Document:

Exhibit
10.3

AMENDMENT NO. 1 TO MANAGEMENT CONTINUITY AGREEMENT

THIS
AMENDMENT NO. 1 TO MANAGEMENT CONTINUITY AGREEMENT (the “Amendment”) is
made and entered into as of August 24, 2007 by and between Depomed, Inc., a
California corporation (the “Company”), and Carl A. Pelzel (“Employee”).

BACKGROUND

A.            Employee
and the Company are parties to a Management Continuity Agreement, dated as of
June 1, 2006 (the “Agreement”). 
Capitalized terms used herein without definition have the meanings given
them in the Agreement.

B.            Employee
and the Company desire to amend the Agreement as set forth herein.

AGREEMENT

For good and valuable consideration, the receipt of
which is acknowledged, the parties agree as follows:

1.             Amendment.  Section 2(b) of the Agreement is hereby
amended to read in its entirety as follows:

“(b) Severance. In the event
that Employee suffers an Involuntary Termination at any time within twelve
months following the effective date of a Change of Control, Employee will be
entitled to receive severance benefits as follows:  (A) severance
payments during the period from the date of Employee’s termination until the
date 24 months after the
effective date of the termination (the “Severance Period”) equal to the
base salary which Employee was receiving immediately prior to the Change of
Control, which payments shall be paid during the Severance Period in accordance
with the Company’s standard payroll practices, (B) a lump sum payment as
soon as practicable after the date of termination of employment equal to two
times the Bonus Amount (as defined below); and (C) continuation of payment
by the Company of its portion of the health insurance benefits provided to
Employee immediately prior to the Change of Control pursuant to the terms of
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”)
or other applicable law through the earlier of the end of the Severance Period
or the date upon which Employee is no longer eligible for such COBRA or other
benefits under applicable law. In addition, Employee will receive payment(s)
for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s
termination of 

employment.  For purposes of this Agreement, “Bonus
Amount” means Employee’s average annual bonus paid for the Company’s fiscal
years (up to three) immediately preceding the Company’s fiscal year in which
the termination occurs; provided, however, that (x) only annual
bonuses paid to Employee in his capacity as Chief Executive Officer of the
Company shall be taken into account for purposes of determining such average
annual bonus, (y) any bonus for a partial year shall be prorated for purposes
of the determining such average annual bonus (for example, if Employee’s bonus
for the last four months of 2007 is $65,000, and his bonus for 2008 is
$150,000, the Bonus Amount will be equal to $161,290, which is the quotient of
(A) $215,000, divided by (B) 1.333); and (z) if the effective date of a Change
of Control occurs prior to the payment to Employee of a bonus for 2007 related
to his service as President and CEO in 2007, then the Bonus Amount shall be
determined in good faith by the Compensation Committee of the Board of
Directors, taking into account the methodology set forth above.”

2.             No Other Amendment.  Except as expressly amended by this Amendment, all other
provisions of the Agreement remain in full force and effect.

3.             Effective Date. 
The effective date of this Amendment shall be August 27, 2007.

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

IN
WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Management
Continuity Agreement as of the date first above written.

	
  EMPLOYEE

  	
  DEPOMED, INC.

  
	
   

  	
   

  
	
  /s/ Carl A.
  Pelzel

  	
   

  	
  By: 

  	
  /s/ Matthew M. Gosling

  	
   

  
	
  Carl A. Pelzel

  	
   

  	
  Matthew M.
  Gosling

  
	
   

  	
   

  	
  Vice President
  and General Counsel

  
					

 

 2Exhibit
10.36

EXECUTION
COPY

SECURITIES
PURCHASE AND REGISTRATION RIGHTS AGREEMENT

THIS SECURITIES PURCHASE AND REGISTRATION RIGHTS AGREEMENT (this “Agreement”),
dated as of August 24, 2007, by and among Communication Intelligence Corporation, a
Delaware corporation with headquarters located at 275 Shoreline Drive, Suite
500, Redwood Shores, California 94065 (the “Company”),
and the investors listed on the Schedule of Investors attached hereto as Exhibit A
(individually, an “Investor” and
collectively, the “Investors”).

BACKGROUND

A.            The Company and each Investor are
executing and delivering this Agreement in reliance upon the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as
amended (the “Securities Act”),
and Rule 506 of Regulation D (“Regulation
D”) as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the
Securities Act.

B.            Each Investor wishes to purchase,
and the Company wishes to sell, upon the terms and conditions stated in this Agreement,
the aggregate number of shares of the Common Stock, par value $0.01 per share,
of the Company (the “Common Stock”),
set forth opposite such Investor’s name in column two (2) on the Schedule of
Investors in Exhibit A (which aggregate amount for all Investors
together shall be 21,500,000 shares of Common Stock and shall collectively be
referred to herein as the “Common Shares”
or the “Securities”) for a an aggregate
purchase price of $3,000,000.

NOW, THEREFORE, IN
CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the Company and the Investors agree as follows:

ARTICLE I

DEFINITIONS

1.1   Definitions.  In addition to the terms defined elsewhere in
this Agreement, the following terms have the meanings indicated:

“Advisory Fee” means the sum of $250,000 payable by the
Company to Phoenix out of the proceeds of the offering immediately following
Closing.

“Affiliate” means any Person that, directly
or indirectly through one or more intermediaries, controls or is controlled by
or is under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act.

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

  
  
 

“Best Efforts” means the reasonable efforts that a prudent
person desirous of achieving a result would use in similar circumstances to
ensure that such result is achieved as expeditiously as practical; provided, however, that an obligation to use
Best Efforts under this Agreement does not require the Company to dispose of or
make any change to its business or expend any material funds.

“Business Day” means any day other than
Saturday, Sunday or other day on which commercial banks in The City of New York
are authorized or required by law to remain closed.

“Closing” means the closing of the purchase
and sale of the Securities pursuant to Section 2.1.

“Closing Date” means the date and time of
the Closing.

“Closing Market Price” has the meaning set forth in Section
6.1(e).

“Closing Price” means, for any date, the
closing price per share of the Common Stock for such date (or the nearest
preceding date) on the primary Eligible Market or exchange or quotation system
on which the Common Stock is then listed or quoted.

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

“Company Counsel” means Davis Wright
Tremaine LLP, counsel to the Company.

“Common Shares” means an aggregate of
21,500,000 shares of Common Stock.

“Common Stock” means the common stock of the
Company, par value $0.01 per share.

“Contingent Obligation” has the meaning set
forth in Section 3.1(z).

“Convertible Securities” means any stock or
securities (other than Options) convertible into or exercisable or exchangeable
for Common Stock.

“Disclosure Materials” has the meaning set
forth in Section 3.1(g).

“Effective Date” means the date that the
Registration Statement is first declared effective by the SEC.

“Effectiveness Period” has the meaning set
forth in Section 6.1(c).

“8-K Filing” has the meaning set forth in Section
4.5.

“Eligible Market” means any of the New York
Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market,
the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board.

“Environmental Laws” has the meaning set
forth in Section 3.1(cc).

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“Event” has the meaning set forth in Section 6.1(e).

“Event Payments” has the meaning set forth
in Section 6.1(e).

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

“Excluded Events” has the meaning set forth
in Section 6.1(e)(ii).

“Excluded Investors” means Phoenix and its
Affiliates, including Phoenix Venture Fund LLC and Phoenix Enterprises LLC.

“Executive
Management Position” means any of the following: Chairman of
the Board, Chief Executive Officer, Chief Financial Officer, Chief Legal
Officer, Chief Technology Officer, President, Secretary, and Vice President,
Product Development.

“Filing Date” means 60 days after the
Closing Date.

“GAAP” has the meaning set forth in Section
3.1(g).

“Hazardous Materials” has the meaning set
forth in Section 3.1(cc).

“Indebtedness” has the meaning set forth in Section
3.1(z).

“Indemnified Party” has the meaning set
forth in Section 6.4(b).

“Indemnifying Party” has the meaning set
forth in Section 6.4(b).

“Insolvent” has the meaning set forth in Section
3.1(h).

“Intellectual Property Rights” has the
meaning set forth in Section 3.1(s).

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

“Legal
Counsel” has the meaning set forth in Section 6.1(c).

“Lien” means any lien, charge, claim,
security interest, encumbrance, right of first refusal or other restriction.

“Losses” means any and all losses, claims,
damages, liabilities, settlement costs and expenses, including, without
limitation, reasonable attorneys’ fees.

“Major Subsidiary”
means any direct or indirect subsidiary of the Company through which the
Company conducts a material portion of its operations, which holds a material
portion of assets, or which is the obligor on any material amount of
Indebtedness.

“Material Adverse Effect” means (i) a
material adverse effect on the results of operations, assets, business,
financial condition or prospects of the Company and the Subsidiaries, taken as
a 

 3
 

whole on a consolidated
basis, or (ii) material and adverse impairment of the Company’s ability to
perform its obligations under any of the Transaction Documents, provided, that
none of the following alone shall be deemed to constitute a Material Adverse
Effect:  (i) changes in general business
or economic conditions, including such conditions related to the Company’s
business, other than those conditions affecting the Company and its
Subsidiaries differently than or disproportionately compared with other
companies operating in the same or similar business, (ii) changes in law,
rules, regulations, orders, or other binding directives issued by any
governmental entity and not specifically directed at the Company or its
industry, or (iii) any existing fact with respect to which the Investor has
knowledge as of the date hereof.

“Material Permits” has the meaning set forth
in Section 3.1(u).

“Options” means any outstanding rights,
warrants or options to subscribe for or purchase Common Stock or Convertible
Securities.

“Person”
means any individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, or joint
stock company.

“Phoenix” means SG Phoenix Ventures LLC, the managing
member of Phoenix Venture Fund LLC.

“Phoenix
Entity” has the
meaning set forth in Section 6.2(o).

“Phoenix
Underwriter Registration Statement” has the meaning set forth in Section 6.2(o).

“Phoenix
Venture” has the
meaning set forth in Section 6.2(o).

“Proceeding” means an action, claim, suit,
investigation or proceeding (including, without limitation, or a partial
proceeding, such as a deposition), whether commenced or threatened in writing.

“Prospectus” means the prospectus included
in the Registration Statement (including, without limitation, a prospectus that
includes any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A promulgated
under the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by the Registration Statement, and all other
amendments and supplements to the Prospectus including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.

“Registrable Securities” means the Common
Shares issued or issuable pursuant to the Transaction Documents, together with
any securities issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the foregoing.

 4
 

“Registration Statement” means each
registration statement required to be filed under Article VI, including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.

“Regulation D” has the meaning set forth in
the recitals.

“Required Effectiveness Date” means one
hundred eighty (180) days after the Closing Date.

“Required
Holders” means the holders of at least a majority of the
outstanding Registrable Securities.

“Rule 144,” “Rule 415,” and “Rule 424”
means Rule 144, Rule 415 and Rule 424, respectively, promulgated
by the SEC pursuant to the Securities Act, as such Rules may be amended from
time to time, or any similar rule or regulation hereafter adopted by the SEC
having substantially the same effect as such Rule.

“SEC”
has the meaning set forth in the recitals.

“SEC Reports” has the meaning set forth in Section 3.1(g).

“Securities” has the meaning set forth in
the recitals.

“Securities Act” has the meaning set forth
in the recitals.

“Shares” means shares of the Company’s
Common Stock.

“Subsidiary” means any direct or indirect
subsidiary of the Company.

“Trading Day” means (i) a day on which the
Common Stock is traded on a Trading Market (other than the OTC Bulletin Board),
or (ii) if the Common Stock is not listed on a Trading Market (other than the
OTC Bulletin Board), a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the
Common Stock is not quoted on any Trading Market, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the Pink Sheets
LLC (or any similar organization or agency succeeding to its functions of
reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.

“Trading Market” means whichever of the New
York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select
Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board
on which the Common Stock is listed or quoted for trading on the date in
question.

 5
 

“Transaction
Documents” means this Agreement, the schedules and exhibits
attached hereto and the Transfer Agent Instructions.

“Transfer Agent” means American Stock Transfer
and Trust Company, or any successor transfer agent for the Company.

“Transfer Agent Instructions” means, with
respect to the Company, the Irrevocable Transfer Agent Instructions, in the
form of Exhibit E, executed by the Company and delivered to and acknowledged
in writing by the Transfer Agent.

ARTICLE II

PURCHASE AND SALE

2.1   Closing.  Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to each Investor, and each
Investor shall purchase from the Company such number of Common Shares for the
aggregate price set forth opposite such Investor’s name on Exhibit A
hereto under the headings “Common Shares” and “Purchase Price”,
respectively.  The date and time of the
Closing and shall be 11:00 a.m., New York City Time, on the Closing Date, which
shall be a date determined by mutual agreement of the Company and Phoenix, but
in no event less than five (5) Business Days or more than twenty (20) Business
Days subsequent to the date of this Agreement. 
The Closing shall take place at the offices of counsel to the Investors.

2.2   Closing
Deliveries.

(a)   At the Closing, the Company shall deliver or
cause to be delivered to each Investor the following:

(i)    a
certificate executed by the Company’s chief executive officer and chief
financial officer, confirming the continued truth and correctness in all
material respects (except as to those representations and warranties qualified
by materiality, as to which the confirmation shall be as to their continued
truth and correctness) as of the Closing Date of the Company’s representations
and warranties made in Article III hereof;

(ii)   a
certificate of the secretary of the Company, attaching a recent copy of the
certificate of incorporation, as amended, certified by the Secretary of State
of the State of Delaware and a good standing certificate dated August 17, 2007,
copies of the by-laws of the Company and resolutions of the board of directors,
which the secretary of the Company has certified as true and correct copies in
full force and effect as of the Closing;

(iii)  one
or more stock certificates (or copies thereof provided by the Transfer Agent),
free and clear of all restrictive and other legends (except as expressly
provided in Section 4.1(b) hereof), evidencing such number of Common
Shares set forth opposite such Investor’s name on Exhibit A hereto
under the heading “Common Shares,” registered in the name of such Investor;

 6
 

(iv)  a
legal opinion of Company Counsel, in the form of Exhibit C,
executed by such counsel and delivered to the Investors;

(v)   duly
executed Transfer Agent Instructions acknowledged by the Company’s transfer
agent;

(vi)  approval
by each applicable Trading Market of an additional shares listing application
covering all of the Registrable Securities, if required by such Trading Market
(and, if applicable, evidence of conditional listing approval); and

(vii) any
consents or approvals of any Person listed on Schedule 3.1(z) or any
other third-party required to effect the terms and conditions of this
Agreement.

(b)   At the Closing, each Investor shall deliver
or cause to be delivered to the Company the purchase price (less each Investor’s
proportionate share of the Investors’ fees and expenses described in Section
7.2, which shall be paid by deduction to the proceeds payable as directed
by each Investor) set forth opposite such Investor’s name on Exhibit A
hereto under the heading “Purchase Price” in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing to such Investor by the Company for such purpose.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.1   Representations
and Warranties of the Company.  The
Company hereby represents and warrants to the Investors as follows (which
representations and warranties shall be deemed to apply, where appropriate, to
each Subsidiary of the Company), as of the date hereof and as of the Closing:

(a)   Major Subsidiaries.  The Company has no Major Subsidiaries other
than those listed in Schedule 3.1(a) hereto.  Except as disclosed in Schedule 3.1(a)
hereto, the Company owns, directly or indirectly, all of the capital stock or
comparable equity interests of each Major Subsidiary free and clear of any Lien
and all the issued and outstanding shares of capital stock or comparable equity
interest of each Major Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights.

(b)   Organization and Qualification.  Each of the Company and the Major
Subsidiaries is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite legal authority to own and use its properties
and assets and to carry on its business as currently conducted.  Neither the Company nor any Major Subsidiary
is in violation of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents.  Each of the Company and the
Major Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation or other entity in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, 

 7
 

would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.

(c)   Authorization; Enforcement.  The Company has the requisite corporate
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents to which it is a party and otherwise to carry out
its obligations hereunder and thereunder. 
The execution and delivery of each of the Transaction Documents to which
it is a party by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of the Company and no further consent or action is
required by the Company, its Board of Directors or its stockholders.  Each of the Transaction Documents to which it
is a party has been (or upon delivery will be) duly executed by the Company and
is, or when delivered in accordance with the terms hereof, will constitute, the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as may be limited by (i) applicable
bankruptcy, insolvency, reorganization or other laws of general application
relating to or affecting the enforcement of creditors rights generally, and
(ii) the effect of rules of law governing the availability of specific
performance and other equitable remedies.

(d)   No Conflicts.  The execution, delivery and performance of
the Transaction Documents to which it is a party by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not, and will not, (i) conflict with or violate any provision of the
Company’s or any Major Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, (ii) conflict with,
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Major Subsidiary debt or otherwise) or other
understanding to which the Company or any Major Subsidiary is a party or by which
any property or asset of the Company or any Major Subsidiary is bound, or
affected, except to the extent that such conflict, default, termination,
amendment, acceleration or cancellation right would not reasonably be expected
to have a Material Adverse Effect, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Major Subsidiary
is subject (including, assuming the accuracy of the representations and
warranties of the Investors set forth in Section 3.2 hereof, federal and
state securities laws and regulations and the rules and regulations of any
self-regulatory organization to which the Company or its securities are
subject, including all applicable Trading Markets), or by which any property or
asset of the Company or a Major Subsidiary is bound or affected, except to the
extent that such violation would not reasonably be expected to have a Material
Adverse Effect.

(e)   The Securities.  The Securities are duly authorized and, when
issued and paid for in accordance with the Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of all Liens
and will not be subject to preemptive or similar rights of stockholders (other
than those granted to the Investors under Section 4.7).  The offer, 

 8
 

issuance and
sale of the Shares to the Investors pursuant to this Agreement are exempt from
the registration requirements of the Securities Act.

(f)    Capitalization.  The aggregate number of shares and type of
all authorized, issued and outstanding classes of capital stock, options and
other securities of the Company (whether or not presently convertible into or
exercisable or exchangeable for shares of capital stock of the Company) is set
forth in Schedule 3.1(f) hereto. 
All outstanding shares of capital stock are duly authorized, validly
issued, fully paid and nonassessable and have been issued in compliance in all
material respects with all applicable securities laws.  Except as disclosed in Schedule 3.1(f)
hereto, the Company did not have outstanding at December 31, 2006 any other
Options, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into
or exercisable or exchangeable for, or entered into any agreement giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.  Except as set forth on Schedule 3.1(f)
hereto, and except for customary adjustments as a result of stock dividends,
stock splits, combinations of shares, reorganizations, recapitalizations,
reclassifications or other similar events, there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in
any agreement providing rights to security holders) and the issuance and sale
of the Securities will not obligate the Company to issue shares of Common Stock
or other securities to any Person (other than the Investors) and will not
result in a right of any holder of securities to adjust the exercise,
conversion, exchange or reset price under such securities.  To the knowledge of the Company, except as
disclosed in the SEC Reports and any Schedules 13D or 13G filed with the SEC
pursuant to Rule 13d-1 of the Exchange Act by reporting persons or in Schedule
3.1(f) hereto, no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 under the Exchange Act), or has the right to
acquire, by agreement with or by obligation binding upon the Company,
beneficial ownership of in excess of 5% of the outstanding Common Stock.

(g)   SEC Reports; Financial Statements.  Except as set forth on Schedule 3.1(g),
the Company has filed all reports required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the 12
months preceding the date hereof on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to
the expiration of any such extension and has filed all reports required to be
filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the two years preceding the date hereof.  Such reports required to be filed by the
Company under the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, together with any materials filed or furnished by the Company under
the Exchange Act, whether or not any such reports were required being
collectively referred to herein as the “SEC
Reports” and, together with this Agreement and the Schedules to this
Agreement, the “Disclosure Materials”.  As of their respective dates, the SEC Reports
filed by the Company complied in all material respects with the requirements of
the Securities Act and the Exchange Act and the rules and regulations of the
SEC promulgated thereunder, and none of the SEC Reports, when filed by the
Company, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.  The financial statements
of the 

 9
 

Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the SEC with respect
thereto as in effect at the time of filing. 
Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements, the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP or may be condensed or summary statements, and
fairly present in all material respects the consolidated financial position of
the Company and its consolidated Subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, year-end audit
adjustments.  All material agreements to
which the Company or any Subsidiary is a party or to which the property or
assets of the Company or any Subsidiary are subject are included as part of or
identified in the SEC Reports, to the extent such agreements are required to be
included or identified pursuant to the rules and regulations of the SEC.

(h)   Since the date of the latest audited
financial statements included within the SEC Reports, except as disclosed in
the SEC Reports or in Schedule 3.1(h) hereto, (i) there has been no
event, occurrence or development that, individually or in the aggregate, has
had or that would result in a Material Adverse Effect, (ii) the Company
has not incurred any material liabilities other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or required to be disclosed in
filings made with the SEC, (iii) the Company has not altered its method of
accounting or the changed its auditors, except as disclosed in its SEC Reports,
(iv) the Company has not declared or made any dividend or distribution of
cash or other property to its stockholders, in their capacities as such, or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock (except for repurchases by the Company of shares of capital
stock held by employees, officers, directors, or consultants pursuant to an
option of the Company to repurchase such shares upon the termination of
employment or services), and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock-based plans.  The Company
has not taken any steps to seek protection pursuant to any bankruptcy law nor
does the Company have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings or any actual knowledge
of any fact which would reasonably lead a creditor to do so.  The Company is not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
applicable Closing, will not be Insolvent (as defined below).  For purposes of this Section 3.1(h), “Insolvent” means (i) the present fair
saleable value of the Company’s assets is less than the amount required to pay
the Company’s total Indebtedness (as defined in Section 3.1(z)), (ii)
the Company is unable to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured, (iii) the Company intends to incur or believes that it will incur
debts that would be beyond its ability to pay as such debts mature or (iv) the
Company has unreasonably small capital with which to conduct the business in
which it is engaged as such business is now conducted and is proposed to be
conducted.

 10
 

(i)    Absence of Litigation.  Except as disclosed in the SEC Reports, there
is no action, suit, claim, or Proceeding, or, to the Company’s knowledge,
inquiry or investigation, before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries that could, individually or in the aggregate, have a Material
Adverse Effect.

(j)    Compliance.  Except as described in Schedule 3.1(j),
neither the Company nor any Subsidiary, except in each case as would not,
individually or in the aggregate, reasonably be expected to have or result in a
Material Adverse Effect, (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received written notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any order
of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority.

(k)   Title to Assets.  The Company and the Subsidiaries own no real
property except as described in Schedule 3.1(k).  The Company and the Subsidiaries have good
and marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and clear
of all Liens, except for Liens that do not, individually or in the aggregate,
have or result in a Material Adverse Effect. 
Any real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases of
which the Company and the Subsidiaries are in material compliance.

(l)    No General Solicitation; Fees.  Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Securities.  The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’
commission (other than for persons engaged by any Investor or its investment
advisor) relating to or arising out of the issuance of the Securities pursuant
to this Agreement.  The Company shall
pay, and hold each Investor harmless against, any liability, loss or expense
(including, without limitation, reasonable attorney’s fees and out-of-pocket
expenses) arising in connection with any such claim for fees arising out of the
issuance of the Securities pursuant to this Agreement.  The Company has not engaged any placement
agent or other agent in connection with the sale of the Securities.

(m)    Private
Placement.  Neither the Company nor
any of its Affiliates nor, any Person acting on the Company’s behalf has,
directly or indirectly, at any time within the past six months, made any offer
or sale of any security or solicitation of any offer to buy any security under
circumstances that would (i) eliminate the availability of the exemption
from registration under Regulation D under the Securities Act in
connection with the offer and sale by the Company of the Securities as
contemplated hereby or (ii) cause the offering of the Securities 

 11
 

pursuant to
the Transaction Documents to be integrated with prior offerings by the Company
for purposes of any applicable law, regulation or stockholder approval
provisions, including, without limitation, under the rules and regulations of
any Trading Market.  The sale and
issuance of the Securities hereunder does not contravene the rules and
regulations of any Trading Market on which the Common Stock is listed or
quoted.  The Company is not required to
be registered as, and is not an Affiliate of, an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.  The Company is not required to be registered
as, a United States real property holding corporation within the meaning of the
Foreign Investment in Real Property Tax Act of 1980.

(n)   Listing and Maintenance Requirements.  The Company has not, in the twelve months
preceding the date hereof, received notice (written or oral) from any Trading Market
on which the Common Stock is or has been listed or quoted to the effect that
the Company is not in compliance with the listing or maintenance requirements
of such Trading Market.  The Company is,
and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.

(o)   Registration Rights.  Except as described in Schedule 3.1(o),
the Company has not granted or agreed to grant to any Person any rights
(including “piggy-back” registration rights) to have any securities of the
Company registered with the SEC or any other governmental authority that have
not been satisfied or waived.

(p)   Application of Takeover Protections.  Except as described in Schedule 3.1(p),
there is no control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s charter documents or the laws of
its state of incorporation that is or could become applicable to any of the
Investors as a result of the Investors and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including, without limitation, as a result of the Company’s issuance of the Securities
and the Investors’ ownership of the Securities.

(q)   Disclosure.  The Company confirms that neither it nor any
officers, directors or Affiliates, has provided any of the Investors (other
than Excluded Investors) or their agents or counsel with any information that
constitutes or might constitute material, nonpublic information (other than the
existence and terms of the issuance of Securities, as contemplated by this
Agreement).  The Company confirms that
neither it nor any officers, directors or Affiliates, has provided any of the
Investors (other than Excluded Investors) or their agents or counsel with any
information that constitutes or might constitute material, nonpublic
information (other than the existence and terms of the issuance of Securities,
as contemplated by this Agreement).  The
Company understands and confirms that each of the Investors will rely on the
foregoing representations in effecting transactions in securities of the
Company (other than Excluded Investors). 
All disclosure provided by the Company to the Investors regarding the
Company, its business and the transactions contemplated hereby, including the
Schedules to this Agreement, furnished by or on the behalf of the Company are
true and correct in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in 

 12
 

order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.  To the
Company’s knowledge, except for the transactions contemplated by this
Agreement, no event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, operations or financial condition, which, under applicable law,
rule or regulation, requires public disclosure or announcement by the Company
but which has not been so publicly announced or disclosed.  The Company acknowledges and agrees that no
Investor makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those set forth in the
Transaction Documents.

(r)    Acknowledgment Regarding Investors’
Purchase of Securities.  Based upon
the assumption that the transactions contemplated by this Agreement are
consummated in all material respects in conformity with the Transaction
Documents, the Company acknowledges and agrees that each of the Investors is
acting solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and
thereby.  The Company further
acknowledges that no Investor is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any advice given by any Investor or any of
their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to the Investors’ purchase of the Securities.  The Company further represents to each
Investor that the Company’s decision to enter into this Agreement has been
based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.

(s)   Patents and Trademarks.  The Company and its Subsidiaries own, or
possess adequate rights or licenses to use, all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights (“Intellectual Property Rights”) necessary to
conduct their respective businesses now conducted.  Except as set forth in Schedule 3.1(s),
none of the Company’s Intellectual Property Rights have expired or terminated,
or are expected to expire or terminate, within three years from the date of
this Agreement.  The Company does not
have any knowledge of any infringement by the Company or its Subsidiaries of
Intellectual Property Rights of others. 
Except as set forth in Schedule 3.1(s), the Company does not have
any knowledge of any infringement by others of Intellectual Property Rights of
the Company or its Subsidiaries.  Except
as disclosed in the SEC Reports, there is no claim, action or proceeding being
made or brought, or to the knowledge of the Company, being threatened, against
the Company or its Subsidiaries regarding its Intellectual Property Rights.

(t)    Insurance.  The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses and
locations in which the Company and the Subsidiaries are engaged.

 13
 

(u)   Regulatory Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports (“Material Permits”), except where the failure to possess such
permits does not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect, and neither the Company nor
any Subsidiary has received any written notice of proceedings relating to the
revocation or modification of any Material Permit.

(v)   Transactions With Affiliates and Employees.  Except as set forth or incorporated by
reference in the Company’s SEC Reports, none of the officers, directors or
employees of the Company is presently a party to any transaction that would be
required to be reported on Form 10-K with the Company or any of its
Subsidiaries (other than for ordinary course services as employees, officers or
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the Company’s knowledge, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.

(w)   Internal Accounting Controls.  The Company and the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s
general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.

(x)    Sarbanes-Oxley
Act. The Company is in compliance in all material respects with applicable
requirements of the Sarbanes-Oxley Act of 2002 and applicable rules and
regulations promulgated by the SEC thereunder, except where such noncompliance
would not have, individually or in the aggregate, a Material Adverse Effect.

(y)   Foreign Corrupt Practices.  Neither the Company nor any of its Subsidiaries
nor, to the knowledge of the Company, any director, officer, agent, employee or
other Person acting on behalf of the Company or any of its Subsidiaries has, in
the course of its actions for, or on behalf of, the Company (i) used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
(iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or employee.

 14
 

(z)    Indebtedness.  Except as disclosed in Schedule 3.1(z),
neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is in violation of any term of or in
default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iii) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. 
Schedule 3.1(z) provides a detailed description of the material
terms of any such outstanding Indebtedness. 
For purposes of this Agreement: 
(x) “Indebtedness” of any
Person means, without duplication (A) all indebtedness for borrowed money,
(B) all obligations issued, undertaken or assumed as the deferred purchase
price of property or services (other than trade payables entered into in the
ordinary course of business), (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments, (D)
all obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising
under any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses
(A) through (F) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any
Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (G) above; (y) “Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness,
lease, dividend or other obligation of another Person if the primary purpose or
intent of the Person incurring such liability, or the primary effect thereof,
is to provide assurance to the obligee of such liability that such liability
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such liability will be protected (in
whole or in part) against loss with respect thereto; and (z) “Person” means an
individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.

(aa)  Employee Relations.  Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or employs any
member of a union.  The Company believes
that its relations with its employees are as disclosed in the SEC Reports.  Except as disclosed in the SEC Reports,
during the period covered by the SEC Reports, no executive officer of the
Company or any of its Subsidiaries (as defined in Rule 501(f) of the Securities
Act) has notified the Company or any such Subsidiary that such officer intends
to leave the Company or any such Subsidiary or otherwise terminate such officer’s
employment with the Company or any such Subsidiary.  To the knowledge of the Company or any such 

 15
 

Subsidiary, no
executive officer of the Company or any of its Subsidiaries is in violation of
any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any such
Subsidiary to any liability with respect to any of the foregoing matters.

(bb)  Labor
Matters.      The Company and its Subsidiaries are in
compliance in all material respects with all federal, state, local and foreign
laws and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.

(cc)  Environmental
Laws.  The Company and its Subsidiaries
(i) are in compliance in all material respects with any and all Environmental
Laws (as hereinafter defined), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance in all material
respects with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so
comply would be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect.  The term “Environmental
Laws” means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

(dd)  Subsidiary
Rights.  Except as set forth in Schedule
3.1(dd), the Company or one of its Subsidiaries has the unrestricted right
to vote, and (subject to limitations imposed by applicable law) to receive
dividends and distributions on, all capital securities of its Subsidiaries as
owned by the Company or such Subsidiary.

(ee)  Tax
Status.  The Company and each of its
Subsidiaries (i) has made or filed all foreign, federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. 
There are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the Company know of
no basis for any such claim.

 16
 

(ff)                   Right of First Offer.  The Company has not granted to any Person any
rights of first offer or rights of first refusal with respect to the provision
or obtaining of any debt or equity financing, including, but not limited to,
any rights to provide additional financing currently available under the credit
facilities described on Schedule 3.1(z) hereto, except for such rights
of first offer or rights of first refusal that by their terms have expired or
terminated and are no longer effective as of the Closing Date.

3.2   Representations
and Warranties of the Investors. 
Each Investor hereby, as to itself only and for no other Investor,
represents and warrants to the Company as follows, as of the date hereof and as
of the Closing:

(a)   Organization; Authority.  Such Investor is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate, partnership or other power and
authority to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder.  The purchase by such
Investor of the Securities hereunder has been duly authorized by all necessary
corporate, partnership or other action on the part of such Investor.  This Agreement has been duly executed and
delivered by such Investor and constitutes the valid and binding obligation of
such Investor, enforceable against it in accordance with its terms, except as
may be limited by (i) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement of
creditors rights generally, and (ii) the effect of rules of law governing
the availability of specific performance and other equitable remedies.

(b)   No Public Sale or Distribution.  Such Investor is acquiring the Common Shares
in the ordinary course of business for its own account and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered under the Securities Act or under
an exemption from such registration and in compliance with applicable federal
and state securities laws, and such Investor does not have a present arrangement
to effect any distribution of the Securities to or through any person or
entity; provided, however, that by making the representations
herein, such Investor does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.

(c)   Investor Status.  At the time such Investor was offered the
Securities, it was, and at the date hereof it is, an “accredited investor” as
defined in Rule 501(a) under the Securities Act or a “qualified institutional
buyer” as defined in Rule 144A(a) under the Securities Act.  Such Investor is not a registered broker
dealer registered under Section 15(a) of the Exchange Act, or a member of the
NASD, Inc. or an entity engaged in the business of being a broker dealer.  Except as otherwise disclosed in writing to
the Company on Exhibit B-2 (attached hereto) on or prior to the date of this
Agreement, such Investor is not affiliated with any broker dealer registered
under Section 15(a) of the Exchange Act, or a member of the NASD, Inc. or an
entity engaged in the business of being a broker dealer.

 17
 

(d)   Experience of Such Investor.  Such Investor, either alone or together with
its representatives has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. 
Such Investor understands that it must bear the economic risk of this
investment in the Securities indefinitely, and is able to bear such risk and is
able to afford a complete loss of such investment.

(e)   Access to Information.  Such Investor acknowledges that it has
reviewed the Disclosure Materials and has been afforded:  (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information (other than material non-public
information) about the Company and the Major Subsidiaries and their respective
financial condition, results of operations, business, properties, management
and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information that the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment.  Neither such inquiries nor
any other investigation conducted by or on behalf of such Investor or its representatives
or counsel shall modify, amend or affect such Investor’s right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the Company’s
representations and warranties contained in the Transaction Documents.  Such Investor acknowledges receipt of copies
of the SEC Reports.

(f)    No Governmental Review.  Such Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or
the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

(g)   No
Conflicts.  The execution, delivery
and performance by such Investor of this Agreement and the consummation by such
Investor of the transactions contemplated hereby will not (i) result in a
violation of the organizational documents of such Investor or
(ii) conflict with, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which such Investor is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws) applicable to such
Investor, except in the case of clauses (ii) and (iii) above, for such that are
not material and do not otherwise affect the ability of such Investor to
consummate the transactions contemplated hereby.

(h)   Restricted Securities.  The Investors understand that the Securities
are characterized as “restricted securities” under the U.S. federal securities
laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act
only in certain limited circumstances.

 18
 

(i)    Legends.                It is understood that, except as provided in Section
4.1(b) of this Agreement, certificates evidencing such Securities may bear
the legend set forth in Section 4.1(b).

(j)    No Legal, Tax or Investment Advice.  Such Investor understands that nothing in
this Agreement or any other materials presented by or on behalf of the Company
to the Investor in connection with the purchase of the Securities constitutes
legal, tax or investment advice.  Such
Investor has consulted such legal, tax and investment advisors as it, in its
sole discretion, has deemed necessary or appropriate in con­nection with its
purchase of the Securities.

ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

4.1   Transfer
Restrictions.

(a)   The Investors covenant that the Securities
will only be disposed of pursuant to an effective registration statement under,
and in compliance with the requirements of, the Securities Act or pursuant to
an available exemption from the registration requirements of the Securities
Act, and in compliance with any applicable state securities laws.  In connection with any transfer of Securities
other than pursuant to an effective registration statement or to the Company,
or pursuant to Rule 144(k), the Company may require the transferor to provide
to the Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.  Notwithstanding the foregoing, the Company
hereby consents to and agrees to register on the books of the Company and with
its Transfer Agent, without any such legal opinion, except to the extent that
the transfer agent requests such legal opinion, any transfer of Securities by
an Investor to an Affiliate of such Investor, provided that the transferee
certifies to the Company that it is an “accredited investor” as defined in Rule
501(a) under the Securities Act and provided that such Affiliate does not
request any removal of any existing legends on any certificate evidencing the
Securities.

(b)   The Investors agree to the imprinting, so
long as is required by this Section 4.1(b), of the following legend
on any certificate evidencing any of the Securities:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), OR ANY
APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.

 19
 

Certificates
evidencing Securities shall not be required to contain such legend or any other
legend (i) while a registration statement (including the Registration
Statement) covering the resale of the Securities is effective under the
Securities Act, (ii) following any sale of such Securities pursuant to Rule 144
if the holder provides the Company with a legal
opinion (and the documents upon which the legal opinion is based) reasonably
acceptable to the Company to the effect that the Securities can be sold under
Rule 144, (iii) if the holder provides the Company with a legal opinion (and
the documents upon which the legal opinion is based)  reasonably acceptable to the Company to the
effect that the Securities are eligible for sale under Rule 144(k), or (iv) if
the holder provides the Company with a legal opinion (and the documents upon
which the legal opinion is based) reasonably acceptable to the Company to the
effect that the legend is not required under applicable requirements of the
Securities Act (including controlling judicial interpretations and
pronouncements issued by the Staff of the SEC). 
The Company shall cause its counsel to issue the legal opinion included
in the Transfer Agent Instructions to the Transfer Agent on the Effective
Date.  Following the Effective Date or at
such earlier time as a legend is no longer required for certain Securities, the
Company will no later than three Trading Days following the delivery by an
Investor to the Company or the Transfer Agent of (i) a legended certificate
representing such Securities, and (ii) an opinion of counsel to the extent
required by Section 4.1(a), deliver or cause to be delivered to such
Investor a certificate representing such Securities that is free from all
restrictive and other legends.  The
Company may not make any notation on its records or give instructions to the
Transfer Agent that enlarge the restrictions on transfer set forth in this Section
4.1(b).

If within three Trading Days after the
Company’s receipt of a legended certificate and the other documents as
specified in Clauses (i) and (ii) of the paragraph immediately above, the
Company shall fail to issue and deliver to such Investor a certificate
representing such Securities that is free from all restrictive and other legends,
and if on or after such Trading Day the Investor purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of
a sale by the Investor of shares of Common Stock that the Investor anticipated
receiving from the Company without any restrictive legend (the “Covering Shares”), then the Company shall,
within three Trading Days after the Investor’s request, pay cash to the
Investor in an amount equal to the excess (if any) of the Investor’s total
purchase price (including brokerage commissions, if any) for the Covering
Shares, over the product of (A) the number of Covering Shares, times (B) the
closing bid price on the date of delivery of such certificate and the other
documents as specified in Clauses (i) and (ii) of the paragraph immediately
above.

(c)   The Company will not object to
and shall permit (except as prohibited by law) an Investor to pledge or grant a
security interest in some or all of the Securities in connection with a bona
fide margin agreement or other loan or financing arrangement secured by the
Securities, and if required under the terms of such agreement, loan or
arrangement, the Company will not object to and shall permit (except as
prohibited by law) such Investor to transfer pledged or secured Securities to
the pledgees or secured parties.  Except
as required by law, such a pledge or transfer shall not be subject to approval
of the Company, no legal opinion of the pledgee, secured party or pledgor shall
be required in connection therewith, and no notice shall be required of such
pledge.  Each Investor acknowledges that
the Company shall not be responsible for any pledges relating to, or the grant
of any security interest in, any of the Securities or for any agreement,
understanding or arrangement between any Investor and its pledgee or secured
party.  At the appropriate Investor’s
expense, the 

 20
 

Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in connection
with a pledge or transfer of the Securities, including the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) of the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder. Provided that
the Company is in compliance with the terms of this Section 4.1(c), the
Company’s indemnification obligations pursuant to Section 6.4 shall not
extend to any Proceeding or Losses arising out of or related to this Section
4.1(c).

4.2   Furnishing
of Information.  Until the date that
any Investor owning Common Shares may sell all of them under Rule 144(k) of the
Securities Act (or any successor provision), the Company covenants to use its
Best Efforts to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act.  The Company further covenants that it will
take such further action as any holder of Securities may reasonably request to
satisfy the provisions of this Section 4.2.

4.3   Integration.  The Company shall not, and shall use its Best
Efforts to ensure that no Affiliate thereof shall sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Investors or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market.

4.4   Reservation
of Securities.  The Company shall
maintain a reserve from its duly authorized shares of Common Stock for issuance
pursuant to the Transaction Documents in such amount as may be required to
fulfill its obligations to issue such Shares under the Transaction
Documents.  In the event that at any time
the then authorized shares of Common Stock are insufficient for the Company to
satisfy its obligations to issue such Shares under the Transaction Documents,
the Company shall promptly take such actions as may be required to increase the
number of authorized shares.

4.5   Securities
Laws Disclosure; Publicity.  The
Company shall, at or before 5:30 p.m., New York time, on the Signing Date, or
at or before 5:30 p.m., New York time, on the next Business Day following the
Signing Date, issue a press release reasonably acceptable to the Investors
disclosing all material terms of the transactions contemplated hereby.  The Company shall, at or before 5:30 p.m.,
New York time, on the Signing Date, or at or before 5:30 p.m., New York time,
on the next Business Day following the Signing Date, file a Current Report on
Form 8-K with the SEC (the “8-K Filing”)
describing the terms of the transactions contemplated by the Transaction
Documents, in the form required by the Exchange Act.  Thereafter, the Company shall timely file any
filings and notices required by the SEC or applicable law with respect to the
transactions contemplated hereby and provide copies thereof to the Investors
promptly after filing.  Except as herein
provided, the Company shall not publicly disclose the name of any Investor, or
include the name of any Investor in any press release without the prior written
consent of such Investor, unless otherwise required by law.  The Company shall not, and shall cause each
of its Subsidiaries and its and each of their respective officers, directors,
employees and agents not to, provide any Investor with any material

 21

nonpublic information regarding the Company or any of its Subsidiaries
from and after the issuance of the above referenced press release without the
express written consent of such Investor.

4.6   Use
of Proceeds.  The Company shall pay
up to a maximum of $1.4 million of the net proceeds in the repayment the total
Indebtedness that is set forth on Schedule 3.1(z) hereto. The Company
intends to use the remainder of the net proceeds from the sale of the
Securities for product development, working capital and general corporate
purposes.  Pending these uses, the
Company intends to invest the net proceeds from this offering in short-term,
interest-bearing, investment-grade securities, or as otherwise pursuant to the
Company’s customary investment policies.

4.7   Right of First Offer.  So long as the Investors hold Shares
representing (i) at least 50% of the Registrable Securities and (ii) at least
5% of all shares of the outstanding capital stock of the Company, the Company
hereby grants to Phoenix a right of first opportunity to exclusively provide
debt or equity financing, which may include the issuance of convertible
securities of the Company or its subsidiaries, to the Company or any
subsidiary, subject to the terms and conditions set forth herein.  If the Company or any subsidiary of the
Company plans to obtain any such financing, then prior to seeking, negotiating
or obtaining any such financing or entering into any term sheet, letter of
intent, commitment or similar arrangement to obtain such financing (each a “Funding
Opportunity”) from a third party (other than an Investor), the Company and
Phoenix shall discuss the material economic parameters of the proposed Funding
Opportunity. Phoenix shall then have thirty (30) Business Days after the date
of receipt from the Company of a detailed proposed term sheet or proposed
definitive agreement to notify the Company in writing (the “Financing Notice”)
whether or not it intends to exercise its right of first opportunity to provide
the financing to the Company.  If the Company
and Phoenix cannot come to a mutual agreement as to the terms and conditions of
such financing within that period of thirty (30) Business Days, for any reason
whatsoever, then the Company may pursue obtaining such financing from a third
party as described below, provided, however, that in no event shall
the Company consummate such financing with a Person other than Phoenix (or one
of its Affiliates) on terms more favorable to such third party than those
offered to Phoenix.  In the event that
Phoenix does not exercise its right hereunder, then the Company may pursue
obtaining the proposed financing from other Persons for a period of sixty (60)
days, and, in the event that the Company obtains a signed letter of intent from
other Persons within that 60-day period, it may continue to pursue such
proposed financing for an additional one hundred twenty (120) days.  Notwithstanding the foregoing, no right of
first opportunity will exist for (i) any issuance of securities upon
conversion, exercise or exchange of existing securities pursuant to terms in
effect and publicly disclosed in the Company’s SEC filings as of July 13, 2007;
(ii) any issuance by a subsidiary to another subsidiary or to the Company; or
(iii) any issuance or exercise of options under the Company’s employee or
consultant incentive option plans.

4.8     Restrictions
of Sales of Executive Management Shares. 
So long as any of the Common Shares are not freely saleable in an
Eligible Market, no capital stock of the Company may be sold by any person that
holds any Executive Management Position under the Registration Statement, Rule
144 (as defined in Section 1.1 hereof) or any other method.

4.9     Board
Observer and Director Rights.  So long as the Investors
hold Common Shares representing (i) at least 50% of the Registrable Securities
and (ii) at least 5% of all shares of the 

 22
 

outstanding
capital stock of the Company, Phoenix shall be entitled to
designate up to two individuals as non-voting observers who shall be entitled
to attend all meetings of the Board of Directors of the Company (the “Board”)
and any committee meeting of the Board, and shall be entitled to receive any
and all documentation, material and information provided by the Company to the
Board at the same time that it is provided by the Company to the Board.  The Company shall bear all reasonable
expenses pursuant to this Section 4.9. 
Notwithstanding anything to the contrary in the Transaction Documents,
any observer designated by Phoenix may be excluded from any meeting of the
Board and any committee of the Board if necessary, based on a written opinion
of counsel to the Company, to protect the attorney-client privilege.

4.10  Certain
other Actions Requiring Consent. 
Until the earlier occurrence of either (i) the Investors no longer
hold Common Shares representing both (a) at least 50% of the Registrable
Securities and (b) at least 5% of all shares of the outstanding capital stock
of the Company, or (ii) 24 months after the Effective Date, the Company shall
not sell, transfer or otherwise dispose of any of its material properties,
assets and rights including, without limitation, its software and intellectual
property, to any person, except for sales to customers in the ordinary course
of business, without the consent of Phoenix. 
Notwithstanding anything to the contrary herein, shares held by an
assignee of an Investor shall not be counted in the calculation set forth in
this Section 4.10 and Phoenix may not assign its rights under this Section
4.10 except to a controlled or controlling Affiliate of Phoenix.

4.11  Information Rights.  So long as the Investors hold Common Shares
representing (i) at least 50% of the Registrable Securities and (ii) at least
5% of all shares of the outstanding capital stock of the Company, the Company
shall provide Phoenix with (a) true and complete copies of the monthly,
quarterly and yearly financial statements of the Company as soon as reasonably
practicable after they become available, but in no event more than thirty (30)
days following the end of each calendar month, forty-five (45) days following
the end of each calendar quarter, or ninety (90) days following the end of each
calendar year, respectively; and (b) true and complete copies of such other
reports and updates regarding sales, revenues, backlog, pipeline and other
operating data as the Company’s management regularly provides to its
Board.  Phoenix may share the information
disclosed under this Section 4.11 with other Investors provided that
such Investor has previously entered into this Agreement or a confidentiality
agreement, which acknowledges such Investor’s obligation to refrain from
trading on the basis of material non-public information.

4.12  Advisory Fee.  Upon Closing, the Company shall pay to
Phoenix the Advisory Fee as directed by Phoenix.

ARTICLE
V

CONDITIONS

5.1   Conditions
Precedent to the Obligations of the Investors.  The obligation of each Investor to acquire
Securities at the Closing is subject to the satisfaction or waiver by such
Investor, at or before the Closing, of each of the following conditions:

(a)   Representations and
Warranties.  The representations and
warranties of the Company contained herein shall be true and correct in all
material respects (except as to those 

 23
 

representations and warranties qualified by materiality) as of the date
when made and as of the Closing as though made on and as of such date; and

(b)   Performance.  The Company and each Investor shall have
performed, satisfied and complied in all material respects (except as to those
covenants, agreements and conditions qualified by materiality) with all
covenants, agreements and conditions required by the Transaction Documents to
be performed, satisfied or complied with by it at or prior to the Closing.

5.2   Conditions
Precedent to the Obligations of the Company.  The obligation of the Company to sell the
Securities at the Closing is subject to the satisfaction or waiver by the
Company, at or before the Closing, of each of the following conditions:

(a)   Representations and
Warranties.  The representations and
warranties of each Investor contained herein shall be true and correct in all
material respects (excepts as to those representations and warranties qualified
by materiality) as of the date when made and as of the Closing Date as though
made on and as of such date; and

(b)   Performance.  Each Investor shall have performed, satisfied
and complied in all material respects (except as to those covenants, agreements
and conditions qualified by materiality) with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by such Investor at or prior to the Closing.

ARTICLE
VI

REGISTRATION RIGHTS

6.1   Registration
Statement.

(a)   The Company shall use its Best Efforts to
prepare and file with the SEC a Registration Statement covering the resale of
all Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415 within 45 days of the Closing Date, and in any event on or
prior to the Filing Date.  The
Registration Statement shall be on Form S-3 (except if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3, in
which case such registration shall be on Form S-1 or another appropriate form
in accordance with the Securities Act and the Exchange Act) and shall contain
(except if otherwise directed by vote of Required Holders or requested by the
SEC) the “Plan of Distribution” in substantially the form attached hereto as Exhibit D.

(b)   Legal Counsel.  The Required Holders shall have the right to
select one legal counsel to review and oversee any registration pursuant to
this Section 6.1 (“Legal
Counsel”), which shall be Thelen Reid Brown Raysman & Steiner
LLP or such other counsel as thereafter designated by the Required
Holders.  The Company shall reasonably
cooperate with Legal Counsel in performing the Company’s obligations under this
Agreement.

 24
 

(c)   The
Company shall use its Best Efforts to cause the Registration Statement to be
declared effective by the SEC as promptly as possible after the filing thereof,
but in any event prior to the Required Effectiveness Date, and shall use its
Best Efforts to keep the Registration Statement continuously effective under
the Securities Act until the earlier of the date that all Common Shares covered
by such Registration Statement have been sold or can be sold publicly under
Rule 144(k) (the “Effectiveness Period”).

(d)   The Company
shall notify the Investors in writing promptly (and in any event within two
Trading Days) after receiving notification from the SEC that the Registration
Statement has been declared effective.

(e)   Should an
Event (as defined below) occur, then upon the occurrence of such Event, and
each thirty (30) days thereafter until the applicable Event is cured, the
Company shall pay to each Investor an amount in cash, as liquidated damages and
not as a penalty, equal to one and a half percent (1.5%) of the greater of (i)
the weighted average market price of the Common Shares (assuming no
restrictions on sale) during such 30-day period, or (ii) the market price of
the Common Shares five (5) days after the Closing (assuming no restrictions on
sale) (“Closing Market Price”)
until the Registration Statement is declared effective or, as to any Common
Shares, until all of such Common Shares can be sold in a single transaction
pursuant to SEC Rule 144; provided, however, that the liquidated damages amount
under this provision shall be paid in cash, and that the total amount of
payments pursuant to this Section 6.1(e) shall not exceed, when
aggregated with all such payments paid to all Investors, ten percent (10%) of
the Closing Market Price.  The payments
to which an Investor shall be entitled pursuant to this Section 6.1(e)
are referred to herein as “Event Payments.”  Any Event Payments payable pursuant to the
terms hereof shall apply on a pro rated basis for any portion of a month prior
to the cure of an Event.  In the event
the Company fails to make Event Payments in a timely manner, such Event
Payments shall bear interest at the rate of one percent (1.0%) per month
(prorated for partial months) until paid in full.  All pro rated calculations made pursuant to
this paragraph shall be based upon the actual number of days in such pro rated
month.

For
such purposes, each of the following shall constitute an “Event”:

(i)    the
Registration Statement is not declared effective on or prior to the Required
Effectiveness Date;

(ii)   except as provided for in Section 6.1(f) (the
“Excluded Events”), after the Effective
Date, an Investor is not permitted to sell Registrable Securities under the
Registration Statement (or a subsequent Registration Statement filed in
replacement thereof) for any reason (other than the fault of such Investor) for
five or more Trading Days (whether or not consecutive);

(iii)  except as a result of the Excluded Events, the Common Stock is not
listed or quoted, or is suspended from trading, on an Eligible Market for a
period of three consecutive Trading Days during the Effectiveness Period;

 25
 

(iv)  with respect to an Investor, the Company fails for
any reason to deliver a certificate evidencing any Securities to such Investor
within five Trading Days after delivery of such certificate as required
pursuant to any Transaction Document; or

(v)   during
the Effectiveness Period, except as a result of the Excluded Events, the
Company fails to have any Shares listed on an Eligible Market.

(f)    Notwithstanding
anything in this Agreement to the contrary, after 60 consecutive Trading Days
of continuous effectiveness of the initial Registration Statement filed and declared
effective pursuant to this Agreement, the Company may, by written notice to the
Investors, suspend sales under a Registration Statement after the Effective
Date thereof and/or require that the Investors immediately cease the sale of
shares of Common Stock pursuant thereto and/or defer the filing of any
subsequent Registration Statement if the Company is engaged in a material
merger, acquisition or sale and the Board of Directors determines in good
faith, by appropriate resolutions, that, as a result of such activity,
(A) it would be materially detrimental to the Company (other than as
relating solely to the price of the Common Stock) to maintain  a Registration Statement at such time or (B) it is in
the best interests of the Company to suspend sales under such registration at
such time.  Upon receipt of such notice,
each Investor shall immediately discontinue any sales of Registrable Securities
pursuant to such registration until such Investor is advised in writing by the
Company that the current Prospectus or amended Prospectus, as applicable, may
be used.  In no event, however, shall
this right be exercised to suspend sales beyond the period during which (in the
good faith determination of the Company’s Board of Directors) the failure to
require such suspension would be materially detrimental to the Company.  The Company’s rights under this Section
6(f) may be exercised for a period of no more than 20 Trading Days at a
time and not more than two times in any twelve-month period, without such
suspension being considered as part of an Event Payment determination.  Immediately after the end of any suspension
period under this Section 6(f), the Company shall take all necessary
actions (including filing any required supplemental prospectus) to restore the
effectiveness of the applicable Registration Statement and the ability of the
Investors to publicly resell their Registrable Securities pursuant to such
effective Registration Statement.

(g)   Except as set forth on Schedule 6.1(g),
the Company shall not, from the date hereof until the Effective Date of the
Registration Statement, prepare and file with the SEC a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than any registration
statement or post-effective amendment to a registration statement (or
supplement thereto) relating to the Company’s employee benefit plans registered
on Form S-8.

6.2   Registration
Procedures.  In connection with the
Company’s registration obligations hereunder, the Company shall:

(a)   (A) permit
Legal Counsel to review and comment upon (i) a Registration Statement at
least five (5) Business Days prior to its filing with the SEC and (ii) all
amendments and supplements to all Registration Statements (except for Annual
Reports on Form 10-K, and Reports on Form 10-Q and any similar or successor
reports) within a reasonable number of days 

 26
 

prior to their
filing with the SEC, and (B) not file any Registration Statement or amendment
or supplement thereto in a form to which Legal Counsel reasonably and timely
objects.  The Company shall not submit a
request for acceleration of the effectiveness of a Registration Statement or
any amendment or supplement thereto without the prior approval of Legal
Counsel, which consent shall not be unreasonably withheld or delayed.  The Company shall furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by an Investor, and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus
included in such Registration Statement and all amendments and supplements
thereto.  The Company shall reasonably
cooperate with Legal Counsel in performing the Company’s obligations pursuant
to this Section 6.2(a).  The
Company shall reflect in each such document when so filed with the SEC such
comments regarding the Investors and the plan of distribution as the Investors
may reasonably and promptly propose no later than three (3) Trading Days after
the Investors have been so furnished with copies of such documents as
aforesaid.

(b)    (i) Subject
to Section 6.1(f), prepare and file with the SEC such amendments,
including post-effective amendments, to each Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective, as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the SEC such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424;
(iii) respond as promptly as reasonably possible, and in any event within
12 Trading Days (except to the extent that the Company reasonably requires
additional time to respond to accounting comments), to any comments received
from the SEC with respect to the Registration Statement or any amendment
thereto; and (iv) comply in all material respects with the provisions of
the Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Investors thereof set forth in the Registration Statement as so amended or in
such Prospectus as so supplemented.

(c)   Notify the
Investors as promptly as reasonably possible, and (if requested by the
Investors confirm such notice in writing no later than two Trading Days
thereafter, of any of the following events: 
(i) the SEC notifies the Company whether there will be a “review”
of any Registration Statement; (ii) the SEC comments in writing on any
Registration Statement; (iii) any Registration Statement or any
post-effective amendment is declared effective; (iv) the SEC or any other
Federal or state governmental authority requests any amendment or supplement to
any Registration Statement or Prospectus or requests additional information
related thereto; (v) the SEC issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings for
that purpose; (vi) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for
such 

 27
 

purpose; or
(vii) the financial statements included in any Registration Statement
become ineligible for inclusion therein or any Registration Statement or
Prospectus or other document contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.

(d)   Use its Best
Efforts to avoid the issuance of or, if issued, obtain the withdrawal of
(i) any order suspending the effectiveness of any Registration Statement,
or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, as soon as possible.

(e)   If requested
by an Investor, provide such Investor without charge, at least one conformed
copy of each Registration Statement and each amendment thereto, including
financial statements and schedules, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the SEC.

(f)    Promptly
deliver to each Investor, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request.  The Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling
Investors in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto
to the extent permitted by federal and state securities laws and regulations.

(g)   (i) In
the time and manner required by each Trading Market, prepare and file with such
Trading Market an additional shares listing application covering all of the
Registrable Securities; (ii) take all steps necessary to cause such Common
Shares to be approved for listing on each Trading Market as soon as possible
thereafter; (iii) provide to each Investor evidence of such listing; and
(iv) except as a result of the Excluded Events, during the Effectiveness
Period, maintain the listing of such Common Shares on each such Trading Market
or another Eligible Market.

(h)   Prior to any
public offering of Registrable Securities, use its Best Efforts to register or
qualify or cooperate with the selling Investors in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Investor requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective for so long as required, but
not to exceed the duration of the Effectiveness Period, and to do any and all
other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall
not be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to taxation
in respect of doing business in any jurisdiction in which it is not otherwise
so subject.

 28
 

(i)    Cooperate
with the Investors to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a
transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by this Agreement and under law, of all
restrictive legends, and to enable such certificates to be in such
denominations and registered in such names as any such Investors may reasonably
request.

(j)    Upon the
occurrence of any event described in Section 6.2(c)(vii), as promptly as
reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus will
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

(k)   Cooperate with
any reasonable due diligence investigation undertaken by the Investors in
connection with the sale of Registrable Securities, including, without
limitation, by making available documents and information; provided that the
Company will not deliver or make available to any Investor material, nonpublic
information unless such Investor requests in advance in writing to receive
material, nonpublic information and agrees to keep such information
confidential.

(l)    Comply with all rules and regulations of the
SEC applicable to the registration of the Securities.

(m)   It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of any particular Investor
or to make any Event Payments set forth in Section 6.1(e) to such
Investor that such Investor furnish to the Company the information specified in
Exhibits B-1, B-2 and B-3 hereto and such other information regarding itself,
the Registrable Securities and other shares of Common Stock held by it and the
intended method of disposition of the Registrable Securities held by it (if
different from the Plan of Distribution set forth on Exhibit D hereto)
as shall be reasonably required to effect the registration of such Registrable
Securities and shall complete and execute such documents in connection with
such registration as the Company may reasonably request.

(n)   The Company shall comply with all applicable
rules and regulations of the SEC under the Securities Act and the Exchange Act,
including, without limitation, Rule 172 under the Securities Act, file any
final Prospectus, including any supplement or amendment thereof, with the SEC
pursuant to Rule 424 under the Securities Act, promptly inform the Investors in
writing if, at any time during the Effectiveness Period, the Company does not
satisfy the conditions specified in Rule 172 and, as a result thereof, the
Investors are required to make available a Prospectus in connection with any
disposition of Registrable Securities and take such other actions as may be
reasonably necessary to facilitate the registration of the Registrable
Securities hereunder.

 29
 

(o)   The Company agrees that, if Phoenix Venture
Fund LLC (“Phoenix Venture”)
or any other affiliate of Phoenix (each, a “Phoenix
Entity”) could reasonably be deemed to be an “underwriter,” as
defined in Section 2(a)(11) of the Securities Act, in connection with any
registration of the Company’s securities of any Phoenix Entity pursuant to this
Agreement, and any amendment or supplement thereof (any such registration
statement or amendment or supplement a “Phoenix Underwriter
Registration Statement”), then the Company will cooperate with such
Phoenix Entity in allowing such Phoenix Entity to conduct customary “underwriter’s
due diligence” with respect to the Company and satisfy its obligations in
respect thereof.  In addition, at Phoenix
Venture’s request, the Company will use its best efforts to cause its auditor
or counsel to furnish to Phoenix Venture, on the first date of the
effectiveness of the Phoenix Underwriter Registration Statement (i) a letter,
dated such date, from the Company’s independent certified public accountants in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to
Phoenix Venture, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Phoenix Underwriter Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, including, without limitation, a standard “10b-5”
statement for such offering, addressed to Phoenix Venture; such comfort letter,
legal opinion and/or 10b-5 statement shall be furnished to Phoenix Venture (i)
at no additional cost to Phoenix Venture if they are already provided to
another party in connection with a Phoenix Underwriter Registration Statement
or (ii) at Phoenix Venture’s expense if such comfort letter, legal opinion
and/or 10b-5 statement are not otherwise being provided in connection with a
Phoenix Underwriter Registration Statement. 
The Company will also permit legal counsel to Phoenix Venture to review
and comment upon any such Phoenix Underwriter Registration Statement at least
five (5) business days prior to its filing with the SEC and all amendments and
supplements to any such Phoenix Underwriter Registration Statement within a
reasonable number of days prior to their filing with the SEC and not file any
Phoenix Underwriter Registration Statement or amendment or supplement thereto
in a form to which Phoenix Venture’s legal counsel reasonably and timely
objects

6.3   Registration
Expenses.  The Company shall pay all
fees and expenses incident to the performance of or compliance with Article VI
of this Agreement by the Company, including without limitation (a) all
registration and filing fees and expenses, including without limitation those
related to filings with the SEC, any Trading Market and in connection with
applicable state securities or Blue Sky laws, (b) printing expenses
(including without limitation expenses of printing certificates for Registrable
Securities), (c) messenger, telephone and delivery expenses, (d) fees
and disbursements of counsel for the Company, (e) fees and expenses of all
other Persons retained by the Company in connection with the consummation of
the transactions contemplated by this Agreement, and (f) all listing fees
to be paid by the Company to the Trading Market.

6.4   Indemnification

(a)   Indemnification
by the Company.  The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Investor and Phoenix, as well as the officers, directors, partners,
members, agents and employees of each of them, each Person who controls any
such Investor or Phoenix (within the meaning of Section 15 of the
Securities 

 30
 

Act or
Section 20 of the Exchange Act) and the officers, directors, partners,
members, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all Losses, as
incurred, arising out of or relating to (i) any misrepresentation or breach of
any representation or warranty made by the Company in the Transaction Documents
or any other certificate, instrument or document contemplated hereby or
thereby, (ii) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (iii) any cause of action,
suit or claim brought or made against such Indemnified Party (as defined in Section
6.4(c) below) by a third party (including for these purposes a derivative
action brought on behalf of the Company), arising out of or resulting from (x)
the execution, delivery, performance or enforcement of the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (y) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Securities, or
(z) the status of Indemnified Party as holder of the Securities or (iv) any
untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any Prospectus or any form of Company prospectus or in
any amendment or supplement thereto or in any Company preliminary prospectus,
or arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto, in
the light of the circumstances under which they were made) not misleading,
except to the extent, but only to the extent, that (A) such untrue
statements, alleged untrue statements, omissions or alleged omissions are based
solely upon information regarding such Investor furnished in writing to the
Company by such Investor for use therein, or to the extent that such
information relates to such Investor or such Investor’s proposed method of distribution
of Registrable Securities and was reviewed and expressly approved by such
Investor expressly for use in the Registration Statement, or (B) with respect
to any prospectus, if the untrue statement or omission of material fact
contained in such prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented, if such corrected prospectus was timely made
available by the Company to the Investor, and the Investor seeking indemnity
hereunder was advised in writing not to use the incorrect prospectus prior to
the use giving rise to Losses.

(b)   Indemnification
by Investors.  Each Investor shall
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons,
to the fullest extent permitted by applicable law, from and against all Losses
(as determined by a court of competent jurisdiction in a final judgment not
subject to appeal or review) arising solely out of any untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or in any amendment or supplement thereto, or arising out
of or relating to any omission of a material fact required to be stated therein
or necessary to make the statements therein (in the case of any Prospectus or
form of prospectus or supplement thereto, in the light of the circumstances
under which they were made) not misleading, but only to the extent that such
untrue statement or omission is contained in any information so furnished by
such Investor in writing to the Company specifically for inclusion in such
Registration Statement or such Prospectus or to the extent that such untrue
statements or omissions are based solely 

 31
 

upon
information regarding such Investor furnished to the Company by such Investor
in writing expressly for use therein, or to the extent that such information
relates to such Investor or such Investor’s proposed method of distribution of
Registrable Securities and was reviewed and expressly approved by such Investor
expressly for use in the Registration Statement (it being understood that the
information provided by the Investor to the Company in Exhibits  B-1,
B-2 and B-3 and the Plan of Distribution set forth on Exhibit
D, as the same may be modified by such Investor and other information
provided by the Investor to the Company in or pursuant to the Transaction
Documents constitutes information reviewed and expressly approved by such
Investor in writing expressly for use in the Registration Statement), such
Prospectus or such form of prospectus or in any amendment or supplement
thereto.  In no event shall the liability
of any selling Investor hereunder be greater in amount than the dollar amount
of the net proceeds received by such Investor upon the sale of the Registrable
Securities giving rise to such indemnification obligation.

(c)   Conduct of Indemnification Proceedings.  If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly
notify the Person from whom indemnity is sought (the “Indemnifying
Party”) in writing, and the Indemnifying Party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.

An Indemnified
Party shall have the right to employ separate counsel in any such Proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party or Parties
unless:  (i) the Indemnifying Party
has agreed in writing to pay such fees and expenses; or (ii) the
Indemnifying Party shall have failed promptly to assume the defense of such
Proceeding and to employ counsel reasonably satisfactory to such Indemnified
Party in any such Proceeding; or (iii) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume the
defense thereof and the reasonable fees and expenses of separate counsel shall
be at the expense of the Indemnifying Party). 
It shall be understood, however, that the Indemnifying Party shall not,
in connection with any one such Proceeding (including separate Proceedings that
have been or will be consolidated before a single judge) be liable for the fees
and expenses of more than one separate firm of attorneys at any time for all
Indemnified Parties, which firm shall be appointed by a majority of the Indemnified
Parties.  The Indemnifying Party shall
not be liable for any settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the
prior written 

 32
 

consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect
of which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.

All reasonable
fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing
to defend such Proceeding in a manner not inconsistent with this Section
6.4(c)) shall be paid to the Indemnified Party, as incurred, within 20
Trading Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled
to indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

(d)   Contribution.  If a claim for indemnification under Section
6.4(a) or (b) is unavailable to an Indemnified Party (by reason of
public policy or otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission.  The
amount paid or payable by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in Section 6.4(c), any
reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for
in this Section 6.4(d) was available to such party in accordance with
its terms.

The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.4(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding
paragraph.  Notwithstanding the
provisions of this Section 6.4(d), no Investor shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Investor from the sale of the Registrable
Securities subject to the Proceeding exceed the amount of any damages that such
Investor has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.

The indemnity and contribution agreements contained in this Section
6.4(d) are in addition to any liability that the Indemnifying Parties
may have to the Indemnified Parties.

 33
 

6.5   Dispositions.  Each Investor agrees that it will comply with
the prospectus delivery requirements of the Securities Act as applicable to it
in connection with sales of Registrable Securities pursuant to the Registration
Statement and shall sell its Registrable Securities in accordance with the Plan
of Distribution set forth in the Prospectus. 
Each Investor further agrees that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described in Sections
6.2(c)(v), (vi) or (vii), such Investor will discontinue
disposition of such Registrable Securities under the Registration Statement
until such Investor is advised in writing by the Company that the use of the
Prospectus, or amended Prospectus, as applicable, may be resumed.  The Company may provide appropriate stop
orders to enforce the provisions of this paragraph.

6.6   No
Piggyback on Registrations.  Except
as described in Schedule 6.6, neither the Company nor any of its
security holders (other than the Investors in such capacity pursuant hereto and
the Excluded Investors) may include securities of the Company in the
Registration Statement other than the Registrable Securities.

6.7   Piggy-Back Registrations.  If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the SEC a registration statement relating to an offering for its own account or
the account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued
solely in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, then the Company shall send to each Investor not then eligible to sell
all of their Registrable Securities under Rule 144 in a three-month period,
written notice of such determination and if, within ten days after receipt of such
notice, any such Investor shall so request in writing, the Company shall
include in such registration statement all or any part of such Registrable
Securities such Investor requests to be registered.  Notwithstanding the foregoing, in the event
that, in connection with any underwritten public offering, the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)’ judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit; provided, however, that (i) the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not contractually entitled to inclusion of
such securities in such Registration Statement or are not contractually
entitled to pro rata inclusion with the Registrable Securities and (ii) after
giving effect to the immediately preceding proviso, any such exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities and the holders of other securities having the
contractual right to inclusion of their securities in such Registration
Statement by reason of demand registration rights, in proportion to the number
of Registrable Securities or other securities, as applicable, sought to be
included by each such Investor or other holder. 
If an offering in connection with which an Investor is entitled to
registration under this Section 6.7 is an underwritten offering, then
each Investor whose Registrable Securities are included in such Registration
Statement shall, unless 

 34
 

otherwise agreed by the Company, offer and sell such Registrable
Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same
terms and conditions as other shares of Common Stock included in such
underwritten offering and shall enter into an underwriting agreement in a form
and substance reasonably satisfactory to the Company and the underwriter or
underwriters. Upon the effectiveness the registration statement for which
piggy-back registration has been provided in this Section 6.7, any Event
Payments payable to an Investor whose Securities are included in such
registration statement shall terminate and no longer be payable.

ARTICLE
VII

MISCELLANEOUS

7.1   Termination.  This Agreement may be terminated by the
Company or any Investor, by written notice to the other parties, if the Closing
has not been consummated by 5:00 p.m. (New York time) on the 20th Business Day following the date of this
Agreement; provided that no such termination will affect the right of any party
to sue for any breach by the other party (or parties) and or the rights of the
Investors pursuant to Sections 6.3 and 7.2 hereof.

7.2   Fees
and Expenses.  In addition to its
obligations pursuant to Section 6.3 hereof, the Company shall pay all
expenses and all reasonable legal fees and expenses and due diligence costs
incurred incident to the negotiation, preparation, execution, delivery and
performance of this Agreement; provided, however, that the aggregate amount of
the legal fees and expenses, due diligence costs, costs of advisers, counsel,
accountants and other experts, if any, and all other expenses that shall be
paid by the Company to the Investors or reimbursed by the Company to the
Investors pursuant to this Section 7.2 shall not, without the Company’s
consent, exceed $40,000 if a Closing occurs or $25,000 in the absence of a
Closing.  In addition, the Company shall
pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in
connection with the sale and issuance of the applicable Securities.

7.3   Entire
Agreement.  The Transaction Documents,
together with the Exhibits and Schedules thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with
respect to such matters, which the parties acknowledge have been merged into
such documents, exhibits and schedules. 
At or after the Closing, and without further consideration, the Company
will execute and deliver to the Investors such further documents as may be
reasonably requested in order to give practical effect to the intention of the
parties under the Transaction Documents.

7.4   Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the
date of transmission, if such notice or communication is delivered via
facsimile or email at the facsimile number or email address specified in this Section
7.4  prior to 6:30 p.m. (New York City time) on a Trading Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile or email at the facsimile number or
email address specified in this Section 7.4 on a day that is not a
Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day,
(c) the Trading Day following the date of deposit with a nationally 

 35
 

recognized overnight courier service, or
(d) upon actual receipt by the party to whom such notice is required to be
given.  The addresses, facsimile numbers
and email addresses for such notices and communications are those set forth on
the signature pages hereof, or such other address or facsimile number as may be
designated in writing hereafter, in the same manner, by any such Person.

7.5   Amendments;
Waivers.  No provision of this
Agreement may be waived or amended except in a written instrument signed, in
the case of an amendment, by the Company and each of the Investors or, in the
case of a waiver, by the party against whom enforcement of any such waiver is
sought.  No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof,
nor shall any delay or omission of any party to exercise any right hereunder in
any manner impair the exercise of any such right.  Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Investors under Article VI may
be given by Investors holding at least a majority of the Registrable Securities
to which such waiver or consent relates.

7.6   Construction.  The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.  The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction
will be applied against any party.

7.7   Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns.  The Company may not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Investors.  Any
Investor may assign its rights under this Agreement to any Person to whom such
Investor assigns or transfers (including by way of distribution to its members,
partners or stockholders) any Securities, provided (i) such
transferor agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company after such
assignment, (ii) the Company is furnished with written notice of (x) the name
and address of such transferee or assignee and (y) the Registrable Securities
with respect to which such registration rights are being transferred or
assigned, (iii) following such transfer or assignment, the further disposition
of such securities by the transferee or assignee is restricted under the
Securities Act and applicable state securities laws, (iv) such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions hereof that apply to
the “Investors”, and (v) such transfer shall have been made in
accordance with the applicable requirements of this Agreement and with all laws
applicable thereto.

7.8   No
Third-Party Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, except that each
Indemnified Party is an intended third party beneficiary of Section 6.4
and (in each case) may enforce the provisions of such section directly against
the parties with obligations thereunder.

7.9   Governing
Law; Venue; Waiver of Jury Trial. 
THE CORPORATE LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE 

 36
 

RIGHTS OF THE COMPANY AND ITS
STOCKHOLDERS.  ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.  THE COMPANY AND INVESTORS
HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE
ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY INVESTOR HEREUNDER,
IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH
SUIT, ACTION OR PROCEEDING IS IMPROPER. 
EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO
LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY
LAW.  THE COMPANY AND INVESTORS HEREBY
WAIVE ALL RIGHTS TO A TRIAL BY JURY.

7.10   Survival.  The representations and warranties,
agreements and covenants contained herein shall survive the Closing.

7.11   Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart.  In the event that any signature is delivered
by facsimile transmission or email attachment, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile or
email-attached signature page were an original thereof.

7.12   Severability.  If any provision of this Agreement is held to
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

7.13   Rescission
and Withdrawal Right. 
Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) the Transaction Documents, whenever any
Investor exercises a right, election, demand or option owed to such Investor by
the Company under a Transaction Document and the Company does not timely
perform its related obligations 

 37
 

within the periods therein provided, then, prior to the performance by
the Company of the Company’s related obligation, such Investor may rescind or
withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.

7.14   Replacement
of Securities.  If any certificate or
instrument evidencing any Securities is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and the
execution by the holder thereof of a customary lost certificate affidavit of
that fact and an agreement to indemnify and hold harmless the Company for any
losses in connection therewith.  The
applicants for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs associated with the issuance of such
replacement Securities.

7.15   Remedies.  In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the Investors and the Company will be entitled to seek specific performance
under the Transaction Documents.  The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agree to waive in any action for specific performance of
any such obligation (other than in connection with any action for a temporary
restraining order) the defense that a remedy at law would be adequate.

7.16   Payment
Set Aside.  To the extent that the
Company makes a payment or payments to any Investor hereunder or any Investor
enforces or exercises its rights hereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company by a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law,
common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.

7.17   Adjustments
in Share Numbers and Prices.  In the
event of any stock split, subdivision, dividend or distribution payable in
shares of Common Stock (or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly shares of Common
Stock), combination or other similar recapitalization or event occurring after
the date hereof, each reference in any Transaction Document to a number of
shares or a price per share shall be amended to appropriately account for such
event.

7.18   Independent
Nature of Investors’ Obligations and Rights.  The obligations of each Investor under any
Transaction Document are several and not joint with the obligations of any
other Investor, and no Investor shall be responsible in any way for the
performance of the obligations of any other Investor under any Transaction
Documents.  The decision of each Investor
to purchase Securities pursuant to this Agreement has been made by such
Investor independently of any other 

 38
 

Investor and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Investor or by any agent or employee of any other Investor, and no Investor or
any of its agents or employees shall have any liability to any other Investor
(or any other person) relating to or arising from any such information, materials,
statements or opinions.  Nothing
contained herein or in any Transaction Document, and no action taken by any
Investor pursuant thereto, shall be deemed to constitute the Investors as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Investors are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
the Transaction Document.  Each Investor
acknowledges that no other Investor has acted as agent for such Investor in
connection with making its investment hereunder and that no other Investor will
be acting as agent of such Investor in connection with monitoring its
investment hereunder.  Each Investor shall
be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Investor to
be joined as an additional party in any Proceeding for such purpose.

[SIGNATURE
PAGES TO FOLLOW]

 39

EXECUTION
COPY

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

	
  

  	
  COMMUNICATION
  INTELLIGENCE CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Guido D. DiGregario

  	
   

  
	
   

  	
  Name: Guido D. DiGregorio

  
	
   

  	
  Title: Chief Executive Officer and
  President

  
	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
  275 Shoreline Drive, #500

  
	
   

  	
  Redwood Shores, California 94065

  
	
   

  	
   

  
	
   

  	
  Facsimile No.: (650) 802-7777

  
	
   

  	
  Telephone No.: (650) 802-7888

  
	
   

  	
  Attn: Frank Dane

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Davis Wright Tremaine LLP

  
	
   

  	
  1300 SW Fifth Avenue, Suite 2300

  
	
   

  	
  Portland, Oregon 97201

  
	
   

  	
  Facsimile:   (503) 778-5299

  
	
   

  	
  Telephone:  (503) 778-5214

  
	
   

  	
  Attn: Michael C. Philips, Esq.

  

 

COMPANY SIGNATURE PAGE

Investor Signature Page

By its execution
and delivery of this signature page, the undersigned Investor hereby joins in
and agrees to be bound by the terms and conditions of the Securities Purchase
Agreement dated as of August 24, 2007 (the “Purchase Agreement”) by and
among Communication Intelligence Corporation and the Investors (as defined
therein), as to the number of shares of Common Stock set forth below, and
authorizes this signature page to be attached to the Purchase Agreement or
counterparts thereof.

	
  

  	
  Name of Investor:

  
	
   

  	
   

  
	
   

  	
  Phoenix Venture Fund LLC

  
	
   

  	
   

  
	
   

  	
  By: SG Phoenix Ventures LLC,

  
	
   

  	
         its
  Managing Member

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Andrea Goren

  	
   

  
	
   

  	
   

  	
  Name: Andrea Goren

  
	
   

  	
   

  	
  Title: Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address: 

  	
  110 East 59th Street, Suite 1901

  
	
   

  	
   

  	
   New York, New
  York 10022

  
	
   

  	
   

  
	
   

  	
  Telephone No.: (212) 759-1909 x 201

  
	
   

  	
   

  
	
   

  	
  Facsimile No.: (212) 202-7565

  
	
   

  	
   

  
	
   

  	
  Email Address: agoren@sgphoenix.com

  
	
   

  	
   

  
	
   

  	
  Number of Shares: 21,500,000

  
	
   

  	
   

  
	
   

  	
  Aggregate Purchase Price: $3,000,000

  
						

 

  
  
 

Exhibits:

A             Schedule of Investors

B             Instruction Sheet
for Investors

C             Opinion of Company
Corporate Counsel

D             Plan of Distribution

E              Company Transfer Agent Instructions

 2

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