Exhibit 10.1


 


NOTE
PURCHASE AGREEMENT


 


Among


 


XPLORE
TECHNOLOGIES CORP.


 


XPLORE
TECHNOLOGIES CORPORATION OF AMERICA


 


and


 


THE PURCHASERS


 


 


Dated February 27, 2009


 

















 


TABLE OF
CONTENTS


 


	
  1.

  	
  Purchase and Sale of the Notes and the Warrants

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Authorization of Issuance of the Notes and the
  Warrants

  	
   

  	
  2

  
	
   

  	
  1.2

  	
  Purchase and Sale of Initial Closing Notes and
  Initial Closing Warrants

  	
   

  	
  2

  
	
   

  	
  1.3

  	
  Purchase and Sale of Additional Notes and Additional
  Warrants

  	
   

  	
  2

  
	
   

  	
  1.4

  	
  Use of Proceeds

  	
   

  	
  2

  
	
   

  	
  1.5

  	
  Initial Closing

  	
   

  	
  2

  
	
   

  	
  1.6

  	
  Subsequent Closings

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

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

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  General

  	
   

  	
  3

  
	
   

  	
  2.2

  	
  Security

  	
   

  	
  3

  
	
   

  	
  2.3

  	
  Subordination

  	
   

  	
  4

  
	
   

  	
  2.4

  	
  Pari Passu with Fall 2008 Notes

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Representations and Warranties of the Borrowers

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Organization and Qualification

  	
   

  	
  4

  
	
   

  	
  3.2

  	
  Certificate of Incorporation and Bylaws

  	
   

  	
  4

  
	
   

  	
  3.3

  	
  Corporate Power and Authority

  	
   

  	
  4

  
	
   

  	
  3.4

  	
  Capitalization

  	
   

  	
  5

  
	
   

  	
  3.5

  	
  Authorization

  	
   

  	
  5

  
	
   

  	
  3.6

  	
  Title to Properties and Assets; Leases; Insurance

  	
   

  	
  5

  
	
   

  	
  3.7

  	
  Related-Party Transactions

  	
   

  	
  6

  
	
   

  	
  3.8

  	
  Permits; Compliance with Applicable Laws

  	
   

  	
  6

  
	
   

  	
  3.9

  	
  Proprietary Rights

  	
   

  	
  6

  
	
   

  	
  3.10

  	
  Material Contracts

  	
   

  	
  7

  
	
   

  	
  3.11

  	
  Absence of Undisclosed Liabilities

  	
   

  	
  7

  
	
   

  	
  3.12

  	
  Absence of Conflicts

  	
   

  	
  7

  
	
   

  	
  3.13

  	
  Litigation

  	
   

  	
  8

  
	
   

  	
  3.14

  	
  Consents

  	
   

  	
  8

  
	
   

  	
  3.15

  	
  Labor Relations; Employees

  	
   

  	
  8

  
	
   

  	
  3.16

  	
  Employee Benefit Plans

  	
   

  	
  8

  
	
   

  	
  3.17

  	
  Tax Returns, Payments and Elections

  	
   

  	
  8

  
	
   

  	
  3.18

  	
  Brokers or Finders

  	
   

  	
  9

  
	
   

  	
  3.19

  	
  Offering Exemption

  	
   

  	
  9

  
	
   

  	
  3.20

  	
  Environmental Matters

  	
   

  	
  9

  
	
   

  	
  3.21

  	
  Offering of Purchased Shares and Warrants

  	
   

  	
  10

  
	
   

  	
  3.22

  	
  SEC Reports; Disclosure

  	
   

  	
  10

  
	
   

  	
  3.23

  	
  Financial Statements

  	
   

  	
  10

  
	
   

  	
  3.24

  	
  Suppliers and Customers

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Representations and Warranties of the Purchasers

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Organization and Qualification

  	
   

  	
  11

  



 


i

















 


	
   

  	
  4.2

  	
  Power and Authority

  	
   

  	
  11

  
	
   

  	
  4.3

  	
  Authorization

  	
   

  	
  11

  
	
   

  	
  4.4

  	
  Purchase Entirely for Own Account

  	
   

  	
  12

  
	
   

  	
  4.5

  	
  Disclosure of Information

  	
   

  	
  12

  
	
   

  	
  4.6

  	
  Investment Experience

  	
   

  	
  12

  
	
   

  	
  4.7

  	
  Accredited Investor

  	
   

  	
  12

  
	
   

  	
  4.8

  	
  Restricted Securities; Legends

  	
   

  	
  12

  
	
   

  	
  4.9

  	
  No General Solicitation

  	
   

  	
  13

  
	
   

  	
  4.10

  	
  Absence of Conflicts

  	
   

  	
  13

  
	
   

  	
  4.11

  	
  Brokers or Finders

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Conditions of the Parties

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Conditions of Purchasers’ Obligations at any Closing

  	
   

  	
  13

  
	
   

  	
  5.2

  	
  Conditions of Initial Purchasers’ Obligations at the
  Initial Closing

  	
   

  	
  14

  
	
   

  	
  5.3

  	
  Conditions of Additional Purchasers’ Obligations at
  any Subsequent Closing

  	
   

  	
  15

  
	
   

  	
  5.4

  	
  Conditions of Borrowers’ Obligations at any Closing

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Events of Default and Remedies

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Events of Default

  	
   

  	
  16

  
	
   

  	
  6.2

  	
  Exercise of Remedies

  	
   

  	
  18

  
	
   

  	
  6.3

  	
  Waiver of Defaults

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Debt Covenants

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  General

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Indemnification

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  General Indemnification

  	
   

  	
  18

  
	
   

  	
  8.2

  	
  Indemnification Principles

  	
   

  	
  18

  
	
   

  	
  8.3

  	
  Claim Notice; Right to Defend

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Certain Definitions

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  [RESERVED]

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Miscellaneous

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.1

  	
  Survival of Representations and Warranties

  	
   

  	
  24

  
	
   

  	
  11.2

  	
  Successors and Assigns

  	
   

  	
  24

  
	
   

  	
  11.3

  	
  Governing Law

  	
   

  	
  24

  
	
   

  	
  11.4

  	
  Counterparts

  	
   

  	
  24

  
	
   

  	
  11.5

  	
  Titles and Subtitles

  	
   

  	
  24

  
	
   

  	
  11.6

  	
  Notices

  	
   

  	
  24

  
	
   

  	
  11.7

  	
  Expenses

  	
   

  	
  25

  
	
   

  	
  11.8

  	
  Consents, Amendments and Waivers

  	
   

  	
  25

  
	
   

  	
  11.9

  	
  Severability

  	
   

  	
  25

  



 


ii

















 


	
   

  	
  11.10

  	
  Entire Agreement

  	
   

  	
  25

  
	
   

  	
  11.11

  	
  Delays or Omissions

  	
   

  	
  26

  
	
   

  	
  11.12

  	
  Facsimile and E-Mail Signatures

  	
   

  	
  26

  
	
   

  	
  11.13

  	
  Other Remedies

  	
   

  	
  26

  
	
   

  	
  11.14

  	
  Further Assurances

  	
   

  	
  26

  
	
   

  	
  11.15

  	
  Exchanges; Lost, Stolen or Mutilated Notes and
  Warrants

  	
   

  	
  26

  
	
   

  	
  11.16

  	
  Termination

  	
   

  	
  27

  
	
   

  	
  11.17

  	
  Pro Rata

  	
   

  	
  27

  
	
   

  	
  11.18

  	
  Appointment and Authorization of Phoenix Venture
  Fund LLC as Agent

  	
   

  	
  27

  



 


iii

















 


Exhibit & Schedules List


 


	
  Exhibit A

  	
   

  	
  -

  	
   

  	
  Form of Note

  
	
  Exhibit B

  	
   

  	
  -

  	
   

  	
  Form of Warrant

  
	
  Exhibit C

  	
   

  	
  -

  	
   

  	
  Form of Amendment No. 1 to the Security Agreement

  
	
  Exhibit D

  	
   

  	
  -

  	
   

  	
  Form of Subordination Agreement

  
	
  Exhibit E

  	
   

  	
  -

  	
   

  	
  Debt Covenants

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule I

  	
   

  	
   

  	
   

  	
  List of Initial Purchasers

  
	
  Schedule II

  	
   

  	
   

  	
   

  	
  List of Additional Purchasers

  



 


iv

















 


NOTE
PURCHASE AGREEMENT


 


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


 


W I T N E S S E T H:


 


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


 


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


 


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


 


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


 

















 


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


 


1.1                                 Authorization
of Issuance of the Notes and the Warrants.


 


(a)                                  Subject
to the terms and conditions of this Agreement, on or prior to the Initial
Closing Date, the Borrowers shall have authorized the issuance and sale to the
Initial Purchasers of (i) the Initial Closing Notes, in the form attached
hereto as Exhibit A, and (ii) the Initial Closing Warrants, in
the form attached hereto as Exhibit B.


 


(b)                                 Subject
to the terms and conditions of this Agreement, on or prior to any Subsequent
Closing Date, the Borrowers shall have authorized the issuance and sale to the
Additional Purchasers of (i) all Additional Notes to be issued at any
Subsequent Closing in the form attached hereto as Exhibit A, and (ii) the
Additional Warrants, in the form attached hereto as Exhibit B.


 


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


 


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


 


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


 


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


 


2

















 


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


 


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


 


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


 


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


 


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


 


3

















 


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


 


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


 


3.                                       Representations
and Warranties of the Borrowers.


 


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


 


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


 


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


 


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


 


4

















 


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


 


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


 


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


 


3.6                                 Title to Properties
and Assets; Leases; Insurance.


 


(a)                                  Neither
Borrower currently owns any real property nor has ever owned any real
property.  Each of the Borrowers has good
and marketable title to or has a valid leasehold interest in, or license to
use, all of the property or assets used by it or located on its premises and
necessary for the conduct of business as presently conducted, free and clear of
all Liens, other than Permitted Liens.


 


(b)                                 With
respect to the insurance policies and fidelity bonds covering the assets,
business, equipment, properties, operations, employees, officers and directors
of each Borrower, there is no claim by either Borrower pending under any of
such policies or bonds as to which coverage has been denied or disputed by the
underwriters of such policies or bonds which could reasonably be expected to
have a Material Adverse Effect.  All
premiums due and payable under all such policies and bonds have been paid and
each Borrower, as applicable, is otherwise in compliance in all material
respects with the terms of such policies and bonds.  Neither Borrower has any Knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.  Each Borrower maintains
insurance in such amounts,


 


5
















 


including (as applicable) self-insurance, retainage
and deductible arrangements, and of such a character as is reasonable for
companies engaged in the same or similar business similarly situated.


 


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


 


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


 


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



 


6

















 


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


 


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


 


(b)                                 Assuming
the due execution and delivery by the other parties thereto, each of such
Material Contracts is as of the date hereof legal, valid and binding, and in
full force and effect, and enforceable in accordance with its terms, subject to
(i) Laws of general application relating to bankruptcy, insolvency, and
the relief of debtors, and (ii) rules of Law governing specific
performance, injunctive relief, or other equitable remedies.  There is no material breach, violation or
default by a Borrower under any such Material Contract, and to each Borrower’s
Knowledge, (x) no Material Contract has expired or been terminated in
accordance with its terms and (y) no event (including, without limitation,
the transactions contemplated by this Agreement) has occurred which, with
notice or lapse of time or both, would (A) constitute a material breach,
violation or default by a Borrower under any such Material Contract, or (B) give
rise to any Lien (other than a Permitted Lien) or right of termination,
modification, cancellation, prepayment, suspension, limitation, revocation or
acceleration against a Borrower under any such Material Contract, which
expiration, termination or event would cause a Material Adverse Effect.  Except as disclosed in the SEC Reports,
neither Borrower is and, to the such Borrower’s Knowledge, no other party to
any of such Material Contract is in arrears in respect of the performance or
satisfaction of any material terms or conditions on its part to be performed or
satisfied under any of such Material Contract, and neither Borrower has and, to
such Borrower’s Knowledge, no other party thereto has granted or been granted
any material waiver or indulgence under any of such Material Contract or
repudiated any provision thereof.


 


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


 


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


 


(a)                                  violate,
conflict with or result in a breach of any provision of or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, any of the terms, conditions or provisions of (i) Borrower’s
Certificate of Incorporation or its Bylaws, or (ii) any Material Contract,
or result in the creation of any Lien (other than a Permitted Lien or the liens
granted under the Security Agreement) upon any of the assets, properties or
business of either Borrower; or


 


7

















 


(b)                                 violate
any judgment, ruling, order, writ, injunction, award, decree, or any Law or
regulation of any court or federal, state, county or local government or any
other governmental, regulatory or administrative agency or authority which is
applicable to either Borrower or any of their assets, properties or businesses.


 


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


 


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


 


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


 


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


 


(b)                                 Each
Company Employee Plan by its terms and operation is in compliance in all
material respects with all applicable Laws and all required filings, if any,
with respect to such Company Employee Plan has been made.  The events contemplated by this Agreement
(either alone or together with any other event) will not (i) entitle any
employees to severance pay, unemployment compensation, or other similar
payments under any Company Employee Plan or Law, (ii) accelerate the time
of payment or vesting or increase the amount of benefits due under any Company
Employee Plan or compensation to any employees of the Borrowers or (iii) result
in any payments (including parachute payments) under any Company Employee Plan
or Law becoming due to any employee.


 


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


 


8

















 


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


 


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


 


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


 


3.20                           Environmental
Matters.


 


(a)                                  Each
Borrower complies and has at all times complied with all federal, state and
local Laws, judgments, decrees, orders, consent agreements, authorizations,
permits, licenses, rules, regulations, common or decision law (including,
without limitation, principles of negligence and strict liability) relating to
the protection, investigation or restoration of the environment (including,
without limitation, natural resources) or the health or safety matters of
humans and other living organisms, including the Resource Conservation and
Recovery Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Superfund Amendments
and Reauthorization Act of 1986, as amended,


 


9

















 


the Federal Clean Water Act, as amended, the Federal
Clean Air Act, as amended, the Toxic Substances Control Act, or any state and
local analogue (hereinafter “Environmental Laws”), except where the
failure to comply could not reasonably be expected to have a Material Adverse
Effect.


 


(b)                                 Neither
Borrower has Knowledge of any claim, and has not received notice of a written
complaint, order, directive, claim, request for information or citation, and to
such Borrower’s  Knowledge no proceeding
has been instituted raising a claim against such Borrower indicating or
alleging any damage to the environment or any liability or obligation under or
violation of any Environmental Law and (ii) neither Borrower is subject to
any order, decree, injunction or other directive of any Governmental Authority.


 


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


 


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


 


(b)                                 None
of (i) this Agreement (including, without limitation, the Disclosure
Schedule and the Schedules and Exhibits attached hereto), (ii) any Loan
Document, or (iii) the SEC Reports contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein in light of the circumstances under which they were
made not misleading.  There is no fact
which, to the Knowledge of either Borrower, has not been disclosed to the
Purchasers, which could reasonably be expected to have a Material Adverse
Effect on the ability of either Borrower to perform its obligations under the
Loan Documents or this Agreement.


 


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


 


10

















 


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


 


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


 


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


 


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


 


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


 


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


 


11

















 


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


 


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


 


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


 


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


 


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


 


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


 


12

















 


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


 


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


 


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


 


(a)                                  violate,
conflict with or result in a breach of any provision of or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, any of the terms, conditions or provisions of (i) its
certificate/articles of formation or organization or any of its other formation
or organizational documents (if any), or (ii) any material contract to
which it is a party, or result in the creation of any Lien upon any of the
assets, properties or business of such Purchaser; or


 


(b)                                 violate
any judgment, ruling, order, writ, injunction, award, decree, or any Law or
regulation of any court or federal, state, county or local government or any
other governmental, regulatory or administrative agency or authority which is
applicable to such Purchaser or any of its assets, properties or businesses.


 


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


 


5.                                       Conditions
of the Parties.


 


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


 


13

















 


(a)                                  Representations
and Warranties.  The representations
and warranties of the Borrowers contained in Section 3 shall be true and
correct on and as of the Initial Closing Date and shall be true and correct in
all material respects on and as of any Subsequent Closing Date with the same
force and effect as though such representations and warranties had been made on
such date.


 


(b)                                 Performance.  The Borrowers shall have performed and
complied with all conditions contained in this Agreement that are required to
be performed or complied with by it on or before such Closing.


 


(c)                                  No
Material Adverse Effect; Officer’s Certificate.  No Material Adverse Effect shall have
occurred between the date hereof and such Closing Date and the President and/or
Chief Executive Officer of each Borrower shall deliver to the Agent, acting on
behalf of the Purchasers, at each such Closing a certificate stating that the
conditions specified in Sections 5.1(a), (b) and (c) have been
fulfilled.


 


(d)                                 Consents
and Approvals.  All authorizations,
approvals, permits, or consents, if any, of any governmental authority or
regulatory body of the United States or of any state or any creditor of the
Borrowers or any other Person that are required in connection with the lawful
issuance and sale of the Notes and the Warrants at such Closing pursuant to
this Agreement shall be duly obtained and effective as of each such Closing and
the purchase and payment of the Notes and the Warrants to be purchased by the
Purchasers at each such Closing on the terms and conditions as provided herein
shall not violate any applicable Law.


 


(e)                                  Good
Standing; Qualification to do Business. 
The Parent shall have delivered to the Agent, acting on behalf of the
Purchasers, certificates of good standing with respect to each Borrower dated
as of a date no earlier than 15 days prior to the any such Closing from the
jurisdiction of incorporation of such Borrower.


 


(f)                                    Secretary’s
Certificate.  The Parent shall have
delivered to the Agent, acting on behalf of the Purchasers, a certificate
executed by the Secretary of each Borrower dated such Closing Date certifying
with respect to (i) a copy of the such Borrower’s Certificate of
Incorporation and its Bylaws as amended to and in effect on such Closing Date
and that such Borrower is not in violation of or default under any provision of
its Certificate of Incorporation or Bylaw as of and on such Closing Date, (ii) board
resolutions of such Borrower authorizing the transactions contemplated by this
Agreement and the Loan Documents.


 


(g)                                 Compliance
with Covenants.  On any such Closing
Date the Borrowers shall be in compliance with each of the covenants set forth
in Section 7.


 


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


 


(a)                                  Amendment
No. 1 to the Security Agreement. 
The Borrowers shall have executed and delivered to the Agent Amendment No. 1
to the Security Agreement.


 


14

















 


(b)                                 Subordination
Agreement.  The Borrowers shall have
executed and delivered to the Initial Purchasers the Subordination Agreement.


 


(c)                                  Initial
Closing Notes.  The Borrowers shall
deliver to each Initial Purchaser its respective Initial Closing Note.


 


(d)                                 Initial
Closing Warrants.  The Borrowers
shall deliver to each Initial Purchaser its respective Initial Closing
Warrants.


 


(e)                                  SVB
Consent.  The Borrowers shall have
received the written consent of SVB reasonably acceptable to the Agent, acting
on behalf of the Purchasers, with respect to the transactions contemplated by
this Agreement.


 


(f)                                    Administrative
Fee to Agent.  The Borrowers shall
have paid to the Agent, acting on behalf of the Purchaser, or its designee, an
administrative fee equal to two percent (2%) of the aggregate amount of Notes
being purchased on the Initial Closing Date.


 


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


 


(a)                                  Supplemental
Schedule II.  On or before any
Subsequent Closing Date, the Parent shall deliver to the Agent, acting on
behalf of each Additional Purchaser, a supplement to Schedule II reflecting the
amount of the Notes and the Warrants that the Borrowers will issue to each
Additional Purchaser on such Subsequent Closing Date and the aggregate purchase
price therefor.


 


(b)                                 Additional
Notes.  The Parent shall deliver to
the Agent, acting on behalf of each Additional Purchaser, such Additional
Purchaser’s Additional Notes.


 


(c)                                  Additional
Warrants.  With respect to any
Subsequent Closing, the Parent shall deliver to the Agent, acting on behalf of
each Additional Purchaser, such Additional Purchaser’s Additional Warrants.


 


(d)                                 Subordination
Agreement.  The Borrowers shall have
executed and delivered to each Additional Purchaser the Subordination
Agreement.


 


(e)                                  Administrative
Fee to Agent.  The Borrowers shall
have paid to the Agent, acting on behalf of the Purchaser, or its designee, an
administrative fee equal to two percent (2%) of the aggregate amount of Notes
being purchased on any Subsequent Closing Date.


 


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


 


(a)                                  Representations
and Warranties.  The representations
and warranties of the each Purchasers contained in Section 4 shall be true
and correct in all material respects on and as


 


15
















 


of such Closing with the same force and effect as though such representations
and warranties had been made on and as of the date of such Closing; provided,
however, that representations and warranties that contain a materiality
qualification shall be true and correct in all respects.


 


(b)                                 Performance.  Each Purchaser shall have performed and
complied with all conditions contained in this Agreement that are required to
be performed or complied with by it on or before such Closing.


 


(c)                                  Consents
and Approvals.  All authorizations,
approvals, or permits, if any, of any Governmental Authority or any other
Person that are required in connection with the lawful issuance and sale of the
Notes and the Warrants to such Purchaser pursuant to this Agreement shall be duly
obtained and effective as of such Closing and the purchase and payment of the
Notes and the Warrants to be purchased by the Purchasers at such Closing on the
terms and conditions as provided herein shall not violate any applicable Law.


 


(d)                                 Purchase
Price.  The Purchasers shall have
delivered to the Borrowers the applicable purchase price for the Notes and the
Warrants being purchased on such Closing Date.


 


(e)                                  Subordination
Agreement. Each Purchaser shall have executed and delivered to the
Borrowers and SVB the Subordination Agreement.


 


(f)                                    Amendment
No. 1 to the Security Agreement. 
The Agent shall have executed and delivered to the Borrowers Amendment No. 1
to the Security Agreement.


 


6.                                       Events
of Default and Remedies.


 


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


 


(a)                                  The
Borrowers fail to pay when due and payable any portion of the Note Indebtedness
at stated maturity, upon acceleration or otherwise.


 


(b)                                 The Borrowers fail or neglect to perform,
keep, or observe in any material respect any term, provision, condition,
covenant or agreement contained in this Agreement or any Loan Document and such
failure or neglect (other than those set forth in Section 2 of Exhibit E)
to perform remains in effect for a period of 10 days.


 


(c)                                  Any
material portion of the Borrowers’ assets is seized, attached, subjected to a
writ or distress warrant, is levied upon or comes into the possession of any
judicial officer unless such action is stayed and such attachment is dismissed
within 30 days.


 


(d)                                 If
an event of default occurs in payment or performance of any obligation in favor
of any person from whom the Borrowers have borrowed money aggregating in excess
of $300,000 which would entitle the holder to accelerate repayment of the
borrowed money, and such default is not waived in writing within 10 days of the
occurrence of such default.


 


16

















 


(e)                                  Either
Borrower institutes proceedings to be adjudicated as bankrupt or insolvent, or
the consent by such Borrower to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, provincial or
state law relating to bankruptcy, insolvency, reorganization or relief of
debtors, or the consent by it to the filing of any such petition or to the
appointment under any such law of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of such Borrower or of substantially
all of its property, or the making by it of a general assignment for the
benefit of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due.


 


(f)                                    If
there is the entry of a decree or order by a court having jurisdiction in the
premises adjudging either Borrower as bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement or adjustment of
or in respect of such Borrower under any applicable Law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or appointing under any such
Law a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of such Borrower or of substantially all of its property, or ordering
pursuant to any such Law the winding-up or liquidation of its affairs, and the
continuance of any such decree, petition, appointment or order unstayed and in
effect for a period of 45 consecutive days.


 


(g)                                 If
any act, matter or thing is done to, or any action or proceeding is launched or
taken to, terminate the corporate existence of either Borrower, whether by
winding-up, surrender of charter or otherwise.


 


(h)                                 If
either Borrower ceases to carry on its business or makes or proposes to make
any sale of its assets in bulk or any sale of its assets out of the usual
course of its business.


 


(i)                                     If
any judgment or order for the payment of money in excess of $200,000 shall be
rendered against either Borrower and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order, or (ii) there
shall be any period of 10 consecutive days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect.


 


(j)                                     If
any action is taken or power or right be exercised by any Governmental
Authority which has a Material Adverse Effect on either Borrower.


 


(k)                                  If
there shall occur or arise any change (or any condition, event or development
involving a prospective change) in the business, operations, affairs, assets,
liabilities (including any contingent liabilities that may arise through
outstanding pending or threatened litigation or otherwise), capitalization,
financial condition, licenses, permits, rights or privileges, whether
contractual or otherwise, or prospects of either Borrower which, in the
judgment of the Agent, acting on behalf of the Purchasers, acting reasonably,
has or is reasonably expected to have a Material Adverse Effect on any Borrower
or on its ability to perform its obligations hereunder or under the Loan
Documents.


 


(l)                                     Any
representation or warranty made or deemed to be made by the Borrowers in this
Agreement or any Loan Document shall proved to have been misleading in any
material respect at the time that it was made.


 


17

















 


6.2                                 Exercise
of Remedies.  If an Event of Default
has occurred and is continuing hereunder:


 


(a)                                  The
Agent, acting on behalf of the Purchasers, may declare the entire unpaid Note
Indebtedness, immediately due and payable, without presentment, notice or
demand, all of which are hereby expressly waived by the Borrowers; and


 


(b)                                 The
Agent, acting on behalf of the Purchasers, may exercise any remedy permitted by
this Agreement, or the Loan Documents or at law or in equity.


 


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


 


7.                                       Debt
Covenants.


 


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


 


8.                                       Indemnification.


 


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


 


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


 


18

















 


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


 


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


 


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


 


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


 


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


 


19

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


20

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


21

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


22

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


“Senior
Lender” means each holder of Senior Indebtedness.


 


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


 


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


 


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


 


23

















 


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


 


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


 


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


 


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


 


10.                                 [RESERVED].


 


11.                                 Miscellaneous.


 


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


 


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


 


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


 


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


 


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


 


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


 


24

















 


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


 


(a)                                  if
to an Initial Purchaser, to such Initial Purchaser’s address set forth on Schedule
I hereto; or at such other address or facsimile number as such Initial
Purchaser shall have furnished to the Parent in writing; or


 


(b)                                 if
to an Additional Purchaser, to such Additional Purchaser’s address set forth on
Schedule II hereto, or at such other address or facsimile number as such
Additional Purchaser shall have furnished to the Parent in writing; or


 


(c)                                  if
to the Agent, to Phoenix Venture Fund LLC, 110 East 59th Street, Suite 1901,
New York, NY 10022, facsimile number (212) 319-4970, Attention: Philip S.
Sassower, or at such other address or facsimile number as such Additional
Purchaser shall have furnished to the Parent in writing; or


 


(d)                                 if
to the Borrowers, to Xplore Technologies Corp., 14000 Summit Drive, Suite 900,
Austin, Texas 78728, facsimile number (512) 336-7791, Attention: Michael J.
Rapisand, or at such other address or facsimile number as the Parent shall have
furnished in writing to the Agent, acting on behalf of the Purchasers.


 


All notices shall be effective
upon receipt.


 


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


 


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


 


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


 


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


 


25
















 


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


 


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


 


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


 


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


 


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


 


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


 


26

















 


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


 


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


 


11.18                     Appointment
and Authorization of Phoenix Venture Fund LLC as Agent


 


(a)                                  Appointment.  Each Purchaser hereby irrevocably appoints
and authorizes the Agent to (i) be its attorney in its name and on its
behalf to exercise all rights and powers granted to the Purchasers, and/or the
Agent, acting on behalf of the Purchasers, under this Agreement and the Loan
Documents, together with such powers as are reasonably incidental thereto
(including entering into any amendment, waiver or modification subject to Section 11.18(b)),
and (ii) to hold, dispose, or otherwise deal with the Collateral (as
defined in the Security Agreement) for its own benefit and the pro rata benefit
of the Purchasers, subject to the terms and conditions of the obligations of
the Agent as provided in this Agreement and in the Loan Documents.


 


(b)                                 Exceptions
to General Appointment. 
Notwithstanding anything to the contrary contained herein, the Agent and
the Borrowers shall not, without the prior written consent and approval of the
Purchasers holding at least 51% of the aggregate principal amount of the Notes
then outstanding (the “Majority Purchasers”), amend, modify, terminate
or obtain a waiver of any provision of this Agreement, or any other Loan
Document which will have the effect of (i) reducing the principal amount
of any Notes or of any payment required to be made to the holders thereof, or
modifying the terms of a payment or prepayment thereof or (ii) reducing
the rate or extending the time for payment of principal or interest under any
Notes or (iii) releasing any Collateral.


 


(c)                                  No
Action.  The Agent shall be fully
justified in failing or refusing to take any action under this Agreement, any
other Loan Document or any other related document or any other document or
instrument referred to or provided for herein or therein unless it shall first
receive such advice or concurrence of the Majority Purchasers as it deems
appropriate, or it shall first be indemnified to its satisfaction by the
Purchasers against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action.  The Agent shall in all cases be fully
protected from the Purchasers in acting, or in refraining from acting, under
this Agreement, any other Loan Document or any other related document or any
other document or instrument referred to or provided for herein or therein in
accordance with  request of the Majority
Purchasers, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Purchasers and all future holders of the
Notes.


 


(d)                                 No
Fiduciary Relationship, Limitation of Responsibility.  Notwithstanding any provision to the contrary
elsewhere in this Agreement or any other Loan Document, the Agent shall not
have any duties or responsibilities, except those expressly set forth herein or


 


27

















 


therein, or any fiduciary relationship with any
Purchaser, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement, any other Loan
Document or any other related document or otherwise exist against the
Agent.  The Agent (which term shall
include its affiliates and its own and its affiliates’ officers, directors,
partners, shareholders, employees and agents) shall not be responsible to the
Purchasers for (i) any statements, representations or warranties contained
in this Agreement or any Loan Document or for the failure by a Borrower or any
other party to perform its obligations hereunder or thereunder and shall not by
reason of this Agreement or any other Loan Document be a trustee for any Purchaser,
(ii) any action taken or omitted to be taken by it hereunder or under any
other Loan Document or under any other document or instrument referred to or
provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct or (iii) any recitals,
statements, representations or warranties made by a Borrower or any officer or
official of a Borrower or any other party contained in this Agreement, any
other Loan Document or any other related document, or in any certificate or
other document or instrument referred to or provided for in, or received by any
of them under, this Agreement, any Loan Document, or any other related
document, or for the value, legality, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement, any Loan Document, or any other related
document or any other document or instrument referred to or provided for herein
or therein, for the perfection or priority of any lien security for the Notes
or for any failure by a Borrower to perform any of its obligations hereunder or
thereunder.  The Agent shall not be under
any obligation to any Purchaser to ascertain or to inquire as to the observance
or performance of any of the agreements contained in, or conditions of, this
Agreement, any other Loan Document or any other related document or any other
document or instrument referred to or provided for herein or therein, or to
inspect the properties, books or records of the a Borrower.


 


(e)                                  Reliance.  As between the Purchasers and the Agent, the
Agent shall be entitled to rely, and shall be fully protected in relying upon
any promissory note, writing, resolution, notice, consent, certificate,
affidavit, letter, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper person(s), organization(s) or
entity or entities and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrowers or any of them), independent
accountants and other experts selected by the Agent.  The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment or transfer thereof shall have been filed with the Agent.


 


(f)                                    Knowledge
of Events of Default.  The Agent
shall not be deemed to have knowledge or notice of the occurrence of any Event
of Default unless the Agent has received notice from a Purchaser or a Borrower
referring to this Agreement, or a Loan Document, describing such Event of
Default and stating that such notice is a “notice of default”.  In the event that the Agent receives such a
notice, the Agent shall give notice thereof to the Purchasers.


 


(g)                                 Acknowledgments,
Representations and Warranties of Purchasers to Agent.  Each Purchaser expressly acknowledges that
neither the Agent nor any of its officers, directors, partners, shareholders,
employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by the Agent hereafter
taken, including any review of the affairs of the Borrowers or any affiliate of
the Borrowers, shall be deemed to constitute any representation or warranty by
the Agent to any Purchaser.  Each Purchaser


 


28

















 


represents to the Agent that it has, independently and
without reliance upon the Agent or any other Purchaser, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, operations, property, financial and
other condition and creditworthiness of the Borrowers and their affiliates and
made its own decision to purchase the Notes and Warrants hereunder and enter
into this Agreement.  Each Purchaser also
represents that it shall, independently and without reliance upon the Agent or
any other Purchaser, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement or any other
Loan Document or any other related document and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrowers and their
affiliates.  Except for notices, reports
and other documents expressly required to be furnished to the Purchasers by the
Agent hereunder and under the Loan Documents, the Agent shall have no duty or
responsibility to provide any Purchaser with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrowers or any affiliate of
the Borrowers which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.


 


(h)                                 Purchasers
Indemnification.  The Purchasers
agree to indemnify the Agent in its capacity as such (to the extent not reimbursed
by the Borrowers and without limiting the obligation of the Borrowers to do
so), ratably in accordance with the aggregate principal amount of the Notes
held by the Purchasers for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Agent in its capacity as such (including by any Purchaser)
arising out of or by reason of any investigation in or in any way relating to
or arising out of this Agreement or any other Loan Document provided, that no
Purchaser shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party to be indemnified.  The agreements in this Section 11.18
shall survive the payment of the Notes and all other amounts payable hereunder.


 


(i)                                     Agent
in its Individual Capacity, and not as Agent.  The Agent and its affiliates may make loans
to, accept deposits from and generally engage in any kind of business with the
Borrowers as though the Agent were not the Agent.  With respect to its Notes purchased hereunder
the Agent shall have the same rights and powers under this Agreement, the Loan
Documents and any related document as any Purchaser and may exercise the same
as though it were not the Agent, and the terms “Purchaser” and “Purchasers”
shall include the Agent in its individual capacity.


 


(j)                                     Agent’s
Ability to Employ Agents and Attorneys-in-Fact.  The Agent may employ agents and
attorneys-in-fact and shall not be responsible, except as to money or
securities received by it or its authorized agents, for the negligence or
misconduct of any such agents or attorneys-in-fact selected and monitored by it
with reasonable care.


 


(k)                                  Resignation
of Agent.  The Agent may resign as
Agent upon 30 days’ written notice to the Purchasers and the Borrowers.  If the Agent shall resign as Agent under this
Agreement and the Loan Documents, then the Majority Purchasers shall appoint
from among the Purchasers or their affiliates a successor agent for the
Purchasers, which successor agent shall


 


29

















 


(unless an Event of Default shall have occurred and be
continuing) be approved by the Borrowers (which approval shall not be
unreasonably withheld or delayed), whereupon such successor agent shall succeed
to the rights, powers and duties of the Agent, and the term “Agent” shall mean
such successor agent effective upon such appointment and approval, and the
former Agent’s rights, powers and duties as Agent shall be terminated, without
any other or further act or deed on the part of such former Agent or any of the
parties to this Agreement, the Loan Document or any holders of the Notes.  If no successor agent has accepted
appointment as Agent by the date that is 30 days following a retiring Agent’s
notice of resignation, the retiring Agent’s resignation shall nevertheless
thereupon become effective and the Purchasers (taking actions by approval of
the Majority Purchasers) shall assume and perform all of the duties of the
Agent hereunder until such time, if any, as the Purchasers appoint a successor
agent as provided for above.  After any
retiring Agent’s resignation as Agent, the provisions of this Section 11.18
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement and the Loan Documents.


 


(l)                                     Borrower’s
Ability to Rely on Agent’s Authority. The Borrowers shall be entitled to
rely upon any certificate, notice or other document or other advice, statement
or instruction provided to it by Agent pursuant to this Agreement or the Loan
Documents, and the Borrowers shall generally be entitled to deal with Agent
with respect to matters under this Agreement or the Loan Documents which Agent
is authorized to deal with without any obligation whatsoever to satisfy itself
as to the authority of Agent to act on behalf of the Purchasers and without any
liability whatsoever to the Purchasers for relying upon any certificate, notice
or other document or other advice, statement or instruction provided to it by
Agent, notwithstanding any lack of authority of Agent to provide the same.


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


 


30

















 


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


 


	
   

  	
  The
  Borrowers:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  XPLORE
  TECHNOLOGIES CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Michael J.
  Rapisand

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial
  Officer and

  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  XPLORE TECHNOLOGIES

  CORPORATION OF AMERICA

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Michael J. Rapisand

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer and

  Secretary

  
					



 


Signature Page to Note Purchase Agreement


 

















 


 


	
   

  	
  The Initial
  Purchasers:

  
	
  Dollar Amount of Initial
  Closing Notes and

  Warrants to be Purchased:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  $

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


Signature Page
to Note Purchase Agreement


 

















 


	
   

  	
  The
  Additional Purchasers:

  
	
  Dollar Amount of
  Additional Notes and

  Warrants to be Purchased:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  $

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


Signature Page
to Note Purchase Agreement


 
















 


EXHIBIT C


 


AMENDMENT
NO. 1 TO THE SECURITY AGREEMENT


 


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


W I T N E S S E T
H:


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


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


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


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


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


 


C-1

















 


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


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


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


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


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


4.             Each of the Fall 2008 Purchasers
and the February 2009 Purchasers shall be referred to herein individually, as a
“Purchaser” and, collectively, as the “Purchasers.”


5.             Pursuant to the Note Purchase
Agreements, each Purchaser irrevocably appointed and authorized the Collateral
Agent to (i) be its attorney in its name and on its behalf to exercise all
rights and powers granted to the Purchasers under the Note Purchase Agreements,
this Agreement and the Loan Documents, together with such powers as are
reasonably incidental thereto, and (ii) hold the Collateral for the pro rata
benefit of the Purchasers, subject to the terms and conditions of the
obligations of the Agent as provided in the Note Purchase Agreements, this
Agreement and the other Loan Documents.


6.             It was a condition precedent to the
obligation of the Fall 2008 Purchasers to purchase the Fall 2008 Notes as
provided in the Fall 2008 Note Purchase Agreement that the Borrowers granted
the security interest contemplated by this Security Agreement.


7.             It is a condition precedent to the
obligation of the February 2009 Purchasers to purchase the February 2009 Notes
as provided in the February 2009 Note


C-2

















Purchase Agreement that
the Borrowers shall have granted the security interest contemplated by this
Security Agreement.”


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


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


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


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


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


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


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


[Remainder of this page
intentionally left blank.]


C-3

















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


	
   

  	
  BORROWERS:

  
	
   

  	
   

  	
   

  
	
   

  	
  XPLORE TECHNOLOGIES
  CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Michael J. Rapisand

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer
  and Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  XPLORE
  TECHNOLOGIES

  
	
   

  	
  CORPORATION OF
  AMERICA

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Michael J.
  Rapisand

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial
  Officer and Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  COLLATERAL AGENT:

  
	
   

  	
   

  	
   

  
	
   

  	
  PHOENIX VENTURE
  FUND LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  SG Phoenix
  Ventures LLC,

  
	
   

  	
   

  	
  its Managing
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Philip Sassower

  
	
   

  	
   

  	
  Title:

  	
  Member

  
						



 


 


C-4

















 


EXHIBIT D


 


SUBORDINATION AGREEMENT


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


Recitals


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


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


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


NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


[Signature page follows.]


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


“Creditor”


	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

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


 


“Bank”


 


SILICON VALLEY BANK


 


	
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  The undersigned approve of the terms of this
  Agreement.

  
	
   

  
	
   

  
	
  “Borrower”

  
	
   

  
	
  XPLORE TECHNOLOGIES CORPORATION OF AMERICA

  
	
   

  	
   

  	
   

  
	
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  “Guarantor”

  
	
   

  
	
  XPLORE TECHNOLOGIES CORP.

  
	
   

  	
   

  	
   

  
	
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