Without limitation upon the foregoing, nothing contained in this
section shall be construed to grant any rights to the Obligors or to impose any
duties on the Purchaser that would not have been granted or imposed by this
Agreement or by applicable law in the absence of this section.

     

    13.04   
 UCC
and Offset
Rights. Upon the
occurrence and during the continuance of an Event of Default, but subject to the
rights of the Senior Lender under the Senior Loan Documents and the terms and
conditions of the Senior Loan Subordination Agreement, the Purchaser may
exercise, from time to time, any and all rights and remedies available to it
under the UCC or under any other applicable law in addition to, and not in lieu
of, any rights and remedies expressly granted in this Agreement or in any other
agreements between any Obligor and the Purchaser, and may, without demand or
notice of any kind, appropriate and apply toward the payment of such of the
Obligations, whether matured or unmatured, including costs of collection and
attorneys’ and paralegals’ fees, and in such order of application as the
Purchaser may, from time to time, elect, any indebtedness of the Purchaser to
any Obligor, however created or arising, including balances, credits, deposits,
accounts or moneys of such Obligor in the possession, control or custody of, or
in transit to the Purchaser. The Obligors hereby waive the benefit of any law
that would otherwise restrict or limit the Purchaser in the exercise of its
right, which is hereby acknowledged, to appropriate at any time hereafter any
such indebtedness owing from the Purchaser to any Obligor.

     

    13.05    Additional
Remedies. Upon
the occurrence and during the continuance of an Event of Default, but subject to
the rights of the Senior Lender under the Senior Loan Documents and the terms
and conditions of the Senior Loan Subordination Agreement, the Purchaser shall
have the right and power to:

     

    (a)       instruct
the Obligors, at their own expense, to notify any parties obligated on any of
the Collateral, including any Account debtors, to make payment directly to the
Purchaser of any amounts due or to become due thereunder, or the Purchaser may
directly notify such obligors of the security interest of the Purchaser, or of
the assignment to the Purchaser of the Collateral and direct such obligors to
make payment to the Purchaser of any amounts due or to become due with respect
thereto, and thereafter, collect any such amounts due on the Collateral directly
from such Persons obligated thereon;


    
      
         


      

      
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    (b)       enforce
collection of any of the Collateral, including any Accounts, by suit or
otherwise, or make any compromise or settlement with respect to any of the
Collateral, or surrender, release or exchange all or any part thereof, or
compromise, extend or renew for any period (whether or not longer than the
original period) any indebtedness thereunder;

     

    (c)       take
possession or control of any proceeds and products of any of the Collateral,
including the proceeds of insurance thereon;


     

    (d)       Reserved.

     

    (e)       Reserved.


     

    (f)       transfer
the whole or any part of securities which may constitute Collateral into the
name of the Purchaser or the Purchaser’s nominee without disclosing, if the
Purchaser so desires, that such securities so transferred are subject to the
security interest of the Purchaser, and any corporation, association, or any of
the managers or trustees of any trust issuing any of such securities, or any
transfer agent, shall not be bound to inquire, in the event that the
Purchaser or such nominee makes any further transfer of such securities, or
any portion thereof, as to whether the Purchaser or such nominee has the right
to make such further transfer, and shall not be liable for transferring the
same;

     

    (g)      make
an election with respect to the Collateral under Section 1111 of the Bankruptcy
Code or take action under Section 364 or any other section of the Bankruptcy
Code; provided,
however, that any such action of
the Purchaser as set forth herein shall not, in any manner whatsoever, impair or
affect the liability of the Obligors hereunder, nor prejudice, waive, nor be
construed to impair, affect, prejudice or waive the Purchaser’s rights and
remedies at law, in equity or by statute, nor release, discharge, nor be
construed to release or discharge, the Obligors, any guarantor or other Person
liable to the Purchaser for the Obligations; and

     

    (h)      at
any time, and from time to time, accept additions to, releases, reductions,
exchanges or substitution of the Collateral, without in any way altering,
impairing, diminishing or affecting the provisions of this Agreement, the
Investment Documents, or any of the other Obligations, or the Purchaser’s rights
hereunder, under any Note or under any of the other Obligations.

     

    The
Obligors hereby ratify and confirm whatever the Purchaser may do with respect to
the Collateral and agree that the Purchaser shall not be liable for any error of
judgment or mistakes of fact or law with respect to actions taken in connection
with the Collateral, except for the gross negligence or willful misconduct of
the Purchaser.


    
      
         


      

      
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    13.06    
Attorney-in-Fact. Upon the occurrence and
during the continuance of an Event of Default, but subject to the rights of the
Senior Lender under the Senior Loan Documents and the terms and conditions of
the Senior Loan Subordination Agreement, each Obligor hereby irrevocably makes,
constitutes and appoints the Purchaser until all of the Obligations (other than
inchoate indemnity obligations) are paid in full (and any officer of the
Purchaser or any Person designated by the Purchaser for that purpose) as such
Obligor’s true and lawful proxy and attorney-in-fact (and agent-in-fact) in such
Obligor’s name, place and stead, with full power of substitution, to: (i) take
such actions as are permitted in this Agreement; (ii) execute such financing
statements and other documents and to do such other acts as the Purchaser may
require to perfect and preserve the Purchaser’s security interest in, and to
enforce such interests in the Collateral; (iii) carry out any remedy provided
for in this Agreement, including endorsing such Obligor’s name to checks,
drafts, instruments and other items of payment, and proceeds of the Collateral,
executing change of address forms with the postmaster of the United States Post
Office serving the address of such Obligor, changing the address of such Obligor
to that of the Purchaser, opening all envelopes addressed to such Obligor and
applying any payments contained therein to the Obligations; (iv) sign and
endorse the name of such Obligor on any invoice, bill of lading, storage or
warehouse receipt, assignment, verification and notice, in connection with any
Collateral; and (v) give written notices in connection with any Collateral,
which power of attorney is coupled with an interest and irrevocable until all of
the Obligations are paid in full. Each Obligor hereby acknowledges that the
constitution and appointment of such proxy and attorney-in-fact are coupled with
an interest and are irrevocable. Each Obligor hereby ratifies and confirms all
that such attorney-in-fact may do or cause to be done by virtue of any provision
of this Agreement. Notwithstanding the foregoing, the Purchaser shall not have
the power to confess judgment on behalf of any Obligor.

     

    13.07   
 Verification
of
Accounts:
Lockbox.

     

    (a)       After
the occurrence and during the continuance of an Event of Default, but subject to
the rights of the Senior Lender under the Senior Loan Documents and the terms
and conditions of the Senior Loan Subordination Agreement, and until all of the
Obligations are paid in full (other than inchoate indemnity obligations), the
Purchaser may, at any time and from time to time, send such verification forms
or make such calls to, or otherwise make such contacts with, any Persons as are
necessary or desirable, in the Purchaser’s sole discretion, to verify any
Accounts, Instruments, Chattel Paper or General Intangibles that are Collateral
and the balance due and, subject to the rights of the Senior Lender under the
Senior Loan Documents and the Senior Loan Subordination Agreement, to direct
such Persons or any obligor with respect to any Collateral to make payment of
all amounts due or to become due to any Obligor thereunder directly to the
Purchaser and, upon such notification and at the expense of the Obligors, to
enforce collection of any such Accounts or other Collateral, and to adjust,
settle or compromise the amount or payment thereof in the same manner and to the
same extent as the applicable Obligor might have done, but unless and until the
Purchaser does so or gives the Obligors other instructions, each Obligor shall
make all collections for Purchaser.

     

    (b)       Subject
to the rights of the Senior Lender under the Senior Credit Agreement and the
Senior Loan Subordination Agreement, the Purchaser, at any time after the
occurrence and during the continuance of an Event of Default or the acceleration
of the Obligations, may require that each Obligor instruct all current and
future purchasers and obligors on other Collateral to make all payments directly
to a lockbox (the “Lockbox”)
controlled by the Purchaser. All payments received in the Lockbox shall
be transferred to a special bank account (the “Collateral
Account”) maintained for the benefit of the purchaser subject to
withdrawal by the Purchaser only. After the Purchaser’s exercise of its rights
to direct purchasers or other obligors on any Collateral to make payments
directly to the Purchaser or to require the Obligors to establish a Lockbox, the
Obligors shall immediately deliver all full and partial payments on any
Collateral received by any of them to the Purchaser in their original form,
except for endorsements where necessary. The Purchaser shall apply all
collections received by it or deposited in the Collateral. Until such payments
are so delivered to the Purchaser, such payments shall be held in trust by the
Obligors for and as the Purchaser’s property, and shall not be commingled with
any funds of any Obligor. Any application of any collection to the payment of
any Liability is conditioned upon final payment of any check or other
instrument.


    
      
         


      

      
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    13.08     No
Marshaling. The
Purchaser shall not be required to marshal any present or future collateral
security (including this Agreement and the Collateral) for, or other assurances
of payment of, the Obligations or any of them or to resort to such collateral
security or other assurances of payment in any particular order. To the extent
that it lawfully may, each Obligor hereby agrees that it will not invoke any law
relating to the marshaling of collateral which might cause delay in or impede
the enforcement of the Purchaser’s rights under this Agreement or under any
other instrument creating or evidencing any of the Obligations or under which
any of the Obligations is outstanding or by which any of the Obligations is
secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, each Obligor hereby irrevocably waives the benefits of all such
laws.

     

    13.09     Application
of Proceeds. The Purchaser will promptly after receipt of cash or
solvent credits from collection of items of payment, proceeds of Collateral or
any other source, apply the whole or any part thereof against the Obligations
secured hereby. The Purchaser shall further have the exclusive right to
determine how, when and what application of such payments and such credits shall
be made on the Obligations, and such determination shall be conclusive upon the
Obligors. Any proceeds of any disposition by the Purchaser of all or any part of
the Collateral may be first applied by the Purchaser to the payment of expenses
incurred by the Purchaser in connection with the Collateral, including
attorneys’ fees and legal expenses as provided for in Section 14.12 hereof, and including reasonable
out-of-pocket costs, expenses, disbursements and losses which shall have been
incurred or sustained by the Purchaser in connection with the collection of such
monies by the Purchaser, for the exercise, protection or enforcement by the
Purchaser of all or any of the rights, remedies, powers and privileges of the
Purchaser under this Agreement, the Note, the Warrant or any of the other
Investment Documents.

     

    13.10     No
Waiver. No Event of Default shall be waived by the Purchaser
except in writing. No failure or delay on the part of the Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver of the
exercise of the same or any other right at any other time; nor shall any single
or partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. There shall be no obligation on the part of the Purchaser to exercise
any remedy available to the Purchaser in any order. The remedies provided for
herein are cumulative and not exclusive of any remedies provided at law or in
equity. The Obligors agree that in the event that any Obligor fails to perform,
observe or discharge any of its Obligations or liabilities under this Agreement
or any other agreements with the Purchaser, no remedy of law will provide
adequate relief to the Purchaser, and further agrees that the Purchaser shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.

    
       

      
        
          
          

        

        
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    ARTICLE 14

    MISCELLANEOUS

     

    14.01     Survival
of Representations
and Warranties. All of the representations and warranties
made herein shall survive the execution and delivery of this Agreement, any
investigation by or on behalf of the Purchaser, acceptance of the Securities and
payment therefor, or termination of this Agreement.

     

    14.02     Tax
Withholding.To
the extent that the Obligors reasonably determine that the Obligors are required
by applicable tax law to withhold any amount from payments due hereunder, the
Obligors may withhold, and pay over to the applicable taxing authority, such
amounts as required.

     

    14.03     Notices. All notices, demands and
other communications provided for or permitted hereunder shall be made in
writing and shall be by registered or certified first-class mail, return receipt
requested, facsimile (with receipt confirmed), commercial overnight courier
service or personal delivery:

     

    (a)      if
to any Obligor:

     

    Cornerstone
OnDemand

    1601
Cloverfield Blvd., Suite 620

    Santa
Monica, CA 90404

    Facsimile:
(310) 752-0143

    Attention:
Adam Miller

     

    with a
copy to:

     

    Wilson
Sonsini Goodrich & Rosati

    650 Page
Mill Road

    Palo
Alto, CA 94304

    Facsimile
No.: (650) 493-6811

    Attention:
Herbert Fockler, Esq.

     

    (b)       if
to Purchaser, as applicable

     

    Ironwood
Equity Fund LP

    200
Fisher Drive

    Avon,
Connecticut 06001

    Facsimile
No.: (860) 409-2120

    Attention:
Victor Budnick


    
      
         


      

      
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    with a
copy to:

     

    Updike,
Kelly & Spellacy, P.C.

    One State
Street, P.O. Box 231277

    Hartford,
Connecticut 06123-1277

    Facsimile
No.: (860) 548-2680

    Attention:
David E. Sturgess, Esq.

     

    All such
notices and communications shall be deemed to have been duly given: when
delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial overnight courier service; five (5) Business Days after
being deposited in the mail, if mailed, postage prepaid; or when receipt is
acknowledged, if facsimiled.

     

    14.04     Successors
and Assigns. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. Subject to applicable securities laws,
and, as long as no Event of Default shall have occurred and be continuing, with
the consent of the Obligors, the Purchaser may assign any of its respective
rights under any of the Investment Documents to any Person, and any holder of
any Note may assign, in whole (but not in part), the Note to any Person, who
shall be deemed a Purchaser hereunder; provided, however, that the
consent of the Obligors shall not be required if any assignment or transfer is
required under the Small Business Investment Act of 1958 and the regulations
thereunder. No Obligor may assign any of its rights, or delegate any of its
obligations, under this Agreement without the prior written consent of the
Purchaser and any such purported assignment by any Obligor without the written
consent of the Purchaser shall be void and of no effect. Except as provided in
Article 7, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of any of the Investment
Documents.

     

    14.05     Amendment and Waiver.

     

    (a)       No
failure or delay on the part of any of the parties hereto in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided for in this Agreement are cumulative and are not
exclusive of any remedies that may be available to the parties hereto at law, in
equity or otherwise.

     

    (b)       Any
amendment, supplement or modification of or to any provision of this Agreement
or the Note, any waiver of any provision of this Agreement or the Note, and any
consent to any departure by any party from the terms of any provision of this
Agreement or the Note, shall be effective (i) only if it is made or given in
writing and signed by the holders of at least a majority of the unpaid principal
amounts of the Note, and (ii) only in the specific instance and for the specific
purpose for which made or given provided, however, that no such
amendment, supplement or modification may, (i) without the written consent of
the holder of the Note at the time outstanding affected thereby (A) change the
amount or time of any required payment or prepayment of principal of, or reduce
the rate or change the form or time of payment or method of computation of
interest on, the Note or (B) change the percentage of the principal amount of
the Note the holders of which are required to consent to any such modification
or (ii) make any change that adversely’ affects any holder of the Warrant,
without the consent of such holder. No amendment, supplement or modification of
or to any provision of this Agreement or any of the other Investment Documents,
or any waiver of any such provision or consent to any departure by any party
from the terms of any such provision may be made orally. Except where notice is
specifically required by this Agreement, no notice to or demand on the Obligors
in any case shall entitle the Obligors to any other or further notice or demand
in similar or other circumstances. Any amendment, supplement or modification of
or to any provision of this Agreement or the Note, any waiver of any provision
of this Agreement or the Note, and any consent to any departure by any party
from the terms of any provision of this Agreement or the Note made or given in
conformity herewith, shall apply to all of the parties hereto and their
successors and assigns.


    
      
         


      

      
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    14.06     Signatures;
Counterparts.
Facsimile transmissions or scanned and then emailed transmissions of any
executed original document or retransmission of any executed facsimile or
scanned and emailed transmission shall be deemed to be the same as the delivery
of an executed original (collectively, “Electronic
Signatures”).At the request
of any party hereto, the other parties hereto shall confirm transmissions of the
Electronic Signatures by executing duplicate original documents and delivering
the same to the requesting party or parties. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.

     

    14.07     Headings. The headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof.

     

    14.08     GOVERNING
LAW. THIS
AGREEMENT SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH, AND ENFORCED
UNDER, THE LAWS OF THE STATE OF CONNECTICUT WITHOUT REGARD TO ANY CHOICE OF LAW
PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF ANY OTHER LAW.

     

    14.09     JURISDICTION, JURY TRIAL
WAIVER, PJR WAIVER, ETC.


     

    (a)       EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY
AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE NOTE, THE WARRANT, ANY INVESTMENT DOCUMENT OR ANY AGREEMENT(S) OR
TRANSACTION(S)
CONTEMPLATED HEREBY OR THEREBY MAY BE BROUGHT IN THE COURTS OF THE STATE OF
CONNECTICUT OR OF THE UNITED STATES OF AMERICA FOR THE DISTRICT OF CONNECTICUT
AND HEREBY EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH
COURTS FOR THE PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE
AND ANY CLAIM THAT SUCH COURTS ARE AN INCONVENIENT FORUM. EACH PARTY HEREBY
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF
BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN SECTION 14.03, SUCH
SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH
MAILING.


    
      
         


      

      
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    (b)       EACH
OBLIGOR AND ITS SUBSIDIARIES HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH
THIS AGREEMENT, THE NOTE, THE WARRANT OR ANY OF THE OTHER INVESTMENT DOCUMENT,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH
RIGHTS AND OBLIGATIONS. EACH OBLIGOR AND ITS SUBSIDIARIES (I) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE PURCHASER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE PURCHASER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS, AND (II) ACKNOWLEDGES THAT THE PURCHASER HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT, AND THE OTHER INVESTMENT DOCUMENTS TO
WHICH IT IS PARTY, BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS
CONTAINED HEREIN.

     

    (c)       EACH
OBLIGOR AND ITS SUBSIDIARIES AND EACH AND EVERY ENDORSER, GUARANTOR AND SURETY
OF THE NOTE, AND EACH OTHER PERSON WHO IS OR WHO SHALL BECOME LIABLE FOR ALL OR
ANY PART OF THE OBLIGATIONS UNDER THIS AGREEMENT, THE NOTE, THE WARRANT OR THE
OTHER INVESTMENT DOCUMENTS, HEREBY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH
THIS AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION AND WAIVES THEIR RIGHTS TO
NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES OR BY
OTHER APPLICABLE LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE PURCHASER
OR ANY HOLDER OF SUCH OBLIGATIONS MAY DESIRE TO USE.


     

    14.10     Severability. If any one or more of the
provisions contained in this Agreement, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions hereof shall not be in any way
impaired, unless the provisions held invalid, illegal or unenforceable shall
substantially impair the benefits of the remaining provisions of this Agreement.
The parties hereto further agree to replace such invalid, illegal or
unenforceable provision of this Agreement with a valid, legal and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such invalid, illegal or unenforceable provision.

     

    14.11     Entire
Agreement. This
Agreement, together with the exhibits and schedules hereto and the other
Investment Documents, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, together with the exhibits and schedules hereto, and the other
Investment Documents supersede all prior agreements and understandings between
the parties with respect to such subject matter.


    
      
         


      

      
        -67-

        
          

        

      

      
         


      

    

     

    14.12     Certain
Expenses. The
Obligors shall pay all expenses of the Purchaser (including, fees, charges and
disbursements of counsel) in connection with any amendment, supplement,
modification or waiver of or to any provision of this Agreement, the Note, the
Warrant or any of the other Investment Documents or any documents relating
thereto (including, a response to a request by the Obligors for the Purchaser’s
consent to any action otherwise prohibited hereunder or thereunder), or consent
to any departure from, the terms of any provision of this Agreement or such
other documents, enforcement of any of the Investment Documents and collection
of any payments due to the Purchaser thereunder or any bankruptcy or insolvency
proceeding or work-out. The Obligors shall also pay all reasonable expenses of
the Purchaser (including fees, charges and disbursements of counsel) in
connection with any action taken by Purchaser pursuant to Section 12.05(a) prior
to receipt of notice that a third party has waived any default described in such
Section 12.05(a).

     

    14.13     Publicity. Except as may be required by
applicable law, none of the parties hereto shall issue a publicity release or
announcement or otherwise make any public disclosure concerning this Agreement
or the transactions contemplated hereby, without prior approval by the other
party hereto. If any announcement is required by law to be made by any party
hereto, prior to making such announcement such party will deliver a draft of
such announcement to the other parties and shall give the other parties an
opportunity to comment thereon.

     

    14.14     Further
Assurances. Each
of the parties shall execute such documents and perform such further acts
(including, obtaining any consents, exemptions, authorizations, or
other actions by, or giving any notices to, or making any filings with, any
Governmental Authority or any other Person) as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement, including
without limitation, any post-closing assignment(s) by the Purchaser of a portion
of their Note to a Person not currently a party hereto. In connection with any
such post-closing assignment, the Obligors shall enter into an intercreditor
agreement with the Purchaser and any subsequent holders of the Note, on terms
and conditions reasonably satisfactory to all parties thereto.

     

    14.15     No Strict
Construction. The
parties hereto have participated jointly in the negotiation and drafting of this
Agreement and the other Investment Documents. In the event an ambiguity or
question of intent or interpretation arises under any provision of this
Agreement or any Investment Document, this Agreement or such other Investment
Document shall be construed as if drafted jointly by the parties thereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement or any other
Investment Document. No knowledge of, or investigation, including without
limitation, due diligence investigation, conducted by, or on behalf of, the
Purchaser shall limit, modify or affect the representations set forth in Article
5 of this Agreement or the right of the Purchaser to rely
thereon.


     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK – SIGNATURE PAGE FOLLOWS]


    
      
         


      

      
        -68-

        
          

        

      

      
         


      

    

     

    [Signature Page to Securities Purchase
Agreement]

     

    IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed and delivered by their respective officers
hereunto duly authorized as of the date first above written.

    


    
      
        
          
            	
                    CORNERSTONE
      ONDEMAND, INC.

                  
	 
      	 
      
	
                    By:

                  	
                    /s/
      Adam Miller

                  
	 
      	
                    Its    CEO

                  
	 
      	 
      
	
                    IRONWOOD
      EQUITY FUND LP

                  
	
                    By:
      Ironwood Equity Management LLC

                  
	
                    Its:
      General Partner

                  
	 
      
	
                    By:

                  	      
                    /s/
      Victor R. Budnick

                  
	 
      	
                    Its