Document:

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EXHIBIT 10.12

SETTLEMENT AGREEMENT AND GENERAL RELEASE

     This Settlement and General Release (“Agreement”) is entered into by and between Joseph C.
Canouse, an individual, for himself and all his agents, representatives, heirs, executors,
trustees, administrators, successors and assigns (“Canouse”), and True Religion Apparel, Inc., a
Delaware corporation, for itself and its parents, subsidiaries, related, affiliated, and
predecessor corporations and entities, and also on behalf of all of its and their respective past
and present officers, directors, shareholders, partners, agents, representatives, employees,
administrators, and assigns (“TRLG” or the “Company”). This Agreement is intended by the parties
to resolve fully and finally any and all obligations and/or differences between them, including,
without limitation, those obligations and/or differences arising out of or relating to any and all
agreements between Canouse and the Company and any claims, disputes, or litigation related thereto.

RECITALS

     WHEREAS, Canouse filed a civil action in the United States District Court for the Central
District of California, styled Joseph C. Canouse v. True Religion Apparel, Inc., Case No.
CV 05-1978-JFW for Breach of Contract, Fraud, Unjust Enrichment, Attorneys’ Fees per Georgia
Statute, Specific Performance and Conversion (the “Civil Action”);

     WHEREAS, the Civil Action pertained to that certain Agreement, dated as of February 26, 2004,
by and between Canouse and the Company, pursuant to which Canouse was to render services to the
Company in 2004 in exchange for the consideration set forth therein;

     WHEREAS, TRLG has denied all liability, filed an Answer, and defended itself in the Civil
Action;

     WHEREAS, the parties hereto desire to settle all disputes and to enter into this Agreement and
to set forth their understandings and agreements with respect to the settlement of all their
respective rights, obligations or liabilities arising under, out of, or in connection with the
Civil Action, as well as all other disputes, controversies, and claims between them of whatever
nature and origin, from the beginning of time through the date of this Agreement;

     NOW THEREFORE, for and in consideration of the mutual promises, covenants, and agreements
herein below set forth, the parties hereto do hereby mutually covenant and agree by and between
themselves as follows:

AGREEMENT

     1. Cash Payment To Canouse. TRLG will pay Canouse One Hundred Thousand Dollars
($100,000.00), in good funds within five (5) days of the Effective Date. Payment shall

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be delivered to Canouse care of Scott L. Bonder at Fleming, Fried & Bonder, LLC, 1230
Peachtree Street, Suite 3750, Atlanta Georgia 30309. If payment is made by negotiable instrument
such as a check, it shall be made payable to “Joseph C. Canouse AND Fleming, Fried & Bonder, LLC.”
Wire transfer may also be used and appropriate information will be supplied upon request.

     2. Stock Issuance to Canouse.

          2.1 Issuance of Shares. Subject to the terms and conditions of this Agreement, within
five (5) days of the Effective Date, TRLG will issue to Canouse and Canouse will acquire from TRLG
one hundred thousand (100,000) shares of the Company’s common stock (the “Shares”). TRLG will
deliver the certificate(s) representing the Shares, free and clear of any liens, claims, charges,
pledges, security interests, options or other legal or equitable encumbrances, other than as
created by this Agreement and federal and states securities laws, to Fleming, Fried & Bonder LLC at
1230 Peachtree Street, Suite 3750, Atlanta Georgia 30309. As of the Effective Date, the Company
and Canouse agree that all of the Shares shall be fully vested and saleable by Canouse subject only
to the requirements of state and federal securities laws.

          2.2 Responsibility for Taxes. Canouse agrees: (i) that he shall be solely liable for
and shall pay any and all taxes, costs, interest, assessments, penalties, damages, attorney’s fees
or other losses to which he is or may be subject by reason of the cash payments and\or stock
transfer by the Company to him identified in this Agreement; (ii) to indemnify and hold the Company
Releasees (defined below) harmless from any and all taxes, costs, assessment, interest, penalties,
damages, attorney’s fees or other losses to which the Company Releasees, or any of them, are or may
be subject by reason of such payments, interest, reimbursements and/or loans, including, but not
limited to, any claim or claims against the Company Releasees, for failure to withhold or
underwithholding of taxes; (iii) not to seek or make any claim or claims against the Company
Releasees, or any of them, for contribution, indemnity, compensation, recompense, damages, taxes,
costs, interest, penalties, attorneys’ fees or other losses, if a determination is made that
withholdings should have been made from any payments to Canouse; and (iv) to assume responsibility
for contending and defending any claim or assertion that withholding should have been made from any
payment or other interest provided, or that the Company Releasees, or any of them, owe taxes
thereon for any reason, and to cooperate fully in the defense of any such claim or claims which
is/are brought against the Company Releases, or any of them.

          2.3 Standstill. Canouse agrees that, without the prior written consent of the
Company, Canouse shall not, for a period of five (5) years from the date of this Agreement (the
“Standstill Period”), directly or indirectly:

               (a) acquires or agree, offer, seek or propose to acquire, or cause to be acquired, ownership
(including, but not limited to, beneficial ownership as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) of any of the assets or businesses of the
Company or any securities of the Company (including, without limitation, any debt, equity or
convertible securities) or any rights or options to acquire any such ownership from any Person;

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               (b) make, or in any way participate in, any “solicitation” of “proxies” (as such terms are
used in the proxy rules of the Securities and Exchange Commission (“the SEC”) to vote or consents,
or seek to advise or influence in any manner whatsoever any Person with respect to the voting of
any securities of the Company;

               (c) form, join, or in any way participate in a “group” (within the meaning of Section 13d(3)
of the Exchange Act) with respect to any voting securities of the Company;

               (d) arrange, or in any way participate in, any financing for the purchase of any voting
securities or securities convertible or exchangeable into or exercisable for any voting securities
or assets of the Company;

               (e) otherwise act, whether alone or in concert with others, to seek to propose to the Company,
or any of its stockholders, any merger, business combination, restructuring, recapitalization or
similar transaction to or with the Company or otherwise act, whether alone or in concert with
others, to seek to control, change or influence the management, stockholders, Board of Directors,
or policies of the Company, or nominate any Person as a director of the Company;

               (f) solicit, negotiate with, or provide any information to, any Person with respect to a
merger, business combination, exchange offer or liquidation of the Company or any other acquisition
of the Company, any acquisition of securities of or all or any portion of the assets of the Company
or any other similar transaction;

               (g) make any proposal to be considered and/or voted upon at any meeting of the stockholders of
the Company;

               (h) announce an intention to, or enter into any discussion, negotiations, arrangements or
understandings with any third party with respect to, any of the foregoing matters;

               (i) disclose any intention, plan or arrangement inconsistent with any of the foregoing
provisions; or

               (j) advise, assist, encourage or participate with any other Person in connection with action
inconsistent with any of the foregoing provisions.

     For purposes of this Agreement, the term “Person” shall mean any natural person, corporation,
association, partnership (general or limited), joint venture, trust, estate, limited liability
company, government or any agency or political subdivision thereof, or any other legal entity or
organization. This standstill provision shall not affect Canouse’s ability to purchase interests
in mutual funds or other similar investment vehicles over which he has no ability to direct the
investment or disposition of shares or other equity interests.

          2.4 Registration Rights.

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               (a) Canouse understands that the Company will use its commercially reasonable efforts to file
a Registration Statement with the SEC for the resale of the Shares as soon as shall be reasonably
practicable following the date of this Agreement, but in no event more than thirty (30) days from
the Effective date of this Agreement. Subject to the provisions of this Agreement, the Company
shall use commercially reasonable efforts to have such Registration Statement declared effective by
the SEC as promptly as shall be practicable, and shall use reasonable efforts to expedite the
process, but in any event within 120 days of the filing date of the registration statement. If and
when the Registration Statement becomes effective, the Company shall keep such Registration
Statement effective for a period of up to 120 days or until the distribution contemplated in such
Registration Statement has been completed. For the purposes of this Agreement: (A) “Registrable
Shares” means the Shares (and including any shares issued in connection with any split or dividend
in respect of any such shares); provided, however, that any such Share will cease to be a
Registrable Share when (1) a Registration Statement covering a Registrable Share has been declared
effective by the SEC and such Share has been disposed of by Canouse pursuant to such effective
Registration Statement, (2) the Registrable Share is transferred to another person, (3) such Share
(after initial issuance) is held by the Company or one of its subsidiaries or otherwise ceases to
be outstanding, or (4) such Share may be traded without restriction pursuant to paragraph (k) of
Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if applicable; and
(B) “Registration Statement” means any registration statement or comparable document under the
Securities Act through which a public sale or disposition of the Registrable Shares may be
registered, including the prospectus, amendments and supplements to such registration statement,
all exhibits, and all material incorporated by reference or deemed to be incorporated by reference
in such registration statement. The Company shall promptly respond to all requests from the SEC
and, except as set forth under subsection (d) below, shall not delay the effectiveness of the
Registration Statement.

               (b) Upon the written request of Canouse to include all or any portion of Canouse’s Registrable
Shares in an underwritten offering, the Company shall have the right, in its sole discretion, to
determine whether any of such Registrable Shares are to be included in such underwritten offering,
and if the Company so determines, the Company alone shall have the right to select the managing
underwriter or underwriters to administer the offering.

               (c) If the managing underwriter of an underwritten offering under this Section 2.4 advises the
Company in writing that in its opinion the number of shares requested to be included in such
registration exceeds the number which can be sold in such offering, the Company will include in
such registration only the number of shares which in the opinion of such underwriter can be sold
and may delay registering the balance of the shares in a non-underwritten offering for up to 120
days. This provision shall not relieve or modify the Company’s obligations to use its commercially
reasonable efforts to file and have declared effective any Registration Statement under paragraph
(a) above.

               (d) The Company’s obligations under this Section 2.4 shall not restrict its ability to suspend
the effectiveness of, or direct Canouse not to offer or sell Shares under, any Registration
Statement, at any time, for such reasonable period of time which the Company reasonably believes is
necessary to prevent the premature disclosure of any events or information having a material effect
on the Company. In addition, the Company shall not be required to keep any Registration Statement
effective, or may, without suspending such effectiveness, instruct

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Canouse not to sell such Shares, during any period during which the Company is instructed,
directed, ordered or otherwise requested by any governmental agency or self-regulatory organization
to stop or suspend such trading or sales.

               (e) In the event of any filing of a prospectus supplement or the commencement of an
underwritten public distribution of the Company’s common stock under a Registration Statement,
whether or not Registrable Shares are included, Canouse agrees not to effect any public sale or
distribution of Registrable Shares (except as part of such underwritten public distribution),
including a sale pursuant to Rule 144 or Rule 144A under the Securities Act, during a period
designated by the Company in a written notice duly given to Canouse, which period shall commence up
to 14 days prior to the effective date of any such filing of such prospectus supplement or the
commencement of such underwritten public distribution of such common stock under a Registration
Statement and shall continue for up to 44 consecutive days in the case of a sale pursuant to Rule
144 and for up to 74 consecutive days otherwise.

               (f) Registration Procedures. Except as otherwise expressly provided herein, in connection with
any registration of Registrable Shares pursuant to this Section 2.4, the Company shall, as
expeditiously as possible:

                    (i) use its commercially reasonable efforts to prepare and file with the SEC a Registration
Statement with respect to such Registrable Shares and use its commercially reasonable efforts to
cause such Registration Statement to become effective as soon as practicable thereafter; and before
filing a Registration Statement or prospectus or any amendments or supplements thereto, furnish to
Canouse copies of such Registration Statement and such other documents as proposed to be filed
(including copies of any document to be incorporated by reference therein), and thereafter furnish
to Canouse such number of copies as may be reasonably requested in writing by Canouse of such
Registration Statement, each amendment and supplement thereto (including copies of any document to
be incorporated by reference therein), including all exhibits thereto, the prospectus included in
such Registration Statement (including each preliminary prospectus), and, promptly after the
effectiveness of a Registration Statement, the definitive final prospectus filed with the SEC;

                    (ii) notify Canouse, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the occurrence of any event as a result of which the
prospectus included in such Registration Statement (including any document to be incorporated by
reference therein) contains an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading and, the Company shall prepare a supplement or amendment
to such prospectus, as soon as practicable, so that, as thereafter delivered to the purchasers of
such Registrable Shares, such prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to make the statements
therein not misleading and promptly make available to Canouse any such supplement or amendment;

                    (iii) notify Canouse and the managing underwriters, if any, promptly, and (if requested by any
such person) confirm such advice in writing, (A) when the Registration Statement, the prospectus or
any prospectus supplement or post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective

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amendment, when the same has become effective, (B) of the issuance by the SEC of any stop
order suspending the effectiveness of a Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of any proceedings for that
purpose and the Company shall promptly use its commercially reasonable best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should be issued, and (C)
of the receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or any of the Registrable
Shares for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding
for such purpose.

               (g) The Company may require Canouse to furnish to the Company such information regarding
himself and the distribution of such Registrable Shares as the Company may from time to time
reasonably request in writing and such other information as may be legally required in connection
with such registration. Canouse agrees, by its acquisition of Registrable Shares and his acceptance
of the benefits provided to him hereunder, to furnish promptly to the Company all information
required to be disclosed in order to make any previously furnished information not materially
misleading. If Canouse proposes to distribute his Registrable Shares through an underwritten
offering, then he shall (together with the Company) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected by the Company for such underwriting
and shall provide to such underwriter or underwriters any opinions and certificates, and any
indemnification with respect to him as reasonably required by such underwriter or underwriters.

               (h) Canouse agrees that upon receipt of any notice from the Company of the happening of any
event of the kind described herein requiring the cessation of the distribution of a prospectus or
the distribution of a supplemented or amended prospectus, he will forthwith discontinue disposition
of Registrable Shares pursuant to the Registration Statement covering such Registrable Shares until
his receipt of the copies of the supplemented or amended prospectus contemplated by this Agreement,
or until it is advised in writing by the Company that the use of the prospectus may be resumed,
and, if so directed by the Company, Canouse will deliver to the Company (at the Company’s expense)
all copies, other than permanent file copies then in the his possession, of the prospectus covering
such Registrable Shares current at the time of receipt of such notice.

               (i) All expenses incident to the Company’s performance of or compliance with the registration
of shares pursuant to this Agreement, including, without limitation, all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws (including reasonable fees
and disbursements of counsel of the Company and counsel for the underwriters in connection with
“blue sky” qualifications of the Registrable Shares), fees and expenses associated with filings
required to be made with the National Association of Securities Dealers, Inc., and with listing on
any national securities exchange or exchanges in which listing may be sought, printing expenses,
messenger and delivery expenses, fees and expenses of counsel for the Company and its independent
certified public accountants, securities acts liability insurance (if the Company elects to obtain
such insurance), the fees and expenses of any special experts retained by the Company in connection
with such registration, and fees and expenses of other persons retained by the Company (all such
expenses being herein called “Registration Expenses”) will be borne by the Company; provided that
in no event shall

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Registration Expenses payable by the Company include any (i) underwriting discounts,
commissions, or fees attributable to the sale of Registrable Shares, (ii) fees and expenses of any
counsel, accountants, or other persons retained or employed by Canouse or underwriters, or (iii)
transfer taxes, if any.

          2.5 Investment Representations and Warranties. Canouse hereby acknowledges,
represents and warrants to, and agrees with, the Company as follows:

               (a) Canouse understands that the offering and sale of the Shares are intended to be exempt
from registration under the Securities Act, by virtue of Section 4(2) and Rule 506 of Regulation D
promulgated under the Securities Act, and in accordance therewith and in furtherance thereof, the
undersigned represents and warrants and agrees as follows:

                    (i) Canouse and his advisers have been afforded an opportunity to review and receive the
reports filed by the Company under the Exchange Act and other publicly available information
relating to the Company, the Company’s business and finances (collectively, the “Information”), and
has reviewed and received such Information and understand the Information and this Agreement;

                    (ii) No written representations have been made other than as stated, or in addition to those
stated, in the Information;

                    (iii) Canouse is not receiving Shares as a result of or subsequent to any advertisement,
article, notice, other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting, or any solicitation of
a subscription by a person other than a representative of the Company;

                    (iv) Canouse has adequate means of providing for his current financial needs and
contingencies, is able to bear the substantial economic risks of an investment in the Shares for an
indefinite period of time, has no need for liquidity in such investment, and, at the present time,
could afford a complete loss of such investment;

                    (v) Canouse has such knowledge and experience in financial, tax, and business matters so as to
enable him to utilize the Information made available to him in connection with the offering of the
Shares to evaluate the merits and risks of an investment in the Company and to make an informed
investment decision with respect thereto;

                    (vi) Canouse is not relying on the Company with respect to the legal, tax, and other economic
considerations of an investment and has obtained, or had the opportunity to obtain the advice of
his own legal, tax, and other advisors;

                    (vii) Canouse will not sell or otherwise transfer the Shares without registration under the
Securities Act or applicable state securities laws or an exemption therefrom. The Shares have not
been registered under the Securities Act or under the securities laws of any state. Canouse
represents that he is purchasing the Shares for his own account, for investment and not with a view
to resale or distribution except in compliance with the Securities Act. Canouse has not offered or
sold any portion of the Shares being acquired. Canouse does

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not have any present intention of selling, distributing or otherwise disposing of any portion
of the Shares, which may be a violation of the Securities Act unless (i) a registration statement
has been filed and declared effective by the SEC covering such Shares to be resold or otherwise
distributed; or (ii) the passage of a fixed or determinable period of time that makes such resale
or distribution exempt from registration and is pursuant to Rule 144 promulgated under the
Securities Act or upon the occurrence or nonoccurrence of any predetermined event or circumstance
in violation of the Securities Act;

                    (viii) CANOUSE UNDERSTANDS AND ACKNOWLEDGES THAT HIS INVESTMENT IN THE COMPANY INVOLVES A HIGH
DEGREE OF RISK AND IS SUITABLE ONLY FOR INVESTORS OF SUBSTANTIAL MEANS WHO HAVE NO IMMEDIATE NEED
FOR LIQUIDITY OF THE AMOUNT INVESTED, AND THAT SUCH INVESTMENT INVOLVES A RISK OF LOSS OF ALL OR A
SUBSTANTIAL PART OF SUCH INVESTMENT; and

                    (ix) Canouse is an “accredited investor” within the meaning of Rule 501 of Regulation D
promulgated under the Securities Act.

               (b) Canouse’s overall commitment to investments which are not readily marketable is reasonable
in relation to his net worth.

               (c) Canouse hereby agrees to provide such information and to execute and deliver such
documents as may reasonably be necessary to comply with any and all laws and ordinances to which
the Company is subject, including, without limitation, such additional information as the Company
may reasonably deem appropriate with regard to the Canouse’s suitability.

               (d) Canouse acknowledges:

                    (i) In making an investment decision he has relied on his own examination of the Company,
including the merits and risks involved. THE SHARES ISSUED PURSUANT TO THIS AGREEMENT HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THE INFORMATION OR THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE;

                    (ii) The representations, warranties, and agreements of Canouse contained herein and in any
other writing delivered in connection with the transactions contemplated hereby shall be true and
correct in all respects on and as of the date of the sale of the Shares as if made on and as of
such date and shall survive the execution and delivery of this Agreement and the purchase of the
Shares;

                    (iii) It is understood that the certificate(s) evidencing the Shares shall bear the following
legend:

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“These securities have not been registered under the Securities Act
of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement
in effect with respect to the securities under such Act or an
opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of
such Act.”

     3. Dismissal of The Civil Action With Prejudice. Within ten (10) days of the the cash
payment and delivery of Shares contemplated by Sections 1 and 2 of this Agreement, Canouse shall
execute and file with the Court a dismissal with prejudice of the entire Civil Action as against
all parties thereto.

     4. Effective Date. For purposes of this Agreement, the “Effective Date” shall mean
the date on which this Agreement is executed by all parties hereto.

     5. General Release of All Claims. Canouse hereby agrees to, and by signing this
Agreement does hereby finally, unconditionally, irrevocably, and absolutely releases and forever
discharges the Company, each of the Company’s affiliated or related entities including any parent
or subsidiary entities, and its and their respective and collective directors, officers, employees,
subsidiaries, agents, managers, representatives, legal and financial advisors, parents, principals,
partners, members, trustees and affiliates, and any heirs, executors, administrators, successors or
assigns of any such persons (collectively “Company Releasees”), from any and all actions,
proceedings, suits, claims, debts, damages, judgments, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, controversies, agreements, promises, variances, trespasses,
injuries, harms, remedies, extents, executions, liens, liabilities and demands whatsoever, in law
or equity, whether known or unknown, absolute or contingent, matured or unmatured, presently
existing or hereafter discovered, at law, in equity or otherwise, which Canouse ever had, now has
could have had, or may have arising out of or related to any of the circumstances giving rise to
the Civil Action or the Company’s ownership of Shares of the Company or any obligation of the
Company in connection with such shareholding from the beginning of the world to the date of this
Agreement (other than claims and liabilities arising out of a breach of this Agreement by the
Company).

     6. Agreement Effective Notwithstanding Subsequent Discovery of Different Information.
Canouse acknowledges that he may hereafter discover facts different from or in addition to those he
now knows or believes to be true with respect to the claims, suits, rights, actions, complaints,
agreements, contracts, causes of action, and liabilities of any nature whatsoever that are the
subject of the release set forth in this Agreement, and Canouse expressly agrees to assume the risk
of the possible discovery of additional or different facts, and agrees that this Agreement shall be
and remain effective in all respects regardless of such additional or different facts.

     7. Waiver of California Civil Code Section 1542. Further, in connection with the
releases set forth above in this Agreement, Canouse expressly agrees that he waives and
relinquishes all rights and benefits under Section 1542 of the Civil Code of the State of
California, or any similar provision under the laws of any state, including Georgia. Section 1542
reads as follows:

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“Section 1542. [Certain claims not affected by general
release.] A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR.”

     Notwithstanding the provisions of Section 1542, and for the purpose of implementing a full and
complete release and discharge of the Company Releasees, Canouse expressly acknowledges that this
Agreement is intended to include and does include in its effect, without limitation, all claims
which Canouse does not know or suspect to exist in his favor against the Company Releasees, or any
of them, at the moment of execution hereof, and that this Agreement expressly contemplates the
extinguishment of all such claims.

     8. Confidentiality and Non-Disclosure of Confidential Information.

          8.1 Confidentiality.

               (a) The terms of this Agreement and all negotiations leading to this Agreement shall be
considered confidential. Neither Canouse nor the Company shall disclose the terms of this
Agreement except as may be required by law, subpoena or other legal process, including, but not
limited to, the Company’s obligations to provide information pertaining to this Agreement and the
transactions contemplated hereby in its filings with the Securities and Exchange Commission. The
Company may file a copy of this Agreement with the Securities and Exchange Commission if it
reasonably determines that such filing may be necessary to fulfill its obligations under federal
securities laws.

               (b) In the event that any party hereto is served with a subpoena or other process seeking
information relating to this Agreement, the served-party shall, immediately upon service, object
based upon this confidentiality clause and notify the non-served party. The non-served party shall
either waive its objection in writing or propound an objection as may be appropriate under the
applicable law or procedure. The parties hereto agree that in the event disclosure is required by
law that the served-party will seek to maintain confidentiality by requesting appropriate orders,
sealing of records or other available means.

          8.2 Confidential Information. Canouse acknowledges and agrees that (i) by reason of
Canouse’s past relationship with the Company, in 2004, Canouse was given access to information,
trade secrets, strategies, procedures, and expertise unique to the Company, as well as other
confidential materials and non-public information relating to its directors, officers and
employees; and (ii) the foregoing constitute trade secrets and/or confidential, privileged and
proprietary information respecting the business affairs of the Company and its directors, officers
and employees which gravely affect the successful and effective operation of the Company
(collectively “Confidential Information”). As such, Canouse agrees not to, directly or indirectly,
disclose to any third person or use for the benefit of anyone other than the Company, or use for
Canouse’s own benefit or purposes any such confidential, privileged or proprietary information
without the prior written approval of the Company. Canouse agrees to immediately return all
documents and writings of any kind, including both originals and copies, whether developed by

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Canouse or others, within Canouse’s custody, possession or control, which contain any
non-public information which in any way relates or refers to the Company or any of its directors,
officers, or employees. The parties hereto agree and acknowledge that Canouse was not provided
Information other than in connection with the Civil Action and Information provided prior to the
Civil Action.

          8.3 Maintaining Confidentiality. Canouse also agrees that the terms and conditions of
this Agreement as well as any Confidential Information as defined herein are and shall be
maintained in privacy and confidence, except to the extent disclosure is necessary to Canouse’s
attorney or accountant, partners, family members, others to whom Canouse has a financial obligation
with respect to the settlement, or any state or federal taxing authority as required by law. In
the event disclosure is necessary to any of the persons or entities identified herein, Canouse also
agrees to notify such persons or entities of Canouse’s confidentiality obligations under this
Agreement and to obtain the consent and agreement of such persons or entities (other than taxing
authorities) consistent with the terms stated herein. Canouse further agrees and acknowledges that
this confidentiality is a material term of this Agreement.

          8.4 Confidentiality Applicable to Lawyers. All counsel in this action and privy to
the terms of this Agreement agree to maintain the terms of this Agreement as confidential subject
to the same limitation and exceptions as noted herein.

          8.5 Civil Action. The parties hereto acknowledge and agree that certain information
regarding the Civil Action will be public by virtue of the public filings required to be made in
the Civil Action. Such information shall not be subject to the confidentiality provisions of this
Agreement.

     9. Covenant Not to Sue. Canouse agrees that this Agreement shall be the full and
final resolution of all claims by Canouse. Canouse expressly agrees that he will not and may never
pursue in the future any claim against TRLG for any claim whatsoever relating to or arising from
conduct at issue in the Civil Action. Canouse further agrees that, unless otherwise required by
law and under compulsion of subpoena or other court order or legal process, Canouse shall not
assist any other person in any manner whatsoever with any claim against the Company whether the
claim is made informally or during any regulatory, administrative or judicial proceeding (including
arbitration).

     10. Rescission, Injunction and Equitable Relief.

          10.1 By Company. Canouse acknowledges the particular value to the Company of every
term in this Agreement and, in particular, the Stock Transfer provisions in Section 2, the Release,
Waiver and Indemnity provisions in Sections 5 through 8, the Confidentiality provisions in Section
9, the Covenant Not to Sue provisions in Section 10, and the No Disparagement provisions in Section
13, the breach of which cannot be reasonably or adequately compensated in an action at law.
Therefore, Canouse expressly agrees that the Company, in addition to any other rights or remedies
that the Company shall possess, shall be entitled to rescission of this Agreement and injunctive
and other equitable relief to prevent or remedy a breach of this Agreement by Canouse.

-11-

 

          10.2 By Canouse. The Company acknowledges the particular value to Canouse of the
provisions of Section 2.4 and Section 8.1(a), the breach of which cannot be reasonably or
adequately compensated in an action at law. Therefore, the Company expressly agrees that Canouse,
in addition to any other rights or remedies that he shall possess, shall be entitled to injunctive
and other equitable relief to prevent or remedy a breach of Section 8.1(a) by the Company.

     11. No Assignment. Canouse represents and warrants that he has made no assignment,
and will make no assignment, of any claim, choses in action, right of action or any right of any
kind whatsoever, embodied in any of the claims released herein, and that no other person or entity
of any kind had or has any independent interest in any of the claims, demands, obligations,
actions, causes of action, debts, liabilities, rights, contracts, damages, attorneys’ fees, costs,
expenses or losses released herein.

     12. No Disparagement. Canouse agrees not to make or publish any disparaging or
defamatory communication or statement that has the purpose of causing, or which by natural
consequence causes, injury or damage to the reputation or business of the Company Releasees, or any
of them. The Company agrees that it shall not, through either its Chief Executive Officer or Chief
Financial Officer, make or publish any disparaging or defamatory communication or statement that
has the purpose of causing, or which by natural consequence causes, injury or damage to the
reputation or business of Canouse, provided, that filings with the Securities and Exchange
Commission shall not be deemed to be prohibited in any manner by the foregoing provision.

     13. No Waiver. Failure to insist on compliance with any term, covenant or condition
contained in this Agreement shall not be deemed a waiver of that term, covenant or condition, nor
shall any waiver or relinquishment of any right contained in this Agreement at any one time or more
times be deemed a waiver or relinquishment of any right at any other time or times.

     14. Successors and Assigns. This Agreement, and all terms and provisions hereof,
shall be binding upon and shall inure to the benefit of the parties and their respective heirs,
legal representatives, successors and assigns.

     15. No Admission of Liability. The parties to this Agreement acknowledge that this
Agreement effects the resolution of all issues which are in controversy and that nothing contained
herein shall constitute or be construed as an admission of liability or as an admission of the
truth of the facts and the matters asserted by either party. The parties hereto desire to resolve
their disputes in an amicable fashion and have entered into this Agreement with the desire to
forever resolve between them all of those matters described in this Agreement. The prevailing
party in any proceeding brought to enforce the terms of this Agreement shall be entitled to recover
from the other party all damages, costs and expenses, including with limitations, actual attorneys’
fees, incurred as a result of said action.

     16. Severability. Should any portion, word, clause, phrase, sentence or paragraph of
this Agreement be declared void or unenforceable, such portion may be considered independent and
severable from the remainder shall not be affected. Notwithstanding the foregoing, if the
provisions of Section 1 or Section 2 relating solely to the payment of the cash or Share

-12-

 

consideration hereunder are declared void or unenforceable, then this Agreement shall be void.
Regulatory delays, including with respect to the filing and approval of the Registration
Statement, shall not be considered a declaration that a provision is void or unenforceable.

     17. Representations and Warranties. Both parties to this Agreement represent and
warrant that this Agreement in all respects has been voluntarily and knowingly executed by them
after having received independent legal advice, if they desired, from attorneys of their choice.
Both parties also represent and warrant that (i) they have carefully read this Agreement and (ii)
the contents hereof are known and understood by them.

     18. Choice of Law. This Agreement has been negotiated and executed in the State of
California and shall in all respects be interpreted, enforced and governed in accordance with the
laws of California.

     19. Joint Preparation. The parties acknowledge that this Agreement was jointly
prepared by them, by and through their respective legal counsel, and any uncertainty or ambiguity
existing herein shall not be interpreted against any of the parties, but otherwise according to the
application of the rules on interpretation of contracts.

     20. Entire Agreement. This Agreement constitutes the entire integrated agreement
between the parties and supersedes any and all other agreements, understandings, negotiations, or
discussions, either oral or in writing, express or implied, between the parties to this Agreement.
The parties to this Agreement each acknowledge that no representations, inducements, promises,
agreements or warranties, oral or otherwise, have been made by them, or anyone acting on their
behalf, which are not embodied in this Agreement, that they have not executed this Agreement in
reliance on any such representation, inducement, promise, agreement or warranty, and that no
representation, inducement, promise, agreement or warranty not contained in the Agreement,
including, without limitation, any purported supplements, modifications, waivers or terminations of
any of the Agreement, shall be valid or binding unless executed in writing by both of the parties
to this Agreement.

     21. Costs; Miscellaneous.

          21.1 The parties to this Agreement agree to bear their own costs and attorneys’ fees in
connection with the Civil Action and this Agreement, except as otherwise expressly stated herein.

          21.2 The parties, and each of them, warrant: (i) that no other person or entity owns, owned,
or claims to own any interest in any of the claims, demands, causes of action, obligations,
damages, property rights or liabilities covered in this Agreement; (ii) that they, and each of
them, have the sole right and exclusive authority to execute this Agreement; and (iii) that they
have not sold, assigned, transferred, conveyed or otherwise disposed of any claim, demand, cause of
action, obligation, damage, property right or liability covered in this Agreement.

          21.3 The headings in this Agreement are for convenience only and do not limit, alter or affect
the matters contained in this Agreement or the paragraphs they encaption.

-13-

 

     22. Counterparts. This Agreement may be executed in one or more counterparts, all of
which together constitute one single document. It is further understood that no legal obligations
will arise under this instrument unless and until each and every party has signed its respective
copy of the Agreement.

     23. Notices. All notices, payments or other communications received under this
Agreement shall be sent in writing to the following addresses designated in writing by the parties:

If to Canouse, to:

Joseph C. Canouse

555 North Point Center East

4th Floor

Alpharetta, Georgia 30022

With a copy to:

Scott L. Bonder

Fleming, Fried & Bonder, LLC

1230 Peachtree Street, Suite 3750

Atlanta, Georgia 30309

If to the Company, to:

Charles A. Lesser

Chief Financial Officer

True Religion Apparel, Inc.

1525 Rio Vista Ave.

Los Angeles, CA 90023

With a copy to:

Mark J. Kelson, Esq.

Manatt, Phelps & Phillips, LLP

11355 West Olympic Boulevard

Los Angeles, California 90064

-14-

 

     IN WITNESS WHEREOF, the undersigned have executed this Settlement Agreement and General
Release on the dates set forth hereinafter.

	 	 	 	 	 
	Dated: March 21, 2006                	“Canouse”

 	 
	 	/s/ Joseph C. Canouse
 	 
	 	Joseph C. Canouse, an individual 	 
	 	 	 
	 
	Dated: March 21, 2006       	“The Company”

True Religion Apparel, Inc.

 	 
	 	By:  	    /s/ Jeffrey Lubell
 	 
	 	 	Name:  	Jeffrey Lubell 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 

-15-exv10w14

 

EXHIBIT
10.14

Issued: January 6, 2006

Effective as of: August 19, 2005

NEITHER THIS PROMISSORY NOTE NOR ANY SECURITIES INTO WHICH THIS PROMISSORY NOTE MAY BE
CONVERTED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES OR BLUE SKY LAWS (COLLECTIVELY, THE
“ACTS”) NOR IS ANY SUCH REGISTRATION OR QUALIFICATION CONTEMPLATED. NEITHER THIS PROMISSORY NOTE
NOR ANY OF THE SECURITIES INTO WHICH THIS PROMISSORY NOTE MAY BE CONVERTED MAY BE SOLD OR OFFERED
FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS REGISTERED OR QUALIFIED UNDER THE APPROPRIATE
ACTS OR AN OPINION OF COUNSEL IS RECEIVED BY THE COMPANY (WHICH OPINION AND COUNSEL SHALL BE
REASONABLY SATISFACTORY TO THE COMPANY) TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THE
HOLDER OF THIS PROMISSORY NOTE HAS AGREED TO SUCH RESTRICTIONS.

Remote Knowledge, Inc.

5% Secured Convertible Promissory Note

Due August 1, 2008

     REMOTE KNOWLEDGE, INC., a Delaware corporation (the “Company”), for value received, hereby
promises to pay to Alan Granader, on the 1st day of August, 2008 (the “Maturity Date”), the
principal sum of SIX HUNDRED SEVENTY-FIVE THOUSAND and no/100 dollars ($675,000.00), or
such lesser amount as may have actually been advanced by the holder hereof to the Company pursuant
to the Loan Agreement (defined below), and which remains outstanding and unconverted, and to pay
interest, without compounding, on the outstanding balance of the principal amount, outstanding from
time to time, at a fixed rate of 5% per annum. All outstanding principal and all interest then
accrued and unpaid shall be payable on the Maturity Date. Such principal and interest shall be
paid in lawful money of the United States of America by check mailed to the holder hereof at the
address of such holder set forth above, or such other address of which the holder shall give the
Company prior written notice of at least 30 days.

     In addition to the terms and provisions set forth hereinabove, this Promissory Note is subject
to the following terms and provisions:

     1. Loan Agreement. This Promissory Note is made subject to, and in accordance with,
the terms and provisions contained in the Loan Agreement effective as of August 19, 2005 (the “Loan
Agreement”) by and among the Company, and each of Leonard Nagel, solely in his capacity as trustee
for the Alan Granader Irrevocable Family Trust, Alan Granader, Daniel Granader and Harry Granader,
as “Lenders”. Capitalized terms used, but not defined herein, shall have the meanings set forth in
the Loan Agreement.

Page 1

 

Issued: January 6, 2006

Effective as of: August 19, 2005

     2. Conversion Rights.

          (a) As used herein:

          (i) “Acquisition” shall mean any consolidation or merger of the Company with or into any other
corporation or other entity or person, or any other corporate reorganization, in which the
stockholders of the Company immediately prior to such consolidation, merger or reorganization, own
less than 50% of the Company’s voting power immediately after such consolidation, merger or
reorganization, or any transaction or series of related transactions to which the Company is a
party in which in excess of fifty percent (50%) of the Company’s voting power is transferred.

          (ii) “Asset Transfer” shall mean a sale, lease or other disposition of all or substantially
all of the assets of the Company.

          (iii) “Common Stock” means the common stock, $.001 par value per share, of the Company.

          (iv) “Conversion Amount” means the sum of the amount of Converted Principal and the amount of
Converted Interest.

          (v) “Conversion Price” means $0.75, subject to adjustment as set forth in Section 2(f).

          (vi) “Converted Interest” means any accrued and unpaid interest on this Promissory Note
converted into Common Stock in accordance with Section 2.

          (vii) “Converted Principal” means any outstanding principal converted on this Promissory Note
converted into Common Stock in accordance with Section 2.

          (b) (i) Subject to and in compliance with the provisions of this Section 2, the holder of this
Promissory Note may, at its option, by surrender of this Promissory Note as hereinafter provided,
convert all or any portion of the outstanding principal amount of this Promissory Note, and all or
any portion of the accrued and unpaid interest on this Promissory Note, into such number of shares
of Common Stock as is determined by dividing the Conversion Amount by the Conversion Price.

               (ii) Subject to and in compliance with the provisions of this Section 2, the Company may, at
its option, require conversion of all (but not less than all) of the outstanding principal amount
of this Promissory Note, and all accrued and unpaid interest thereon, into such number of shares of
Common Stock as is determined by dividing the Conversion Amount by the Conversion Price upon the
occurrence of a transaction or series of related transactions in which the Company sells capital
stock of the Company at a purchase price of $5.00 per share or higher and with gross proceeds to
the Company equal to or exceeding $25,000,000.00

               (iii) All then outstanding principal and all then accrued and unpaid interest on this
Promissory Note shall automatically be converted, without any further act of the

Page 2

 

Issued: January 6, 2006

Effective as of: August 19, 2005

Company or the holder, at the Conversion Price then in effect, into fully paid and
nonassessable shares of Common Stock determined by dividing the Conversion Amount by such
Conversion Price, upon the closing of a public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offering and sale of shares of
Common Stock, or of any equity security that as part of a unit or otherwise includes Common Stock,
for the account of the Company, in which the aggregate gross proceeds received by the Company
equals or exceeds $25,000,000.00 and in which the public offering price per share of the Common
Stock equals or exceeds $5.00 per share.

          (c) Subject to the other provisions of this Promissory Note, the option of the holder of this
Promissory Note or the Company for conversion of this Promissory Note may be exercised at any time
during the period beginning on the date hereof and ending upon the repayment in full of the
principal of this Promissory Note.

          (d) The surrender of this Promissory Note for conversion shall be made by the holder hereof to
the Company at its office in Houston, Texas, accompanied by written notice to the Company in the
form of the Conversion Request attached as Annex 1 to this Promissory Note (the “Conversion
Request”) that such holder elects to convert the Converted Principal of this Promissory Note, and
the Converted Interest on this Promissory Note, in accordance with the provisions hereof.

          (i) If the Conversion Amount is equal to all principal outstanding on this Promissory Note
plus all accrued and unpaid interest on this Promissory Note on the date the Conversion Request is
made, then upon surrender of this Promissory Note for conversion, it shall be marked “Paid in
Full”. Any such notice of election to convert shall constitute a contract between the holder of
this Promissory Note and the Company, whereby such holder shall be deemed to subscribe for the
number of shares of Common Stock which it shall be entitled to receive upon such conversion, and in
payment and satisfaction of such subscription, to surrender this Promissory Note and to release the
Company from all liability hereon, including interest accruing, after the date of the receipt of
the Conversion Request, and whereby the Company shall be deemed to agree that the surrender of such
Promissory Note and the extinguishment of liability hereon shall constitute full payment for the
shares of Common Stock so subscribed for and to be issued upon such conversion.

          (ii) If the Conversion Amount is less than the sum of all outstanding principal on this
Promissory Note and all accrued and unpaid interest on this Promissory Note on the date the
Conversion Request is made, then upon surrender of this Promissory Note for conversion, (A) the
principal amount of this Promissory Note as shown on Schedule 1 hereto shall be reduced by the
amount of Converted Principal and (B) the unpaid interest then accrued shall be reduced by the
amount of Converted Interest. Any such notice of election to convert shall constitute a contract
between the holder of this Promissory Note and the Company, whereby such holder shall be deemed to
subscribe for the number of shares of Common Stock which it shall be entitled to receive upon such
conversion, and in payment and satisfaction of such subscription, to release the Company from all
liability with respect to (X) the Converted Principal, (Y) interest accruing on the Converted
Principal after the date of the receipt of the Conversion Request and (Z) Converted Interest, from
the and including the date on which the Conversion Request is received. The Company shall be
deemed to agree that the Conversion

Page 3

 

Issued: January 6, 2006

Effective as of: August 19, 2005

Amount shall constitute full payment for the shares of Common Stock so subscribed for and to
be issued upon such conversion. The Company’s liability for any principal which is not Converted
Principal and any accrued and unpaid interest which is not Converted Interest, shall continue in
accordance with the terms hereof.

          (iii) Subject to the further provisions of this Section 2, as soon as practicable after the
receipt of such Conversion Request, and this Promissory Note, if applicable, the Company shall
issue and shall deliver at said office to such holder (A) a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of this Promissory Note in
accordance with the provisions hereof and (B) a check or cash in respect of any fraction of a share
as provided in Section 2(e). Such conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the Company shall have received such Conversion
Request and this Promissory Note. Any and all interest on the Converted Principal shall cease to
accrue pursuant to this Promissory Note from the date of receipt of the Conversion Request. The
holder of this Promissory Note shall be deemed to have become on said date the holder of record of
the shares of Common Stock issuable to such holder upon such conversion; provided, however, that
any such surrender on any date when the securities transfer books of the Company shall be closed
shall not be deemed to constitute the holder of this Promissory Note as the record holder thereof
for any purpose until the close of business on the next succeeding day on which such securities
transfer books shall be open.

          (iv) Upon the election of the Company to convert this Promissory Note at the occurrence of the
closing of the transaction or series of related transactions specified in Section 2(b)(ii), all
then outstanding principal and all then accrued and unpaid interest on this Promissory Note shall
be converted without any further action by the holder and whether or not this Promissory Note is
surrendered to the Company or its transfer agent; provided, however, that the Company shall not be
obligated to issue to the holder certificates evidencing the shares of Common Stock issuable upon
such conversion unless this Promissory Note is delivered either to the Company or to the transfer
agent of the Company. Conversion shall be deemed to have been effected on the date of the
occurrence of the closing of the transactions or series of related transactions specified in
Section 2(b)(ii). As soon as practicable after the surrender of this Promissory Note as specified
in this Section 2(d), the Company shall issue and deliver to or upon the written order of the
holder a certificate or certificates for the number of full shares of Common Stock to which such
holder is entitled and a check or cash in respect of any fraction of a share as provided in Section
2(e) hereof. No interest shall accrue on and after such conversion date. The holder shall be
deemed to become on such conversion date the holder of record of the shares of Common Stock
issuable to the holder upon such conversion.

          (v) Upon the occurrence of the closing of the public offering specified in Section 2(b)(iii),
all then outstanding principal and all then accrued and unpaid interest on this Promissory Note
shall be converted automatically without any further action by the holder and whether or not this
Promissory Note is surrendered to the Company or its transfer agent; provided, however, that the
Company shall not be obligated to issue to the holder certificates evidencing the shares of Common
Stock issuable upon such conversion unless this Promissory Note is delivered either to the Company
or to the transfer agent of the Company. Conversion shall be deemed to have been effected on the
date of the occurrence of the closing of the public

Page 4

 

Issued: January 6, 2006

Effective as of: August 19, 2005

offering specified in Section 2(b)(iii). As soon as practicable after the surrender of this
Promissory Note as specified in this Section 2(d), the Company shall issue and deliver to or upon
the written order of the holder a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled and a check or cash in respect of any fraction of a
share as provided in Section 2(e) hereof. No interest shall accrue on and after such conversion
date. The holder shall be deemed to become on such conversion date the holder of record of the
shares of Common Stock issuable to the holder upon such conversion.

          (e) The Company shall not be required to issue fractions of shares upon conversion of this
Promissory Note (or portion thereof). If any fractional interest in a share shall be deliverable
upon the conversion of this Promissory Note (or portion thereof), the Company shall purchase such
fractional interest for an amount in cash equal to the Conversion Price times the amount of such
fractional interest.

          (f) The Conversion Price shall be subject to adjustment as follows:

               (i) If the Company shall at any time or from time to time after the date hereof (the
“Original Issue Date”) effect a subdivision of the outstanding Common Stock, the Conversion
Price in effect immediately before such subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock into a smaller number of shares, the Conversion
Price in effect immediately before such combination shall be proportionately increased. Any
adjustment under this Section 2(f)(i) shall become effective at the close of business on
the date the subdivision or combination becomes effective.

               (ii) If at any time or from time to time after the Original Issue Date, the Common Stock is
changed into the same or a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than through an Acquisition, Asset Transfer,
subdivision or combination of shares, stock dividend, reorganization, merger, consolidation, or
sale of assets provided for elsewhere in this Section 2(f)), in any such event the holder
hereof shall have the right thereafter to convert such stock into the kind and amount of stock and
other securities and property receivable upon such recapitalization, reclassification or other
change by holders of the maximum number of shares of Common Stock into which such shares of Common
Stock could have been converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to such other
securities or property by the terms thereof.

               (iii) If at any time or from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock (other than a recapitalization or subdivision, combination,
reclassification, exchange, or substitution of shares provided for elsewhere in this Section
2(f)), as a part of such capital reorganization, provision shall be made so that the holder
hereof shall thereafter be entitled to receive upon exercise hereof the number of shares of stock
or other securities or property of the Company to which a holder of the number of shares of Common
Stock deliverable upon exercise immediately prior to such event would have been entitled as a
result of such capital reorganization, subject to adjustment in respect of such stock or securities
by the terms thereof. In any such case, appropriate adjustment shall be made

Page 5

 

Issued: January 6, 2006

Effective as of: August 19, 2005

in the application of the provisions of this Section 2(f) with respect to the rights
of the holder hereof after the capital reorganization to the end that the provisions of this
Section 2(f) (including adjustment of the Conversion Price then in effect and the number of
shares issuable upon exercise) shall be applicable after that event and be as nearly equivalent as
practicable.

               (iv) Anything in this Section 2 to the contrary notwithstanding, all calculations under this
Section 2(f) shall be made to the nearest cent or to the nearest whole share (as provided
in Section 2(e)), as the case may be. Any provision of this Section 2(f) to the
contrary notwithstanding, no adjustment in the Conversion Price shall be made if the amount of such
adjustment would be less than one percent, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or amounts so carried forward,
shall aggregate one percent or more.

               (v) In the event the Company shall propose to take any action of the types described in
Section 2(f), the Company shall give notice to the holder of this Promissory Note, which notice
shall specify the record date, if any, with respect to any such action and the date on which such
action is to take place. Such notice shall also set forth such facts with respect thereto as shall
be reasonably necessary to indicate the effect of such action (to the extent such effect may be
known at the date of such notice) on the Conversion Price and the number, kind or class of shares
or other securities or property which shall be deliverable or purchasable upon the occurrence of
such action or deliverable upon conversion of this Promissory Note. In the case of any action that
would require the fixing of a record date, such notice shall be given at least ten days prior to
the date so fixed, and in case of all other action, such notice shall be given at least ten days
prior to the taking of such proposed action.

               (vi) All shares of Common Stock issued in connection with the conversion provisions set forth
herein shall be, upon issuance by the Company, validly issued, fully paid and nonassessable and
free from all taxes, liens or charges with respect thereto created or imposed by the Company.

               (vii) The Company shall reserve and keep available out of its authorized but unissued shares
of Common Stock such number of shares of Common Stock as shall from time to time be sufficient to
effect conversion of this Promissory Note.

          (g) Whenever the Conversion Price shall be adjusted as required by the provisions of Section
2(f) hereof, the Company shall forthwith mail a certificate setting forth the adjusted Conversion
Price and showing in reasonable detail the facts upon which such adjustment or readjustment is
based to the holder of this Promissory Note at such holder’s address as it appears herein or at the
last address of which the holder has given the Company written notice, but failure to receive such
notice, or any defects therein, or in the mailing thereof, shall not affect such adjustment in
Conversion Price. The Company shall, upon the written request at any time of the holder of this
Promissory Note, furnish or cause to be furnished to such holder a like certificate setting forth
(a) such adjustments and readjustments, (b) the Conversion Price at that time in effect, and (c)
the number of shares of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of this Promissory Note.

Page 6

 

Issued: January 6, 2006

Effective as of: August 19, 2005

     3. Prepayment. The Company may prepay, upon 10 Business Days’ prior written notice,
its obligations pursuant to this Promissory Note, in whole or in part, at any time by tendering to
the holder hereof the outstanding principal balance to be prepaid, together with accrued but unpaid
interest on such principal being prepaid. The foregoing notwithstanding, it is acknowledged and
agreed to by the Company that the holder hereof may exercise its conversion rights pursuant to
Section 2 hereof at any time prior to the second Business Day immediately preceding the proposed
date of such prepayment, whether before or after receipt of such prepayment notice from the
Company.

     4. Events of Default. Upon the occurrence and continuance of an Event of Default as
set forth in Section 8 of the Loan Agreement, the holder hereof shall have the remedies set forth
in Section 8(b) of the Loan Agreement.

     5. Miscellaneous.

          (a) This Promissory Note shall be governed by, construed and enforced in accordance with the
laws of the State of Texas.

          (b) The captions or headings in this Promissory Note are for reference only and neither form a
part hereof nor are they to be relied upon to interpret any provision of this Promissory Note.

          (c) Any notices required to be given or which are otherwise given under this Promissory Note
shall be given in accordance with the terms of Section 9 of the Loan Agreement.

Page 7

 

Issued: January 6, 2006

Effective as of: August 19, 2005

     IN WITNESS WHEREOF, the Company has caused this Promissory Note to be duly executed and
delivered on the date set forth below.

DATED: January ____, 2006

	 	 	 	 	 	 	 
	 	 	REMOTE KNOWLEDGE, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Randy S. Bayne	 	 
	 

	 	Title:
	 	President & Chief Executive Officer	 	 

Page 8

 

Issued: January 6, 2006

Effective as of: August 19, 2005

Annex 1

CONVERSION REQUEST

TO: REMOTE KNOWLEDGE, INC.

     The undersigned holder of this Promissory Note hereby irrevocably exercises the option to
convert this Promissory Note into shares of Common Stock in accordance with the terms of the
Promissory Note, and directs that the securities issuable and deliverable upon the conversion,
together with any check in payment for fractional amounts or accrued, unpaid interest on the amount
converted, be issued and delivered to the holder hereof at the address specified below.

     The Conversion Amount pursuant to this Conversion Request is a total of $___, comprising
$___ as Converted Principal and $___ as Converted Interest.

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	NOTEHOLDER:
	 	 
	 
	 	 	 	 	 	 	 	 
	Dated:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Please print name and address	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Please insert Social Security Number or	 	 
	 

	 	 	 	 	 	other Taxpayer Identification Number	 	 

- 9 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

SCHEDULE 1

     This Note evidences Loans made by the Lender under the within-described Loan Agreement to the
Borrower, in the principal amounts set forth below, which Loans are of the Type, at the interest
rate and for the Interest Periods and were made on the dates set forth below, subject to the
payments of principal set forth below:

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Date of 	 	 	 	 
	 	 	Principal 	 	Conversion 	 	Amount 	 	Balance 
	Date 	 	Amount 	 	or 	 	Converted 	 	Out-
	Made	 	of Loan	 	Prepayment	 	or Prepaid	 	Standing
	         
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 

NEITHER THIS PROMISSORY NOTE NOR ANY SECURITIES INTO WHICH THIS PROMISSORY NOTE MAY BE
CONVERTED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES OR BLUE SKY LAWS (COLLECTIVELY, THE
“ACTS”) NOR IS ANY SUCH REGISTRATION OR QUALIFICATION CONTEMPLATED. NEITHER THIS PROMISSORY NOTE
NOR ANY OF THE SECURITIES

Page 10

 

Issued: January 6, 2006

Effective as of: August 19, 2005

INTO WHICH THIS PROMISSORY NOTE MAY BE CONVERTED MAY BE SOLD OR OFFERED FOR SALE, TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS REGISTERED OR QUALIFIED UNDER THE APPROPRIATE ACTS OR AN OPINION OF
COUNSEL IS RECEIVED BY THE COMPANY (WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO
THE COMPANY) TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THE HOLDER OF THIS PROMISSORY
NOTE HAS AGREED TO SUCH RESTRICTIONS.

Remote Knowledge, Inc.

5% Secured Convertible Promissory Note

Due August 1, 2008

     REMOTE KNOWLEDGE, INC., a Delaware corporation (the “Company”), for value received, hereby
promises to pay to Harry Granader, on the 1st day of August, 2008 (the “Maturity Date”), the
principal sum of SIX HUNDRED THOUSAND and no/100 dollars ($600,000.00), or such lesser
amount as may have actually been advanced by the holder hereof to the Company pursuant to the Loan
Agreement (defined below), and which remains outstanding and unconverted, and to pay interest,
without compounding, on the outstanding balance of the principal amount, outstanding from time to
time, at a fixed rate of 5% per annum. All outstanding principal and all interest then accrued and
unpaid shall be payable on the Maturity Date. Such principal and interest shall be paid in lawful
money of the United States of America by check mailed to the holder hereof at the address of such
holder set forth above, or such other address of which the holder shall give the Company prior
written notice of at least 30 days.

     In addition to the terms and provisions set forth hereinabove, this Promissory Note is subject
to the following terms and provisions:

     6. Loan Agreement. This Promissory Note is made subject to, and in accordance with,
the terms and provisions contained in the Loan Agreement effective as of August 19, 2005 (the “Loan
Agreement”) by and among the Company, and each of Leonard Nagel, solely in his capacity as trustee
for the Alan Granader Irrevocable Family Trust, Alan Granader, Daniel Granader and Harry Granader,
as “Lenders”. Capitalized terms used, but not defined herein, shall have the meanings set forth in
the Loan Agreement.

     7. Conversion Rights.

          (a) As used herein:

          (i) “Acquisition” shall mean any consolidation or merger of the Company with or into any other
corporation or other entity or person, or any other corporate reorganization, in which the
stockholders of the Company immediately prior to such consolidation, merger or reorganization, own
less than 50% of the Company’s voting power immediately after such consolidation, merger or
reorganization, or any transaction or series of related transactions to which the Company is a
party in which in excess of fifty percent (50%) of the Company’s voting power is transferred.

Page 11

 

Issued: January 6, 2006

Effective as of: August 19, 2005

          (ii) “Asset Transfer” shall mean a sale, lease or other disposition of all or substantially
all of the assets of the Company.

          (iii) “Common Stock” means the common stock, $.001 par value per share, of the Company.

          (iv) “Conversion Amount” means the sum of the amount of Converted Principal and the amount of
Converted Interest.

          (v) “Conversion Price” means $0.75, subject to adjustment as set forth in Section 2(f).

          (vi) “Converted Interest” means any accrued and unpaid interest on this Promissory Note
converted into Common Stock in accordance with Section 2.

          (vii) “Converted Principal” means any outstanding principal converted on this Promissory Note
converted into Common Stock in accordance with Section 2.

          (b) (i) Subject to and in compliance with the provisions of this Section 2, the holder of this
Promissory Note may, at its option, by surrender of this Promissory Note as hereinafter provided,
convert all or any portion of the outstanding principal amount of this Promissory Note, and all or
any portion of the accrued and unpaid interest on this Promissory Note, into such number of shares
of Common Stock as is determined by dividing the Conversion Amount by the Conversion Price.

               (ii) Subject to and in compliance with the provisions of this Section 2, the Company may, at
its option, require conversion of all (but not less than all) of the outstanding principal amount
of this Promissory Note, and all accrued and unpaid interest thereon, into such number of shares of
Common Stock as is determined by dividing the Conversion Amount by the Conversion Price upon the
occurrence of a transaction or series of related transactions in which the Company sells capital
stock of the Company at a purchase price of $5.00 per share or higher and with gross proceeds to
the Company equal to or exceeding $25,000,000.00

               (iii) All then outstanding principal and all then accrued and unpaid interest on this
Promissory Note shall automatically be converted, without any further act of the Company or the
holder, at the Conversion Price then in effect, into fully paid and nonassessable shares of Common
Stock determined by dividing the Conversion Amount by such Conversion Price, upon the closing of a
public offering pursuant to an effective registration statement under the Securities Act of 1933,
as amended, covering the offering and sale of shares of Common Stock, or of any equity security
that as part of a unit or otherwise includes Common Stock, for the account of the Company, in which
the aggregate gross proceeds received by the Company equals or exceeds $25,000,000.00 and in which
the public offering price per share of the Common Stock equals or exceeds $5.00 per share.

          (c) Subject to the other provisions of this Promissory Note, the option of the holder of this
Promissory Note or the Company for conversion of this Promissory Note may be

Page 12

 

Issued: January 6, 2006

Effective as of: August 19, 2005

exercised at any time during the period beginning on the date hereof and ending upon the
repayment in full of the principal of this Promissory Note.

          (d) The surrender of this Promissory Note for conversion shall be made by the holder hereof to
the Company at its office in Houston, Texas, accompanied by written notice to the Company in the
form of the Conversion Request attached as Annex 1 to this Promissory Note (the “Conversion
Request”) that such holder elects to convert the Converted Principal of this Promissory Note, and
the Converted Interest on this Promissory Note, in accordance with the provisions hereof.

          (i) If the Conversion Amount is equal to all principal outstanding on this Promissory Note
plus all accrued and unpaid interest on this Promissory Note on the date the Conversion Request is
made, then upon surrender of this Promissory Note for conversion, it shall be marked “Paid in
Full”. Any such notice of election to convert shall constitute a contract between the holder of
this Promissory Note and the Company, whereby such holder shall be deemed to subscribe for the
number of shares of Common Stock which it shall be entitled to receive upon such conversion, and in
payment and satisfaction of such subscription, to surrender this Promissory Note and to release the
Company from all liability hereon, including interest accruing, after the date of the receipt of
the Conversion Request, and whereby the Company shall be deemed to agree that the surrender of such
Promissory Note and the extinguishment of liability hereon shall constitute full payment for the
shares of Common Stock so subscribed for and to be issued upon such conversion.

          (ii) If the Conversion Amount is less than the sum of all outstanding principal on this
Promissory Note and all accrued and unpaid interest on this Promissory Note on the date the
Conversion Request is made, then upon surrender of this Promissory Note for conversion, (A) the
principal amount of this Promissory Note as shown on Schedule 1 hereto shall be reduced by the
amount of Converted Principal and (B) the unpaid interest then accrued shall be reduced by the
amount of Converted Interest. Any such notice of election to convert shall constitute a contract
between the holder of this Promissory Note and the Company, whereby such holder shall be deemed to
subscribe for the number of shares of Common Stock which it shall be entitled to receive upon such
conversion, and in payment and satisfaction of such subscription, to release the Company from all
liability with respect to (X) the Converted Principal, (Y) interest accruing on the Converted
Principal after the date of the receipt of the Conversion Request and (Z) Converted Interest, from
the and including the date on which the Conversion Request is received. The Company shall be
deemed to agree that the Conversion Amount shall constitute full payment for the shares of Common
Stock so subscribed for and to be issued upon such conversion. The Company’s liability for any
principal which is not Converted Principal and any accrued and unpaid interest which is not
Converted Interest, shall continue in accordance with the terms hereof.

          (iii) Subject to the further provisions of this Section 2, as soon as practicable after the
receipt of such Conversion Request, and this Promissory Note, if applicable, the Company shall
issue and shall deliver at said office to such holder (A) a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of this Promissory Note in
accordance with the provisions hereof and (B) a check or cash in respect of any fraction of a share
as provided in Section 2(e). Such conversion shall be deemed to have been effected

Page 13

 

Issued: January 6, 2006

Effective as of: August 19, 2005

immediately prior to the close of business on the date on which the Company shall have
received such Conversion Request and this Promissory Note. Any and all interest on the Converted
Principal shall cease to accrue pursuant to this Promissory Note from the date of receipt of the
Conversion Request. The holder of this Promissory Note shall be deemed to have become on said date
the holder of record of the shares of Common Stock issuable to such holder upon such conversion;
provided, however, that any such surrender on any date when the securities transfer books of the
Company shall be closed shall not be deemed to constitute the holder of this Promissory Note as the
record holder thereof for any purpose until the close of business on the next succeeding day on
which such securities transfer books shall be open.

          (iv) Upon the election of the Company to convert this Promissory Note at the occurrence of the
closing of the transaction or series of related transactions specified in Section 2(b)(ii), all
then outstanding principal and all then accrued and unpaid interest on this Promissory Note shall
be converted without any further action by the holder and whether or not this Promissory Note is
surrendered to the Company or its transfer agent; provided, however, that the Company shall not be
obligated to issue to the holder certificates evidencing the shares of Common Stock issuable upon
such conversion unless this Promissory Note is delivered either to the Company or to the transfer
agent of the Company. Conversion shall be deemed to have been effected on the date of the
occurrence of the closing of the transactions or series of related transactions specified in
Section 2(b)(ii). As soon as practicable after the surrender of this Promissory Note as specified
in this Section 2(d), the Company shall issue and deliver to or upon the written order of the
holder a certificate or certificates for the number of full shares of Common Stock to which such
holder is entitled and a check or cash in respect of any fraction of a share as provided in Section
2(e) hereof. No interest shall accrue on and after such conversion date. The holder shall be
deemed to become on such conversion date the holder of record of the shares of Common Stock
issuable to the holder upon such conversion.

          (v) Upon the occurrence of the closing of the public offering specified in Section 2(b)(iii),
all then outstanding principal and all then accrued and unpaid interest on this Promissory Note
shall be converted automatically without any further action by the holder and whether or not this
Promissory Note is surrendered to the Company or its transfer agent; provided, however, that the
Company shall not be obligated to issue to the holder certificates evidencing the shares of Common
Stock issuable upon such conversion unless this Promissory Note is delivered either to the Company
or to the transfer agent of the Company. Conversion shall be deemed to have been effected on the
date of the occurrence of the closing of the public offering specified in Section 2(b)(iii). As
soon as practicable after the surrender of this Promissory Note as specified in this Section 2(d),
the Company shall issue and deliver to or upon the written order of the holder a certificate or
certificates for the number of full shares of Common Stock to which such holder is entitled and a
check or cash in respect of any fraction of a share as provided in Section 2(e) hereof. No
interest shall accrue on and after such conversion date. The holder shall be deemed to become on
such conversion date the holder of record of the shares of Common Stock issuable to the holder upon
such conversion.

          (e) The Company shall not be required to issue fractions of shares upon conversion of this
Promissory Note (or portion thereof). If any fractional interest in a share shall be deliverable
upon the conversion of this Promissory Note (or portion thereof), the Company

Page 14

 

Issued: January 6, 2006

Effective as of: August 19, 2005

shall purchase such fractional interest for an amount in cash equal to the Conversion Price
times the amount of such fractional interest.

          (f) The Conversion Price shall be subject to adjustment as follows:

               (i) If the Company shall at any time or from time to time after the date hereof (the
“Original Issue Date”) effect a subdivision of the outstanding Common Stock, the Conversion
Price in effect immediately before such subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock into a smaller number of shares, the Conversion
Price in effect immediately before such combination shall be proportionately increased. Any
adjustment under this Section 2(f)(i) shall become effective at the close of business on
the date the subdivision or combination becomes effective.

               (ii) If at any time or from time to time after the Original Issue Date, the Common Stock is
changed into the same or a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than through an Acquisition, Asset Transfer,
subdivision or combination of shares, stock dividend, reorganization, merger, consolidation, or
sale of assets provided for elsewhere in this Section 2(f)), in any such event the holder
hereof shall have the right thereafter to convert such stock into the kind and amount of stock and
other securities and property receivable upon such recapitalization, reclassification or other
change by holders of the maximum number of shares of Common Stock into which such shares of Common
Stock could have been converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to such other
securities or property by the terms thereof.

               (iii) If at any time or from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock (other than a recapitalization or subdivision, combination,
reclassification, exchange, or substitution of shares provided for elsewhere in this Section
2(f)), as a part of such capital reorganization, provision shall be made so that the holder
hereof shall thereafter be entitled to receive upon exercise hereof the number of shares of stock
or other securities or property of the Company to which a holder of the number of shares of Common
Stock deliverable upon exercise immediately prior to such event would have been entitled as a
result of such capital reorganization, subject to adjustment in respect of such stock or securities
by the terms thereof. In any such case, appropriate adjustment shall be made in the application of
the provisions of this Section 2(f) with respect to the rights of the holder hereof after
the capital reorganization to the end that the provisions of this Section 2(f) (including
adjustment of the Conversion Price then in effect and the number of shares issuable upon exercise)
shall be applicable after that event and be as nearly equivalent as practicable.

               (iv) Anything in this Section 2 to the contrary notwithstanding, all calculations under this
Section 2(f) shall be made to the nearest cent or to the nearest whole share (as provided
in Section 2(e)), as the case may be. Any provision of this Section 2(f) to the
contrary notwithstanding, no adjustment in the Conversion Price shall be made if the amount of such
adjustment would be less than one percent, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together with any

Page 15

 

Issued: January 6, 2006

Effective as of: August 19, 2005

subsequent adjustment which, together with such amount and any other amount or amounts so
carried forward, shall aggregate one percent or more.

               (v) In the event the Company shall propose to take any action of the types described in
Section 2(f), the Company shall give notice to the holder of this Promissory Note, which notice
shall specify the record date, if any, with respect to any such action and the date on which such
action is to take place. Such notice shall also set forth such facts with respect thereto as shall
be reasonably necessary to indicate the effect of such action (to the extent such effect may be
known at the date of such notice) on the Conversion Price and the number, kind or class of shares
or other securities or property which shall be deliverable or purchasable upon the occurrence of
such action or deliverable upon conversion of this Promissory Note. In the case of any action that
would require the fixing of a record date, such notice shall be given at least ten days prior to
the date so fixed, and in case of all other action, such notice shall be given at least ten days
prior to the taking of such proposed action.

               (vi) All shares of Common Stock issued in connection with the conversion provisions set forth
herein shall be, upon issuance by the Company, validly issued, fully paid and nonassessable and
free from all taxes, liens or charges with respect thereto created or imposed by the Company.

               (vii) The Company shall reserve and keep available out of its authorized but unissued shares
of Common Stock such number of shares of Common Stock as shall from time to time be sufficient to
effect conversion of this Promissory Note.

          (g) Whenever the Conversion Price shall be adjusted as required by the provisions of Section
2(f) hereof, the Company shall forthwith mail a certificate setting forth the adjusted Conversion
Price and showing in reasonable detail the facts upon which such adjustment or readjustment is
based to the holder of this Promissory Note at such holder’s address as it appears herein or at the
last address of which the holder has given the Company written notice, but failure to receive such
notice, or any defects therein, or in the mailing thereof, shall not affect such adjustment in
Conversion Price. The Company shall, upon the written request at any time of the holder of this
Promissory Note, furnish or cause to be furnished to such holder a like certificate setting forth
(a) such adjustments and readjustments, (b) the Conversion Price at that time in effect, and (c)
the number of shares of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of this Promissory Note.

     8. Prepayment. The Company may prepay, upon 10 Business Days’ prior written notice,
its obligations pursuant to this Promissory Note, in whole or in part, at any time by tendering to
the holder hereof the outstanding principal balance to be prepaid, together with accrued but unpaid
interest on such principal being prepaid. The foregoing notwithstanding, it is acknowledged and
agreed to by the Company that the holder hereof may exercise its conversion rights pursuant to
Section 2 hereof at any time prior to the second Business Day immediately preceding the proposed
date of such prepayment, whether before or after receipt of such prepayment notice from the
Company.

Page 16

 

Issued: January 6, 2006

Effective as of: August 19, 2005

     9. Events of Default. Upon the occurrence and continuance of an Event of Default as
set forth in Section 8 of the Loan Agreement, the holder hereof shall have the remedies set forth
in Section 8(b) of the Loan Agreement.

     10. Miscellaneous.

          (a) This Promissory Note shall be governed by, construed and enforced in accordance with the
laws of the State of Texas.

          (b) The captions or headings in this Promissory Note are for reference only and neither form a
part hereof nor are they to be relied upon to interpret any provision of this Promissory Note.

          (c) Any notices required to be given or which are otherwise given under this Promissory Note
shall be given in accordance with the terms of Section 9 of the Loan Agreement.

Page 17

 

Issued: January 6, 2006

Effective as of: August 19, 2005

     IN WITNESS WHEREOF, the Company has caused this Promissory Note to be duly executed and
delivered on the date set forth below.

DATED: January ____, 2006

	 	 	 	 	 	 	 
	 	 	REMOTE KNOWLEDGE, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Randy S. Bayne	 	 
	 

	 	Title:
	 	President & Chief Executive Officer	 	 

Page 18

 

Issued: January 6, 2006

Effective as of: August 19, 2005

Annex 1

CONVERSION REQUEST

TO: REMOTE KNOWLEDGE, INC.

     The undersigned holder of this Promissory Note hereby irrevocably exercises the option to
convert this Promissory Note into shares of Common Stock in accordance with the terms of the
Promissory Note, and directs that the securities issuable and deliverable upon the conversion,
together with any check in payment for fractional amounts or accrued, unpaid interest on the amount
converted, be issued and delivered to the holder hereof at the address specified below.

     The Conversion Amount pursuant to this Conversion Request is a total of $___, comprising
$___ as Converted Principal and $___ as Converted Interest.

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	NOTEHOLDER:	 	 
	Dated:

	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Please print name and address	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Please insert Social Security Number or	 	 
	 

	 	 	 	 	 	other Taxpayer Identification Number	 	 

- 19 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

SCHEDULE 1

This Note evidences Loans made by the Lender under the within-described Loan Agreement to the
Borrower, in the principal amounts set forth below, which Loans are of the Type, at the interest
rate and for the Interest Periods and were made on the dates set forth below, subject to the
payments of principal set forth below:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Date of 	 	 	 	 	 	 	 
	 	 	Principal 	 	 	Conversion 	 	 	Amount 	 	 	Balance 	 
	Date 	 	Amount 	 	 	or 	 	 	Converted 	 	 	Out-	 
	Made	 	of Loan	 	 	Prepayment	 	 	or Prepaid	 	 	Standing	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         

NEITHER THIS PROMISSORY NOTE NOR ANY SECURITIES INTO WHICH THIS PROMISSORY NOTE MAY BE
CONVERTED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES OR BLUE SKY LAWS (COLLECTIVELY, THE
“ACTS”) NOR IS ANY SUCH REGISTRATION OR

Page 20

 

Issued: January 6, 2006

Effective as of: August 19, 2005

QUALIFICATION CONTEMPLATED. NEITHER THIS PROMISSORY NOTE NOR ANY OF THE SECURITIES INTO WHICH
THIS PROMISSORY NOTE MAY BE CONVERTED MAY BE SOLD OR OFFERED FOR SALE, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS REGISTERED OR QUALIFIED UNDER THE APPROPRIATE ACTS OR AN OPINION OF COUNSEL IS
RECEIVED BY THE COMPANY (WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY)
TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THE HOLDER OF THIS PROMISSORY NOTE HAS
AGREED TO SUCH RESTRICTIONS.

Remote Knowledge, Inc.

5% Secured Convertible Promissory Note

Due August 1, 2008

     REMOTE KNOWLEDGE, INC., a Delaware corporation (the “Company”), for value received, hereby
promises to pay to Daniel Granader, on the 1st day of August, 2008 (the “Maturity Date”), the
principal sum of SIX HUNDRED THOUSAND and no/100 dollars ($600,000.00), or such lesser
amount as may have actually been advanced by the holder hereof to the Company pursuant to the Loan
Agreement (defined below), and which remains outstanding and unconverted, and to pay interest,
without compounding, on the outstanding balance of the principal amount, outstanding from time to
time, at a fixed rate of 5% per annum. All outstanding principal and all interest then accrued and
unpaid shall be payable on the Maturity Date. Such principal and interest shall be paid in lawful
money of the United States of America by check mailed to the holder hereof at the address of such
holder set forth above, or such other address of which the holder shall give the Company prior
written notice of at least 30 days.

     In addition to the terms and provisions set forth hereinabove, this Promissory Note is subject
to the following terms and provisions:

     11. Loan Agreement. This Promissory Note is made subject to, and in accordance with,
the terms and provisions contained in the Loan Agreement effective as of August 19, 2005 (the “Loan
Agreement”) by and among the Company, and each of Leonard Nagel, solely in his capacity as trustee
for the Alan Granader Irrevocable Family Trust, Alan Granader, Daniel Granader and Harry Granader,
as “Lenders”. Capitalized terms used, but not defined herein, shall have the meanings set forth in
the Loan Agreement.

     12. Conversion Rights.

          (a) As used herein:

          (i) “Acquisition” shall mean any consolidation or merger of the Company with or into any other
corporation or other entity or person, or any other corporate reorganization, in which the
stockholders of the Company immediately prior to such consolidation, merger or reorganization, own
less than 50% of the Company’s voting power immediately after such consolidation, merger or
reorganization, or any transaction or series of

Page 21

 

Issued: January 6, 2006

Effective as of: August 19, 2005

related transactions to which the Company is a party in which in excess of fifty percent (50%)
of the Company’s voting power is transferred.

          (ii) “Asset Transfer” shall mean a sale, lease or other disposition of all or substantially
all of the assets of the Company.

          (iii) “Common Stock” means the common stock, $.001 par value per share, of the Company.

          (iv) “Conversion Amount” means the sum of the amount of Converted Principal and the amount of
Converted Interest.

          (v) “Conversion Price” means $0.75, subject to adjustment as set forth in Section 2(f).

          (vi) “Converted Interest” means any accrued and unpaid interest on this Promissory Note
converted into Common Stock in accordance with Section 2.

          (vii) “Converted Principal” means any outstanding principal converted on this Promissory Note
converted into Common Stock in accordance with Section 2.

          (b) (i) Subject to and in compliance with the provisions of this Section 2, the holder of this
Promissory Note may, at its option, by surrender of this Promissory Note as hereinafter provided,
convert all or any portion of the outstanding principal amount of this Promissory Note, and all or
any portion of the accrued and unpaid interest on this Promissory Note, into such number of shares
of Common Stock as is determined by dividing the Conversion Amount by the Conversion Price.

               (ii) Subject to and in compliance with the provisions of this Section 2, the Company may, at
its option, require conversion of all (but not less than all) of the outstanding principal amount
of this Promissory Note, and all accrued and unpaid interest thereon, into such number of shares of
Common Stock as is determined by dividing the Conversion Amount by the Conversion Price upon the
occurrence of a transaction or series of related transactions in which the Company sells capital
stock of the Company at a purchase price of $5.00 per share or higher and with gross proceeds to
the Company equal to or exceeding $25,000,000.00

               (iii) All then outstanding principal and all then accrued and unpaid interest on this
Promissory Note shall automatically be converted, without any further act of the Company or the
holder, at the Conversion Price then in effect, into fully paid and nonassessable shares of Common
Stock determined by dividing the Conversion Amount by such Conversion Price, upon the closing of a
public offering pursuant to an effective registration statement under the Securities Act of 1933,
as amended, covering the offering and sale of shares of Common Stock, or of any equity security
that as part of a unit or otherwise includes Common Stock, for the account of the Company, in which
the aggregate gross proceeds received by the Company equals or exceeds $25,000,000.00 and in which
the public offering price per share of the Common Stock equals or exceeds $5.00 per share.

Page 22

 

Issued: January 6, 2006

Effective as of: August 19, 2005

          (c) Subject to the other provisions of this Promissory Note, the option of the holder of this
Promissory Note or the Company for conversion of this Promissory Note may be exercised at any time
during the period beginning on the date hereof and ending upon the repayment in full of the
principal of this Promissory Note.

          (d) The surrender of this Promissory Note for conversion shall be made by the holder hereof to
the Company at its office in Houston, Texas, accompanied by written notice to the Company in the
form of the Conversion Request attached as Annex 1 to this Promissory Note (the “Conversion
Request”) that such holder elects to convert the Converted Principal of this Promissory Note, and
the Converted Interest on this Promissory Note, in accordance with the provisions hereof.

          (i) If the Conversion Amount is equal to all principal outstanding on this Promissory Note
plus all accrued and unpaid interest on this Promissory Note on the date the Conversion Request is
made, then upon surrender of this Promissory Note for conversion, it shall be marked “Paid in
Full”. Any such notice of election to convert shall constitute a contract between the holder of
this Promissory Note and the Company, whereby such holder shall be deemed to subscribe for the
number of shares of Common Stock which it shall be entitled to receive upon such conversion, and in
payment and satisfaction of such subscription, to surrender this Promissory Note and to release the
Company from all liability hereon, including interest accruing, after the date of the receipt of
the Conversion Request, and whereby the Company shall be deemed to agree that the surrender of such
Promissory Note and the extinguishment of liability hereon shall constitute full payment for the
shares of Common Stock so subscribed for and to be issued upon such conversion.

          (ii) If the Conversion Amount is less than the sum of all outstanding principal on this
Promissory Note and all accrued and unpaid interest on this Promissory Note on the date the
Conversion Request is made, then upon surrender of this Promissory Note for conversion, (A) the
principal amount of this Promissory Note as shown on Schedule 1 hereto shall be reduced by the
amount of Converted Principal and (B) the unpaid interest then accrued shall be reduced by the
amount of Converted Interest. Any such notice of election to convert shall constitute a contract
between the holder of this Promissory Note and the Company, whereby such holder shall be deemed to
subscribe for the number of shares of Common Stock which it shall be entitled to receive upon such
conversion, and in payment and satisfaction of such subscription, to release the Company from all
liability with respect to (X) the Converted Principal, (Y) interest accruing on the Converted
Principal after the date of the receipt of the Conversion Request and (Z) Converted Interest, from
the and including the date on which the Conversion Request is received. The Company shall be
deemed to agree that the Conversion Amount shall constitute full payment for the shares of Common
Stock so subscribed for and to be issued upon such conversion. The Company’s liability for any
principal which is not Converted Principal and any accrued and unpaid interest which is not
Converted Interest, shall continue in accordance with the terms hereof.

          (iii) Subject to the further provisions of this Section 2, as soon as practicable after the
receipt of such Conversion Request, and this Promissory Note, if applicable, the Company shall
issue and shall deliver at said office to such holder (A) a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of this Promissory

Page 23

 

Issued: January 6, 2006

Effective as of: August 19, 2005

Note in accordance with the provisions hereof and (B) a check or cash in respect of any
fraction of a share as provided in Section 2(e). Such conversion shall be deemed to have been
effected immediately prior to the close of business on the date on which the Company shall have
received such Conversion Request and this Promissory Note. Any and all interest on the Converted
Principal shall cease to accrue pursuant to this Promissory Note from the date of receipt of the
Conversion Request. The holder of this Promissory Note shall be deemed to have become on said date
the holder of record of the shares of Common Stock issuable to such holder upon such conversion;
provided, however, that any such surrender on any date when the securities transfer books of the
Company shall be closed shall not be deemed to constitute the holder of this Promissory Note as the
record holder thereof for any purpose until the close of business on the next succeeding day on
which such securities transfer books shall be open.

          (iv) Upon the election of the Company to convert this Promissory Note at the occurrence of the
closing of the transaction or series of related transactions specified in Section 2(b)(ii), all
then outstanding principal and all then accrued and unpaid interest on this Promissory Note shall
be converted without any further action by the holder and whether or not this Promissory Note is
surrendered to the Company or its transfer agent; provided, however, that the Company shall not be
obligated to issue to the holder certificates evidencing the shares of Common Stock issuable upon
such conversion unless this Promissory Note is delivered either to the Company or to the transfer
agent of the Company. Conversion shall be deemed to have been effected on the date of the
occurrence of the closing of the transactions or series of related transactions specified in
Section 2(b)(ii). As soon as practicable after the surrender of this Promissory Note as specified
in this Section 2(d), the Company shall issue and deliver to or upon the written order of the
holder a certificate or certificates for the number of full shares of Common Stock to which such
holder is entitled and a check or cash in respect of any fraction of a share as provided in Section
2(e) hereof. No interest shall accrue on and after such conversion date. The holder shall be
deemed to become on such conversion date the holder of record of the shares of Common Stock
issuable to the holder upon such conversion.

          (v) Upon the occurrence of the closing of the public offering specified in Section 2(b)(iii),
all then outstanding principal and all then accrued and unpaid interest on this Promissory Note
shall be converted automatically without any further action by the holder and whether or not this
Promissory Note is surrendered to the Company or its transfer agent; provided, however, that the
Company shall not be obligated to issue to the holder certificates evidencing the shares of Common
Stock issuable upon such conversion unless this Promissory Note is delivered either to the Company
or to the transfer agent of the Company. Conversion shall be deemed to have been effected on the
date of the occurrence of the closing of the public offering specified in Section 2(b)(iii). As
soon as practicable after the surrender of this Promissory Note as specified in this Section 2(d),
the Company shall issue and deliver to or upon the written order of the holder a certificate or
certificates for the number of full shares of Common Stock to which such holder is entitled and a
check or cash in respect of any fraction of a share as provided in Section 2(e) hereof. No
interest shall accrue on and after such conversion date. The holder shall be deemed to become on
such conversion date the holder of record of the shares of Common Stock issuable to the holder upon
such conversion.

Page 24

 

Issued: January 6, 2006

Effective as of: August 19, 2005

          (e) The Company shall not be required to issue fractions of shares upon conversion of this
Promissory Note (or portion thereof). If any fractional interest in a share shall be deliverable
upon the conversion of this Promissory Note (or portion thereof), the Company shall purchase such
fractional interest for an amount in cash equal to the Conversion Price times the amount of such
fractional interest.

          (f) The Conversion Price shall be subject to adjustment as follows:

               (i) If the Company shall at any time or from time to time after the date hereof (the
“Original Issue Date”) effect a subdivision of the outstanding Common Stock, the Conversion
Price in effect immediately before such subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock into a smaller number of shares, the Conversion
Price in effect immediately before such combination shall be proportionately increased. Any
adjustment under this Section 2(f)(i) shall become effective at the close of business on
the date the subdivision or combination becomes effective.

               (ii) If at any time or from time to time after the Original Issue Date, the Common Stock is
changed into the same or a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than through an Acquisition, Asset Transfer,
subdivision or combination of shares, stock dividend, reorganization, merger, consolidation, or
sale of assets provided for elsewhere in this Section 2(f)), in any such event the holder
hereof shall have the right thereafter to convert such stock into the kind and amount of stock and
other securities and property receivable upon such recapitalization, reclassification or other
change by holders of the maximum number of shares of Common Stock into which such shares of Common
Stock could have been converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to such other
securities or property by the terms thereof.

               (iii) If at any time or from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock (other than a recapitalization or subdivision, combination,
reclassification, exchange, or substitution of shares provided for elsewhere in this Section
2(f)), as a part of such capital reorganization, provision shall be made so that the holder
hereof shall thereafter be entitled to receive upon exercise hereof the number of shares of stock
or other securities or property of the Company to which a holder of the number of shares of Common
Stock deliverable upon exercise immediately prior to such event would have been entitled as a
result of such capital reorganization, subject to adjustment in respect of such stock or securities
by the terms thereof. In any such case, appropriate adjustment shall be made in the application of
the provisions of this Section 2(f) with respect to the rights of the holder hereof after
the capital reorganization to the end that the provisions of this Section 2(f) (including
adjustment of the Conversion Price then in effect and the number of shares issuable upon exercise)
shall be applicable after that event and be as nearly equivalent as practicable.

               (iv) Anything in this Section 2 to the contrary notwithstanding, all calculations under this
Section 2(f) shall be made to the nearest cent or to the nearest whole share (as provided
in Section 2(e)), as the case may be. Any provision of this Section 2(f) to the

Page 25

 

Issued: January 6, 2006

Effective as of: August 19, 2005

contrary notwithstanding, no adjustment in the Conversion Price shall be made if the amount of
such adjustment would be less than one percent, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or amounts so carried forward,
shall aggregate one percent or more.

               (v) In the event the Company shall propose to take any action of the types described in
Section 2(f), the Company shall give notice to the holder of this Promissory Note, which notice
shall specify the record date, if any, with respect to any such action and the date on which such
action is to take place. Such notice shall also set forth such facts with respect thereto as shall
be reasonably necessary to indicate the effect of such action (to the extent such effect may be
known at the date of such notice) on the Conversion Price and the number, kind or class of shares
or other securities or property which shall be deliverable or purchasable upon the occurrence of
such action or deliverable upon conversion of this Promissory Note. In the case of any action that
would require the fixing of a record date, such notice shall be given at least ten days prior to
the date so fixed, and in case of all other action, such notice shall be given at least ten days
prior to the taking of such proposed action.

               (vi) All shares of Common Stock issued in connection with the conversion provisions set forth
herein shall be, upon issuance by the Company, validly issued, fully paid and nonassessable and
free from all taxes, liens or charges with respect thereto created or imposed by the Company.

               (vii) The Company shall reserve and keep available out of its authorized but unissued shares
of Common Stock such number of shares of Common Stock as shall from time to time be sufficient to
effect conversion of this Promissory Note.

          (g) Whenever the Conversion Price shall be adjusted as required by the provisions of Section
2(f) hereof, the Company shall forthwith mail a certificate setting forth the adjusted Conversion
Price and showing in reasonable detail the facts upon which such adjustment or readjustment is
based to the holder of this Promissory Note at such holder’s address as it appears herein or at the
last address of which the holder has given the Company written notice, but failure to receive such
notice, or any defects therein, or in the mailing thereof, shall not affect such adjustment in
Conversion Price. The Company shall, upon the written request at any time of the holder of this
Promissory Note, furnish or cause to be furnished to such holder a like certificate setting forth
(a) such adjustments and readjustments, (b) the Conversion Price at that time in effect, and (c)
the number of shares of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of this Promissory Note.

     13. Prepayment. The Company may prepay, upon 10 Business Days’ prior written notice,
its obligations pursuant to this Promissory Note, in whole or in part, at any time by tendering to
the holder hereof the outstanding principal balance to be prepaid, together with accrued but unpaid
interest on such principal being prepaid. The foregoing notwithstanding, it is acknowledged and
agreed to by the Company that the holder hereof may exercise its conversion rights pursuant to
Section 2 hereof at any time prior to the second Business Day immediately

Page 26

 

Issued: January 6, 2006

Effective as of: August 19, 2005

preceding the proposed date of such prepayment, whether before or after receipt of such
prepayment notice from the Company.

     14. Events of Default. Upon the occurrence and continuance of an Event of Default as
set forth in Section 8 of the Loan Agreement, the holder hereof shall have the remedies set forth
in Section 8(b) of the Loan Agreement.

     15. Miscellaneous.

          (a) This Promissory Note shall be governed by, construed and enforced in accordance with the
laws of the State of Texas.

          (b) The captions or headings in this Promissory Note are for reference only and neither form a
part hereof nor are they to be relied upon to interpret any provision of this Promissory Note.

          (c) Any notices required to be given or which are otherwise given under this Promissory Note
shall be given in accordance with the terms of Section 9 of the Loan Agreement.

Page 27

 

Issued: January 6, 2006

Effective as of: August 19, 2005

     IN WITNESS WHEREOF, the Company has caused this Promissory Note to be duly executed and
delivered on the date set forth below.

DATED: January ____, 2006

	 	 	 	 	 	 	 
	 	 	REMOTE KNOWLEDGE, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Randy S. Bayne	 	 
	 

	 	Title:
	 	President & Chief Executive Officer	 	 

Page 28

 

Issued: January 6, 2006

Effective as of: August 19, 2005

Annex 1

CONVERSION REQUEST

TO: REMOTE KNOWLEDGE, INC.

     The undersigned holder of this Promissory Note hereby irrevocably exercises the option to
convert this Promissory Note into shares of Common Stock in accordance with the terms of the
Promissory Note, and directs that the securities issuable and deliverable upon the conversion,
together with any check in payment for fractional amounts or accrued, unpaid interest on the amount
converted, be issued and delivered to the holder hereof at the address specified below.

     The Conversion Amount pursuant to this Conversion Request is a total of $___, comprising
$___ as Converted Principal and $___ as Converted Interest.

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	NOTEHOLDER:
	 	 
	Dated:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Please print name and address	 	 
	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Please insert Social Security Number or	 	 
	 

	 	 	 	 	 	other Taxpayer Identification Number	 	 

- 29 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

SCHEDULE 1

This Note evidences Loans made by the Lender under the within-described Loan Agreement to the
Borrower, in the principal amounts set forth below, which Loans are of the Type, at the interest
rate and for the Interest Periods and were made on the dates set forth below, subject to the
payments of principal set forth below:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Date of 	 	 	 	 	 	 	 
	 	 	Principal 	 	 	Conversion 	 	 	Amount 	 	 	Balance 	 
	Date 	 	Amount 	 	 	or 	 	 	Converted 	 	 	Out-	 
	Made	 	of Loan	 	 	Prepayment	 	 	or Prepaid	 	 	Standing	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	         

NEITHER THIS PROMISSORY NOTE NOR ANY SECURITIES INTO WHICH THIS PROMISSORY NOTE MAY BE
CONVERTED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES OR BLUE SKY LAWS (COLLECTIVELY, THE
“ACTS”) NOR IS ANY SUCH REGISTRATION OR

Page 30

 

Issued: January 6, 2006

Effective as of: August 19, 2005

QUALIFICATION CONTEMPLATED. NEITHER THIS PROMISSORY NOTE NOR ANY OF THE SECURITIES INTO WHICH
THIS PROMISSORY NOTE MAY BE CONVERTED MAY BE SOLD OR OFFERED FOR SALE, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS REGISTERED OR QUALIFIED UNDER THE APPROPRIATE ACTS OR AN OPINION OF COUNSEL IS
RECEIVED BY THE COMPANY (WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY)
TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THE HOLDER OF THIS PROMISSORY NOTE HAS
AGREED TO SUCH RESTRICTIONS.

Remote Knowledge, Inc.

5% Secured Convertible Promissory Note

Due August 1, 2008

     REMOTE KNOWLEDGE, INC., a Delaware corporation (the “Company”), for value received, hereby
promises to pay to Leonard Nagel, not in his individual capacity, but solely in his capacity as
trustee for the Alan Granader Irrevocable Family Trust, on the 1st day of August, 2008 (the
“Maturity Date”), the principal sum of ONE MILLION SEVEN HUNDRED TWENTY-FIVE THOUSAND and
no/100 dollars ($1,725,000.00), or such lesser amount as may have actually been advanced by
the holder hereof to the Company pursuant to the Loan Agreement (defined below), and which remains
outstanding and unconverted, and to pay interest, without compounding, on the outstanding balance
of the principal amount, outstanding from time to time, at a fixed rate of 5% per annum. All
outstanding principal and all interest then accrued and unpaid shall be payable on the Maturity
Date. Such principal and interest shall be paid in lawful money of the United States of America by
check mailed to the holder hereof at the address of such holder set forth above, or such other
address of which the holder shall give the Company prior written notice of at least 30 days.

     In addition to the terms and provisions set forth hereinabove, this Promissory Note is subject
to the following terms and provisions:

     16. Loan Agreement. This Promissory Note is made subject to, and in accordance with,
the terms and provisions contained in the Loan Agreement effective as of August 19, 2005 2005 (the
“Loan Agreement”) by and among the Company, and each of Leonard Nagel, solely in his capacity as
trustee for the Alan Granader Irrevocable Family Trust, Alan Granader, Daniel Granader and Harry
Granader, as “Lenders”. Capitalized terms used, but not defined herein, shall have the meanings
set forth in the Loan Agreement.

     17. Conversion Rights.

          (a) As used herein:

          (i) “Acquisition” shall mean any consolidation or merger of the Company with or into any other
corporation or other entity or person, or any other corporate reorganization, in which the
stockholders of the Company immediately prior to such consolidation, merger or reorganization, own
less than 50% of the Company’s voting power

Page 31

 

Issued: January 6, 2006

Effective as of: August 19, 2005

immediately after such consolidation, merger or reorganization, or any transaction or series
of related transactions to which the Company is a party in which in excess of fifty percent (50%)
of the Company’s voting power is transferred.

          (ii) “Asset Transfer” shall mean a sale, lease or other disposition of all or substantially
all of the assets of the Company.

          (iii) “Common Stock” means the common stock, $.001 par value per share, of the Company.

          (iv) “Conversion Amount” means the sum of the amount of Converted Principal and the amount of
Converted Interest.

          (v) “Conversion Price” means $0.75, subject to adjustment as set forth in Section 2(f).

          (vi) “Converted Interest” means any accrued and unpaid interest on this Promissory Note
converted into Common Stock in accordance with Section 2.

          (vii) “Converted Principal” means any outstanding principal converted on this Promissory Note
converted into Common Stock in accordance with Section 2.

          (b) (i) Subject to and in compliance with the provisions of this Section 2, the holder of this
Promissory Note may, at its option, by surrender of this Promissory Note as hereinafter provided,
convert all or any portion of the outstanding principal amount of this Promissory Note, and all or
any portion of the accrued and unpaid interest on this Promissory Note, into such number of shares
of Common Stock as is determined by dividing the Conversion Amount by the Conversion Price.

               (ii) Subject to and in compliance with the provisions of this Section 2, the Company may, at
its option, require conversion of all (but not less than all) of the outstanding principal amount
of this Promissory Note, and all accrued and unpaid interest thereon, into such number of shares of
Common Stock as is determined by dividing the Conversion Amount by the Conversion Price upon the
occurrence of a transaction or series of related transactions in which the Company sells capital
stock of the Company at a purchase price of $5.00 per share or higher and with gross proceeds to
the Company equal to or exceeding $25,000,000.00

               (iii) All then outstanding principal and all then accrued and unpaid interest on this
Promissory Note shall automatically be converted, without any further act of the Company or the
holder, at the Conversion Price then in effect, into fully paid and nonassessable shares of Common
Stock determined by dividing the Conversion Amount by such Conversion Price, upon the closing of a
public offering pursuant to an effective registration statement under the Securities Act of 1933,
as amended, covering the offering and sale of shares of Common Stock, or of any equity security
that as part of a unit or otherwise includes Common Stock, for the account of the Company, in which
the aggregate gross proceeds received by the Company

Page 32

 

Issued: January 6, 2006

Effective as of: August 19, 2005

equals or exceeds $25,000,000.00 and in which the public offering price per share of the
Common Stock equals or exceeds $5.00 per share.

               (c) Subject to the other provisions of this Promissory Note, the option of the holder of this
Promissory Note or the Company for conversion of this Promissory Note may be exercised at any time
during the period beginning on the date hereof and ending upon the repayment in full of the
principal of this Promissory Note.

               (d) The surrender of this Promissory Note for conversion shall be made by the holder hereof to
the Company at its office in Houston, Texas, accompanied by written notice to the Company in the
form of the Conversion Request attached as Annex 1 to this Promissory Note (the “Conversion
Request”) that such holder elects to convert the Converted Principal of this Promissory Note, and
the Converted Interest on this Promissory Note, in accordance with the provisions hereof.

               (i) If the Conversion Amount is equal to all principal outstanding on this Promissory Note
plus all accrued and unpaid interest on this Promissory Note on the date the Conversion Request is
made, then upon surrender of this Promissory Note for conversion, it shall be marked “Paid in
Full”. Any such notice of election to convert shall constitute a contract between the holder of
this Promissory Note and the Company, whereby such holder shall be deemed to subscribe for the
number of shares of Common Stock which it shall be entitled to receive upon such conversion, and in
payment and satisfaction of such subscription, to surrender this Promissory Note and to release the
Company from all liability hereon, including interest accruing, after the date of the receipt of
the Conversion Request, and whereby the Company shall be deemed to agree that the surrender of such
Promissory Note and the extinguishment of liability hereon shall constitute full payment for the
shares of Common Stock so subscribed for and to be issued upon such conversion.

               (ii) If the Conversion Amount is less than the sum of all outstanding principal on this
Promissory Note and all accrued and unpaid interest on this Promissory Note on the date the
Conversion Request is made, then upon surrender of this Promissory Note for conversion, (A) the
principal amount of this Promissory Note as shown on Schedule 1 hereto shall be reduced by the
amount of Converted Principal and (B) the unpaid interest then accrued shall be reduced by the
amount of Converted Interest. Any such notice of election to convert shall constitute a contract
between the holder of this Promissory Note and the Company, whereby such holder shall be deemed to
subscribe for the number of shares of Common Stock which it shall be entitled to receive upon such
conversion, and in payment and satisfaction of such subscription, to release the Company from all
liability with respect to (X) the Converted Principal, (Y) interest accruing on the Converted
Principal after the date of the receipt of the Conversion Request and (Z) Converted Interest, from
the and including the date on which the Conversion Request is received. The Company shall be
deemed to agree that the Conversion Amount shall constitute full payment for the shares of Common
Stock so subscribed for and to be issued upon such conversion. The Company’s liability for any
principal which is not Converted Principal and any accrued and unpaid interest which is not
Converted Interest, shall continue in accordance with the terms hereof.

Page 33

 

Issued: January 6, 2006

Effective as of: August 19, 2005

               (iii) Subject to the further provisions of this Section 2, as soon as practicable after the
receipt of such Conversion Request, and this Promissory Note, if applicable, the Company shall
issue and shall deliver at said office to such holder (A) a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of this Promissory Note in
accordance with the provisions hereof and (B) a check or cash in respect of any fraction of a share
as provided in Section 2(e). Such conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the Company shall have received such Conversion
Request and this Promissory Note. Any and all interest on the Converted Principal shall cease to
accrue pursuant to this Promissory Note from the date of receipt of the Conversion Request. The
holder of this Promissory Note shall be deemed to have become on said date the holder of record of
the shares of Common Stock issuable to such holder upon such conversion; provided, however, that
any such surrender on any date when the securities transfer books of the Company shall be closed
shall not be deemed to constitute the holder of this Promissory Note as the record holder thereof
for any purpose until the close of business on the next succeeding day on which such securities
transfer books shall be open.

               (iv) Upon the election of the Company to convert this Promissory Note at the occurrence of the
closing of the transaction or series of related transactions specified in Section 2(b)(ii), all
then outstanding principal and all then accrued and unpaid interest on this Promissory Note shall
be converted without any further action by the holder and whether or not this Promissory Note is
surrendered to the Company or its transfer agent; provided, however, that the Company shall not be
obligated to issue to the holder certificates evidencing the shares of Common Stock issuable upon
such conversion unless this Promissory Note is delivered either to the Company or to the transfer
agent of the Company. Conversion shall be deemed to have been effected on the date of the
occurrence of the closing of the transactions or series of related transactions specified in
Section 2(b)(ii). As soon as practicable after the surrender of this Promissory Note as specified
in this Section 2(d), the Company shall issue and deliver to or upon the written order of the
holder a certificate or certificates for the number of full shares of Common Stock to which such
holder is entitled and a check or cash in respect of any fraction of a share as provided in Section
2(e) hereof. No interest shall accrue on and after such conversion date. The holder shall be
deemed to become on such conversion date the holder of record of the shares of Common Stock
issuable to the holder upon such conversion.

               (v) Upon the occurrence of the closing of the public offering specified in Section 2(b)(iii),
all then outstanding principal and all then accrued and unpaid interest on this Promissory Note
shall be converted automatically without any further action by the holder and whether or not this
Promissory Note is surrendered to the Company or its transfer agent; provided, however, that the
Company shall not be obligated to issue to the holder certificates evidencing the shares of Common
Stock issuable upon such conversion unless this Promissory Note is delivered either to the Company
or to the transfer agent of the Company. Conversion shall be deemed to have been effected on the
date of the occurrence of the closing of the public offering specified in Section 2(b)(iii). As
soon as practicable after the surrender of this Promissory Note as specified in this Section 2(d),
the Company shall issue and deliver to or upon the written order of the holder a certificate or
certificates for the number of full shares of Common Stock to which such holder is entitled and a
check or cash in respect of any fraction of a share as provided in Section 2(e) hereof. No
interest shall accrue on and after such conversion

Page 34

 

Issued: January 6, 2006

Effective as of: August 19, 2005

date. The holder shall be deemed to become on such conversion date the holder of record of
the shares of Common Stock issuable to the holder upon such conversion.

               (e) The Company shall not be required to issue fractions of shares upon conversion of this
Promissory Note (or portion thereof). If any fractional interest in a share shall be deliverable
upon the conversion of this Promissory Note (or portion thereof), the Company shall purchase such
fractional interest for an amount in cash equal to the Conversion Price times the amount of such
fractional interest.

               (f) The Conversion Price shall be subject to adjustment as follows:

                     (i) If the Company shall at any time or from time to time after the date hereof (the
“Original Issue Date”) effect a subdivision of the outstanding Common Stock, the Conversion
Price in effect immediately before such subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock into a smaller number of shares, the Conversion
Price in effect immediately before such combination shall be proportionately increased. Any
adjustment under this Section 2(f)(i) shall become effective at the close of business on
the date the subdivision or combination becomes effective.

                     (ii) If at any time or from time to time after the Original Issue Date, the Common Stock is
changed into the same or a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than through an Acquisition, Asset Transfer,
subdivision or combination of shares, stock dividend, reorganization, merger, consolidation, or
sale of assets provided for elsewhere in this Section 2(f)), in any such event the holder
hereof shall have the right thereafter to convert such stock into the kind and amount of stock and
other securities and property receivable upon such recapitalization, reclassification or other
change by holders of the maximum number of shares of Common Stock into which such shares of Common
Stock could have been converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to such other
securities or property by the terms thereof.

                     (iii) If at any time or from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock (other than a recapitalization or subdivision, combination,
reclassification, exchange, or substitution of shares provided for elsewhere in this Section
2(f)), as a part of such capital reorganization, provision shall be made so that the holder
hereof shall thereafter be entitled to receive upon exercise hereof the number of shares of stock
or other securities or property of the Company to which a holder of the number of shares of Common
Stock deliverable upon exercise immediately prior to such event would have been entitled as a
result of such capital reorganization, subject to adjustment in respect of such stock or securities
by the terms thereof. In any such case, appropriate adjustment shall be made in the application of
the provisions of this Section 2(f) with respect to the rights of the holder hereof after
the capital reorganization to the end that the provisions of this Section 2(f) (including
adjustment of the Conversion Price then in effect and the number of shares issuable upon exercise)
shall be applicable after that event and be as nearly equivalent as practicable.

Page 35

 

Issued: January 6, 2006

Effective as of: August 19, 2005

               (iv) Anything in this Section 2 to the contrary notwithstanding, all calculations under this
Section 2(f) shall be made to the nearest cent or to the nearest whole share (as provided
in Section 2(e)), as the case may be. Any provision of this Section 2(f) to the
contrary notwithstanding, no adjustment in the Conversion Price shall be made if the amount of such
adjustment would be less than one percent, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or amounts so carried forward,
shall aggregate one percent or more.

               (v) In the event the Company shall propose to take any action of the types described in
Section 2(f), the Company shall give notice to the holder of this Promissory Note, which notice
shall specify the record date, if any, with respect to any such action and the date on which such
action is to take place. Such notice shall also set forth such facts with respect thereto as shall
be reasonably necessary to indicate the effect of such action (to the extent such effect may be
known at the date of such notice) on the Conversion Price and the number, kind or class of shares
or other securities or property which shall be deliverable or purchasable upon the occurrence of
such action or deliverable upon conversion of this Promissory Note. In the case of any action that
would require the fixing of a record date, such notice shall be given at least ten days prior to
the date so fixed, and in case of all other action, such notice shall be given at least ten days
prior to the taking of such proposed action.

               (vi) All shares of Common Stock issued in connection with the conversion provisions set forth
herein shall be, upon issuance by the Company, validly issued, fully paid and nonassessable and
free from all taxes, liens or charges with respect thereto created or imposed by the Company.

               (vii) The Company shall reserve and keep available out of its authorized but unissued shares
of Common Stock such number of shares of Common Stock as shall from time to time be sufficient to
effect conversion of this Promissory Note.

          (g) Whenever the Conversion Price shall be adjusted as required by the provisions of Section
2(f) hereof, the Company shall forthwith mail a certificate setting forth the adjusted Conversion
Price and showing in reasonable detail the facts upon which such adjustment or readjustment is
based to the holder of this Promissory Note at such holder’s address as it appears herein or at the
last address of which the holder has given the Company written notice, but failure to receive such
notice, or any defects therein, or in the mailing thereof, shall not affect such adjustment in
Conversion Price. The Company shall, upon the written request at any time of the holder of this
Promissory Note, furnish or cause to be furnished to such holder a like certificate setting forth
(a) such adjustments and readjustments, (b) the Conversion Price at that time in effect, and (c)
the number of shares of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of this Promissory Note.

     18. Prepayment. The Company may prepay, upon 10 Business Days’ prior written notice,
its obligations pursuant to this Promissory Note, in whole or in part, at any time by tendering to
the holder hereof the outstanding principal balance to be prepaid, together with accrued but unpaid
interest on such principal being prepaid. The foregoing notwithstanding, it is

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Issued: January 6, 2006

Effective as of: August 19, 2005

acknowledged and agreed to by the Company that the holder hereof may exercise its conversion
rights pursuant to Section 2 hereof at any time prior to the second Business Day immediately
preceding the proposed date of such prepayment, whether before or after receipt of such prepayment
notice from the Company.

     19. Events of Default. Upon the occurrence and continuance of an Event of Default as
set forth in Section 8 of the Loan Agreement, the holder hereof shall have the remedies set forth
in Section 8(b) of the Loan Agreement.

     20. Miscellaneous.

          (a) This Promissory Note shall be governed by, construed and enforced in accordance with the
laws of the State of Texas.

          (b) The captions or headings in this Promissory Note are for reference only and neither form a
part hereof nor are they to be relied upon to interpret any provision of this Promissory Note.

          (c) Any notices required to be given or which are otherwise given under this Promissory Note
shall be given in accordance with the terms of Section 9 of the Loan Agreement.

Page 37

 

Issued: January 6, 2006

Effective as of: August 19, 2005

     IN WITNESS WHEREOF, the Company has caused this Promissory Note to be duly executed and
delivered on the date set forth below.

DATED: January ____, 2006

	 	 	 	 	 	 	 
	 	 	REMOTE KNOWLEDGE, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Randy S. Bayne	 	 
	 

	 	Title:
	 	President & Chief Executive Officer	 	 

Page 38

 

Issued: January 6, 2006

Effective as of: August 19, 2005

Annex 1

CONVERSION REQUEST

TO: REMOTE KNOWLEDGE, INC.

     The undersigned holder of this Promissory Note hereby irrevocably exercises the option to
convert this Promissory Note into shares of Common Stock in accordance with the terms of the
Promissory Note, and directs that the securities issuable and deliverable upon the conversion,
together with any check in payment for fractional amounts or accrued, unpaid interest on the amount
converted, be issued and delivered to the holder hereof at the address specified below.

     The Conversion Amount pursuant to this Conversion Request is a total of $___, comprising
$___ as Converted Principal and $___ as Converted Interest.

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	NOTEHOLDER:
	 	 
	 
	 	 	 	 	 	 	 	 
	Dated:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Please print name and address	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Please insert Social Security Number or	 	 
	 

	 	 	 	 	 	other Taxpayer Identification Number	 	 

- 39 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

SCHEDULE 1

This Note evidences Loans made by the Lender under the within-described Loan Agreement to the
Borrower, in the principal amounts set forth below, which Loans are of the Type, at the interest
rate and for the Interest Periods and were made on the dates set forth below, subject to the
payments of principal set forth below:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Date of 	 	 	 	 	 	 	 
	 	 	Principal 	 	 	Conversion 	 	 	Amount 	 	 	Balance 	 
	Date 	 	Amount of 	 	 	or 	 	 	Converted 	 	 	Out-	 
	Made	 	Loan	 	 	Prepayment	 	 	or Prepaid	 	 	Standing	 
	         
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	August 19, 2005
	 	$	1,625,000.00	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	November 15, 2005
	 	$	100,000.00	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	   

- 40 -

 

	 	 	 
	 	Issued: January 6, 2006

Effective as of: August 19, 2005	 
	 
	 	LOAN AGREEMENT	 

     THIS LOAN AGREEMENT (this “Agreement”) is effective as of the 19th day of August, 2005, by and
among REMOTE KNOWLEDGE, INC., a Delaware corporation (the “Borrower”), Leonard Nagel, not in his
individual capacity, but, solely in his capacity as trustee for the Alan Granader Irrevocable
Family Trust, and Daniel Granader, Alan Granader and Harry Granader as individuals (each a “Lender”
and collectively, the “Lenders”).

W I T N E S S E T H :

     WHEREAS, the Borrower has requested the Lenders to extend a secured loan in the original
principal amount of Three Million Six Hundred Thousand and No/100 Dollars ($3,600,000.00) to be
used for marketing, sales, working capital and other general corporate purposes; and

     WHEREAS, each Lender is willing and prepared to extend such a secured loan to the Borrower
upon the terms and subject to the conditions hereinafter set forth and in the amounts set forth on
Exhibit A.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein
contained and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned hereby agree as follows:

21. DEFINED TERMS.

     “Business Day” shall mean a day (other than a Saturday or Sunday) on which banks generally are
open in Houston, Texas.

     “Collateral” shall have the meaning set forth in the Security Agreement.

     “Funding Date” shall mean each of those dates shown on Schedule I as dates on which the
Lenders are obligated to disburse funds to the Borrower.

     “Intellectual Property” means any and all of the Borrower’s (a) patents and patent
applications, and all inventions and improvements described and claimed therein, (b) copyrights,
rights and interests in copyrights, works protectable by copyright, copyright registrations and
copyright applications, (c) trademarks (including service marks), trade names, trade dress, trade
secrets and trade styles and the registrations and applications for registration thereof and the
goodwill of the business of the foregoing and (d) such other intellectual property including, but
not limited to, database management systems and software, whether or not a registration or
application for a patent, copyright or trademark has been made, and all other rights under any of
the (a), (b), (c) or (d), all extensions, renewals, reissues, divisions, continuations and
continuations-in-part of any of the foregoing, and all rights to royalties, to sue for past,
present, and future infringement of any of the foregoing.

     “Majority Lenders” shall mean more than fifty percent in both (i) the number of Lenders and
(ii) the amount of Loans outstanding.

- 41 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

     “Registration Rights Agreement” means that certain registration rights agreement dated as of
February 27, 2004 by and among the Company and certain of its shareholders including the Lenders
under this Agreement as amended and in effect from time to time.

22. SECURED LOAN. The Lenders jointly agree to make a loan to the Borrower in the
aggregate principal amount of Three Million Six Hundred Thousand and No/100 Dollars ($3,600,000.00)
(the “Loan”). The Loan will be disbursed by the Lenders to the Borrower in eight (8) tranches as
set forth in Schedule 1 hereto. The Loan shall accrue interest at the rate of five (5) percent per
annum, payable together with the principal amount then outstanding on August 1, 2008 (the “Maturity
Date”). Each Lender hereby agrees that such Lender shall make available to the Borrower the
aggregate principal amount set forth below such Lender’s signature hereto as such Lender’s
“Aggregate Commitment”.

23. SECURED PROMISSORY NOTES. The obligation of the Borrower to repay the Loan shall be
evidenced by one or more Secured Convertible Promissory Notes, a form of which is attached hereto
as Exhibit A, executed by the Borrower and payable to the order of the Lenders (the “Notes”). The
Notes shall be convertible into common stock, par value $.001 per share, of the Borrower on the
Maturity Date or on such earlier date as set forth in the Notes.

24. WARRANTS. The Borrower shall issue to each Lender a warrant for the number of shares
equal to four thousand (4,000) shares for each one thousand dollars ($1,000.00) of principal
advanced by such Lender under this Agreement with an exercise price of seventy-five cents per share
(each such warrant, a “Warrant”). The aggregate number of shares by all Warrants issued pursuant
to this Agreement shall not exceed fourteen million four hundred thousand (14,400,000) shares on
the date of issuance of the Warrants.

25. CONDITIONS TO EFFECTIVENESS AND LENDING. (a) This Agreement shall become effective on
and as of the first date (the “Effective Date”) on which the following conditions precedent have
been satisfied, unless otherwise waived by the Majority Lenders:

          (i) The representations and warranties contained herein and in the Security Agreement shall be
true and correct as of the Effective Date as if made on the Effective Date.

          (ii) No Event of Default shall have occurred and be continuing.

          (iii) The Borrower shall have executed and delivered to Daniel Granader, as collateral agent
for the Lenders that certain Security Agreement (the “Security Agreement”) of even date herewith,
pursuant to which the Borrower has granted to the Lenders a lien and security interest in and to
all of the Borrower’s Intellectual Property and certain personal property located in the State of
Missouri to secure payment of the Notes.

          (iv) No judgment creditor of the Borrower shall have executed, or initiated proceedings to
execute, one or more judgments for the payment of money.

          (v) Each party hereto shall have delivered to Daniel Granader, as collateral agent for the
Lendersduly executed counterparts of (A) this Agreement; (B) the Security Agreement; (C) the Notes
and (D) the Warrants.

- 42 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

     (b) The obligations of the Lenders to fund the loans set forth on Schedule 1 hereto are
subject to the following conditions precedent:

          (i) The representations and warranties contained herein and in the Security Agreement shall be
true and correct as of the Funding Date as if made on the Funding Date.

          (ii) No Event of Default shall have occurred and be continuing.

26. CONDITIONS SUBSEQUENT. The Borrower shall file and record the ground lease deed of
trust over the property located at 4260 West Highway 86, Joplin, Missouri (the “Deed of Trust”)
within ten (10) days of the date on which this Agreement is executed and delivered.

27. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders to make the Loans
hereunder, the Borrower hereby makes the following representations and warranties to the Lenders:

     (a) The Borrower is (i) a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and (ii) is duly qualified as a foreign corporation to do
business and is in good standing under the laws of each jurisdiction in which it is required to be
qualified to conduct its business.

     (b) The execution, delivery and performance by the Borrower of this Agreement, the Security
Agreement, the Deed of Trust and the Notes and the consummation of the transactions contemplated
hereby and thereby, are within the Borrower’s corporate powers, have been duly authorized by all
necessary corporate action, and do not contravene its charter, by-laws or any federal, state or
local law, order or decree applicable to the Borrower.

     (c) No authorization or approval or action by, and no notice to or filing with, any
governmental authority or regulatory body or any other third party is required for the due
execution, delivery and performance by the Borrower of this Agreement or the Notes.

     (d) This Agreement has been, and each of the Security Agreement, the Deed of Trust and the
Notes when delivered hereunder will have been, duly executed and delivered by the Borrower. This
Agreement constitutes, and each of the Security Agreement, the Deed of Trust and the Notes when
delivered hereunder will constitute, the legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement
of creditors’ rights generally, and by equitable principles (regardless of whether enforcement is
sought in equity or at law).

     (e) The Borrower is not an Investment Company, as such term is defined in the Investment
Company Act of 1940, as amended.

     (f) The Borrower has no subsidiaries.

     (g) The Borrower has filed all federal, state, local and tax returns required to be filed by
it, and has paid all federal, state, local and other taxes, assessments, fees and other
governmental charges levied or imposed upon the Borrower, or its properties, income or assets or

- 43 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

shown in such returns to be due and payable, or are otherwise due and payable, except those
which are being contested in good faith and for which adequate reserves have been provided.

28. COVENANTS. So long as the loans remain unpaid or any Lender shall have any commitment
hereunder, the Borrower will:

     (a) Compliance with laws. Comply, in all material respects, with all applicable laws,
rules, regulations and orders.

     (b) Payment of taxes, etc. Pay all federal, state, local and other taxes,
assessments, fees and other governmental charges levied or imposed upon the Borrower, or its
properties, income or assets, before any penalty or interest accrues thereon, except for such as
are being contested in good faith and for which adequate reserves have been provided.

     (c) Preservation of Corporate Existence. Preserve and maintain its corporate
existence and franchises, and be and remain qualified to do business as a foreign corporation under
the laws of each jurisdiction in which it is required to be qualified to conduct its business.

     (d) Visitation Rights. During normal business hours and upon reasonable notice from
time to time, permit each of the Lenders or any agents or representatives thereof, to examine and
make copies of and abstracts from the records and books of account of (excluding any confidential
information), and visit the properties of the Borrower, and to discuss the affairs, finances and
accounts of the Borrower with the appropriate officers or representatives of the Borrower.

     (e) Keeping of Books. Keep proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and business of the
Borrower, in accordance with generally accepted accounting principles.

     (f) Maintenance of Properties. The Borrower shall (i) maintain, preserve and protect
all of its properties, assets and equipment necessary, used, or useful in the conduct of its
business in good working order and condition, ordinary wear and tear excepted, and supplied with
all necessary equipment, (ii) make or cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be
necessary so that the business carried on in connection therewith may be properly conducted at all
times and (iii) use the standard of care typical in the industry in the operation and maintenance
of its facilities; provided that nothing in this Section 8(f) shall prevent the Borrower from
discontinuing the operation or maintenance of any of the Borrower’s property if (A) the property
discontinued from operation or maintenance does not constitute a material portion of the Borrower’s
property and (B) such discontinuance is, in the judgment of the Borrower and its board of
directors, desirable in the conduct of its business and is not disadvantageous in any material
respect to the Lenders’ interests in the Collateral.

     (g) Reporting Requirements. The Borrower shall furnish to each of the Lenders:

          (i) As soon as available and in any event within sixty (60) days after the end of each of the
first three quarters of each fiscal year, the balance sheet of the Borrower as of the

- 44 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

end of such quarter and the statements of income and cash flows of the Borrower for the period
commencing at the end of the previous fiscal year and ending with the end of such quarter, duly
certified (subject to year-end audit adjustments) by the chief financial officer, treasurer or
controller of the Borrower as having been prepared in accordance with generally accepted accounting
principles;

          (ii) As soon as available and in any event within one hundred twenty (120) days after the end
of each fiscal year of the Borrower, a copy of the annual audited report for such year for the
Borrower, containing the balance sheet of the Borrower as of the end of such fiscal year and the
statements of income and cash flows of the Borrower for such fiscal year;

          (iii) As soon as possible and in any event within ten (10) Business Days after the occurrence
of each Event of Default continuing on the date of such statement, a statement of the chief
financial officer or chief executive officer setting forth details of such Event of Default and the
action that the Borrower has taken and proposed to take with respect thereto;

          (iv) Prompt notice of all actions and proceedings before any court, governmental agency or
arbitrator materially and adversely affecting the Borrower; and

          (v) Such information respecting the Borrower as any Lender may from time to time reasonably
request.

     (h) Use of Proceeds. The proceeds of the Loans shall be used for general corporate
purposes and to pay certain outstanding obligations of the Borrower.

     (i) Registration Rights. The Company agrees to register on behalf of the holder of
Note, any Common Stock, issued upon conversion of such Note in accordance with the terms of Section
2 thereof, pursuant to the terms of the Registration Rights Agreement.

     (j) Further Assurances. The Borrower shall from time to time execute and deliver, or
cause to be executed and delivered, such additional instruments, certificates or documents, and
take such actions, as the Majority Lenders may reasonably request for the purposes of implementing
or effectuating the provisions of this Agreement and the Security Agreement, or of more fully
perfecting or renewing the rights of the Lenders with respect to the Collateral (or with respect to
any additions thereto or replacements or proceeds thereof). In furtherance of this agreement, the
Borrower shall promptly, and in any event within ten (10) Business Days after receipt of the
Majority Lenders’ written request, execute, deliver, file, record and complete any and all
instruments, agreements, and documents that the Majority Lenders may require for any of the
foregoing purposes, including the completion, execution, acknowledgement and delivery of any
notices, instruments, supplemental assignments and any other documents necessary for compliance
with, or perfection under, any federal or state law, rule or regulation affecting perfection,
priority and assignment, or with respect to, or as a result of, any amendment, enactment, judicial
decision or change regarding the laws, rules or regulations with respect to deeds of trust,
mortgages, liens, pledges or security interests. Upon the exercise by the Lenders of any power,
right, privilege or remedy pursuant to this Agreement which requires any consent, approval,
recording, qualification or authorization of any federal, state or local governmental authority,
the Borrower will execute and deliver, or will cause the execution and delivery of, all

- 45 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

applications, certifications, instruments and other documents and papers that may be required
to obtain such consent, approval, recording, qualification or authorization.

29. EVENT OF DEFAULT. (a) As used herein, the term “Event of Default” shall mean and
include each or all of the following events:

          (i) the Borrower shall fail to pay, within ten (10) days when due, any amounts required to be
paid by the Borrower under this Agreement, the Security Agreement, the Deed of Trust or the Notes;

          (ii) the Borrower shall file a petition in bankruptcy or for reorganization or for an
arrangement pursuant to any present or future state or federal bankruptcy act or under any similar
federal or state law, or shall be adjudicated a bankrupt or insolvent, or shall make a general
assignment for the benefit of his creditors, or shall be unable to pay his debts generally as they
become due; or if a petition or answer proposing the adjudication of the Borrower as bankrupt or
its reorganization under any present or future state or federal bankruptcy act or any similar
federal or state law shall be filed in any court and such petition or answer shall not be
discharged or denied within thirty (30) days after the filing thereof; or if a receiver, trustee or
liquidator of the Borrower or of all or substantially all of the assets of the Borrower shall be
appointed in any proceeding brought against the Borrower and shall not be discharged within thirty
(30) days of such appointment; or if the Borrower shall consent to or acquiesce in such
appointment; or if any property of the Borrower shall be levied upon or attached in any proceeding;

          (iii) one or more judgment creditors shall have executed, or initiated proceedings to execute,
one or more judgments for the payment of money in excess of $100,000;

          (iv) after the date hereof, final judgment(s) for the payment of money in excess of $100,000,
individually or in the aggregate, shall be rendered against the Borrower and shall remain
undischarged for a period of thirty (30) days during which execution shall not be effectively
stayed; or

          (v) all or any portion of the property subject to the Security Agreement or the Deed of Trust,
or the legal, equitable or any other interest therein, shall be sold, transferred, assigned, leased
or otherwise disposed of unless the prior written consent of the Majority Lenders is first
obtained.

     (b) Upon the occurrence of an Event of Default, the Majority Lenders may, at their option,
exercise any and all of the following rights and remedies (in addition to any other rights and
remedies available to the Lenders):

          (i) without notice, declare immediately due and payable all unpaid principal of and accrued
interest on the Notes, together with all other sums payable hereunder or under the Notes, and the
Notes shall thereupon be immediately due and payable without presentment or other demand, protect,
notice of dishonor or any other notice of any kind (including notice of intent to accelerate
maturity and notice of acceleration of maturity), all of which are hereby expressly waived; and

- 46 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

          (ii) exercise all of their rights or remedies under this Agreement, the Notes, the Deed of
Trust and the Security Agreement.

30. NOTICES. All notices, consents, requests, demands and other communications hereunder
shall be given to or made upon the respective parties hereto at their respective addresses
specified below or, as to any party, at such other address as may be designated by it in a written
notice to the other party. All notices, requests, consents and demands hereunder shall be
effective (a) upon personal delivery, or (b) one (1) Business Day after deposit with a
nationally-recognized overnight courier service, or (c) three (3) Business Days after deposit with
registered or certified, first class mail, postage prepaid.

IF TO THE LENDERS:

c/o Daniel Granader

160 Church Road

Goldcreek, MT 59733

Tel: (406) 288-0114

Fax: (406) 288-0115

IF TO THE BORROWER:

Remote Knowledge

Attn: Randy Bayne

3657 Briar Park Drive, Suite 100

Houston, TX 77042

Tel: (281) 599-4949

Fax: (281) 599-0165

31. MISCELLANEOUS.

     (a) Funding Obligations of Lenders. If, on any Funding Date, a Lender fails to
provide funding as required by Schedule I, then, upon the request of the Borrower, the other
Lenders shall be jointly obligated to disburse the funds to the Borrower which were scheduled to be
disbursed by the non-funding Lender on such Funding Date.

     (b) Waivers. No failure on the part of the Lenders to exercise, and no delay in
exercising, any right or remedy hereunder or under applicable law or any document or agreement
related hereto shall operate as a waiver thereof; nor shall any single or partial exercise of any
such right or remedy preclude any other or further exercise thereof or the exercise of any other
right or remedy. The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.

     (c) Amendments. The Majority Lenders and the Borrower may enter into agreements
supplemental hereto for the purpose of adding to or modifying any provisions of this Agreement, the
Security Agreement, the Deed of Trust or the Notes or changing in any manner the rights of the
Lenders or the Borrower hereunder or waiving any Event of Default hereunder; provided, however,
that no such supplemental agreement shall, without the consent of all of the Lenders:

- 47 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

reduce the principal amount of the Loan or reduce the rate of interest on the Loan, postpone
or extend the Maturity Date or forgive all or any portion of the principal amount, amend the
definition “Majority Lenders”, amend this Section 11(c), or release all or substantially all of the
Collateral, unless such Collateral is sold or transferred as permitted pursuant to this Agreement,
the Security Agreement or the Deed of Trust.

     (d) Successors. This Agreement shall be binding upon and inure to the benefit of the
Borrower and the Lenders and their respective successors and assigns; provided, however, that the
Borrower may not transfer or assign its right to borrow hereunder without the prior written consent
of each Lender.

     (e) Counterparts. This Agreement may be executed in any number of counterparts, all
of which taken together shall constitute one agreement, and any of the parties hereto may execute
this Agreement by signing any such counterpart.

     (f) Governing Law. This Agreement, the Notes and all other agreements related hereto
or thereto, shall be construed in accordance with and governed by the laws of the State of Texas
without giving effect to the choice of law provisions thereof.

     (g) Headings. The descriptive headings for the several sections of this Agreement are
inserted for convenience only and shall not define or limit any of the terms or provisions hereof.

     (h) Joint and Several Obligations. The respective obligations of the Lenders
hereunder are joint and several and the failure of any Lender to make any loan hereunder or to
perform any of its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder.

- 48 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and
delivered as of this ___day of January, 2006, but effective as of the date first above written.

	 	 	 	 	 	 	 
	 	 	BORROWER:	 	 
	 
	 	 	 	 	 	 
	 	 	Remote Knowledge, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Randy Bayne	 	 
	 	 	Title: President and CEO	 	 
	 
	 	 	 	 	 	 
	 	 	LENDERS:	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Leonard Nagel, not in his individual	 	 
	 	 	capacity, but solely as Trustee for the Alan	 	 
	 	 	Granader Family Trust	 	 
	 
	 	 	 	 	 	 
	 	 	Aggregate Commitment: $1,725,000.00	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 
	 	Daniel Granader	 	 
	 
	 	 	 	 	 	 
	 	 	Aggregate Commitment: $600,000.00	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Alan Granader	 	 
	 
	 	 	 	 	 	 
	 	 	Aggregate Commitment: $675,000.00	 	 
	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Harry Granader	 	 
	 
	 	 	 	 	 	 
	 	 	Aggregate Commitment: $600,000.00	 	 

- 49 -

 

Issued: January 6, 2006

Effective as of: August 19, 2005

Schedule 1

	 	 	 	 	 	 	 
	 	 	Total     	 	 
	Funding Date	 	Funded	 	Amount
	   
	August 19, 2005

	 	$	1,625,000.00	 	 	 
	   
	November 15, 2005

	 	$	100,000.00	 	 	 
	   
	November 30, 2005

	 	$	225,000.00	 	 	 
	   
	December 10, 2005

	 	$	325,000.00	 	 	 
	   
	January 1, 2006

	 	$	325,000.00	 	 	 
	   
	February 10, 2006

	 	$	340,000.00	 	 	 
	   
	March 10, 2006

	 	$	330,000.00	 	 	 
	   
	April 10, 2006

	 	$	330,000.00	 	 	 
	   

SECURITY AGREEMENT

     Security Agreement, dated as of January ___, 2006, by REMOTE KNOWLEDGE, INC., a Delaware
corporation (the “Debtor”), in favor of each of Leonard Nagel, not in his individual capacity, but
solely in his capacity as trustee for the Alan Granader Irrevocable Family Trust, and Daniel
Granader, Alan Granader, Harry Granader and Neil Granader as individuals (each a “Secured Party”
and collectively, the “Secured Parties”).

RECITALS

     WHEREAS, the Secured Parties and the Debtor have entered into that certain Loan Agreement
effective as of August 19, 2005 (the “Loan Agreement”), pursuant to which the Secured Parties
acting as Lenders have agreed to provide certain financing arrangements to the Debtor in the
aggregate amount of three million six hundred thousand dollars ($3,600,000) (the “Value”);

     WHEREAS, subject to the terms and conditions of the Loan Agreement, the Debtor has issued to
each of the Secured Parties, one or more secured promissory notes dated as of January ___, 2006 and
effective as of August 19, 2005 (the “Notes”), which may be converted into the common stock of the
Debtor as set forth therein;

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Issued: January 6, 2006

Effective as of: August 19, 2005

     WHEREAS, as partial inducement to the Secured Parties to extend such Value, the Debtor has
agreed to grant security interests in the Collateral (as defined herein) to the Secured Parties to
secure the payment and performance of the Obligations (as defined herein); and

     WHEREAS, pursuant to Section 4 of the Loan Agreement, the Debtor is required to grant, execute
and deliver to the Secured Parties a security agreement, granting the security interests set forth
herein to the Secured Parties.

     Now, Therefore, in consideration of the promises contained herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:

  1. Definitions

Defined Terms Each of the capitalized terms used but not defined herein shall have the meanings
set forth in the Loan Agreement, as applicable. The terms “Equipment”, “Fixture”, “General
Intangible”, “Goods”, “Inventory”, “Payment Intangible”, “Proceeds” and “Software” have the
respective meanings ascribed thereto in Chapter 9 of the UCC (as defined below). If a term is
defined in Chapter 9 of the UCC differently than in another Article of the UCC, the term has the
meaning assigned to it in Article 9.

“Collateral” shall have the meaning assigned to it in Section 2 hereof.

“Collateral Records” shall mean books, records, computer software, computer printouts, customer
lists, blueprints, technical specifications, manuals, and other items which provide information or
records concerning any Collateral.

“Copyrights” shall mean those copyrights set forth in Schedule 3.

“Event of Default” shall have the meaning set forth in Section 8 hereof.

“Intellectual Property” shall have the meaning set forth in the Loan Agreement.

“Lien” shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), preference, priority or other security agreement of any

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Issued: January 6, 2006

Effective as of: August 19, 2005

kind or nature whatsoever, including, without limitation, any publicly available evidence of a
lien, including the filing of any financing statement or similar instrument under the UCC or
comparable law of any jurisdiction, domestic or foreign.

“Majority Secured Parties” shall mean the Majority Lenders, as defined in the Loan Agreement.

“Patents” shall mean those patents set forth in Schedule 3.

“Permitted Lien” shall mean (a) Liens for taxes, assessments or other governmental charges not yet
due or which are being contested in good faith by appropriate proceedings diligently conducted and
with respect to which adequate reserves are being maintained in accordance with generally accepted
accounting principles; (b) artisan’s, operators’, carriers’, warehousemen’s, mechanics’,
materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue or that are being contested in appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business in compliance with
workers’ compensation, unemployment insurance, and other social security laws or regulations; (d)
deposits to secure the performance of bids, tenders, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in
each case arising in the ordinary course of business; (e) judgment liens in respect of judgments or
awards that do not constitute an Event of Default under Section 7 or the Loan Agreement; (f)
easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by
law or arising in the ordinary course of business that do not secure any monetary obligations and
do not materially detract from the value of the affected property or materially interfere with the
ordinary conduct of business of each Debtor; (g) landlord’s or lessor’s liens under leases in the
ordinary course of business; (h) liens in or

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Issued: January 6, 2006

Effective as of: August 19, 2005

limitations on the use of funds held in trust securing the repayment of indebtedness to any
industrial development corporation; (i) Liens placed on assets hereafter acquired to secure all or
a portion of the purchase price thereof; (j) all Liens set forth on Schedule 2A; and (k) liens
arising from leases of equipment in the ordinary course of business.

“Person” shall mean and include any individual, partnership, joint venture, firm, corporation,
association, trust or other enterprise or any government or political subdivision or agency,
department or instrumentality thereof.

“Obligations” shall mean all obligations, liabilities and indebtedness of every nature of the
Debtor to the Secured Parties whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter incurred, arising under or in connection with the Loan Agreement.

“Trademarks” shall mean those trademarks set forth in Schedule 3 and the goodwill of the Debtor’s
business connected with and symbolized by such trademarks.

“UCC” shall mean the Uniform Commercial Code as in effect from time to time in the State of Texas.

   2. Grant of Security Interests

As security for the prompt and complete payment and performance in full of all the Obligations, the
Debtor hereby grants to the Secured Parties a security interest in and continuing lien on all of
the Debtor’s right, title and interest in, to and under, the following property of the Debtor, in
each case, whether now owned or existing or hereafter acquired or arising, wherever located, and
all proceeds and products thereof (all of which being hereinafter collectively referred to as the
“Collateral”):

     2.1 Equipment located at 4260 West Highway 86, Joplin Missouri, including the
Equipment set forth on Schedule 2;

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Issued: January 6, 2006

Effective as of: August 19, 2005

     2.2 Fixtures located at 4260 West Highway 86, Joplin, Missouri;

     2.3 Software, embedded in any of the Equipment specified in Section 2.1 or the
Fixtures specified in 2.2;

     2.4 All Intellectual Property, including, but not limited to, the Intellectual
Property set forth on Schedule 3 hereto;

     2.5 All other rights appurtenant to the property described above; and

     2.6 All cash and non-cash Proceeds of any and all of the foregoing;

provided, however, that “Collateral” shall not include any personal property of the Debtor (other
than Intellectual Property) located anywhere other than at 4260 West Highway 86, Joplin, Missouri.

   3. Authorization to File Financing Statements

The Debtor hereby irrevocably authorizes the Secured Parties at any time and from time to time to
file in any jurisdiction in which the Uniform Commercial Code has been enacted (a “UCC
Jurisdiction”) any initial financing statements and amendments thereto identifying the Debtor as
the “debtor” thereon including, but not limited to, such financing statements that:

     3.1 indicate the Collateral as identified herein, and

     3.2 contain any other information required by part 5 of Chapter 9 of the UCC for the
sufficiency or filing office acceptance of any financing statement or amendment, including
(i) whether the Debtor is an organization, the type of organization and any organization
identification number issued to the Debtor and, (ii) in the case of a financing statement
filed as a fixture filing, a sufficient description of real property to which the
Collateral relates. The Debtor agrees to furnish any such information to a Secured Party
promptly upon such Secured Party’s request. Each Debtor also ratifies its authorization
for the Secured Parties to have filed in any UCC Jurisdiction any like initial financing
statements or amendments thereto if filed prior to the date hereof.

  4. Representations and Warranties

The Debtor hereby represents and warrants to the Secured Parties, which representations and
warranties shall survive execution and delivery of this Security Agreement, as follows:

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Issued: January 6, 2006

Effective as of: August 19, 2005

     4.1 Title to, and Information Concerning, the Collateral. The Debtor is the sole
owner of, and has all rights in or power to transfer, the Collateral (except for the
Intellectual Property), free from any right or claim of any Person and no Lien exists upon
such Collateral, except for Permitted Liens and the security interest created in favor of
the Secured Parties hereunder. All other information set forth in this Agreement
pertaining to the Collateral is accurate and complete.

     4.2 Nature of Collateral None of the Collateral constitutes, or is the proceeds of,
“farm products” as defined in §9-102(a)(34) of the UCC.

     4.3 Maintenance of Collateral in Compliance with Applicable Laws The Debtor has at
all times operated its business in compliance with all applicable material provisions of
federal, state and local statutes and ordinances.

     4.4 Name and Organization

     (a) The full and exact legal name, type of organization, jurisdiction of
organization, organizational identification number or statement that the Debtor has no
such number, and mailing address of the Debtor as of the date hereof are correctly set
forth in Schedule 1 hereto.

     (b) Schedule 1 correctly specifies the place of business of the Debtor or, if the
Debtor has more than one place of business, the location of its chief executive office.

     (c) The Debtor is a corporation duly organized and validly existing in good standing
under the laws of the State of Delaware; and

     (d) The Debtor has the power and authority to execute, deliver and carry out the
terms and provisions of this Security Agreement and has taken all necessary action to
authorize the execution, delivery and performance by it of this Security Agreement. The
Debtor has duly executed and delivered this Security Agreement, and this Security
Agreement constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, except as enforceability may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors’ rights generally, and
by equitable principles (regardless of whether enforcement is sought in equity or at law).

     4.5 Changes in Circumstances The Debtor has not (i) within the period of four months
prior to the date hereof, changed its location (as defined in §9-307 of the UCC), (ii)
except as specified in Schedule 1, heretofore changed its name, or (iii) heretofore become
a “new debtor” (as defined in §9-102(a)(56) of the UCC) with respect to a currently
effective security agreement previously entered into by any other Person.

55

 

Issued: January 6, 2006

Effective as of: August 19, 2005

     4.6 Intellectual Property

     (a) Schedule 3 sets forth a complete and correct list of all Copyrights, Patents and
Trademarks owned by the Debtor on the date hereof; except pursuant to licenses and other
user agreements entered into by the Debtor in the ordinary course of business, the Debtor
owns and possesses the right to use, and has done nothing to authorize or enable any other
Person to use, any Copyright, Patent or Trademark listed in Schedule 3, and all
registrations listed in Schedule 3 are valid and in full force and effect; and except as
may be set forth in Schedule 3, the Debtor owns and possesses the right to use all
Copyrights, Patents and Trademarks.

     (b) Schedule 3 sets forth a complete and correct list of all licenses and other user
agreements relating to the Intellectual Property on the date hereof.

     (c) To the Debtor’s knowledge, (i) except as set forth in Schedule 3, there is no
violation by others of any right of the Debtor with respect to any Copyright, Patent or
Trademark listed in Schedule 3, respectively, under the name of such Debtor and (ii) the
Debtor is not infringing in any respect upon any Copyright, Patent or Trademark of any
other Person; and no proceedings have been instituted or are pending against the Debtor
or, to the Debtor’s knowledge, threatened, and no claim against the Debtor has been
received by the Debtor, alleging any such violation, except as may be set forth in
Schedule 3.

     4.7 Validity and Perfection

     (a) The security interests in the Collateral granted to the Secured Parties hereunder
constitute valid and continuing security interests in the Collateral and the Debtor has
rights in or the power to transfer the Collateral; and

     (b) the Secured Parties’ having filed financing statements naming the Debtor as
“debtor” and the Secured Parties as “secured parties” in the filing offices set forth on
Schedule I hereto, and the security interests in the Collateral granted to the Secured
Parties hereunder constitute perfected security interests.

     4.8 No Liens; Other Financing Statements

Except as set forth on Schedule 4 hereto, no financing statement or other evidence of Lien
covering or purporting to cover any of the Collateral is on file in any public office other than
(i) financing statements filed or to be filed in connection with the security interests granted to
the Secured Parties hereunder and (ii) any financing statements filed in connection with the
Permitted Liens.

   5. Covenants: Actions Concerning the Collateral

To further insure the attachment, perfection and first priority of, and the ability of the Secured
Parties to enforce, the Secured Parties’ security interest in the Collateral, and without
limitation on the Debtor’s other obligations in this Security Agreement, the Debtor agrees, in each
case at the Debtor’s own expense, to take the following actions with respect to the following
Collateral:

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Issued: January 6, 2006

Effective as of: August 19, 2005

     5.1 Other Actions as to Any and All Collateral The Debtor agrees, at the request and
option of the Majority Secured Parties, to take any and all other actions the Majority
Secured Parties may determine to be necessary or useful to insure the attachment,
perfection and priority of, and the ability of the Secured Parties to enforce, the Secured
Parties’ security interest in any and all of the Collateral including, without limitation:

     (a) furnishing to each Secured Party from time to time statements and schedules
further identifying and describing the Collateral and such other reports in connection
with the Collateral as the Majority Secured Parties may reasonably request, all in
reasonable detail and in form satisfactory to the Majority Secured Parties;

     (b) executing, delivering and, where appropriate, filing financing statements and
amendments relating thereto under the UCC as in effect in any relevant UCC Jurisdiction;

     (c) complying with any provision of any statute, regulation or treaty of the United
States as to any Collateral if compliance with such provision is a condition to
attachment, perfection or priority of, or ability of the Secured Parties to enforce, the
Secured Parties’ security interest in such Collateral;

     (d) obtaining governmental and other third party waivers, consents and approvals in
form and substance satisfactory to the Majority Secured Parties;

     (e) obtaining waivers from mortgagees and landlords in form and substance reasonably
satisfactory to the Majority Secured Parties; and

     (f) taking all actions required under any other law, as reasonably determined by the
Majority Secured Parties to be applicable in any relevant UCC Jurisdiction or other
jurisdiction, including any foreign jurisdiction.

   6. Further Covenants

The Debtor covenants and agrees with the Secured Parties that from and after the date of this
Security Agreement:

     6.1 Further Assurances The Debtor will from time to time at the expense of the
Debtor, promptly execute, deliver, file and record all further instruments, endorsements
and other documents, and take such further action as the Majority Security Parties may
determine to be necessary or useful in obtaining the full benefits of this Security
Agreement and of the rights, remedies and powers herein granted, including, without
limitation, the covenants set forth in this Section 6.

     6.2 Ownership of Collateral The Debtor will continue to own each item of the
Collateral free and clear of any and all Liens (other than Permitted Liens), rights or
claims of all other Persons, except Permitted Liens, and the Debtor shall defend the

57

 

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Effective as of: August 19, 2005

Collateral against all claims and demands of all Persons at any time claiming the
same or any interest therein adverse to the Secured Parties.

     6.3 Change of Name, Identity, Corporate Structure, or Chief Executive Office;
Location of Equipment The Debtor will not change its name, identity, corporate structure
(including, without limitation, its jurisdiction of formation) or the location of its
chief executive office or location of its Inventory or Equipment without (i) giving the
Secured Parties at least thirty (30) days’ prior written notice clearly describing such
new name, identity, corporate structure or new location and providing such other
information in connection therewith as the Secured Parties may reasonably request, and
(ii) taking all action satisfactory to the Majority Secured Parties as the Majority
Secured Parties may reasonably request to maintain the security interest of the Secured
Parties in the Collateral intended to be granted hereby at all times fully perfected with
the same or better priority and in full force and effect.

     6.4 Maintain Records The Debtor will keep and maintain at its own cost and expense
satisfactory and complete records of the Collateral.

     6.5 Right of Inspection The Secured Parties shall have full and free access during
normal business hours to all Collateral Records, and the Secured Parties and its
representatives may examine the same, take extracts therefrom and make photocopies
thereof, and the Debtor agrees to render each Secured Party at the Debtor’s cost and
expense, such clerical and other assistance as may be reasonably requested with regard
thereto. Each Secured Party and its representatives shall during normal business hours
also have the right to enter into and upon any premises where any of the Equipment is
located for the purpose of inspecting the same, observing its use or otherwise protecting
its interests therein.

     6.6 Insurance

     (a) Insurance for Collateral The Debtor will maintain, with financially sound and
reputable insurers acceptable to the Secured Parties and licensed to do business in each
state in which any of the Collateral covered by any policy is located, insurance with
respect to the Collateral and its use, against loss or damage of the kinds customarily
insured against by reputable companies in the same or similar businesses, similarly
situated, such insurance to be of such types and in such amounts (with such deductible
amounts) as is customary for such companies under the same or similar circumstances,
similarly situated.

     (b) Business Insurance: General The Debtor will maintain, with financially sound and
reputable insurers acceptable to the Secured Parties and licensed to do business in each
state in which any of the Collateral covered by any policy is located, insurance with
respect to its properties and business against such casualties and contingencies as shall
be in accordance with general practices of businesses engaged in similar activities in
similar geographic areas. Such insurance shall be in such minimum amounts that the Debtor
will not be deemed a co-insurer under applicable insurance laws, regulations and policies
and otherwise shall be in such amounts, contain such

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terms, be in such forms and be for such periods as may be reasonably satisfactory to
the Secured Parties.

     (c) Insurance Proceeds The proceeds of any casualty insurance in respect of any
casualty loss of any of the Collateral shall, subject to the rights, if any, of other
parties with an interest having priority in the property covered thereby, so long as no
Event of Default has occurred and is continuing, be disbursed to the Debtor for direct
application by the Debtor solely to the repair or replacement of the Debtor’s property so
damaged or destroyed.

     (d) Evidence of Insurance Promptly upon written request by the Secured Parties, the
Debtor shall furnish the Secured Parties with certificates of insurance and policies
evidencing compliance with the foregoing insurance provision.

     6.7 Payment of Obligations The Debtor will pay promptly when due all taxes,
assessments and governmental charges or levies imposed upon the Collateral, as well as all
claims of any kind (including, without limitation, claims for labor, materials, supplies
and services) against or with respect to, or incurred in connection with the use or
operation of, the Collateral or incurred in connection with this Agreement, except that no
such obligation need be paid if (i) the validity thereof is being contested in good faith
by appropriate proceedings, (ii) such proceedings do not involve, in the sole opinion of
the Debtor, any material danger for the sale, forfeiture or loss of any of the Collateral
or any interest therein, and (iii) such charge is adequately reserved against on the
Debtor’s books in accordance with generally accepted accounting principles.

     6.8 Negative Pledge The Debtor will not create, incur or permit to exist, will
defend the Collateral against, and will take such other action as is necessary to remove,
any Lien or claim on or to the Collateral, other than the Liens created hereby and other
than the Permitted Liens.

     6.9 Limitations on Dispositions of Collateral The Debtor will not sell, transfer,
lease or otherwise dispose of any of the Collateral, or attempt, offer or contract to do
so, except, so long as no Event of Default shall have occurred and be continuing, for
sales or other dispositions in the ordinary course of business of items of Equipment and
Fixtures which have become worn out or obsolete.

     6.10 Use of Collateral The Debtor will keep the Collateral in good order and repair
and will not use the same in violation of law or any policy of insurance thereon.

     6.11 Operation of Business The Debtor will continue to operate its business in
compliance in all material respects with all applicable provisions of federal, state and
local statutes and ordinances.

   7. Events of Default

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The occurrence of any of the following shall, at the option of the Secured Party, constitute an
Event of Default:

     7.1 Any Event of Default (as defined in the Loan Agreement) by the Debtor under the
Loan Agreement or with respect to any of the other Obligations;

     7.2 Transfer or disposition of any of the Collateral, except as expressly permitted
by this Security Agreement;

     7.3 Attachment, execution or levy on any of the Collateral; or

     7.4 Any Secured Party shall receive at any time following execution hereof from a
relevant filing office in any applicable UCC Jurisdiction report indicating that any
Secured Party’s security interest is not prior to all other security interests or other
interests reflected in the report (other than Permitted Liens).

   8. Remedies; Rights Upon Default

     8.1 Rights and Remedies Generally If an Event of Default shall occur and be
continuing, then and in every such case, the Secured Parties shall have all the rights of
a secured party under the UCC, shall have all rights now or hereafter existing under all
other applicable laws, and, subject to any mandatory requirements of applicable law then
in effect, shall have all the rights set forth in this Security Agreement and all the
rights set forth with respect to the Collateral or this Security Agreement in any other
security agreement between the parties.

     8.2 Assembly of Collateral If an Event of Default shall occur and be continuing,
upon five days notice to the Debtor, the Debtor shall, at its own expense, assemble the
Collateral (or from time to time any portion thereof) and make it available to the Secured
Parties at any place or places designated by the Majority Secured Parties which is
reasonably convenient to all parties.

     8.3 Disposition of Collateral To the extent required by the UCC, the Majority
Secured Parties will give the Debtor reasonable notice of the time and place of any public
sale of the Collateral or any part thereof or of the time after which any private sale or
any other intended disposition thereof is to be made. The Debtor agrees that the
requirements of reasonable notice to it shall be met if such notice is mailed, postage
prepaid to its address specified in Section 9 of this Agreement (or such other address
that the Debtor may provide to the Secured Parties in writing) at least ten (10) days
before the time of any public sale or after which any private sale may be made.

     8.4 Recourse: The Debtor shall remain liable for any deficiency if the proceeds of
any sale or other disposition of the Collateral are insufficient to satisfy the
Obligations. The Debtor shall also be liable for all expenses of the Secured Parties
incurred in connection with collecting such deficiency, including, without limitation,

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the fees and disbursements of any attorneys employed by the Secured Parties to
collect such deficiency.

     8.5 Expenses; Attorneys Fees; Proceeds of Disposition The Debtor shall pay to the
Secured Parties on demand any and all expenses, including reasonable attorneys’ fees and
disbursements, incurred or paid by the Secured Parties in protecting, preserving or
enforcing the Secured Parties’ rights and remedies under or in respect of any of the
Obligations or any of the Collateral. All such expenses shall also constitute Obligations.
After deducting all of said expenses, the residue of any proceeds of collection or sale or
other disposition of the Collateral shall, to the extent actually received in cash, be
applied to the payment of the Obligations in such order or preference as the Majority
Secured Parties may determine or in such order of preference as is provided in the Loan
Agreement.

     8.6 Limitation on Duties Regarding Preservation of Collateral

     (a) The Secured Parties shall have no obligation to take any steps to preserve rights
against prior parties to any Collateral.

     (b) None of the Secured Parties nor any of their agents shall be liable for failure
to demand, collect or realize upon all or any part of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Debtor or otherwise.

   9. Miscellaneous

     9.1 Suretyship Waivers by Debtor The Debtor waives demand, notice, protest, notice
of acceptance of this Agreement, notice of loans made, credit extended, Collateral
received or delivered or other action taken in reliance hereon and all other demands and
notices of any description. With respect to both the Obligations and the Collateral, the
Debtor assents to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of or failure to perfect any security
interest in any Collateral, to the acceptance of partial payment thereon and the
settlement, compromising or adjusting of any thereof, all in such manner and at such time
or times as the Secured Parties may deem advisable. The Secured Parties shall have no duty
as to the collection or protection of the Collateral or any income therefrom, the
preservation of rights against prior parties, or the preservation of any rights pertaining
thereto. The Debtor further waives each and every right to which it may be entitled by
virtue of any suretyship law, including any rights it may have pursuant to Rule 31 of the
Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice and Remedies
Code and Chapter 34 of the Texas Business and Commerce Code, as the same may be amended
and in effect from time to time.

     9.2 Marshalling The Secured Parties shall not be required to marshal any present or
future collateral security (including but not limited to the Collateral) for, or other
assurances of payment of, the Obligations or any of them or to resort to such collateral
security or other assurances of payment in any particular order, and all of its

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rights and remedies hereunder and in respect of such collateral security and other
assurances of payment shall be cumulative and in addition to all other rights and
remedies, however existing or arising.

     9.3 Governing Law and Consent to Jurisdiction THIS SECURITY AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS. The Debtor agrees that any action or claim
arising out of, or any dispute in connection with, this Agreement, any rights, remedies,
obligations, or duties hereunder, or the performance or enforcement hereof or thereof, may
be brought in the courts of the State of Texas located in the County of Harris or any
federal court sitting therein and consents to the non-exclusive jurisdiction of such court
and to service of process in any such suit being made upon the Debtor by mail at the
address specified in Section 9.4 of this Agreement. The Debtor hereby waives any objection
that it may now or hereafter have to the venue of any such suit or any such court or that
such suit is brought in an inconvenient court.

     9.4 Notices All notices required to be given or otherwise given hereunder, shall be
made in accordance with Section 9 of the Loan Agreement.

     9.5 Successors and Assigns This Security Agreement shall be binding upon and inure
to the benefit of the Debtor and each of the Secured Parties, all future holders of the
Obligations and their respective successors and assigns, except that the Debtor may not
assign or transfer any of its rights or obligations under this Security Agreement without
the prior written consent of the Secured Parties.

     9.6 Waivers and Amendments None of the terms or provisions of this Security
Agreement may be waived, amended, supplemented or otherwise modified except by a written
instrument executed by the Debtor and the Majority Secured Parties. In the case of any
waiver, each of the Debtor and the Secured Parties shall be restored to their former
position and rights hereunder and under the outstanding Obligations, and any Event of
Default waived shall be deemed to be cured and not continuing, but no such waiver shall
extend to any subsequent or other Event of Default, or impair any right consequent
thereon.

     9.7 No Waiver; Remedies Cumulative No failure or delay on the part of the Secured
Parties in exercising any right, power or privilege hereunder and no course of dealing
between the Debtor and any Secured Party shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or privilege. None
of the Secured Parties shall be deemed to have waived any of their respective rights or
remedies in respect of the Obligations or the Collateral unless such waiver shall be in
writing and signed by such Secured Party. A waiver by such Secured Party of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any right or
remedy which such Secured Party would otherwise have on any future occasion. The rights
and remedies herein expressly provided are cumulative and may be exercised singly or
concurrently and as often and in such order as the Secured

62

 

Issued: January 6, 2006

Effective as of: August 19, 2005

Parties deem expedient and are not exclusive of any rights or remedies which the
Secured Parties would otherwise have whether by security agreement or now or hereafter
existing under applicable law. No notice to or demand on the Debtor in any case shall
entitle the Debtor to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Secured Parties to any other or
future action in any circumstances without notice or demand.

     9.8 Termination; Release When the Obligations have been paid and performed in full
(and for the purposes of this provision, such Obligations will be deemed to have been paid
and performed in full upon (i) payment to the Secured Parties of all principal and
interest due and payable under the Loan Agreement or (ii) the conversion of principal and
interest due and payable into common stock in accordance with the Notes, and any other
amounts then due and owing under the Security Documents) this Security Agreement shall
terminate, and the Secured Parties, at the request and sole expense of the Debtor, will
thereupon execute and deliver to the Debtor, or authorize the Debtor to file, the proper
instruments (including UCC termination statements) acknowledging the termination of this
Security Agreement, and will duly assign, transfer and deliver to the Debtor, without
recourse, representation or warranty of any kind whatsoever, such of the Collateral as may
be in possession of the Secured Parties and has not theretofore been disposed of, applied
or released.

     9.9 Headings Descriptive The headings of the several Sections and subsections of
this Security Agreement are inserted for convenience only and shall not in any way affect
the meaning or construction of any provision of this Security Agreement.

     9.10 Severability In case any provision in or obligation under this Security
Agreement or the Obligations shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall not in
any way be affected or impaired thereby.

[SIGNATURE PAGE FOLLOWS]

63

 

In Witness Whereof, each of the Debtor and the Secured Parties have caused this Security Agreement
to be duly executed and delivered as of the date first above written.

	 	 	 	 	 	 	 
	 	 	REMOTE KNOWLEDGE, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Randy S. Bayne	 	 
	 	 	Title: President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	SECURED PARTIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Leonard Nagel, not in his individual	 	 
	 	 	capacity, but solely in his capacity as Trustee	 	 
	 	 	for the Alan Granader Family Trust	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Daniel Granader	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Allan Granader	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Harry Granader	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Neil Granader	 	 

 

 

SCHEDULE 1

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Address of	 	 
	 	 	 	 	Jurisdiction	 	 	 	Chief	 	Other
	Exact Legal	 	Type of	 	of	 	Organizational	 	Executive	 	Locations of
	Name	 	Organization	 	Formation	 	ID Number	 	Office	 	Collateral
	           
	Remote Knowledge, Inc.
	 	Corporation	 	Delaware	 	 	 	3657 Briarpark	 	 
	 
	 	 	 	 	 	 	 	Suite 100	 	 
	
	 	 	 	 	 	 	 	Houston, TX	 	 
	
	 		 		 	 	 	77042	 	 

 

 

SCHEDULE 2

EQUIPMENT

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	SERIAL
	DESCRIPTION	 	QUANTITY	 	NUMBERS
	CABINET, DIGITAL, 115VAC

TIME DIVISION MULTIPLE ACCESS

BASIC HUB

#105-1260-005

	 	 	1	 	 	 	1792	 
	 
	 	 	 	 	 	 	 	 
	CABINET, INTERMEDIATE

FREQUENCY, 115VAC

TIME DIVISION MULTIPLE ACCESS

BASIC HUB

#105-1260-006

	 	 	1	 	 	 	1781	 
	 
	 	 	 	 	 	 	 	 
	CABINET, SECOND EXTENSION

DIGITAL, 115VAC

TIME DIVISION MULTIPLE ACCESS

BASIC HUB

#105-1260-008

	 	 	1	 	 	 	1797	 
	 
	 	 	 	 	 	 	 	 
	TERMINAL, WYSE-520

WHITE

WYSE 90110-35

#435-2107-001

	 	 	1	 	 	OVJ18600138
    	 
	 
	 	 	 	 	 	 	 	 
	KEYBOARD, AMERICAN NATIONAL

STANDARD INSTITUTE

WYSE 901879-01

#435-2107-002

	 	 	1	 	 	 	98420685	 
	 
	 	 	 	 	 	 	 	 
	ASSEMBLY, SUBNETWORK CONTROL

UNIT 1 LINK CONTROL PROCESSOR

128/256/514

WITH ETHERNET

WITH NEW TIME DIVISION MULTIPLE

ACCESS PROGRAM

#150-1265-039

	 	 	2	 	 	 	0255

0254	 
	 
	 	 	 	 	 	 	 	 
	MISCELLANEOUS SOFTWARE

X.NMS SOFTWARE

#325-1002

	 	 	1	 	 	No S/N

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	SERIAL
	DESCRIPTION	 	QUANTITY	 	NUMBERS
	MISCELLANEOUS SOFTWARE

X.STAR NET PROTOCOL

#325-1002

	 	 	1	 	 	No S/N
    	 
	 
	 	 	 	 	 	 	 	 
	MISCELLANEOUS SOFTWARE

TERMINAL CONTROL PROTOCOL

INTERNET PROTOCOL

#325-1002

	 	 	1	 	 	No S/N
    	 
	 
	 	 	 	 	 	 	 	 
	MANUAL, SUBNETWORK

CONTROL UNIT

#101-370

MAN.XNMS

#101-510

	 	 	1	 	 	No S/N
    	 
	 
	 	 	 	 	 	 	 	 
	MANUAL, NETWORK CONTROL UNIT

SYSTEM & SOFTWARE

#101-200

	 	 	1	 	 	No S/N
    	 
	 
	 	 	 	 	 	 	 	 
	ASSEMBLY, BURST DEMODULATOR

70 MEGA-HERTZ, DIFFERENTIAL 
QUADRATURE PHASE
SHIRT KEYING

BD501

BUILT TO DRAWING

#105-1321-003

	 	 	2
	 	 	 	1679842

1669842

	 
	 
	
ASSEMBLY, 1:8 SWITCH, BURST

DEMODULATOR

BUILD TO DRAWING

#105-1077-02

	 	 	1	 	 	 	5521	 
	 
	 	 	 	 	 	 	 	 
	ASSEMBLY, BURST DEMODULATOR 70 MEGA-
HERTZ,
DIFFERENTIAL

QUADRATURE PHASE SHIFT KEYING

BD 501

BUILD TO DRAWING

#150-1321-003

	 	 	1	 	 	 	179	 
	 
	 	 	 	 	 	 	 	 
	TAPE DRIVE, 4-8 GB

SOLARIS STORAGE UNI-PAK

SUN SG-XTAPSLR-010A

#435-1960-001

	 	 	1	 	 	 	939C1443	 
	 
	 	 	 	 	 	 	 	 
	CABLE, TAPE DRIVE, SMALL

COMPUTER SYSTEMS INTERFACE

68 TO 68, SUN X3858A
	 	 	 	 	 	 	 	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	SERIAL
	DESCRIPTION	 	QUANTITY	 	NUMBERS
	PURCHASE TO DRAWING

#344-0025-001

	 	 	1	 	 	 	8425-9935	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	TAPE, MAGNETIC 150MB

SUN SO-QD6

#435-1469-001

	 	 	1	 	 	No. S/N	 
	 
	CABLE ASSEMBLY, ETHERNET, RJ45,

25FT

CROSS-PINNED, BLACK

BOX EYN737M-0025

#345-5979-001

	 	 	1	 	 	No. S/N	 
	 
	 	 	 	 	 	 	 	 
	ASSEMBLY, NETWORK CONTROL

UNIT WITH NON-VOLATILE RANDOM

ACCESS MEMORY

256 KB WITH INTERNATIONAL

STANDARDS ORGANIZATION

PRINTED CIRCUIT ASSEMBLY

BUILDING TO DRAWING

#150-1048-014

	 	 	1	 	 	 	152	 
	 
	 	 	 	 	 	 	 	 
	ASSEMBLY, SPACEWEB INDOOR UNIT

BUILD TO DRAWING

#150-1365-001

	 	 	2	 	 	 	98520010

98520008	 
	 
	 	 	 	 	 	 	 	 
	CABLE ASSEMBLY, SYMBOL/TIME

DIVISION MULTIPLEX INTERFACE

BUILD TO DRAWING

#345-5119-21

	 	 	2	 	 	No. S/N	 
	 
	 	 	 	 	 	 	 	 
	POWER SUPPLY MONITOR MODEL 26

	 	 	1	 	 	 	0116	 
	 
	 	 	 	 	 	 	 	 
	WTI INCS-64-INTELLIGENT

CONNECTIVITY SYSTEM

	 	 	1	 	 	 	67221	 
	 
	 	 	 	 	 	 	 	 
	RADYNE COMSTREAM

DIGITAL VIDEO BROADCAST

MODULATOR DVB3030

	 	 	1	 	 	 	00106506070A	 
	 
	 	 	 	 	 	 	 	 
	LOGIC INNOVATIONS

INTERNET PROTOCOL

ENCAPSULATOR

#IPE-2000

	 	 	1	 	 	 	298002500017	 
	 
	 	 	 	 	 	 	 	 
	ACT WIRELESS QUAD

DEMODULATOR

#QD2048

	 	 	4	 	 	 	U051082 U051377

U051326 u051391	 
	 
	 	 	 	 	 	 	 	 
	MCL KU BAND TRAVELING WAVE

TUBE AMPLIFIER, 150 WATT, 2 UNITS

	 	 	1	 	 	 	1015

1016	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	SERIAL
	DESCRIPTION	 	QUANTITY	 	NUMBERS
	MITEQ KU BAND UP/DOWN

CONVERTER

	 	 	1	 	 	 	167312	 
	 
	 	 	 	 	 	 	 	 
	SATELLITE SYSTEMS MODEL 5420

70 MEGA-HERTZ INTERMEDIATE

FREQUENCY TO L-BAND

UPCONVERTER

	 	 	1	 	 	 	13898	 
	 
	 	 	 	 	 	 	 	 
	SATELLITE SYSTEMS ATX-1000

ANTENNA POSITIONING SYSTEM

	 	 	1	 	 	 	13952	 
	 
	 	 	 	 	 	 	 	 
	Harmonic TRX-100

Internet protocol

Encapsulator

	 	 	1	 	 	 	751898

2775	 
	 
	 	 	 	 	 	 	 	 
	PARADISE P300

SATELLITE MODEM

	 	 	1	 	 	 	2115	 
	 
	 	 	 	 	 	 	 	 
	SM2020 DIGITAL VIDEO BROADCAST

MODULATOR CALIFORNIA EF DATA

	 	 	1	 	 	 	991290181	 
	 
	 	 	 	 	 	 	 	 
	SYSTRON DONNER 762

SPECTRUM ANALYZER

	 	 	1	 	 	 	3360375	 
	 
	 	 	 	 	 	 	 	 
	GILAT SKYDATA MODEL 2470 VSAT

	 	 	1	 	 	 	0326-0264	 
	 
	 	 	 	 	 	 	 	 
	GILAT SKYDATA MODEM 2462-D-1

OUTDOOR UNIT

	 	 	1	 	 	 	0253-0196	 
	 
	 	 	 	 	 	 	 	 
	VERTEX RSI 9 METER ANTENNA

WITH 4 PORT C BAND FEED

	 	 	1	 	 	 	F251-107	 
	 
	 	 	 	 	 	 	 	 
	VERTEX RSI 6.1 METER ANTENNA

WITH 2 PORT KU BAND FEED

	 	 	1	 	 	 	G338-119	 
	 
	 	 	 	 	 	 	 	 
	EF DATA MODULATOR REDUNDANCY SWITCH

	 	 	1	 	 	 	992038754	 
	 
	 	 	 	 	 	 	 	 
	EF DATA MODULATOR

MODEL SDM300

	 	 	1	 	 	 	972008187	 
	 
	 	 	 	 	 	 	 	 
	CISCO SYSTEM 2620 ROUTER

SH 800-04956-02

	 	 	1	 	 	JAB033883PW	 
	 
	 	 	 	 	 	 	 	 
	CISCO SYSTEMS MODEL CATALYST

2924 XL ETHERNET SWITCH AT NR80WTA ??

	 	 	1	 	 	 	005080715500	 
	 
	 	 	 	 	 	 	 	 

 

 

SCHEDULE 3

INTELLECTUAL PROPERTY

(1) U.S. Patents.

	 	 	 	 	 	 	 
	PATENT NO.	 	ISSUED	 	INVENTORS	 	TITLE/DESCRIPTION
	6,032,193

	 	February 29, 2000
	 	Mark K. Sullivan
	 	Computer system
having virtual
circuit address
altered by local
computer to switch
to different
physical data link
to increase data
transmission
bandwidth
	 
	 	 	 	 	 	 
	6,542,119B2

	 	April ___2003
	 	 	 	GPS Antenna Array

(2) U.S. Patent Applications

	 	 	 	 	 	 	 
	APPLICATION NO.	 	FILED	 	INVENTORS	 	TITLE/DESCRIPTION
	09/758,581

	 	January 11, 2001
	 	Mark K. Sullivan
and Charles Adam
Crowder
	 	Method and system
for improving data
transmission and
storage of markup
language documents
	 
	 	 	 	 	 	 
	09/966,325

	 	September 28, 2001
	 	Mark Sullivan
	 	Apparatus and
method for
efficient live
webcasting and
network
connectivity
	 
	 	 	 	 	 	 
	09/835,893

	 	[April 16, 2001]
	 	 	 	“Data
Communications
Synchronization
Using GPS
Receivers”
	 
	 	 	 	 	 	 
	09/968, 746

	 	October 1, 2001
	 	 	 	“Telematics System”
	 

	 	 
	 	 	 	 

(3) Copyrights

 

 

(4) Trademarks

(5) Works of Authorship••

     (i)) Moonbeamer Terminal Software, including without limitation:

	 	•	 	DVB receiver control dvbd.c
	 
	 	•	 	Inroute modulator control damad.c
	 
	 	•	 	Inroute transmit device driver sattx.c
	 
	 	•	 	Configuration receiver recvconfig.c
	 
	 	•	 	Web-based configurator wwwconfig.c
	 
	 	•	 	Startup file downloader getfile.c
	 
	 	•	 	Signal strength indicator ss.c
	 
	 	•	 	Status report transmitter monitor.

     (ii) Hub Software, including without limitation:

	 	 	 	Remote restart sendreboot.c
	 
	 	 	 	Inroute remote control damaset.c
	 
	 	 	 	Inroute device driver satrx.c
	 
	 	 	 	Configuration broadcast uplinksender.c
	 
	 	 	 	Cryptographic access control authorize.c
	 
	 	 	 	Status report receiver listen.c
	 
	 	 	 	Network status alarm monitor.c
	 
	 	 	 	Demodulator assignment qd2048.c

(4) Trade Secrets

     (i) Software identified in Section (3) of this Schedule 3

(5) Licenses

     (i) XNMS SOFTWARE #325-1002

 

 

     (ii) X.STAR NET PROTOCOL SOFTWARE #325-1002

     (iii) TERMINAL CONTROL PROTOCOL / INTERNET PROTOCOL SOFTWARE #325-1002 )

     (iv) Logic Innovations IPE-2000 70 Mb/s operation

     (v) Intuit AQuick Books Pro 98

FCC Licenses.

• All rights and interests of the Debtor in any and all licenses and permits
(collectively referred to as the “FCC Licenses”) issued by the Federal
Communications Commission (the “FCC”), subject to applicable law and FCC rules and
regulations governing the FCC Licenses, including without limitation the following:

• that certain Radio Stations Authorization, Call Sign No. E000076, File No.:
SES-LIC-20000207-00177, granted to Cislunar Networks Corp. on September 27, 2000 for
Domestic Fixed Satellite Service;

• that certain Radio Stations Authorization, Call Sign No. E990333, File No.:
SES-MOD-20000218-00257, granted to Cislunar Networks Corp, on May 10, 2000 for
Domestic Fixed Satellite Service; and

• that Certain Radio Station Authorization, Call Sign No. E0120`8`, File No.:
SES-LIC-20020515-00787, granted to Cislunar Networks Corp, on September 3, 2002 for
Domestic Fixed Satellite Service.

• The FCC. The hardware falls under the jurisdiction of the FCC because the
unit has the ability to transmit data using the internal cellular phone. The cell
phone is certified under FCC Part 15. so certification for our device should be
straighforward. This certification has been applied for and we expect to receive
certification in the near term.

• The Department of Commerce. We are no longer using encryption for secure
communications between our device and the knowledge bank. However, with a VeriSign
128-bit SSL Global Server ID, available from VeriSign as part of its Secure Site Pro
and Commerce Site Pro Services, our customers can enjoy secured communications when
visiting our web site. The VeriSign Global Server ID is a septillion times more
secure than any other product. Until recently, strong 128-bit enerption was not
exportable. The United States Department of Commerce has approved VeriSign to issue
certificates for 128-bit encrypted communications, the highest level of encryption
ever allowed across United States borders.

 

 

Encumbrances on Intellectual property

     1. UCC File No. 03-0018290629 filed on 2/24/03 by SMH Varitek LLC against Varitek Industries,
Inc. in the office of the Secretary of State of the State of Texas, as described on Schedule 4,
below.\

 

 

SCHEDULE 4

OTHER PERMITTED LIENS

Existing UCC Financing Statements

	 	 	 	 	 	 	 	 	 
	 	 	 	 	File 	 	 	 	 
	Debtor 	 	 	 	Number & 	 	Secured 	 	 
	Name	 	Jurisdiction	 	Date	 	Party	 	Collateral/Description
	Remote Knowledge,
Inc.

	 	Delaware Secretary
of State
	 	File No. 43216852
filed on 11/15/04
	 	Inter-Tel Leasing,
Inc.
	 	Lease filing related to Axxess
Telephone System, including
all substitutions,
modifications and
replacements.
	 
	 	 	 	 	 	 	 	 
	Varitek Industries

Inc

	 	Texas Secretary of
State
	 	File No. 00-642349
filed on 12/13/00
	 	Whirlpool

Corporation
	 	A purchase money security
interest in any goods bearing
the trademarks WHIRLPOOL,
KITCHENAID, ROPER ESTATE,
COOLERATOR, CHAMBERS or _SP,
and parts and accessories for
the goods, from time to time
arising from the financed sale
of such goods to Varitek
Industries, Inc.
	 
	 	 	 	 	 	 	 	 
	Varitek Industries,
Inc.

	 	Texas Secretary of
State
	 	File No.
03-0018290629 filed
on 2/24/03
	 	SMH Varitek LLC
	 	All of Debtor’s Intellectual
Property Rights (defined
herein) and any proceeds
thereof, all as more
particularly set forth in that
certain Security Agreement
dated November 27, 2002
between Debtor and Secured
Party. As used herein,
“Intellectual Property Rights”
means all rights of Debtor now
or hereafter existing in and
to any intellectual property,
including, without limitation,
the following patent
applications: Serial Number
09/835,893 filed 4/16/01,
“Data Communications
Synchronization Using GPS
Receivers”; US Patent No.
60/200,573, Remoted Video and
Two-Way Audio Transmission
System, Serial Number
60/206,343, filed 5/23/00,
“GPS Antenna Arra”; US Patent
No.

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	File 	 	 	 	 
	Debtor 	 	 	 	Number & 	 	Secured 	 	 
	Name	 	Jurisdiction	 	Date	 	Party	 	Collateral/Description
	 

	 	 	 	 	 	 	 	60/209,547, Lead Acid
Platinum Battery; Serial
Number 60/236,682 filed
9/29/00, “Communication
System”, together with (i)
letters patent, utility
models, design patents,
industrial designs, patent
applications, including
continuations-in-part,
divisionals (collectively
“continuing applications”),
re-examined patents and
reissued patents that are
owned or controlled by the
Debtor during the term of this
filing, all United States
patent applications, foreign
counterparts thereof,
continuing applications,
re-issues and re-examined
applications and patents
issuing therefrom; (ii) trade
secreta, know how, and similar
proprietary technical and
business information including
algorithms, ideas, processes,
procedures and techniqures
that have been treated as
confidential information,
including those that relat to
Debtor’s tracking product
(Varilink TM); (iii)
copyrights, works of
authorship and similar rights,
including rights in computer
program code that relate to
Debtor’s tracking product
(Varilink TM); (iv) Mask work
rights or similar protection,
including rights that relate
to Debtor’s tracking product
(Varilink TM); and (v)
copyrights, trademarks, trade
names and service marks, and
licenses to use, applications
for, and other rights to,
patents, copyrights,

75

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	File 	 	 	 	 
	Debtor 	 	 	 	Number & 	 	Secured 	 	 
	Name	 	Jurisdiction	 	Date	 	Party	 	Collateral/Description
	 

	 	 	 	 	 	 	 	trademarks, trade names and
services marks.

76

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