Document:

form_certofdesignation.htm

    EXHIBIT
4-23

b

     

     

    CERTIFICATE
OF DESIGNATIONS,

     

    POWERS,
PREFERENCES AND RIGHTS OF THE SERIES A

     

     CUMULATIVE
CONVERTIBLE PREFERRED STOCK

     

     

    OF

     

     

    COMMUNICATION
INTELLIGENCE CORPORATION

     

    Pursuant to Section 151 of
the

     

    Delaware General Corporation
Law

     

    Communication
Intelligence Corporation (the “Corporation”), organized and
existing under the laws of the State of Delaware, does, by its Chief Executive
Officer, hereby certify that, pursuant to the authority contained in Article
Fourth of its Amended and Restated Certificate of Incorporation and in
accordance with the provisions of Section 151 of the Delaware General
Corporation Law, its Board of Directors has adopted the following resolution
creating the following class and series of the Corporation’s Preferred Stock and
determining the voting powers, designations, powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions thereof, of such classes and series:

     

    RESOLVED,
that, pursuant to authority conferred upon the Board of Directors by the Amended
and Restated Certificate of Incorporation of the Corporation (the “Certificate of
Incorporation”), there is hereby created the following series of
Preferred Stock:

     

    
      	
              ·  

            	
              2,000,000
      shares shall be designated Series A Cumulative Convertible Preferred
      Stock, par value $0.01 per share (the “Series A Preferred
      Stock”).

            

    

     

    The
designations, powers, preferences, and rights and the qualifications,
limitations and restrictions of the Series A Preferred Stock in addition to
those set forth in the Certificate of Incorporation shall be as
follows:

     

    Section
1. Designation and
Amount.  2,000,000 shares of the unissued preferred stock of
the Corporation shall be designated as Series A Cumulative Convertible Preferred
Stock, par value $0.01 per share.  The Series A Preferred Stock shall
be issued in accordance with the Purchase Agreement at a purchase price of $1.00
per share (the “Series A Issue
Price”).

     

    Section
2. Rank.  The
Series A Preferred Stock shall rank: (i) junior to any other class or series of
capital stock of the Corporation hereafter created specifically ranking as to
dividend rights, redemption rights, liquidation preference and other rights
senior to the Series A Preferred Stock (the “Senior Securities”); (ii)
senior to all of the Corporation’s common stock, par value $0.01 per share (the
“Common Stock”); (iii)
senior to any class or series of capital stock of the Corporation hereafter
created not specifically ranking as to dividend rights, redemption rights,
liquidation preference and other rights senior to or on parity with any Series A
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
the “Junior
Securities”); and (iv) on a parity with any class or series of capital
stock of the Corporation hereafter created specifically ranking as to dividend
rights, redemption rights, liquidation preference and other rights on a parity
with the Series A Preferred Stock (the “Parity
Securities”).

     

    
      
        
        

      

      
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    EXHIBIT 4-23

     

    Section
3. Dividends.  (a) So
long as shares of Series A Preferred Stock remain outstanding, the holders of
each share of the Series A Preferred Stock shall be entitled, from and after the
date of issuance of such share, to receive, and shall be paid quarterly in
arrears on the last day of each calendar quarter (beginning on September 30,
2008) in cash out of funds legally available therefor, cumulative dividends
which shall accrue regardless of whether they are declared by the Board, of an
amount equal to 8.00% per share (as adjusted for any stock dividends, stock
splits, combinations, recapitalizations involving equity securities of the
Corporation, reclassifications or other similar events involving a change with
respect to the Series A Preferred Stock) per annum with respect to each share of
the Series A Preferred Stock; provided, however, that such dividend
may, at the option of the Corporation, be paid to the holders of Series A
Preferred Stock in shares of the Series A Preferred Stock in the amount of such
dividend on a one (1) share of Series A Preferred Stock per one dollar ($1.00)
basis (as adjusted for any stock dividends, stock splits, combinations,
recapitalizations involving equity securities of the Corporation,
reclassifications or other similar events involving a change with respect to the
Series A Preferred Stock).  The holders of shares of Series A
Preferred Stock shall be entitled to receive such dividends immediately after
the payment of any dividends to Senior Securities required by the Certificate of
Incorporation, as amended or amended and restated and in effect, including for
this purpose any certificate(s) of designation, prior and in preference to any
dividends paid to Junior Securities but in parity with any distribution to the
holders of Parity Securities.

     

    (b) In case
the Corporation shall at any time or from time to time declare, order, pay or
make a dividend or other distribution (including, without limitation, any
distribution of stock or other securities or property or rights or warrants to
subscribe for securities of the Corporation or any of its subsidiaries by way of
a dividend, distribution or spin-off) on its Common Stock, other than (i) a
distribution made in compliance with the provisions of Section 4 or (ii) a
dividend or distribution made in Common Stock, the holders of the Series A
Preferred Stock shall be entitled to receive from the Corporation with respect
to each share of Series A Preferred Stock held, any dividend or distribution
that would be received by a holder of the number of shares (including fractional
shares) of Common Stock into which such Series A Preferred Stock is convertible
on the record date for such dividend or distribution, with fractional shares of
Common Stock deemed to be entitled to the corresponding fraction of any dividend
or distribution that would be received by a whole share.  Any such
dividend or distribution shall be declared, ordered, paid and made at the same
time such dividend or distribution is declared, ordered, paid and made on the
Common Stock.  No dividend or distribution shall be declared, ordered,
paid or made on the Common Stock unless the dividend or distribution on the
Series A Preferred Stock provided for by this paragraph shall be declared,
ordered, paid or made at the same time.

     

    Section
4. Liquidation
Preference.

     

    (a) In the
event of any liquidation, dissolution or winding up of the Corporation (which
shall not include any corporate recapitalizations), either voluntary or
involuntary, the holders of Series A Preferred Stock shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, immediately after any
distributions to Senior Securities required by the Certificate of Incorporation,
and prior and in preference to any distribution to Junior Securities but in
parity with any distribution to the holders of Parity 

     

    
      
        
        

      

      
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      EXHIBIT 4-23

       

      Securities,
an amount per share equal to the Series A Issue Price (as adjusted for any stock
splits, combinations, recapitalizations involving equity securities of the
Corporation, reclassifications of other similar events involving a change with
respect to the Series A Preferred Stock), plus any accrued but unpaid dividends
on the Series A Preferred Stock; provided that each holder of
Series A Preferred Stock may, upon written notice to the Corporation sent prior
to any distribution under this Section 4(a) (which
notice may, but is not required to be, a Notice of Conversion (as defined under
Section 5(b)),
elect to receive a distribution pursuant to Section 4(c) in lieu
of the distribution under this Section 4(a), on an
as converted to Common Stock basis, upon completion of the distributions
pursuant to Section
4(a) and Section
4(b).  For the purpose of clarity, if a holder of Series A
Preferred Stock elects to receive a distribution pursuant to Section 4(c), such
holder shall not receive a distribution pursuant to Section
4(a).  If upon the occurrence of such event, and after the
payment in full of the preferential amounts with respect to the Senior
Securities, the assets and funds available to be distributed among the holders
of the Series A Preferred Stock pursuant to Section 4(a) and the
holders of any Parity Securities shall be insufficient to permit the payment to
such holders of the full preferential amounts due to such holders of the Series
A Preferred Stock and the holders of the Parity Securities, respectively, then
the entire assets and funds of the Corporation legally available for
distribution shall be distributed among the holders of such Series A Preferred
Stock and the Parity Securities, pro rata, based on the amount each such holder
would receive if such full preferential amounts were paid unless otherwise
provided in the Certificate of Incorporation.

    

     

    (b) Upon the
completion of the distributions required by Section 4(a), if
assets remain in the Corporation, they shall be distributed to the holders of
Junior Securities, other than Common Stock with respect to any liquidation
preference payable to such holders.

     

    (c) Upon the
completion of the distributions required by Section 4(a) and
Section 4(b),
if assets remain in the Corporation, they shall be distributed pro rata, on an
as converted to Common Stock basis, to the holders of Common Stock and the
holders of Series A Preferred Stock who have so elected pursuant to Section
4(a).

     

    (d) A sale,
lease, conveyance or disposition of all or substantially all of the capital
stock or assets of the Corporation or a merger, consolidation, share exchange,
reorganization or other transaction or series of related transactions (whether
involving the Corporation or a subsidiary thereof) in which the Corporation’s
stockholders immediately prior to such transaction do not retain a majority of
the voting power in the surviving entity (a “Transaction”), shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 4,
unless (i) the holders of a majority of the then outstanding shares of the
Series A Preferred Stock vote affirmatively or consent in writing that such
Transaction shall not be treated as a liquidation, dissolution or winding up
within the meaning of this Section 4, or (ii)
the surviving or acquiring corporation unconditionally assumes the Preferred
Stock and all obligations thereunder; provided, however, that each holder of
Series A Preferred Stock shall have the right to elect the conversion benefits
of the provisions of Section 5(a) or other
applicable conversion provisions in lieu of receiving payment in liquidation,
dissolution or winding up of 

     

    
      
        
        

      

      
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      the
Corporation pursuant to this Section; and provided, further, that shares of the
surviving entity held by holders of the capital stock of the Corporation
acquired by means other than the Transaction shall not be used in determining if
the shareholders of the Corporation own a majority of the voting power of the
surviving entity, but shall be used for determining the total outstanding voting
power of such entity.

    

     

    (e) Prior to
the closing of a Transaction described in Section 4(d) which
would constitute a liquidation, dissolution or winding up within the meaning of
this Section 4,
the Corporation shall, at its sole option, either (i) make all distributions of
cash or other property that it is required to make to the holders of Series A
Preferred Stock pursuant to the first sentence of Section 4(a), (ii)
set aside sufficient funds or other property from which the distributions
required to be made to such holders can be made, or (iii) establish an escrow or
other similar arrangement with a third party pursuant to which the proceeds
payable to the Corporation from the Transaction will be used to make the
liquidating payments to such holders immediately after the consummation of the
Transaction.  In the event that the Corporation is unable to fully
comply with any of the foregoing alternatives, the Corporation shall either: (x)
cause such closing to be postponed until the Corporation complies with one of
the foregoing alternatives, or (y) cancel such Transaction, in which event the
rights of the holders of Series A Preferred Stock shall be the same as existing
immediately prior to such proposed Transaction.

     

    Section
5. Conversion of Series A
Preferred Stock.  The Corporation and the record holders of the
Series A Preferred Stock shall have conversion rights as follows:

     

    (a) Right to
Convert.  Each record holder of Series A Preferred Stock shall
be entitled to convert whole shares of Series A Preferred Stock for the Common
Stock issuable upon conversion of the Series A Preferred Stock, at any time
after June 30, 2008, at the option of the holder thereof, subject to adjustment
as provided in Section
5(c) hereof, as follows: Each share of Series A Preferred Stock shall be
convertible into such number of fully paid and nonassessable shares of Common
Stock as is obtained by (i) multiplying the number of shares of Series A
Preferred Stock so to be converted by the
Series A Issue Price and (ii) dividing the result thereof by the Conversion
Price.  The Conversion Price shall initially be $0.14 per share of
Series A Preferred Stock, subject to adjustment as provided in Section
5(c).  Accrued but unpaid dividends will be paid in cash upon
any such conversion.

     

    
      
        
        

      

      
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    EXHIBIT 4-23

     

    (b) Mechanics of
Conversion.  In order to convert Series A Preferred Stock into
full shares of Common Stock pursuant to Section 5(a), the
holder shall (i) fax or e-mail a copy of a fully executed notice of conversion
(“Notice of Conversion”)
to the Corporation at the office of the Corporation or to the Corporation’s
designated transfer agent (the “Transfer Agent”) for the
Series A Preferred Stock stating that the holder elects to convert, which notice
shall specify the Date of Conversion (as defined in Section 5(b)(iii)
below), the number of shares of Series A Preferred Stock to be converted, the
Conversion Price (together with a copy of the front page of each certificate to
be converted) and (ii) surrender to a common courier for either overnight or two
(2) day delivery to the office of the Corporation or the Transfer Agent, the
original certificates representing the Series A Preferred Stock (the “Preferred Stock
Certificates”) being converted, duly endorsed for transfer.

     

    (i) Lost or Stolen
Certificates.  Upon receipt by the Corporation of evidence of
the loss, theft, destruction or mutilation of any Preferred Stock Certificates
representing shares of Series A Preferred Stock, and (in the case of loss, theft
or destruction) of indemnity or security reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Preferred Stock
Certificates, if mutilated, the Corporation shall execute and deliver new
Preferred Stock Certificates of like tenor and date; provided that the Corporation
shall pay all costs of delivery (including insurance against loss and theft
until delivered in an amount satisfactory to the holders of Series A Preferred
Stock).  However, the Corporation shall not be obligated to reissue
such lost or stolen Preferred Stock Certificates if the holder contemporaneously
requests the Corporation to convert such Series A Preferred Stock into Common
Stock or if such shares of Series A Preferred Stock have been otherwise
converted into Common Stock.

     

    (ii) Delivery of Common Stock
Upon Conversion.  The Corporation no later than 6:00 p.m.
(Pacific time) on the third (3rd) business day after receipt by the Corporation
or its Transfer Agent of all necessary documentation duly executed and in proper
form required for conversion, including the original Preferred Stock
Certificates to be converted (or after provision for security or indemnification
in the case of lost, stolen or destroyed certificates, if required), shall issue
and surrender to a common courier for either overnight or (if delivery is
outside the United States) two (2)-day delivery to the holder as shown on the
stock records of the Corporation a certificate for the number of shares of
Common Stock to which the holder shall be entitled as aforesaid.

     

    (iii) Date of
Conversion.  The date on which conversion pursuant to Section 5(a) occurs
(the “Date of
Conversion”) shall be deemed to be the date the applicable Notice of
Conversion is faxed or emailed to the Corporation or the Transfer Agent, as the
case may be, provided
that the copy of the Notice of Conversion is faxed to the Corporation on or
prior to 6:00 p.m. (Pacific time) on the Date of Conversion.  The
original Preferred Stock Certificates representing the shares of Series A
Preferred Stock to be converted shall be surrendered by depositing such
certificates with a common courier for either overnight or two (2)-day delivery,
as soon as practicable following the Date of Conversion. The person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on the Date of Conversion.

     

    (iv) No Fractional Shares on
Conversion.  No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock.  In lieu of
any fractional share to which the holder would otherwise be entitled, the
Corporation shall (after aggregating all shares into which shares of Series A
Preferred tendered by the holder for conversion) pay cash equal to such fraction
multiplied by the market price per share of Common Stock (as determined in a
reasonable manner by the Board) at the close of business on the Date of
Conversion.

     

    (c) Adjustment of Conversion
Price.

     

    (i) Adjustments of Conversion
Price Upon Certain Events.  Upon the occurrence at any time
after the first filing of this Certificate of Designations of any of the events
set forth in Section
5(c)(i)(A) through (D) below, the
Corporation shall be deemed to have issued or sold 

     

    
      
        
        

      

      
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      shares of
Common Stock for a consideration per share less than the Conversion Price in
effect immediately prior to the time of such deemed issue or sale, and,
forthwith upon such event, the Conversion Price shall be reduced to the price
determined by dividing (x) an amount equal to the sum of (a) the number of
shares of Common Stock outstanding immediately prior to such deemed issue or
sale multiplied by the then existing Conversion Price and (b) the consideration,
if any, received by the Corporation upon such deemed issue or sale, by (y) the
total number of shares of Common Stock outstanding immediately after such deemed
issue or sale.  For purposes of determining the number of shares of
Common Stock outstanding as provided in clauses (x) and (y) above, the number of
shares of Common Stock issuable upon conversion of all outstanding shares of
Series A Preferred Stock, exercise of all outstanding Options (as defined below)
and conversion of all outstanding Convertible Securities (as defined below)
shall be deemed to be outstanding.

    

     

    (A) Change in Option Price or
Conversion Rate.  If, at any time after the date of that
certain Credit Agreement by and among the Corporation, SG Phoenix LLC, Phoenix
Venture Fund LLC, Michael Engmann and Ronald Goodman (the “Credit Agreement”) (1) the
purchase price or exercise price provided for in any warrants or other rights to
subscribe for or to purchase, or any options for the purchase of, Common Stock
or any stock or security convertible into or exchangeable for Common Stock
outstanding as of the date of the Credit Agreement (such warrants, rights or
options being called “Options” and such convertible
or exchangeable stock or securities being called “Convertible Securities”)
issued by the Corporation is reduced, (2) the number of shares into which the
Option is exercisable is increased, (3) the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities is
increased (if such consideration is payable to the holder of the Convertible
Securities) or decreased (if such consideration is payable by the holder of the
Convertible Securities), or (4) the rate at which Convertible Securities are
convertible into or exchangeable for Common Stock is increased or the conversion
price is decreased (including, but not limited to, such increases or decreases,
as applicable, under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such event shall
forthwith be readjusted to the Conversion Price which would have been in effect
at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or
sold.

     

    (B) Stock
Dividends.  In case the Corporation shall declare a dividend or
make any other distribution upon any stock of the Corporation (other than Common
Stock or Series A Preferred Stock) payable in Common Stock, then any Common
Stock issuable in payment of such dividend or distribution shall be deemed to
have been issued or sold for $0.01 per share, unless the holders of more than
50% of the then outstanding Series A Preferred Stock shall have consented to
such dividend or distribution.

     

    (C) Record
Date.  In case the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (ii) to otherwise determine the effective date of any such event
described in this Section 5, then such
record date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of such other
event, as the case may be.

     

    
      
        
        

      

      
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    EXHIBIT 4-23

     

    (D) Treasury
Shares.  The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Corporation, and the disposition of any such shares shall be considered an
issue or sale of Common Stock for the purpose of this Section
5(c)(i).

     

    (ii) Certain Issues of Common
Stock Excepted.  Anything herein to the contrary
notwithstanding, the Corporation shall not be required to make any adjustment of
the Conversion Price in the case of the issuance or sale from and after the date
of filing of this Certificate of Designations of Anti-Dilution Excluded
Securities (as defined below).

     

    (iii) Adjustments for
Subdivisions, Common Stock Dividends, Combinations or Consolidations of Common
Stock.  If the outstanding shares of Common Stock shall be
subdivided or increased, by stock split, stock dividend or otherwise, into a
greater number of shares of Common Stock, the Conversion Price shall
concurrently with the effectiveness of such subdivision or payment of such stock
dividend, be proportionately decreased.  If the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Conversion Price
shall, concurrently with the effectiveness of such combination or consolidation,
be proportionately increased.

     

    (iv) Adjustments for
Reclassification, Exchange and Substitution. If the Common Stock issuable
upon conversion of the Series A Preferred Stock shall be changed into the same
or a different number of shares of any other class or classes of stock, whether
by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for above), the Conversion Price
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the Series A Preferred
Stock shall be convertible into, in lieu of the number of shares of Common Stock
which the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of stock equivalent to the number of
shares of Common Stock that would have been subject to receipt by the holders
upon conversion of the Series A Preferred Stock immediately before that
change.

     

    (v) Adjustments for Merger,
Sale, Lease or Conveyance.  In case of any share exchange,
reorganization, consolidation with or merger of the Corporation with or into
another corporation, or in case of any sale, lease, conveyance or disposition to
another Corporation of the assets of the Corporation as an entirety or
substantially as an entirety, which is not treated as a liquidation, dissolution
or winding up pursuant to Section 4(d) above,
the Series A Preferred Stock shall after the date of such share exchange,
reorganization, consolidation, merger, sale, lease, conveyance or disposition be
convertible into the number of shares of stock or other securities or property
(including cash) to which the Common Stock issuable (at the time of such
consolidation, merger, sale, lease, conveyance or disposition) upon conversion
of the Series A Preferred Stock would have been entitled upon such share
exchange, reorganization, consolidation, merger, sale, lease, conveyance or
disposition; and in any such case, if necessary, the provisions set

     

    
      
        
        

      

      
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      EXHIBIT 4-23

       

      forth
herein with respect to the rights and interests thereafter of the holders of the
Series A Preferred Stock shall be appropriately adjusted so as to be applicable,
as nearly as may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the conversion of the shares of Series A
Preferred Stock.

    

     

    (vi) Fractional
Shares.  If any adjustment under this Section 5(c) would
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be rounded to the nearest
whole number of shares with one-half share being rounded up.

     

    (vii) Notice of
Adjustment.  Concurrent with any adjustment pursuant to this
Section 5(c),
the Corporation shall provide prompt notice to the holders of Series A Preferred
Stock notifying such holders of any such adjustment.  Upon written
request by a holder, the Corporation will promptly deliver a copy of each such
certificate to such holder and to the Corporation’s Transfer Agent.

     

    Section
6. Voting
Rights.  The holders of Series A Preferred Stock shall have no
voting rights incident thereto.

     

    Section
7. Status of Converted
Stock.  In the event any shares of Series A Preferred Stock are
converted pursuant to Section 5 hereof, the
shares of Series A Preferred Stock so converted shall be canceled, shall return
to the status of authorized but unissued Preferred Stock of no designated
series, and shall not be issuable by the Corporation as Series A Preferred
Stock.

     

    Section
8. Reservation of
Stock.  The Corporation shall at all times after June 30, 2008,
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of shares of Series A
Preferred Stock issued or issuable to the holders, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series A Preferred Stock; if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Series A Preferred
Stock, in addition to such other remedies as shall be available to the holder of
Series A Preferred Stock, the Corporation shall take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number as shall be sufficient for such
purposes, including, without limitation, using best efforts to obtain
stockholder approval of any necessary amendment to the Charter.

     

    Section
9. Redemption
Rights.  The holders of the Series A Preferred Stock shall have
no redemption rights.

     

    Section
10. Rescission
Rights.  On or before June 30, 2008, the Corporation (i) shall
have obtained approval of holders of its Common Stock, and shall have taken all
requisite actions (including filing an amendment to its Certificate of
Incorporation with the Delaware Secretary of State) to effect, an increase in
the Corporation’s authorized Common Stock by 116% of the number of shares as
shall be sufficient to fully reserve shares of Common Stock for issuance upon
exercise or conversion of all securities or other rights that are convertible
into, or exchangeable or exercisable for, or otherwise entitle the holder to,
shares of Common Stock of the Corporation, including the Series A Preferred
Stock (including any additional Series A Preferred Stock 

     

    
      
        
        

      

      
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      EXHIBIT 4-23

       

      that may
be issued in the event the Corporation opts to make dividend payments in shares
of Series A Preferred Stock in accordance with Section 3) and (ii)
shall have taken all actions necessary to reserve for issuance such number of
shares of Common Stock as is issuable upon conversion of the Series A Preferred
Stock (including any additional Series A Preferred Stock that may be issued in
the event the Corporation opts to make dividend payments in shares of Series A
Preferred Stock in accordance with Section
3).  In the event that the Corporation fails to comply with the
requirements set forth in the immediately preceding sentence, the Corporation
shall make a rescission offer to the holders of the Series A Preferred Stock by
sending to each holder, on or before July 7, 2008, a notice (the “Rescission Notice”) of such
rescission offer, which shall specify the rescission rights including the date
by which the rescission offer must be accepted, the method of acceptance, the
documents (including certificates for Series A Preferred Stock) that are
required for acceptance, and the consideration to be received in accordance with
this Section
10.  Each holder may accept such rescission offer, in whole or
in part, in its sole discretion, by sending a notice of acceptance (“Notice of Acceptance”) of
such rescission offer on or prior to August 4, 2008 (or such later date as the
Corporation shall specify in the Rescission Notice), stating the number of
shares of Series A Preferred Stock such holder will rescind.  The
Corporation shall make a payment to each holder of Series A Preferred Stock who
accepts the rescission offer, promptly (and in no event more than three (3)
business days) following such holder’s tendering certificate(s) for all or such
portion of its Series A Preferred Stock as are specified in the Notice of
Acceptance, consideration identical to the consideration paid by such holder for
such shares of Series A Preferred Stock, plus an amount in cash equal to all
accrued but unpaid dividends thereon (as adjusted to reflect forward or reverse
stock splits, stock dividends, recapitalizations or other similar capital
reorganization or reclassification of capital stock (the “Rescission
Price”)).  The shares of Series A Preferred Stock not rescinded
shall remain outstanding and entitled to all the rights and preferences provided
herein, including, but not limited to, those rights and preferences set forth in
Section 10(i)
and (ii).  To
the extent applicable, the Corporation shall issue replacement certificates
representing any shares of Series A Preferred Stock not rescinded to be
delivered to such holder with such holder’s Rescission Price.  Upon
rescission, all rights of the holders of shares of the Series A Preferred Stock
so rescinded shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose and shall be automatically and immediately canceled
and shall not be reissued or sold, and neither the Corporation nor any of its
subsidiaries shall be a holder of, nor may any of them exercise any rights
granted to holders of, such shares of Series A Preferred Stock following
rescission.

    

     

    Section
11. Definitions.  As
used in this Certificate, the following capitalized terms have the following
meanings.

     

    “Anti-Dilution Excluded
Securities” mean any of the following securities:
(1)  securities issued to employees, consultants, officers or
directors of the Corporation or options to purchase Common Stock granted by the
Corporation to employees, consultants, officers or directors of the Corporation
pursuant to any option plan, agreement or other arrangement duly adopted by the
Corporation and the grant of which is approved by the compensation committee of
the Board; (2) the Series A Preferred Stock and any Common Stock issued upon
conversion of the Series A Preferred Stock; (3) 

     

     

    
      
        
        

      

      
        - 9
-

        
          

        

      

      
        
        

      

    

    EXHIBIT 4-23

     

    for the
avoidance of doubt, securities issued on the conversion of any Convertible
Securities or the exercise of any Options, in each case, outstanding on the date
of the first filing of this Certificate of Designations; and (4) for the
avoidance of doubt, securities issued in connection with a stock split, stock
dividend, combination, reorganization, recapitalization or other similar event
for which adjustment is made in accordance with Section 5(c)(iii) or
(iv).

     

    “Purchase Agreement” means the
Purchase Agreement, dated June 5, 2008, between the Corporation and the initial
purchasers of the Series A Preferred Stock.

     

     

    Signature
on following page.

    

    

    
      
        
          
                                                                               

            

          

           

        

        
          - 10
-  

          
            

          

        

        
           

        

      

    

    EXHIBIT 4-23

     

    

    IN
WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed
on its behalf by its __________________ this 5th day of June, 2008.

     

    COMMUNICATION
INTELLIGENCE CORPORATION

     

    
      	
               
      

            	
               

            	
                By:  s/  Guido
      DiGregorio               
      

            

    

    
      	
               
      

            	
               

            	
                Name:  
      Guido D.
      DiGregorio          
      

            

    

    
      	
               
      

            	
               

            	
                Title:     Chief
      Executive Officer and President

            

    

    

     

     

     

     

     

     

     

     

     

     

     

     

    - 11
-creditagreement.htm

    EXHIBIT
10-41

      
        
          

        

      

       

       

       

      

        Portions
of this document have been redacted and filed separately with the Securities and
Exchange Commission.  Redacted sections marked with
“*****.”

       

       

       

       

       

       

       

      CREDIT
AGREEMENT

      

      Dated
as of June 5, 2008,

       

      By
And Among

      

      COMMUNICATION
INTELLIGENCE CORPORATION

      as
Borrower,

      

      THE
LENDERS PARTY HERETO

      

      AND

      

      SG
PHOENIX LLC

      As
Collateral Agent

       

       

       

       

       

       

       

       

       

       

       

       

       

      
        
          
             

          

           

        

        
           

          
            

          

        

        
          
             

            TABLE OF
CONTENTS  

          

        

      

                                                                                                                                                     EXHIBIT
10-41  

       

                                                                                                                                                      Page

      
        
          
            
              	
                      SECTION
      1.

                    	
                      AMOUNTS AND TERMS OF
      LOANS                                                                            

                    	
                      1

                    
	
                      1.1

                    	
                      Loans  

                    	
                      2

                    
	
                      1.2

                    	
                      Interest. 

                    	
                      3

                    
	
                      1.3

                    	
                      Use
      of Proceeds

                    	
                      3

                    
	
                      1.4

                    	
                      Fees
      and Expenses 

                    	
                      4

                    
	
                      1.5

                    	
                      Payments 

                    	
                      4

                    
	
                      1.6

                    	
                      Repayments
      of Loans

                    	
                      5

                    
	
                      1.7

                    	
                      Loan
      Accounts

                    	
                      7

                    
	
                      1.8

                    	
                      Taxes

                    	
                      7

                    
	
                      1.9

                    	
                      Warrants

                    	
                      8

                    
	
                      1.1

                    	
                      Term
      of This Agreement 

                    	
                      8

                    
	
                      SECTION
      2.

                    	
                      AFFIRMATIVE
      COVENANTS 

                    	
                      8

                    
	
                      2.1

                    	
                      Compliance
      With Laws 

                    	
                      8

                    
	
                      2.2

                    	
                      Maintenance
      of Books and Records; Properties; Insurance.

                    	
                      9

                    
	
                      2.3

                    	
                      Inspection;
      Lenders’ Meeting

                    	
                      9

                    
	
                      2.4

                    	
                      Legal
      Existence, Etc

                    	
                      10

                    
	
                      2.5

                    	
                      Use
      of Proceeds

                    	
                      10

                    
	
                      2.6

                    	
                      Authorized
      Common Stock 

                    	
                      10

                    
	
                      2.7

                    	
                      Further
      Assurances; Notices of Acquisition of Property

                    	
                      10

                    
	
                      2.8

                    	
                      Taxes
      and other Government Charges

                    	
                      10

                    
	
                      SECTION
      3.

                    	
                      NEGATIVE
    COVENANTS

                    	
                      11

                    
	
                      3.1

                    	
                      Indebtedness

                    	
                      11

                    
	
                      3.2

                    	
                      Liens
      and Related Matters

                    	
                      11

                    
	
                      3.3

                    	
                      Investments 

                    	
                      12

                    
	
                      3.4

                    	
                      Contingent
      Obligations

                    	
                      12

                    
	
                      3.5

                    	
                      Restricted
      Junior Payments

                    	
                      12

                    
	
                      3.6

                    	
                      Restriction
      on Fundamental Changes

                    	
                      12

                    
	
                      3.7

                    	
                      Disposal
      of Assets or Subsidiary Stock

                    	
                      12

                    
	
                      3.8

                    	
                      Transactions
      with Affiliates

                    	
                      12

                    
	
                      3.9

                    	
                      Management
      Fees

                    	
                      13

                    
	
                      3.10

                    	
                      Conduct
      of Business

                    	
                      13

                    
	
                      3.11

                    	
                      Fiscal
      Year 

                    	
                      13

                    
	
                      3.12

                    	
                      Subsidiaries;
      Partnerships

                    	
                      13

                    
	
                      3.13

                    	
                      Modification
      of Agreements

                    	
                      13

                    
	
                      3.14

                    	
                      Board
      of Directors 

                    	
                      13

                    
	
                      3.15

                    	
                      Management
      of Borrower

                    	
                      13

                    
	
                      3.16

                    	
                      Investment
      Company Act; Public Utility Holding Act

                    	
                      13

                    
	
                      SECTION
      4.

                    	
                      FINANCIAL COVENANTS AND
      REPORTING

                    	
                      14

                    
	
                      4.1

                    	
                      Reports
      and Covenants

                    	
                      14

                    
	
                      4.2

                    	
                      Accounting
      Terms; Utilization of GAAP 

                    	
                      16

                    
	
                      SECTION
      5.

                    	
                      REPRESENTATIONS AND
      WARRANTIES

                    	
                      16

                    
	
                      5.1

                    	
                      Disclosure

                    	
                      16

                    
	
                      5.2

                    	
                      No
      Material Adverse Effect 

                    	
                      17

                    

            

             

            
              
                
                

              

              
                -i-

                
                  

                

              

              
                
                  EXHIBIT
10-41

                  TABLE OF
CONTENTS  

                

              

                                                                                                                                                                                                                                                     
Page

            

            
              	
                      5.3

                    	
                      Organization,
      Powers, Authorization and Good Standing 

                    	
                      17

                    
	
                      5.4

                    	
                      Compliance
      with Applicable Law

                    	
                      17

                    
	
                      5.5

                    	
                      Tax
      Returns and Payments

                    	
                      18

                    
	
                      5.6

                    	
                      Environmental
      Matters

                    	
                      18

                    
	
                      5.7

                    	
                      Financial
      Statements

                    	
                      18

                    
	
                      5.8

                    	
                      Intellectual
      Property 

                    	
                      19

                    
	
                      5.9

                    	
                      Litigation,
      Investigations, Audits, Etc. 

                    	
                      19

                    
	
                      5.10

                    	
                      Employee
      Labor Matters

                    	
                      20

                    
	
                      5.11

                    	
                      Employee
      Benefit Plans

                    	
                      20

                    
	
                      5.12

                    	
                      Perfection
      and Priority

                    	
                      20

                    
	
                      5.13

                    	
                      Solvency

                    	
                      20

                    
	
                      5.14

                    	
                      Investment
      Company Act; Federal Regulations

                    	
                      20

                    
	
                      5.15

                    	
                      Material
      Contracts

                    	
                      21

                    
	
                      5.16

                    	
                      Title
      to Properties

                    	
                      21

                    
	
                      5.17

                    	
                      Subsidiaries
      and Affiliates

                    	
                      21

                    
	
                      5.18

                    	
                      Filings

                    	
                      21

                    
	
                      5.19

                    	
                      Insurance

                    	
                      22

                    

            

            
              	
                      5.20

                    	
                      Approvals

                    	
                      22

                    
	
                      5.21

                    	
                      Internal
      Accounting Controls

                    	
                      22

                    
	
                      5.22

                    	
                      Foreign
      Corrupt Practices

                    	
                      22

                    
	
                      5.23

                    	
                      Representations
      and Covenants Made to the Investors

                    	
                      23

                    
	
                      SECTION
      6.

                    	
                      EVENTS OF DEFAULT AND RIGHTS
      AND REMEDIES

                    	
                      23

                    
	
                      6.1

                    	
                      Events
      of Default

                    	
                      23

                    
	
                      6.2

                    	
                      Acceleration

                    	
                      26

                    
	
                      6.3

                    	
                      Rights
      of Collection

                    	
                      26

                    
	
                      6.4

                    	
                      Consents

                    	
                      26

                    
	
                      6.5

                    	
                      Performance
      by Lenders or Collateral Agent

                    	
                      27

                    
	
                      6.6

                    	
                      Set
      Off and Sharing of Payments

                    	
                      27

                    
	
                      6.7

                    	
                      Application
      of Payments

                    	
                      27

                    
	
                      6.8

                    	
                      Rescission

                    	
                      27

                    
	
                      SECTION
      7.

                    	
                      CONDITIONS TO
      LOANS

                    	
                      28

                    
	
                      7.1

                    	
                      Executed
      Loan Documents

                    	
                      28

                    
	
                      7.2

                    	
                      Executed
      Debt Refinancing Documents

                    	
                      28

                    
	
                      7.3

                    	
                      Certificate
      of Designations

                    	
                      28

                    
	
                      7.4

                    	
                      Cancelled
      Notes

                    	
                      28

                    
	
                      7.5

                    	
                      Representations
      and Warranties

                    	
                      28

                    
	
                      7.6

                    	
                      Covenants

                    	
                      28

                    
	
                      7.7

                    	
                      No
      Default

                    	
                      29

                    
	
                      7.8

                    	
                      Lien
      Priority

                    	
                      29

                    
	
                      7.9

                    	
                      No
      Litigation

                    	
                      29

                    
	
                      7.10

                    	
                      Fees
      and Expenses

                    	
                      29

                    
	
                      7.11

                    	
                      Closing
      Certificates; Opinions

                    	
                      29

                    
	
                      7.12

                    	
                      Collateral

                    	
                      30

                    
	
                      7.13

                    	
                      Insurance

                    	
                      30

                    
	
                      7.14

                    	
                      Consents

                    	
                      30

                    
	
                      7.15

                    	
                      No
      Injunction, Etc.

                    	
                      30

                    

            

             

            
              
                
                

              

              
                -ii-

                
                  

                

              

              
                
                  EXHIBIT
10-41

                  TABLE OF
CONTENTS  

                

              

                                                                                                                                                                                                                                                     
Page

            

            
              	
                      7.16

                    	
                      Fees,
      Expenses, Taxes, Etc.

                    	
                      31

                    
	
                      7.17

                    	
                      Proceedings
      and Documents

                    	
                      31

                    
	
                      7.18

                    	
                      Other
      Deliveries

                    	
                      31

                    
	
                      7.19

                    	
                      Post-Closing
      Deliveries

                    	
                      31

                    
	
                      SECTION
      8.

                    	
                      INTERCREDITOR
      PROVISIONS

                    	
                      32

                    
	
                      8.1

                    	
                      Appointment,
      Powers and Immunities of Agents

                    	
                      32

                    
	
                      8.2

                    	
                      Reliance

                    	
                      33

                    
	
                      8.3

                    	
                      Non-Reliance

                    	
                      33

                    
	
                      8.4

                    	
                      Defaults;
      Material Adverse Effect

                    	
                      33

                    
	
                      8.5

                    	
                      Successor
      Agent

                    	
                      34

                    
	
                      8.6

                    	
                      Authorization

                    	
                      34

                    
	
                      8.7

                    	
                      Other
      Roles

                    	
                      34

                    
	
                      8.8

                    	
                      Amendments
      and Waivers

                    	
                      35

                    
	
                      SECTION
      9.

                    	
                      MISCELLANEOUS

                    	
                      35

                    
	
                      9.1

                    	
                      Indemnities

                    	
                      35

                    
	
                      9.2

                    	
                      Notices

                    	
                      36

                    
	
                      9.3

                    	
                      Failure
      or Indulgence Not Waiver; Remedies Cumulative

                    	
                      37

                    
	
                      9.4

                    	
                      Marshaling;
      Payments Set Aside

                    	
                      37

                    
	
                      9.5

                    	
                      Severability

                    	
                      37

                    
	
                      9.6

                    	
                      Headings

                    	
                      37

                    
	
                      9.7

                    	
                      Applicable
      Law

                    	
                      37

                    
	
                      9.8

                    	
                      Successors
      and Assigns

                    	
                      38

                    
	
                      9.9

                    	
                      Participations

                    	
                      38

                    
	
                      9.10

                    	
                      No
      Fiduciary Relationship

                    	
                      38

                    
	
                      9.11

                    	
                      Construction

                    	
                      38

                    
	
                      9.12

                    	
                      Confidentiality

                    	
                      39

                    
	
                      9.13

                    	
                      Consent
      to Jurisdiction and Service of Process

                    	
                      39

                    
	
                      9.14

                    	
                      Waiver
      of Jury Trial

                    	
                      40

                    
	
                      9.15

                    	
                      Survival
      of Warranties and Certain Agreements

                    	
                      40

                    
	
                      9.16

                    	
                      Entire
      Agreement

                    	
                      40

                    
	
                      9.17

                    	
                      Counterparts;
      Effectiveness

                    	
                      40

                    
	
                      SECTION
      10.

                    	
                      DEFINITIONS

                    	
                      41

                    
	
                      10.1

                    	
                      Certain
      Defined Terms

                    	
                      41

                    
	
                      10.2

                    	
                      Other
      Definitional Provisions

                    	
                      49

                    

            

            

            
              
                 

              

              
                -iii- 

                
                  

                

              

              
                EXHIBIT 10-41 

              

            

SCHEDULES

        

      

       

      Schedule
1.1(a)                           Loans

      Schedule
1.3                                Repayment
of Outstanding Debt

      Schedule
2.2(b)                           Insurance

      Schedule
3.1                                Indebtedness/Liens

      Schedule
5.3(a)                           Organization
and Powers

      Schedule
5.3(c)                           Qualification
to Transact Business

      Schedule
5.4                                Compliance
with Applicable Law

      Schedule
5.6                                Environmental
Matters

      Schedule
5.8                                Intellectual
Property

      Schedule
5.9                                Litigation,
Investigations, Audits, Etc.

      Schedule
5.10                              Employee
Labor Matters

      Schedule
5.15                              Material
Contracts

      Schedule
5.16                              Owned
and Leased Property

      Schedule
5.17(a)                         Subsidiaries
and Affiliates

      Schedule
5.17(b)                         Inventory
and Equipment

      Schedule
5.18                              Filings

      

      

      EXHIBITS

       

      Exhibit
1.1(a)                                Form
of Note

      Exhibit
1.2(b)-1                            Form
of Additional Note

      Exhibit
1.2(b)-2                            Form
of Additional Warrant

      Exhibit
1.9                                   
Form of Warrant

      Exhibit
4.1(b)                               Form
of Compliance Certificate

      Exhibit
10.1(ccc)                          Form
of Pledge and Security Agreement

      
        
          
             -
iv - 

          

           

        

        
           

          
            

          

        

        
           

        

      
EXHIBIT 10-41

      INDEX
OF DEFINED TERMS

       

      
        	
                Defined Term

              	
                Defined in Section

              
	
                1933
      Act

              	
                §5.18

              
	
                1934
      Act

              	
                §2.3

              
	
                1940
      Act

              	
                §3.16

              
	
                Accounting
      Changes

              	
                §4.2

              
	
                Additional
      Note

              	
                §1.2(b)

              
	
                Additional
      Warrant

              	
                §1.2(b)

              
	
                Affiliate

              	
                §10.1

              
	
                Agreement

              	
                §10.1

              
	
                Applicable
      Law

              	
                §10.1

              
	
                Asset
      Disposition

              	
                §10.1

              
	
                Bankruptcy
      Code

              	
                §10.1

              
	
                Borrower

              	
                Preamble

              
	
                Business
      Day

              	
                §10.1

              
	
                Capital
      Lease

              	
                §10.1

              
	
                Cash
      Equivalents

              	
                §10.1

              
	
                Change
      of Control

              	
                §6.1(s)

              
	
                Closing
      Date

              	
                §10.1

              
	
                Collateral

              	
                §10.1

              
	
                Collateral
      Agent

              	
                §8.1(a)

              
	
                Common
      Stock

              	
                §10.1

              
	
                Compliance
      Certificate

              	
                §4.1(b)

              
	
                Contingent
      Obligation

              	
                §10.1

              
	
                Control

              	
                §10.1

              
	
                Debt
      Refinancing

              	
                §10.1

              
	
                Debt
      Refinancing Documents

              	
                §10.1

              
	
                Default

              	
                §10.1

              
	
                Engmann

              	
                Preamble

              
	
                Environmental
      Laws

              	
                §10.1

              
	
                Evaluation
      Date

              	
                §5.21

              
	
                Event
      of Default

              	
                §6.1

              
	
                GAAP

              	
                §10.1

              
	
                Goodman

              	
                Preamble

              
	
                Governmental
      Authority

              	
                §10.1

              
	
                Indebtedness

              	
                §10.1

              
	
                Indemnitees

              	
                §9.1

              
	
                Initial
      Warrants

              	
                §1.9

              
	
                Intellectual
      Property Rights

              	
                §5.8

              
	
                Investment

              	
                §10.1

              
	
                Investors

              	
                §10.1

              
	
                IRC

              	
                §10.1

              
	
                Lender(s)

              	
                Preamble

              
	
                Lien

              	
                §10.1

              
	
                Loan(s)

              	
                §1.1(a)

              

      

       

      
        
          
          

        

        
          -v-

          
            

          

        

        
          EXHIBIT
10-41

        

      

      
        	 	 
	
                Loan
      Documents

              	
                §10.1

              
	
                Majority
      Lenders

              	
                §10.1

              
	
                Material
      Adverse Effect

              	
                §10.1

              
	
                Material
      Contracts

              	
                §10.1

              
	
                Maturity
      Date

              	
                §10.1

              
	
                Net
      Proceeds

              	
                §10.1

              
	
                Note(s)

              	
                §1.1(a)

              
	
                Obligation(s)

              	
                §10.1

              
	
                Permitted
      Encumbrances

              	
                §10.1

              
	
                Person

              	
                §10.1

              
	
                Phoenix

              	
                Preamble

              
	
                Pledge
      and Security Agreement

              	
                §10.1

              
	
                Purchase
      Agreement

              	
                §10.1

              
	
                Real
      Property

              	
                §5.6

              
	
                Registration
      Rights Agreement

              	
                §10.1

              
	
                Restricted
      Junior Payment

              	
                §10.1

              
	
                SEC

              	
                §10.1

              
	
                Secured
      Party or Secured Parties

              	
                §10.1

              
	
                Security
      Documents

              	
                §10.1

              
	
                Security
      Interest

              	
                §10.1

              
	
                Series
      A Preferred Stock

              	
                §10.1

              
	
                Subsidiary

              	
                §10.1

              
	
                Warrant(s)

              	
                §10.1

              

      

      

       

      
        
          
            - vi -

          

           

        

        
           

          
            

          

        

        
          EXHIBIT 10-41 

        

      

      

       

      CREDIT
AGREEMENT

       

      This
CREDIT AGREEMENT is
entered into as of June 5, 2008, by and among COMMUNICATION INTELLIGENCE
CORPORATION, a Delaware corporation having an address at 275 Shoreline Drive,
Suite 500, Redwood Shores, California 94065 (“Borrower”) and PHOENIX
VENTURE FUND LLC, a Delaware limited liability company having an address at 110
East 59th Street, Suite 1901, New York, New York 10022 (“Phoenix”), Michael Engmann,
an individual having an address at 38 San Fernando Way, San Francisco,
California 94127 (“Engmann”) and Ronald Goodman,
an individual having an address at 31 Tierra Verde Court, Walnut Creek,
California 94598 (“Goodman”) (each of Phoenix,
Engmann and Goodman individually, a “Lender,” and collectively, the “Lenders”).  Capitalized
terms shall have the meanings given to them in Section 10.1
below.

       

      R E C I T A L S:

       

      WHEREAS, Lenders have agreed
to finance the Loans to the Borrower upon the terms  and for the uses
as provided in the Loan Documents; and

       

      WHEREAS, Borrower will have
access to additional working capital as a result of the Loans; and

       

      WHEREAS, certain proceeds of
the Loans will be used to refinance loans due and payable on May 15, 2008 to
certain of the Lenders as set forth on Schedule 1.3 pursuant
to the Debt Refinancing; and

       

      WHEREAS, Lenders are prepared
to make the Loans available to the Borrower only upon consummation of the Debt
Refinancing by the Investors; and

       

      WHEREAS, Borrower intends to
secure all of its Obligations under the Loan Documents by granting to Lenders a
first priority Security Interest in and Lien upon the Collateral;
and

       

      WHEREAS, Borrower intends to
further secure all of its Obligations under the Loan Documents by granting to
Lenders a pledge of all of its shares of capital stock,

       

      NOW, THEREFORE, in
consideration of the premises and the agreements, provisions and covenants
herein contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree, as
follows:

       

      SECTION
1. AMOUNTS
AND TERMS OF LOANS

       

      1.1 Loans

      .  Subject
to the terms and conditions of this Agreement and in reliance upon the
representations, warranties and covenants of Borrower contained herein and in
the other Loan Documents:

       

      (a) Loans to
Borrower.  Lenders
agree to lend to Borrower, on the Closing Date, an aggregate of Three Million
Six Hundred Thirty-Seven Thousand Five Hundred Dollars ($3,637,500), each Lender
to lend the amount set forth opposite its name on Schedule

       

      
        
          
          

        

        
          
          

          
            

          

        

        EXHIBIT
10-41

         

         

         1.1(a)
(individually, each a “Loan,” collectively, the “Loans”); provided all conditions
precedent set forth in Section 7 are
satisfied or waived.  Amounts borrowed under this Section 1.1(a) that
are repaid or prepaid may not be reborrowed.  Borrower shall execute
and deliver to each Lender a Note in the amount of such Lender’s Loan in the
form attached to this Agreement as Exhibit 1.1(a)
(together with any Notes issued pursuant to Section 1.2(b)),
dated as of the Closing Date.

      

       

      (b) Advances

       

      .  The
Loans will be made available (i) with respect to the Loans by Phoenix, by wire
transfer of immediately available funds to such account or accounts as may be
authorized by Borrower, less amounts for fees, and (ii) with respect to the
Loans by Engmann and Goodman, by termination of Borrower’s obligations under
such Lenders’ respective loans, as evidenced by the related promissory notes due
May 15, 2008, including the accrued and unpaid interest thereon through May 31,
2008, as set forth on Schedule
1.3.  Each of Engmann and Goodman, by accepting his respective
Note hereunder, acknowledges and agrees that such Note has been tendered by
Borrower, and accepted by him, as full payment and satisfaction for Borrower’s
obligations under his respective promissory note due May 15, 2008 as set forth
on Schedule 1.3
hereto, including accrued and unpaid interest through May 31, 2008, and, upon
the occurrence of the Closing and the delivery to each such Lender of his
respective Note hereunder, plus payment of an amount equal to interest on such
promissory note from (and including) June 1, 2008 to (but excluding) the Closing
Date, each of Engmann and Goodman acknowledge and agree that all obligations,
liabilities, covenants and agreements of Borrower under his respective
promissory note due May 15, 2008 described on Schedule 1.3, and
Borrower’s related obligations under that certain Note and Warrant Purchase
Agreement, dated as of August 10, 2006, pursuant to which such promissory notes
were issued, are terminated and cancelled and are of no further force or
effect.

       

      1.2 Interest.

       

      (a) Interest

       

      .  Commencing
as of the Closing Date, the Loans shall accrue interest on a monthly basis at a
rate equal to (i) eight percent (8%) per annum until the Maturity
Date.

       

      (b) Calculation and
Payment

       

      .  Interest
on the Loans shall be calculated on the basis of a three hundred sixty-five
(365) day year for the actual number of days elapsed.  The date of
payment of any Loan or interest on any Loan shall be excluded from the
calculation of interest.  Interest accruing on each Loan is payable in
arrears on each of the following dates or events: (i) the last day of each
calendar quarter commencing on June 30, 2008; (ii) the prepayment of such Loan
(or a portion thereof); and (iii) the Maturity Date.  Such interest
may be paid in cash or, at the option of Borrower, interest may be paid in kind
by adding the amount of such interest to the principal amount of each Loan (each
Lender’s Loan to be ratably increased) on the applicable interest payment date,
which will accrue interest pursuant to Section 1.2(a) or
Section 1.2(c),
as applicable, and issuing to each Lender (i) an additional note in the amount
of the ratable increase of such Lender’s Loan in substantially the form attached
as Exhibit
1.2(b)-1 (each, an “Additional Note”) and (ii) an
additional warrant substantially in the form attached as Exhibit 1.2(b)-2 to
purchase up to the number of shares of Common Stock obtained by dividing the
amount of the ratable increase in such Lender’s 

       

      
        
          
          

        

        
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          EXHIBIT
10-41

        

         

         

        Loan by
0.14 (each, an “Additional
Warrant”).  In the event that interest is not timely paid
pursuant to this Section 1.2(b) on the
applicable interest payment date, such interest payment shall be paid in kind
and shall be added to the principal amount of each respective Lender’s Loan no
later than the Business Day following the applicable interest payment date, and
the Borrower shall issue the applicable Additional Notes and Additional Warrants
as provided herein.  Borrower shall, in connection with the issuance
of Additional Warrants pursuant hereto, take all actions (including the
reservation of shares of Common Stock) required pursuant to the terms of such
Additional Warrants.  Notwithstanding the foregoing, Borrower shall
not have an option to pay interest in kind in the event that Borrower does not
have sufficient authorized, unissued and unreserved Common Stock to fully
reserve shares of Common Stock for issuance upon exercise of the Additional
Warrants or is otherwise unable to comply with the terms of the Additional
Warrants.

         

      

      (c) Default Rate of
Interest

       

      .  At
the election of the Majority Lenders, upon the occurrence of an Event of Default
and for so long as it continues, all Loans and other Obligations shall bear
interest at the highest rate permitted by Applicable Law.

       

      (d) Excess
Interest

       

      .  Notwithstanding
anything to the contrary set forth herein, the aggregate interest, fees and
other amounts required to be paid by Borrower to Lenders is hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the Obligations or otherwise, shall the amount paid
or agreed to be paid to Lenders for the use or the forbearance of the
Obligations evidenced hereby exceed the maximum permissible under Applicable
Law.  If under or from any circumstances whatsoever, fulfillment of
any provision hereof or of any of the other Loan Documents at the time
performance of such provision shall be due, shall involve exceeding the limit
permitted by Applicable Law then the Obligation to be fulfilled shall
automatically be reduced to the limit permitted, and if under or from any
circumstances whatsoever, Lenders should ever receive as interest any amount
which would exceed the highest lawful rate, the amount of such interest that is
excessive shall be applied to the reduction of the principal balance of the
Obligations and not to the payment of interest.  In the event of a
conflict, this provision shall control every other provision of this Agreement
and all provisions of every other Loan Document.

       

      1.3 Use of
Proceeds

       

      .  Borrower
agrees that the proceeds of the Loans shall be used only in accordance with the
following: (1) to refinance the loans due and payable on May 15, 2008 to certain
of the Lenders as set forth on Schedule 1.3 hereto
pursuant to the Debt Refinancing, (2) for working capital and general corporate
purposes, in each case in the ordinary course of business and (3) to pay fees
and expenses in connection with the Debt Refinancing, including the fees and
expenses hereunder.  In no event shall the proceeds of working capital
Loans be used to (i) make distributions, or (ii) make a contribution to the
capital of any Subsidiary of the Borrower.

       

      1.4 Fees and
Expenses.

       

      (a) Borrower
agrees to pay promptly all fees, costs and expenses (including legal fees, due
diligence costs, expenses of attorneys and costs of advisers, counsel,
accountants and other experts, if any) incurred by Lenders, Investors,
Collateral Agent and/or any Affiliate, member or related party of any Lender,
Investor or Collateral Agent in connection with (i) the Debt Refinancing, (ii)
any matters contemplated by or arising out of the Loan Documents and the
Purchase Agreement, (iii) the examination, review, due diligence investigation,
documentation, negotiation and closing of the transactions contemplated herein
or otherwise in connection with the Debt Refinancing; (iv) the continued
administration of the Loan Documents, including any such fees, costs and
expenses incurred in perfecting, maintaining, determining the priority of
and releasing any security, any tax (of the type discussed in Section 7.16)
payable in connection with 

       

      
        
          
          

        

        
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      any Loan
Document or other Debt Refinancing Document and any amendments, modifications
and waivers thereof; (v) any amendment, supplement, waiver or modification of
any of the Loan Documents or other Debt Refinancing Documents, unless both (1)
such amendment, supplement, waiver or modification is made at the request and
for the sole benefit of any Lender and (2) no Event of Default has occurred and
is continuing, in which case each Lender shall be responsible for its related
fees, costs and expenses; and (vi) any Default and any enforcement or collection
proceeding resulting therefrom or any workout or restructuring of any of the
transactions hereunder or under any other Debt Refinancing Document or
contemplated hereby or thereby or any action to enforce any Loan Document or
other Debt Refinancing Document or to collect any payments due from Borrower
hereunder or thereunder.

       

      
        (b) The
Borrower shall pay at Closing to or at the direction of Phoenix a restructuring
fee of one hundred thousand dollars ($100,000).

      

       

      (c) The
aggregate amount of fees and expenses accrued under Section 1.4(a) as of
the Closing Date shall be paid by Borrower at Closing.  All
post-Closing fees, costs and expenses for which Borrower is responsible shall be
immediately due and payable and deemed part of the Obligations when incurred and
shall be secured by the Collateral.  Following an Event of Default,
any fees, costs and expenses which are not paid within thirty (30) days of
presentment may be debited and added to the principal amount of the applicable
Loans without notice.

       

      1.5 Payments.

       

      (a) Funds.  All
payments by Borrower of the Obligations shall be made in same day funds and
delivered to each Lender by wire transfer to the following account or such other
place as such Lender may from time to time designate:

       

      
        
          
          

        

        
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          EXHIBIT
10-41

        

      

      
         

         

        If to
Phoenix:

        
 

        Citibank
N.A.

        666 Fifth
Avenue, 6th
Floor

        New York,
New York 10103

        Attn: H.
Alex Trejo at Citi Private Bank

         

        ABA
*****

         

        for
account ***** for the account of SG Phoenix LLC

         

        If to
Engmann:

        

        Bank of
the West

        180
Montgomery St. 3rd
Floor

        San
Francisco, California 94104

        Attn:
Daniel Tondeau or Jennifer Avi

        ABA
*****

        for
account ***** for the account of Michael W. Engmann

        

        If to
Goodman:

         

        Wells
Fargo Bank

         

        1499
North Main Street

         

        ABA
*****

         

        for
account ***** for the account of Ronald Goodman or Janet Goodman

         

      (b) Credit.  Borrower
shall receive credit on the day of receipt for funds received by Lender by 1:00
p.m., New York, New York time, on any Business Day.  Funds received
after 1:00 p.m., New York, New York time, on any Business Day shall be deemed to
have been paid on the next Business Day.  Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a Business Day,
the payment shall be due on the next succeeding Business Day and such extension
of time shall be included in the computation of the amount of interest and fees
due hereunder.

       

      (c) Payment Set
Aside.  To the extent Borrower, or any other Person on behalf
of Borrower, makes a payment or payments to a Lender in order to satisfy any
amount of Borrower’s Obligations, which payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, or any
combination of the foregoing (whether by demand, litigation, settlement or
otherwise), then, to the extent of such payment or proceeds repaid, the
Obligations or part thereof intended to be satisfied shall be reinstated and
continued in full force and effect as if such payment or proceeds had not been
received by such Lender.

       

      1.6 Repayments of
Loans.

       

      
        
          
          

        

        
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10-41

        

      

      (a) Scheduled Repayments of
Loans.  Borrower shall repay the aggregate outstanding
principal balance of the Loans on and by the Maturity Date.  All
repayments of the Loans shall be applied in accordance with Section 1.6(f), and
shall be accompanied by accrued interest on the amount repaid.

       

      (b) Voluntary Prepayment of
Loans.  Upon three (3) Business Day’s prior notice, Borrower
may prepay the Loans, in whole or in part.  All prepayments shall be
in a minimum amount of at least One Hundred Thousand Dollars ($100,000) or such
other lesser amount as may equal the then outstanding aggregate principal amount
of the Loans.  All prepayment notices shall be
irrevocable.  All prepayments shall be applied pro rata to each Loan and
shall be remitted to each respective Lender.  All prepayments shall be
accompanied by accrued interest on the amount prepaid plus any applicable
breakage fees, and any amount so repaid may not be reborrowed.

       

      (c) Repayments from Insurance
Proceeds.  Immediately upon their receipt, Borrower shall repay
the Loans in an amount equal to all Net Proceeds constituting insurance proceeds
from any Asset Disposition received by Borrower or any of its Subsidiaries;
provided, however, that
Borrower shall not be required to so apply an amount of such Net Proceeds up to
One Hundred Thousand Dollars ($100,000) in any calendar year if the following
requirements are satisfied: (i) such proceeds are pledged to Lender, (ii) no
Event of Default has occurred and is continuing, and (iii) Borrower or such
Subsidiary has taken steps in good faith and customary in its industry to
replace the damaged Collateral and in any event such replacement or restoration
has occurred within two hundred and seventy (270) days of receipt by Borrower or
such Subsidiary of such proceeds.  All such repayments (other than
prepayments under Section 1.6(b) as
contemplated in this Section 1.6) shall be
applied in accordance with Section
1.6(f).

       

      (d) Repayments from Certain
Asset Dispositions.  Immediately upon receipt by Borrower or
any of its Subsidiaries of Net Proceeds (other than insurance proceeds) from any
Asset Disposition, Borrower shall repay the Loans in an amount equal to such Net
Proceeds.  All such repayments shall be applied in accordance with
Section
1.6(f).

       

      (e) Repayments from Debt or
Equity Issuances.  Immediately upon receipt by Borrower or any
of its Subsidiaries of Net Proceeds relating to the issuance or incurrence by
Borrower or any of its Subsidiaries of any public or private Indebtedness (other
than pursuant to Section 3.1) or any
equity (but other than issuance of equity upon conversion or exercise of (i) any
security outstanding prior to the date hereof, (ii) the Series A Preferred
Stock, (iii) the Warrants or (iv) any option for Common Stock issued on or after
the date hereof to an employee or member of the Board of Directors of Borrower
pursuant to an equity compensation plan), Borrower shall repay the Loans in an
amount equal to such Net Proceeds.  All such repayments shall be
applied in accordance with Section
1.6(f).

       

      (f) Application of
Repayments.  All repayments of a Loan shall be applied first to
fees and expenses due under the Loan Documents, then to accrued and unpaid
interest, and then to the outstanding principal balance of the
Loans.  All repayments, after application to payment of fees and
expenses, shall be applied pro rata to each Loan including accrued and unpaid
interest thereon, and shall be remitted to each respective Lender.

       

      
        
          
          

        

        
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      (g) Payment Upon Sale or Change
of Control.  Borrower shall repay immediately upon the
occurrence of such event, in full in cash in same day funds the aggregate
outstanding principal balance on the applicable Notes and all accrued interest
in the event of a sale of all or substantially all of the assets of Borrower, or
upon the occurrence of a Change of Control of Borrower, whether in a single
transaction or a series of related transactions.

       

      (h) Breakage
Costs.  If Borrower makes any payment of principal with respect
to a Loan on any day other than (i) the last day of a calendar quarter after
Closing or (ii) the Maturity Date, or fails to make a prepayment after giving
notice thereof, Borrower shall reimburse each Lender within 10 days after demand
for any resulting loss or expense incurred by it (or by an existing or
prospective Participant in a Loan who has signed an agreement relating to such
prospective participation and has incurred actual breakage costs), including
without limitation any loss incurred in obtaining, liquidating or employing
deposits from third parties, but excluding loss of margin for the period after
any such payment or failure to prepay, provided that such Lender or
Participant, as the case may be, shall have delivered to Borrower a certificate
describing the amount of such loss or expense in reasonable detail, which
certificate shall be conclusive in the absence of manifest error.

       

      1.7 Loan
Accounts.  Lenders
will maintain Loan account records for (i) all Loans, interest charges and
payments thereof, (ii) the charging and payment of all fees, costs and expenses,
and (iii) all other debits and credits pursuant to this
Agreement.  The balance in the Loan accounts shall be presumptive
evidence of the amounts due and owing to Lenders, absent manifest error; provided that any failure by
Lenders to maintain such records shall not limit or affect Borrower’s obligation
to pay.

       

      1.8 Taxes.

       

      (a) No
Deductions.  Any and all payments or reimbursements made under
the Loan Documents shall be made free and clear of, and without deduction for,
any and all taxes, levies, deductions, charges or withholdings, and all
liabilities with respect thereto (including all such taxes, deductions, charges
or withholdings and all liabilities with respect thereto, excluding such taxes
imposed on net income).  If Borrower shall be required by Applicable
Law to deduct any such amounts from or in respect of any sum payable hereunder
to Lenders then, except as provided in Section 1.8(b),
Borrower shall pay such amounts to the appropriate Governmental Authority and
provide Lenders with satisfactory documentary evidence of such payment within
ten (10) days after such payment and the sum payable hereunder shall be
increased as may be necessary so that, after making all required deductions,
Lenders receive an amount equal to the sum they would have received had no such
deductions been made.

       

      (b) Changes in Tax
Laws.  In
the event that, subsequent to the Closing Date, (i) any changes in any existing
law, regulation, treaty or directive or in the interpretation or application
thereof, (ii) any new law, regulation, treaty or directive enacted or any
interpretation or application thereof, or (iii) compliance by Lenders with any
request or directive (whether or not having the force of law) from any
Governmental Authority (x) does or shall subject Lenders to any tax of any kind
whatsoever with respect to this Agreement, the other Loan 

       

      
        
          
          

        

        
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10-41

        

      

       

      Documents
or any Loans made hereunder, or change the basis of taxation of payments to
Lenders of principal, fees, interest or any other amount payable hereunder
(except for net income taxes or franchise taxes imposed in lieu of net income
taxes, or changes in the rate of such taxes); or (y) does or shall impose on
Lenders any other condition or increased cost in connection with the
transactions contemplated hereby; and the result of any of the foregoing is to
increase the cost to Lenders of making or continuing any Loan hereunder, or to
reduce any amount receivable hereunder, as the case may be, then, in any such
case, the Borrower shall promptly pay to Lenders, upon its demand, any
additional amounts necessary to compensate Lenders, on an after-tax basis, for
such additional cost or reduced amount receivable, as determined by Lenders with
respect to this Agreement or the other Loan Documents.  If Lenders
become entitled to claim any additional amounts pursuant to this Section 1.8(b), it
shall promptly notify Borrower of the event by reason of which Lenders have
become so entitled.  A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Lenders to Borrower
shall, absent manifest error, be final, conclusive and binding for all
purposes.  There is no limitation on the number of times such a
certificate may be submitted.

       

      1.9 Warrants.  In
partial consideration for the Lenders’ respective Loans made pursuant to this
Agreement, Borrower shall issue warrants (the “Initial Warrants”), in
substantially the form of Exhibit 1.9 hereto,
each Lender to purchase up to the number of shares obtained by dividing the
amount of such Lender’s Loan by 0.14.  Additional Warrants may be
issued in the event of Borrower’s election to make payments in kind in
accordance with the terms of this Agreement.

       

      1.10 Term of This
Agreement.  All
of the Obligations shall become due and payable as otherwise set forth herein,
but in any event, all of the remaining Obligations shall become due and payable
on the Maturity Date.  This Agreement shall remain in effect through
and including, and (except with respect to provisions hereof expressly stated
herein to survive any such termination) shall terminate immediately after, the
date on which all Obligations shall have been irrevocably paid and satisfied in
full.

       

      SECTION
2. AFFIRMATIVE
COVENANTS

       

      Borrower
hereby covenants and agrees that until payment in full of all Obligations,
unless the Majority Lenders give their prior written consent, Borrower shall
perform and comply, and shall cause each of its Subsidiaries to perform and
comply, with all covenants in this Section
2.

       

      2.1 Compliance With
Laws.  Borrower
will in all material respects comply with and will cause its Subsidiaries to
comply with the requirements of all Applicable Laws (including laws, rules,
regulations and orders relating to taxes, employer and employee contributions,
securities, and employee retirement and welfare benefits) as in effect in all
jurisdictions in which Borrower and any Subsidiary of Borrower are now or
hereafter doing business.  This Section 2.1 shall not
preclude Borrower or any Subsidiary of Borrower from contesting any taxes or
other payments, if such taxes and other payments are being diligently contested
in good faith and if adequate reserves (if required by Applicable Law) therefore
are maintained in conformity with GAAP.

       

      
        
          
          

        

        
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10-41

        

      

       

       

      2.2 Maintenance of Books and
Records; Properties; Insurance.

       

      (a) Books and
Records.  Borrower
will keep and will cause each of its Subsidiaries to keep adequate records and
books of account, in which complete entries will be made in accordance with GAAP
consistently applied.  Borrower will maintain or cause to be
maintained and will cause each of its Subsidiaries to maintain or cause to be
maintained in good repair, working order and condition all Collateral used in
its business and the business of its Subsidiaries, and will make or cause to be
made all appropriate repairs, renewals and replacements
thereof.  Borrower will and will cause each of its Subsidiaries to
maintain complete, accurate and up-to-date books, records, accounts and other
information relating to all Collateral in such form and in such detail as may be
reasonably satisfactory to Lenders.

       

      (b) Insurance.  Borrower
will maintain or cause to be maintained and will cause each of its Subsidiaries
to maintain or cause to be maintained, with financially sound and reputable
insurers, commercial general liability, property loss and damage and business
interruption insurance with respect to its business and properties and the
business and properties of its Subsidiaries against loss and damage of the kinds
customarily carried or maintained by similarly situated corporations engaged in
businesses similar to the Borrower’s and of such types, with such insurers, in
such amounts, with such limits and deductibles and otherwise on such terms and
conditions as shall be acceptable to Lenders in their reasonable discretion and
will deliver evidence thereof to Lenders on or prior to the Closing Date, and
thereafter at least thirty (30) days prior to any expiration thereof, evidence
of renewal of such insurance.  All property loss and damage insurance
shall be on an all-risk basis and shall insure property for the full replacement
cost thereof and contain an agreed amount endorsement waiving any coinsurance
penalty.  Other than Borrower’s directors and officers policy set
forth on Schedule
2.2(b) hereto, Borrower will cause each insurance policy to be subject to
such endorsements and assignments as shall be satisfactory to Lenders, including
but not limited to naming Lenders (or Collateral Agent on behalf of Lenders) as
lender loss payee in the case of property loss and damage insurance, as assignee
in the case of all business interruption insurance, and as an additional insured
in the case of all liability insurance.  Liability for premiums shall
be solely a liability of Borrower.

       

      2.3 Inspection; Lenders’
Meeting.  Upon
reasonable prior notice (which shall not be less than one Business Day),
Borrower will permit and will cause each of its Subsidiaries to permit Lenders
and any authorized representatives of Lenders to visit and inspect any of its
properties and the properties of its Subsidiaries, including their financial and
accounting records, and to make copies and take extracts therefrom, for the
purpose of determining or monitoring the value of the Collateral and to discuss
the Borrower’s and its Subsidiaries’ affairs, finances and business with its and
their officers, employees and public accountants, upon reasonable prior notice
at such times during normal business hours and as often as may be reasonably
requested; provided
that if there is no Event of Default that has occurred and is continuing,
Borrower and its Subsidiaries may, but shall not be required, to permit the
foregoing more than two (2) times each calendar
quarter.  Notwithstanding the preceding sentence, this Section 2.3 shall not
require Borrower to disclose material non-public information within the meaning
of Regulation FD under the Securities Exchange Act of 1934, as amended (the
“1934 Act”), to any
Person unless such Person has expressly agreed to maintain such information in
confidence in accordance with the confidentiality provisions of Section 9.12
hereof.

       

      
        
          
          

        

        
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      2.4 Legal Existence,
Etc.  Except
as otherwise permitted by Section 3.6, Borrower
will, and will cause each of its Subsidiaries to, at all times preserve and keep
in full force and effect its legal existence and good standing and all rights
and franchises material to its or their business.

       

      2.5 Use of
Proceeds.  Borrower
will use the proceeds of the Loans, and will cause any of its Subsidiaries who
receive (directly or indirectly) proceeds of the Loans to use such proceeds,
solely for the purposes described in Section 1.3 of this
Agreement.  No part of any Loan will be used (directly or indirectly)
to purchase any margin securities or otherwise in violation of the regulations
of the Federal Reserve System.

       

      2.6 Authorized Common
Stock.  By
no later than June 30, 2008, Borrower shall have obtained stockholder approval
of, and shall have taken all requisite actions (including filing an amendment to
its Certificate of Incorporation with the Delaware Secretary of State) to
increase the Borrower’s authorized Common Stock by a sufficient amount to fully
reserve shares of Common Stock for issuance upon exercise of the Warrants and
otherwise in accordance with the terms of the Warrants and conversion of the
Series A Preferred Stock issued pursuant to the Purchase Agreement (including
any Additional Warrants or Series A Preferred Stock that may be issued in the
event of Borrower’s election to make payments in kind in accordance with the
terms of this Agreement and the Series A Preferred Stock, as
applicable).

       

      2.7 Further Assurances; Notices
of Acquisition of Property.

       

      (a) Borrower
will, and will cause each of its Subsidiaries to, do, execute and deliver, as
applicable, all such additional and further acts, documents and instruments as
the Lenders request to consummate the transactions contemplated hereby and to
vest completely in and assure Lenders of their respective rights under this
Agreement and the other Loan Documents, including such financing statements,
documents, security agreements and reports to evidence, perfect or otherwise
implement the security for repayment of the Obligations contemplated by the Loan
Documents.

       

      (b) Borrower
will notify Lenders in each Compliance Certificate delivered pursuant to Section 4.1(b) of the
acquisition (including by way of lease) by Borrower (or any of its Subsidiaries)
of any property or any interest therein, and will, in a timely manner, execute
and deliver all such additional documents and instruments in connection with the
acquisition of such property as Lenders may reasonably require.

       

      2.8 Taxes and other Government
Charges. Subject
to the second sentence of this Section 2.8, Borrower
shall timely tile, or cause to be filed, all material tax returns and pay, or
cause to be paid as and when due and prior to any delinquency, all material
taxes, assessments and governmental charges of any kind that may at any time be
lawfully assessed or levied against or with respect to Borrower or its
Subsidiaries.  Borrower may contest in good faith any such taxes,
assessments and other charges and, in such event, may permit the taxes,
assessments or other charges so contested to remain unpaid during any period,
including appeals, when Borrower is in good faith contesting the same, so long
as (a) reserves to the extent required by GAAP have been established in an
amount sufficient to pay any such taxes, assessments or other charges, accrued
interest 

       

      
        
          
          

        

        
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      thereon
and potential penalties or other costs relating thereto, or other adequate
provision for the payment thereof shall have been made and maintained at all
times during such contest, (b) enforcement of the contested tax, assessment or
other charge is stayed for the entire duration of such contest, and (c) any tax,
assessment or other charge determined to be due, together with any interest or
penalties thereon, is promptly paid after resolution of such
contest.

       

      SECTION
3. NEGATIVE
COVENANTS

       

      Borrower
hereby covenants and agrees that until payment in full of all Obligations,
unless the Majority Lenders give their prior written consent, Borrower shall
perform and comply, and shall cause each of its Subsidiaries to perform and
comply, with all covenants in this Section
3.

       

      3.1 Indebtedness.  Except
as set forth on Schedule 3.1,
Borrower will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume, issue, guaranty or otherwise become or remain
liable with respect to any Indebtedness other than: (a) the Obligations
(including any renewals, extensions or refinancings thereof, in whole or in
part); (b) the Contingent Obligations permitted by Section 3.4; (c)
Indebtedness under purchase money security agreements, Capital Leases and
equipment leases, the aggregate amount of which for the Borrower and
Subsidiaries on a consolidated basis shall not at any time exceed $50,000 from
the Closing Date through the first anniversary of the Closing Date, plus an
additional $50,000 through each anniversary of the Closing Date thereafter; (d)
renewals, extensions, refinancings and refundings of Indebtedness permitted by
this Section
3.1, provided
that any such renewal, extension, refinancing or refunding is on terms
satisfactory to the Lenders in their sole discretion (as evidenced by the
written consent of the Majority Lenders); and (e) other unsecured Indebtedness
ranking junior to the Security Interests of Lenders that, without the prior
written consent thereto of the Majority Lenders, shall not exceed $100,000
individually or $250,000 in the aggregate at any time outstanding.

       

      3.2 Liens and Related
Matters.

       

      (a) No Liens.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume or permit to exist any Lien on or with respect
to any property or asset (including, but not limited to, any document or
instrument with respect to accounts receivable) of Borrower or any of its
Subsidiaries, whether now owned or hereafter acquired, or any income or profits
therefrom, except Permitted Encumbrances, Liens, if any, in effect as of the
Closing Date securing Indebtedness described on Schedule 3.1, and any
Lien securing the extension, renewal, refinancing or refunding of any
Indebtedness secured by any Lien permitted by this Section 3.2(a); provided there is (i) no
change in the assets subject to such Lien and (ii) no increase in the amount of
Indebtedness secured by the assets subject to such Lien.

       

      (b) No Negative
Pledges.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, enter into or assume any agreement (other than the Loan Documents or
instruments entered into in connection with Permitted Encumbrances) prohibiting
the creation or assumption of any Lien created or required pursuant to any of
the Loan Documents upon its or their respective properties or assets, whether
now owned or hereafter acquired.

       

      
        
          
          

        

        
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      3.3 Investments.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, make or own any Investment in any Person except that Borrower and
its Subsidiaries may make and own (a) Investments in Cash Equivalents; provided that such Cash
Equivalents are not subject to set-off rights; (b) any Investment in any note
constituting Indebtedness under Section 3.1
above.

       

      3.4 Contingent
Obligations.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or become or be liable with respect to any Contingent
Obligation except those resulting from endorsement of negotiable instruments for
collection in the ordinary course of business.

       

      3.5 Restricted Junior
Payments.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, declare, order, pay, make or set apart any sum for any Restricted
Junior Payment.

       

      3.6 Restriction on Fundamental
Changes.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly: (a) unless and only to the extent required by Applicable Law, amend,
modify or waive any term or provision of its articles of incorporation or bylaws
other than an amendment, modification or waiver that is solely ministerial or
administrative in nature and that could not reasonably likely have an adverse
effect on the interests of Lenders; provided that notice of such
ministerial or administrative amendment, modification or waiver is given to
Lenders prior to such act; (b) enter into any transaction of merger or
consolidation except that any Subsidiary of Borrower may be merged with or into
Borrower (provided that
Borrower is the surviving entity); (c) liquidate, recapitalize, reorganize,
wind-up or dissolve itself (or suffer any liquidation or dissolution); (d)
acquire all or substantially all of the assets of another Person other than in
the ordinary course of the Borrower’s business; or (e) commence a voluntary case
under the Bankruptcy Code, file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, winding up or
composition for adjustment of debts of Borrower or any of its Subsidiaries, or
consent to, or fail to contest in a timely and appropriate manner, the entry of
an order for relief in an involuntary case.

       

      3.7 Disposal of Assets or
Subsidiary Stock.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, convey, sell, issue, lease, sublease, transfer or otherwise dispose
of, or grant to any Person an option to acquire, in one transaction or a series
of transactions, any of its property, business or assets, or the capital stock
of or other equity interests in it or in any of its Subsidiaries, except for (a)
bona fide sales of product or inventory to customers in the ordinary course of
business and dispositions of obsolete equipment not used or useful in the
business and de minimis
asset sales; (b) leasing or subleasing of its property in the ordinary course of
business; and (c) all other Asset Dispositions, the Net Proceeds of which are
applied in accordance with Section 1.6
above.

       

      3.8 Transactions with
Affiliates.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate or with any director, officer or employee of
Borrower or any Affiliate, except (a) transactions in the ordinary course of and
pursuant to the reasonable 

       

       

      
        
          
          

        

        
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      requirements
of the business of Borrower or such Subsidiary and upon fair and reasonable
terms that are no less favorable to Borrower or such Subsidiary than would be
obtained in a comparable arm’s length transaction with a Person that is not an
Affiliate; provided
that such transactions are subject to approval of a majority of the
disinterested directors on the Board of Directors of the Borrower and that
Borrower shall forthwith notify Lenders in writing of each such transaction; or
(b) payment of compensation to directors, officers and employees in the ordinary
course of business for services actually rendered in their capacities as
directors, officers and employees; provided (i) such
compensation is reasonable and comparable with compensation paid by companies of
like nature and similarly situated; and (ii) any increase in compensation of
officers and directors (other than in accordance with the employment agreements
of such officers and directors in effect on the Closing Date) is subject to the
prior written consent of the Majority Lenders.

       

      3.9 Management
Fees.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, pay any management or other similar fees to any Person, except as
provided under Section
1.4.

       

      3.10 Conduct of
Business.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, effect any material change in the nature of its business, or engage
in any business other than, as carried on as of the date hereof and described in
Section
5.3.

       

      3.11 Fiscal
Year.  Borrower
will not, and will not permit any of its Subsidiaries to, change its fiscal
year.

       

      3.12 Subsidiaries;
Partnerships.  Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, establish, create or acquire any Subsidiary, become a general or
limited partner in any partnership or a joint venturer in any joint
venture.

       

      3.13 Modification of
Agreements.  Borrower
will not amend, modify or change, or consent or agree to any amendment,
modification or change to, any of the terms of any Material Contracts, except to
the extent such change, amendment, modification or consent is not materially
adverse to Lenders and would not otherwise have a Material Adverse
Effect.

       

      3.14 Board of
Directors.  Borrower
will not expand or decrease the number of members on its Board of
Directors.

       

      3.15 Management of
Borrower.  Borrower
will not elect, appoint or remove any executive officer, including the chief
executive officer, chief financial officer, president, chief operating officer,
chief accounting officer or controller.

       

      3.16 Investment Company Act;
Public Utility Holding Act.  Neither
Borrower nor any of its Subsidiaries shall be or become an “investment company”
as that term is defined in and is not otherwise subject to regulation under, the
Investment Company Act of 1940, as amended (the “1940 Act”).

       

      
        
          
          

        

        
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      SECTION
4. FINANCIAL
COVENANTS AND REPORTING

       

      4.1 Reports and
Covenants.  Borrower
hereby covenants and agrees that until payment in full of all Obligations,
unless the Majority Lenders shall otherwise give their prior written consent,
Borrower (where indicated) shall perform and comply with, and shall cause each
of its Subsidiaries (where indicated) to perform and comply with, all covenants
in this Section
4.  For the purposes of this Section 4, all
covenants calculated for Borrower shall be calculated on a consolidated basis
for Borrower and its Subsidiaries.

       

      (a) Financial Statements and
Other Reports.  Borrower will maintain, and cause each of its
Subsidiaries to maintain, a system of accounting established and administered in
accordance with sound business practices to permit preparation of financial
statements in conformity with GAAP (it being understood that quarterly financial
statements are not required to have footnote disclosures).  Borrower
will deliver or cause to be delivered each of the financial statements and other
reports described below to Lender.

       

      (i) Quarterly and Annual
Reports.  Whether or not required by the rules and regulations
of the SEC, so long as any Obligations are outstanding, Borrower shall furnish
to Lenders, within the time periods specified in the SEC’s rules and
regulations, all quarterly and annual reports that would be required to be filed
with the SEC on Forms 10-Q and 10-K if Borrower were required to file such
reports.  All such reports shall be prepared in all material respects
in accordance with all of the rules and regulations applicable to such
reports.  Each annual report on Form 10-K shall include a report on
Borrower’s consolidated financial statements by Borrower’s certified independent
accountants and certifications by Borrower’s principal executive officer and
principal financial officer in the forms required by Item 601(b)(31) and (32) of
Regulation S-K under the 1934 Act.  In addition, the Borrower shall
file a copy of each of the reports with the SEC for public availability within
the time periods specified in the rules and regulations applicable to such
reports (unless the SEC shall not accept such a filing).  Borrower’s
obligation to furnish such reports to the Lenders hereunder may be satisfied by
filing such reports with the SEC for so long as the SEC accepts such
filings.  If, at any time, Borrower is no longer subject to the
periodic reporting requirements of the 1934 Act for any reason, Borrower shall
nevertheless continue filing the reports specified in this Section 4.1(a) with
the SEC within the time periods specified above unless the SEC shall not accept
such a filing.  Borrower agrees that it shall not take any action for
the purpose of causing the SEC not to accept any such filings.  If,
notwithstanding the foregoing, the SEC shall not accept Borrower’s filings for
any reason, Borrower shall, within the time periods that would apply if Borrower
were required to file those reports with the SEC, post the reports referred to
in Section
4.1(a) on its website and provide Lenders copies thereof.

       

      (ii) Monthly
Financials.  If, and for so long as Collateral Agent shall
request, as soon as available and in any event within forty-five (45) days after
the end of each January, February, April, May, July, August, October and
November, Borrower will deliver or cause to be delivered to Collateral Agent
consolidated and consolidating balance sheets of Borrower and its Subsidiaries,
as at the end of such month, and the related consolidated and consolidating
statements of income and operating cash flow for such month, and for the period
from the beginning of the then current fiscal year of Borrower to the end of
such month.

       

      
        
          
          

        

        
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      (iii) Monthly
Budgets.  If, and for so long as Collateral Agent shall
request, as soon as available and in any event within forty-five (45) days after
the end of each January, February, April, May, July, August, October and
November, Borrower will deliver or cause to be delivered to Collateral Agent any
budgets, forecasts, projections or similar documents prepared by the Borrower
prior to the end of such month that have not previously been so
delivered.

       

      (iv) Other
Reports.  Promptly following receipt thereof, Borrower shall
deliver to Lenders copies of any management letter or report by independent
public accountants with respect to the financial condition, operations or
business of the Borrower and its Subsidiaries.

       

      

      (b) Compliance
Certificates.  Together with each delivery of financial
statements of Borrower and its Subsidiaries, as applicable, Borrower will
deliver or cause to be delivered (i) a fully and properly completed compliance
certificate in substantially the same form as Exhibit 4.1(b) (each,
a “Compliance
Certificate”) signed by the chief executive officer or chief financial
officer of Borrower.

       

      (c) Press
Releases.  Promptly upon their becoming available, the Borrower
will deliver or cause to be delivered copies of all press releases and other
statements made available by Borrower or any of its Subsidiaries to the public
concerning developments in the business of any such Person.

       

      (d) Events of Default,
Etc.  Promptly upon any executive officer of Borrower obtaining
knowledge of any of the following events or conditions, Borrower shall deliver
copies of all notices given or received by Borrower or any of its Subsidiaries
with respect to any such event or condition and a certificate of the chief
executive officer or chief operating officer of Borrower specifying the nature
and period of existence of such event or condition and what action Borrower or
such Subsidiary has taken, is taking and proposes to take with respect thereto:
(i) any condition or event that constitutes an Event of Default or Default; (ii)
any notice that any Person has given to Borrower or any of its Subsidiaries or
any other action taken with respect to a claimed default or event or condition
of the type referred to in Section 6.1(b); or
(iii) any event or condition that could reasonably be expected to have a
Material Adverse Effect.

       

      (e) Litigation.  Promptly
upon any executive officer of Borrower obtaining knowledge of (i) the
commencement of any action, suit, proceeding, governmental investigation or
arbitration against or affecting Borrower or any of its Subsidiaries not
previously disclosed by Borrower to Lenders; or (ii) any material development in
any action, suit, proceeding, governmental investigation or arbitration at any
time pending against or affecting Borrower or any of its Subsidiaries which, in
each case or in the aggregate, is expected by counsel to Borrower to have a
Material Adverse Effect, Borrower will promptly give notice thereof to Lenders
and provide such other information as may be reasonably available to Borrower to
enable Lenders and their counsel to evaluate such matter.

       

      (f) Supplemented Schedules;
Corporate Changes.  From time to time, and concurrently with
the delivery by Borrower of the Compliance Certificates required by Section 4.1(b),
Borrower shall, if necessary to prevent the same from becoming materially

       

      
        
          
          

        

        
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      misleading,
supplement in writing and deliver revisions of the Schedules annexed to this
Agreement to the extent necessary to disclose material new or changed facts or
circumstances after the Closing Date; provided, that (i) subsequent
disclosures shall not constitute a cure or waiver of any Default or Event of
Default resulting from the matters disclosed; and (ii) any revised Schedule
shall not in and of itself be deemed a breach of any representation of the other
Loan Documents so long as such Schedules are delivered within thirty (30) days
of Borrower becoming aware of the new information set forth
therein.

       

      (g) Regulatory and Other
Notices.  Within thirty (30) days after filing, receipt or
becoming aware thereof, Borrower will deliver or cause to be delivered copies of
any filings or communications sent to or notices and other communications
received by Borrower, or any of its Subsidiaries from any Governmental Authority
relating to any noncompliance by Borrower or any of its Subsidiaries with any
law or with respect to any matter or proceeding the effect of which could
reasonably be expected to have a Material Adverse Effect.

       

      (h) Other
Information.  Promptly upon request, Borrower will deliver such
other information and data with respect to Borrower and any of its Subsidiaries
as from time to time may be reasonably requested by Lenders.

       

      4.2 Accounting Terms;
Utilization of GAAP.  For
purposes of this Agreement, all accounting terms not otherwise defined herein
shall have the meanings assigned to such terms in conformity with
GAAP.  Except as otherwise expressly provided, financial statements
furnished to Lenders pursuant to Section 4.1(a) shall
be prepared in accordance with GAAP as in effect at the time of such
preparation.  No Accounting Changes (as defined below) shall affect
financial covenants, standards or terms in this Agreement.  “Accounting Changes” means:
(a) changes in accounting principles required by GAAP and implemented by
Borrower or any of its Subsidiaries; (b) changes in accounting principles
recommended by Borrower’s certified public accountants and implemented by
Borrower or any of its Subsidiaries; and (c) changes in the method of
determining carrying value of Borrower’s, or any of its Subsidiaries’ assets,
liabilities or equity accounts.  All such adjustments resulting from
expenditures made subsequent to the Closing Date (including, but not limited to,
capitalization of costs and expenses or payment of pre-Closing Date liabilities)
shall be treated as expenses in the period the expenditures are
made.

       

      SECTION
5. REPRESENTATIONS
AND WARRANTIES

       

      In order
to induce Lenders to enter into this Agreement and make the Loans, Borrower
hereby represents and warrants to Lenders that the following statements are
true, correct and complete:

       

      5.1 Disclosure.  No
information furnished by or on behalf of Borrower or any of its Subsidiaries
contained in this Agreement, the financial statements referred to in Section 5.7 or any
other document, certificate, opinion or written statement furnished to Lenders
pursuant to this Agreement contains any untrue statement of a material fact or
omitted, omits or will omit to state a material fact necessary, when taken as a
whole with all information so furnished, in order to make the statements
contained herein or therein not misleading in light of the circumstances in
which the same were made.

       

      
        
          
          

        

        
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      5.2 No Material Adverse
Effect.  Since
March 31, 2007, there has been no event or change in facts or circumstances
affecting Borrower or any of its Subsidiaries which individually or in the
aggregate have had or could reasonably be expected to have a Material Adverse
Effect and that have not been disclosed herein or in the attached
Schedules.

       

      5.3 Organization, Powers,
Authorization and Good Standing.

       

      (a) Organization and
Powers.  Except as disclosed on Schedule 5.3(a),
Borrower and each of its Subsidiaries is a limited liability company,
corporation or partnership duly organized, validly existing and in good standing
under the laws of the State of Delaware.  Borrower and each of its
Subsidiaries has all requisite legal power and authority to own and operate its
properties, to carry on its business as now conducted and proposed to be
conducted, to enter into each Debt Refinancing Document to which it is a party
and to carry out its respective obligations with respect thereto.

       

      (b) Authorization; Binding
Obligation.  Borrower and each of its Subsidiaries has taken
all necessary corporate, limited liability company, partnership, and other
action to authorize the execution, delivery and performance of this Agreement
and each of the other Debt Refinancing Documents to which it is a
party.  This Agreement is, and the other Debt Refinancing Documents
when executed and delivered will be, the legally valid and binding obligations
of the applicable parties thereto (other than Lenders and Investors), each
enforceable against each of such parties, as applicable, in accordance with
their respective terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar state or federal debt or
relief laws from time to time in effect which affect the enforcement of
creditors’ rights in general and general principles of equity.

       

      (c) Qualification.  Borrower
and each of its Subsidiaries is duly qualified and authorized to do business and
in good standing in each jurisdiction where the nature of its business and
operations requires such qualification and authorization, except where the
failure to be so qualified, authorized and in good standing could not reasonably
be expected to have a Material Adverse Effect.  All jurisdictions in
which each such Person is qualified and authorized to do business are set forth
on Schedule
5.3(c).

       

      5.4 Compliance with Applicable
Law.  Neither
the Borrower nor any of its Subsidiaries is in violation of any Applicable Law,
or in default with respect to any judgment, writ, injunction or decree of any
Governmental Authority, the violation of which, or a default with respect to
which, could reasonably be expected to have a Material Adverse
Effect.  The execution, delivery and performance by Borrower and its
Subsidiaries of the Debt Refinancing Documents to which each such Person is a
party, the borrowings hereunder and the transactions contemplated hereby and
thereby do not and will not, by the passage of time, the giving of notice or
otherwise, (i) require any Governmental Approval or violate any Applicable Law
relating to Borrower or any of its Subsidiaries in any material respect, (ii)
except as set forth on Schedule 5.4,
conflict with, result in a breach of or constitute a default under the articles
of incorporation, bylaws or other organizational documents of Borrower or its
Subsidiaries or any Material Contract to which such Person is a party or by
which any of its properties may be bound or any Governmental 

       

      
        
          
          

        

        
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      Approval
relating to such Person or (iii) except as required or permitted under the Debt
Refinancing Documents, result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter acquired by
such Person.

       

      5.5 Tax Returns and
Payments.  Borrower
and each of its Subsidiaries has duly filed or caused to be filed all federal,
state, local and other tax returns required by Applicable Law to be filed, and
has paid, or made adequate provision for the payment of, all federal, state,
local and other taxes, assessments and governmental charges or levies upon it
and its property, income, profits and assets which are due and payable, except where the payment of
such tax is being diligently contested in good faith and adequate reserves
therefore have been established in compliance with GAAP.  The charges,
accruals and reserves on the books of the Borrower and its Subsidiaries in
respect of federal, state, local and other taxes for all fiscal years and
portions thereof are, in the judgment of Borrower, adequate, and Borrower and
each of its Subsidiaries do not anticipate any additional material taxes or
assessments for any of such years.

       

      5.6 Environmental
Matters.  Borrower
and each of its Subsidiaries is in compliance in all material respects with all
applicable Environmental Laws, and there is no contamination at, under or about
any of the real property owned or leased by the Borrower or any of its
Subsidiaries (the “Real
Property”) or such operations which interfere in any material respect
with the continued operation of such Real Property or impair in any material
respect the fair saleable value thereof or in amounts or concentrations or under
circumstances that constitute a violation of, or could give rise to liability
under, any Environmental Laws.  No claim, notice or investigation
based on any Environmental Laws relating to the Real Property or any operations
or activities on or about the Real Property (i) has been asserted or conducted
in the past or is currently pending against or with respect to Borrower or its
Subsidiaries, or (ii) to the knowledge of Borrower, is threatened or
contemplated, nor does Borrower have knowledge or reason to believe that any
such claim, notice or investigation could reasonably be expected to be
received.  There are no consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative or
judicial requirements outstanding under any Environmental Law with respect to
the Real Property or the business of Borrower and its
Subsidiaries.  Neither Borrower nor any of its Subsidiaries has
directly, nor has it caused any third party (i) to manufacture, process,
distribute, use, treat, store or dispose of any substance, material or waste
upon, at or under the Real Property in violation of, or in a manner that would
reasonably be expected to give rise to liability under, any Environmental Laws
or to transport or otherwise dispose of any substance, material or waste in
violation of, or in a manner or to a location that would reasonably be expected
to give rise to liability under, any Environmental Laws, or (ii) to take any
other action or conduct or to fail to take to any action or conduct upon, at or
under the Real Property in violation of, or in a manner that would reasonably be
expected to give rise to liability under, any Environmental
Laws.  There has been no release or threat of release of any
substance, material or waste at or from any Real Property, or arising from or
related to the operations of the Borrower or its Subsidiaries, in violation of
or in amounts or in a manner that could give rise to liability under
Environmental Laws.  Neither Borrower nor any of its Subsidiaries has
contractually assumed or, to the knowledge of the Borrower, assumed by operation
of law any liability of any other Person under Environmental Laws.  No
underground storage tanks are currently, or have been, located on any of the
Real Property.  Except as set forth on Schedule 5.6, there
is no building or structure on the Real Property containing
asbestos.

       

      5.7 Financial
Statements.

       

      
        
          
          

        

        
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      (a) All
financial statements of Borrower and its Subsidiaries which have been furnished
to Lenders or Collateral Agent pursuant to this Agreement have been prepared in
accordance with GAAP consistently applied (except as disclosed therein) and
present fairly the financial condition of the Persons covered thereby as of the
date thereof and the results of their operations for the periods covered thereby
and disclose all material liabilities and Contingent Obligations of Borrower or
its Subsidiaries as at the dates thereof.  Borrower and its
Subsidiaries do not have outstanding, as of the Closing Date, and after giving
effect to the Loans on the Closing Date, any Indebtedness for borrowed money or
Contingent Obligations other than the Loans and the Indebtedness permitted under
Section
3.1.

       

      (b) All
projections concerning Borrower and its Subsidiaries which have been furnished
to Lenders were prepared and presented in good faith by or on behalf of Borrower
and such Subsidiaries.  No fact is known to Borrower which is
reasonably likely (so far as Borrower can reasonably foresee) to have a Material
Adverse Effect which has not been set forth in the financial statements referred
to in Section
5.7(a) hereof or in such information, reports, papers and data or
otherwise disclosed in writing to Lenders prior to the date hereof.

       

      5.8 Intellectual
Property.  Borrower
and each of its Subsidiaries owns, or possesses through valid licensing
arrangements, the right to use all patents, copyrights, trademarks, trade names,
service marks, technology know-how and processes used in or necessary for the
conduct of its business as currently conducted or anticipated to be conducted
(collectively, the “Intellectual Property
Rights”) without infringing upon the rights of any other Person in any
material respect.  No event has occurred which permits, or after
notice or lapse of time or both would permit, the revocation or termination of
any such Intellectual Property Rights.  No material claim has been
asserted or is pending by any Person challenging or questioning any Intellectual
Property Rights or Borrower or any of its Subsidiaries, or the validity or
effectiveness of any Intellectual Property Rights, nor does Borrower know of any
valid basis for any such claim.  Except as set forth on Schedule 5.8,
Borrower does not have knowledge of any infringement by others of Intellectual
Property Rights of the Borrower or its Subsidiaries.  Except as
provided on Schedule
5.8, there is no claim, action or proceeding being made or brought, or to
the knowledge of the Borrower, being threatened, against the Borrower or its
Subsidiaries regarding Intellectual Property Rights.  Except as
provided on Schedule
5.8, the Borrower and its Subsidiaries have good and marketable title in
all Intellectual Property Rights owned by them, in each case free and clear of
all Liens.

       

      5.9 Litigation, Investigations,
Audits, Etc.

       

      (a) Except as
set forth on Schedule
5.9, there is no action, suit, proceeding or investigation pending
against, or, to the knowledge of Borrower, threatened against or in any other
manner relating adversely to the Borrower or its Subsidiaries or any of their
respective properties in any court or before any arbitrator of any kind or
before or by any Governmental Authority, which could reasonably be expected to
have a Material Adverse Effect, nor does Borrower know of any valid basis
therefor.  None of the actions, suits, proceedings or investigations
disclosed on Schedule
5.9 calls into question the validity of this Agreement or any other Debt
Refinancing Document.

       

      
        
          
          

        

        
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      (b) To
Borrower’s knowledge, none of the Borrower and its Subsidiaries are the subject
of any review or audit by the Internal Revenue Service or any investigation by
any Governmental Authority concerning the violation or possible violation of any
law which, individually or collectively, if determined adversely to Borrower or
any of its Subsidiaries, would reasonably be expected to have a Material Adverse
Effect, nor does Borrower know of any valid basis therefor.

       

      5.10 Employee Labor
Matters.  Except
as set forth on Schedule 5.10, (a)
None of Borrower, its Subsidiaries and any of their respective employees is
subject to any collective bargaining agreement, (b) no petition for
certification or union election is pending with respect to the employees of any
such Person and no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of any such Person
and (c) there are no strikes, slowdowns, unfair labor practice complaints, work
stoppages or controversies pending or, to the knowledge of Borrower after due
inquiry, threatened between any such Person and its respective employees, other
than employee grievances arising in the ordinary course of business which could
not reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.

       

      5.11 Employee Benefit
Plans.  Borrower
and each of its Subsidiaries is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and published interpretations thereunder, the
failure to comply with which could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect.

       

      5.12 Perfection and
Priority.  Except
for Permitted Encumbrances, the Security Interest is a valid and perfected first
priority lien security interest in the Collateral in favor of Lenders, securing,
in accordance with the terms of the Security Documents, the Obligations, and the
Collateral is subject to no Lien other than permitted pursuant to Section
3.2.

       

      5.13 Solvency.  Borrower:
(a) owns and will own assets the present fair saleable value of which are (i)
greater than the total amount of liabilities (including contingent liabilities)
of Borrower, and (ii) greater than the amount that will be required to pay the
probable liabilities of Borrower’s then existing debts and liabilities as they
become absolute and matured considering all financing alternatives and potential
asset sales reasonably available to Borrower; (b) has capital that is not
unreasonably small in relation to its business as presently conducted or after
giving effect to any contemplated transaction; and (c) does not intend to incur
and does not believe that it will incur debts and liabilities beyond its ability
to pay such debts and liabilities as they become due.

       

      5.14 Investment Company Act;
Federal Regulations

       

      .  Neither
Borrower nor any of its Subsidiaries is an “investment company” or a company
“controlled” by an “investment company” as such terms are defined in, and is not
otherwise subject to regulation under, the 1940 Act.  No part of the
proceeds of any Loans will be used for “buying” or “carrying” any “margin stock”
within the respective meanings of each of the quoted terms under Regulation U as
now and from time to time hereafter in effect or for any purpose that violates
the provisions of the Regulations of the Board of Governors.  If

       

      
        
          
          

        

        
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      requested
by any Lender, Borrower will furnish to each Lender a statement to the foregoing
effect in conformity with the requirements of FR Form G-3 or FR Form U 1, as
applicable, referred to in Regulation U.

       

      5.15 Material
Contracts.  Schedule 5.15 sets
forth a complete and accurate list of all Material Contracts of the Borrower and
its Subsidiaries.  Borrower and each of its Subsidiaries has performed
all of its material obligations under such Material Contracts and, to the
knowledge of Borrower, each other party thereto is in material compliance with
each such Material Contract and no defaults, events of default, acceleration
event or similar events have occurred or are continuing under any Material
Contract.  Each Material Contract is in full force and effect in
accordance with the terms thereof.  Borrower and its Subsidiaries have
made available a true and complete copy of each Material Contract listed on
Schedule 5.15
for inspection by Lenders.

       

      5.16 Title to
Properties.  Borrower
and each of its Subsidiaries has such title or leasehold interest in and to the
Real Property owned or leased by it as is necessary or desirable to the conduct
of its business and valid and legal title or leasehold interest in and to all of
its personal property, including those reflected on the balance sheets of
Borrower and each of its Subsidiaries delivered pursuant to Section 5.7, except
those which have been disposed of by Borrower subsequent to such date which
dispositions have been in the ordinary course of business or as otherwise
expressly permitted hereunder.  Set forth on Schedule 5.16 is a
true and complete list of all Real Property owned, and all Real Property or
personal property leased or subleased by or to each of Borrower and its
Subsidiaries (other than leases of personal property as to which either Borrower
is lessee or sublessee for which the value of such personal property in the
aggregate is less than $100,000).

       

      5.17 Subsidiaries and
Affiliates.  Schedule 5.17(a) sets
forth a complete and accurate list of all direct or indirect Subsidiaries and
Affiliates of Borrower, including for each such Subsidiary whether such
Subsidiary is wholly-owned by Borrower, and if not, the percentage ownership of
Borrower or its Subsidiary in such Subsidiary.  Except as disclosed to
the Lenders by the Borrower in writing from time to time after the Closing Date,
(a) Schedule
5.17(b) sets forth the name, location of chief executive office, location
of Inventory and Equipment (as each such term is defined in the New York UCC)
and jurisdiction of incorporation of Borrower and each of its Subsidiaries and
(b) there are no outstanding subscriptions, options, warrants, calls, rights or
other agreements or commitments (other than stock options or restricted stock
granted to employees or directors and directors’ qualifying shares) of any
nature relating to any equity of Borrower or any of its Subsidiaries, except as
created or permitted by the Debt Refinancing Documents.

       

      5.18 Filings.  Except
as set forth on Schedule 5.18, since
March 31, 2007, Borrower has timely filed with the SEC all the annual and
periodic reports, and has submitted to the SEC such other documents and reports,
as it is required under the Securities Act of 1933, as amended (the “1933 Act”), the 1934 Act, the
1940 Act, and any other federal statute applicable to Borrower and administered
by the SEC; (ii) each such filing or submission, when it became effective or was
filed with the SEC, as the case may be, conformed in all material respects to
the requirements of the 1933 Act, the 1934 Act or the 1940 Act, as applicable,
and the rules and regulations thereunder, and none 

       

      
        
          
          

        

        
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      of such
annual and periodic reports or other documents or reports contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.

       

      5.19 Insurance.  All
policies of insurance of any kind or nature owned by or issued to Borrower and
its Subsidiaries, including without limitation, policies of life, fire, theft,
product liability, public liability, property damage, other casualty, employee
fidelity, workers’ compensation, employee health and welfare, title, property
and liability insurance, are in full force and effect except to the extent
commercially reasonably determined by the Borrower not to be necessary pursuant
to the immediately succeeding clause or which is not material to the overall
coverage and are of a nature and provide such coverage as in the reasonable
opinion of the Borrower, is sufficient and as is customarily carried by
companies of the size and character of Borrower.

       

      5.20 Approvals.  No
authorizations of any Governmental Authority, or any applicable securities
exchange, are necessary for the execution, delivery or performance by Borrower
of the Debt Refinancing Documents to which it is a party, or for the legality,
validity or enforceability hereof or thereof.

       

      5.21 Internal Accounting
Controls.  Borrower
and its 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 GAAP 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.  Borrower has established
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for Borrower and designed such disclosure controls and procedures
to ensure that material information relating to Borrower, including its
Subsidiaries, is made known to the certifying officers by others within those
entities.  Borrower’s certifying officers have evaluated the
effectiveness of Borrower’s controls and procedures in accordance with Item 307
of Regulation S-K under the Exchange Act for Borrower’s most recently ended
fiscal quarter or fiscal year-end (such date, the “Evaluation
Date”).  Borrower presented in its most recently filed Form
10-K or Form 10-Q the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date.  Since the Evaluation Date,
there have been no significant changes in Borrower’s internal controls (as such
term is defined in Item 308(c) of Regulation S-K under the Exchange Act) or, to
Borrower’s knowledge, in other factors that could significantly affect
Borrower’s internal controls.

       

      5.22 Foreign Corrupt
Practices.  Neither
Borrower nor any of its Subsidiaries nor, to the knowledge of Borrower, any
director, officer, agent, employee or other Person acting on behalf of Borrower
or any of its Subsidiaries has, in the course of its actions for, or on behalf
of, Borrower (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
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      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.

       

      5.23 Representations and
Covenants Made to the Investors.  Subject
to any and all representations, warranties, covenants and agreements made by
Borrower to and for the benefit of the Investors that survive the consummation
of the transactions contemplated by the Purchase Agreement shall be deemed to
have also been made to and for the benefit of Lenders.

       

      SECTION
6. EVENTS
OF DEFAULT AND RIGHTS AND REMEDIES

       

      6.1 Events of
Default.  “Event of Default” shall mean
the occurrence or existence of any one or more of the following:

       

      (a) Payment.  Failure
of the Borrower to repay any principal amount of the Loans when due in
accordance with the terms of this Agreement or any Note, or to pay any interest
on the Loans in accordance with the terms of this Agreement or any Note, or any
other amounts payable under this Agreement or any other Loan Document with three
(3) Business Days after any such interest or other amount becomes due in
accordance with the terms hereof or thereof; or

       

      (b) Default in Other
Agreements.  (i) Failure of Borrower or any of its Subsidiaries
to pay when due, subject to any applicable grace period, any principal or
interest on Indebtedness (other than the Loans) or any Contingent Obligation;
any dividend or other payment due in respect of the Series A Preferred Stock, or
any other payment due under any Debt Refinancing Document (other than as
provided in Section
6.1(a)); (ii) any other breach or default of Borrower or any of its
Subsidiaries with respect to any Indebtedness (other than the Loans) or any
Contingent Obligation if the effect of such breach or default is to cause or to
permit the holder or holders then to cause such Indebtedness or Contingent
Obligation to become or be declared due prior to its stated maturity; or (iii)
the continuation of any breach or default of Borrower or any of its Subsidiaries
under any Material Contract beyond any applicable grace period which has a
Material Adverse Effect; or

       

      (c) Breach of Certain
Provisions.  (i) Failure of Borrower or any of its Subsidiaries
to perform or comply with any term or condition contained in that portion of
Section 2.2
relating to the obligation of Borrower and each Subsidiary of Borrower, to
maintain insurance, Section 2.4, Section 2.6, Section 3, Section 4 or Section 7.19 except
that, with respect to a failure of Borrower to perform or comply with any term
or condition contained in Section 4.1(a), such
failure shall not be deemed to be an Event of Default unless it shall remain
uncured for a period of five (5) days or more; or

       

      (d) Breach of
Warranty.  Any material representation, warranty, certification
or other statement made by Borrower or any of its Subsidiaries, in any Debt
Refinancing Document or in any statement or certificate at any time given by
Borrower or any of its Subsidiaries in writing pursuant to any Loan Document is
false in any material respect on the date made or deemed made; or

       

      (e) Other Defaults Under Loan
Documents.  Borrower or any of its Subsidiaries breaches or
defaults in the performance of or compliance with (x) any other term contained
in this Agreement or the other Loan Documents and such breach or default is

       

      
        
          
          

        

        
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      not
remedied or waived within twenty (20) days (other than occurrences described in
other provisions of this Section 6.1 for which
a different grace or cure period is specified or which constitute immediate
Events of Default) or (y) any term contained in any other Debt Refinancing
Document (subject to any applicable grace period); or

       

      (f) Involuntary Bankruptcy;
Appointment of Receiver; Etc.  (i) A court enters a decree or
order for relief with respect to Borrower or any of its Subsidiaries in an
involuntary case under the Bankruptcy Code, which decree or order is not stayed
or other similar relief is not granted under any applicable federal or state law
within thirty (30) days; or (ii) the continuance of any of the following events
for thirty (30) days unless dismissed, bonded or discharged: (A) an involuntary
case is commenced against Borrower or any of its Subsidiaries under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or (B) a decree or order of a court for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over Borrower or any of its Subsidiaries, or over all or a substantial
part of its property, is entered; or (C) an interim receiver, trustee or other
custodian is appointed without the consent of Borrower or any of its
Subsidiaries for all or a substantial part of the property of Borrower or any
such Subsidiary; or

       

      (g) Voluntary Bankruptcy;
Appointment of Receiver; Etc.  Borrower or any of its
Subsidiaries (i) commences a voluntary case under the Bankruptcy Code, files a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding up or composition for adjustment of debts of
Borrower or any of its Subsidiaries, or consents to, or fails to contest in a
timely and appropriate manner, the entry of an order for relief in an
involuntary case, the conversion of an involuntary case to a voluntary case
under any such law, or the appointment of or taking possession by a receiver,
trustee or other custodian of all or a substantial part of the property of
Borrower or any of its Subsidiaries; or (ii) makes any assignment for the
benefit of creditors; or (iii) the Board of Directors of Borrower or any of its
Subsidiaries adopts any resolution or otherwise authorizes action to approve any
of the actions referred to in this Section 6.1(g);
or

       

      (h) Governmental
Liens.  Any Lien, levy or assessment (other than Permitted
Encumbrances) is filed or recorded with respect to or otherwise imposed upon all
or any part of the Collateral or the other assets of Borrower or any of its
Subsidiaries by the United States or any department or instrumentality thereof
or by any state, county, municipality or other Governmental Authority and
remains undischarged, unvacated, unbonded or unstayed for a period of thirty
(30) days or in any event later than five (5) Business Days prior to the date of
any proposed sale thereunder and such Liens secures an amount individually or in
the aggregate in excess of $50,000; or

       

      (i) Judgment and
Attachments.  Any money judgment, writ or warrant of attachment
or similar process (other than those described in Section 6.1(h))
involving an amount in any individual case or in the aggregate for or against
Borrower and/or its Subsidiaries at any time in excess of $50,000 (in either
case not adequately covered by insurance as to which the insurance company has
not disclaimed coverage subject to customary reservations of rights) is entered
or filed against Borrower or any of its Subsidiaries and/or any of 

       

      
        
          
          

        

        
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      their
respective assets and remains undischarged, unvacated, unbonded or unstayed for
a period of thirty (30) days or in any event later than five (5) Business Days
prior to the date of any proposed sale thereunder; or

       

      (j) Dissolution.  Any
order, judgment or decree is entered against Borrower, or any of its
Subsidiaries decreeing the dissolution or split up of Borrower or such
Subsidiary; or

       

      (k) Solvency.  Borrower
or any of its Subsidiaries ceases to be solvent or Borrower or any of its
Subsidiaries admits in writing its present or prospective inability to pay its
debts as they become due; or

       

      (l) Injunction.  Borrower
or any of its Subsidiaries is enjoined, restrained or in any way prevented by
the order of any court or any Governmental Authority from conducting all or any
material part of its business and such order continues for more than fifteen
(15) days; or

       

      (m) ERISA; Pension
Plans.  (i) Borrower or any of its Subsidiaries fails to make
full payment when due of all amounts which, under the provisions of any employee
benefit plans or any applicable provisions of the IRC, any such Person is
required to pay as contributions thereto and such failure results in or could
reasonably be expected to have a Material Adverse Effect; or (ii) a material
accumulated funding deficiency occurs or exists, whether or not waived, with
respect to any such employee benefit plans; or (iii) any employee benefit plan
of Borrower or any of its Subsidiaries loses its status as a qualified plan
under the IRC and such loss results in or could reasonably be expected to have a
Material Adverse Effect; or

       

      (n) Environmental
Matters.  Borrower or any of its Subsidiaries fails to: (i)
obtain or maintain any operating licenses or permits required by any
Environmental Laws or environmental authorities; (ii) begin, continue or
complete any remediation activities as required by any environmental
authorities; (iii) store or dispose of any hazardous materials in accordance
with applicable Environmental Laws; or (iv) comply with any other Environmental
Laws, if in any such case such failure could reasonably be expected to have a
Material Adverse Effect; or

       

      (o) Invalidity of Debt
Refinancing Documents.  Any of the Debt Refinancing Documents
for any reason, other than a partial or full release in accordance with the
terms thereof, ceases to be in full force and effect or is declared to be null
and void and Borrower or any of its Subsidiaries fails to promptly correct such
cessation or declaration, or Borrower or any of its Subsidiaries denies that it
has any further liability under any Debt Refinancing Documents to which it is
party, or gives notice to such effect; or

       

      (p) Damage; Strike;
Casualty.  Any material damage to, or loss, theft or
destruction of a major portion of the Collateral, whether or not insured, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or public
enemy, or other casualty which causes, for more than fifteen (15) consecutive
days, the cessation or substantial curtailment of revenue producing activities
of Borrower or any of its Subsidiaries; or

       

      
        
          
          

        

        
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      (q) Licenses, Permits and
Contracts.  (i) The loss, suspension or revocation of, or
failure to renew, any license or permit now held or hereafter acquired or
utilized by Borrower, or any of its Subsidiaries, if such loss, suspension,
revocation or failure to renew could reasonably be expected to have a Material
Adverse Effect and (ii) any breach, default or termination shall have occurred
under any Material Contract by any of the parties thereto, or any Material
Contract shall fail to be renewed or otherwise have ceased to be in full force
and effect, if such breach, default, failure to renew, cessation or termination
could reasonably be expected to have a Material Adverse Effect; or

       

      (r) Failure of
Security.  Lenders do not have or cease to have a valid and
perfected first priority security interest or second priority security interest,
as the case may be (subject to Permitted Encumbrances), in the Collateral or any
substantial portion thereof, in each case, except to the extent that such
failure to have a valid and perfected first priority security interest or second
priority security interest is caused solely by the failure of Lenders to take
any action reasonably within its control after obtaining knowledge thereof or
being notified by Borrower in writing to take such action; or

       

      (s) Change in
Control.  A Change of Control shall have
occurred.  For purposes of this Section 6.1(s), a
“Change of Control”
shall be deemed to have occurred upon (i) the acquisition of ownership, directly
or indirectly, beneficially or of record, by any Person or group (within the
meaning of the1934 Act and the rules of the SEC thereunder as in effect on the
date hereof) of shares representing more than 30% of the aggregate ordinary
voting power represented by the issued and outstanding capital stock of the
Borrower and (ii) the occupation of a majority of seats (other than vacant
seats) on the Board of Directors of the Borrower by Persons who were neither
nominated by the Board of Directors of the Borrower on the Closing Date nor
appointed or nominated by directors so nominated.

       

      6.2 AccelerationUpon the
occurrence of an Event of Default (and after the expiration of any applicable
cure period), as well as a breach by Borrower of Section 5.13, the
unpaid principal amount of and accrued interest and fees on all Loans and all
other Obligations shall automatically become immediately due and payable,
without presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other requirements of any kind, all of which are hereby
expressly waived by Borrower.

       

      6.3 Rights of
Collection.  Without limiting the rights and remedies of
Lenders set forth in Section 6.1 above and
notwithstanding anything to the contrary contained in any other Loan Document,
upon the occurrence and during the continuation of any Event of Default, unless
and until such Event of Default is cured or waived by the Majority Lenders,
Majority Lenders may, upon five (5) Business Days’ prior written notice by the
Majority Lenders, (i) exercise all of their rights and remedies under this
Agreement, the other Loan Documents and Applicable Law and (ii) assume control
of Borrower and direct the management and operations of Borrower, in order to
satisfy all of the Borrower’s Obligations under the Loan Documents

       

      6.4 Consents.  Borrower
acknowledges that certain transactions contemplated by this Agreement and the
other Loan Documents and certain actions which may be taken by Lenders or
Collateral Agent in the exercise of their rights under this Agreement and the
other Loan Documents may require the consent of a third party.  If
counsel to any of the Lenders or Collateral Agent reasonably determines that the
consent of a third party including a Governmental Authority is required in
connection with the execution, delivery and performance of any of 

       

      
        
          
          

        

        
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      the
aforesaid Loan Documents or any Loan Documents delivered to Lenders or
Collateral Agent in connection therewith or as a result of any action which may
be taken pursuant thereto, then Borrower, at Borrower’s cost and expense, agrees
to use its commercially reasonable efforts, and to cause its Subsidiaries to use
their commercially reasonable efforts, to secure such consent and to cooperate
in any action commenced by any Lender or Collateral Agent to secure such
consent.

       

      6.5 Performance by Lenders or
Collateral Agent.  If
Borrower shall fail to perform any covenant, duty or agreement contained in any
of the Loan Documents, Lenders, or Collateral Agent upon the request of the
Majority Lenders, may perform or attempt to perform such covenant, duty or
agreement on behalf of Borrower after the expiration of any cure or grace
periods set forth herein.  In such event, Borrower shall be obligated,
at the request of Lenders or Collateral Agent, to promptly pay any amount
reasonably expended by Lenders or Collateral Agent in such performance or
attempted performance, to Lenders or Collateral Agent, together with interest
thereon at the highest rate of interest in effect upon the occurrence of an
Event of Default as specified in Section 1.2(c) from
the date of such expenditure until paid.  Notwithstanding the
foregoing, it is expressly agreed that neither Lenders nor Collateral Agent
shall have any liability or responsibility for the performance of any obligation
of Borrower under this Agreement or any other Loan Document.

       

      6.6 Set Off and Sharing of
Payments.  In
addition to any rights now or hereafter granted under Applicable Law and not by
way of limitation of any such rights, during the continuance of any Event of
Default, Lenders and Collateral Agent are hereby authorized by Borrower at any
time or from time to time, with reasonably prompt subsequent notice to Borrower
(any prior or contemporaneous notice being hereby expressly waived) to set off
and to appropriate and to apply any and all (i) balances held by Lenders or
Collateral Agent for the account of Borrower or any Subsidiaries, and (ii) other
property at any time held or owing by Lenders or Collateral Agent to or for the
credit or for the account of Borrower or any of its Subsidiaries, against and on
account of any of the Obligations.

       

      6.7 Application of
Payments.  Subsequent
to the acceleration of the Loans pursuant to Section 6.2, all
payments received by Lenders (or Collateral Agent on behalf of Lenders) on the
Obligations and on the proceeds from the enforcement of the Obligations shall be
applied as follows: First, to all fees
and expenses of the Collateral Agent then due and payable, then to all fees and
expenses of the Lenders then due and payable, then to all other
expenses then due and payable by Borrower under any Loan Document, then to all
indemnitee obligations then due and payable by Borrower under any Loan Document,
then to all
other fees and expenses then due and payable by Borrower under any Loan
Document, then
to accrued and unpaid interest on the Loans (pro rata in accordance with all
such amounts due on the Loans), and then to the principal
amount of the Loans (pro rata among all Loans), in that order.  Any
remaining monies not applied as provided in this Section 6.7 shall be
paid equally to Borrower or to any Person lawfully entitled
thereto.

       

      6.8 Rescission.  In
the event that Borrower or any of its Subsidiaries fails to perform or comply
with any term or condition contained in Section 2.6, this
Agreement shall become null and void and of no further force and effect, except
as provided in Section
9.15.

       

      
        
          
          

        

        
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      In the
event of rescission under this Section 6.8, Borrower
shall immediately repay the Loans and any interest or fees related
thereto.  The remedy provided under this Section 6.8 is in
addition to, at the option of the Lenders, not in place of, the other rights and
remedies afforded to Lenders in the Event of Default.

       

      SECTION
7. CONDITIONS
TO LOANS

       

      The
obligations of Lenders to make Loans are subject to satisfaction of all of the
applicable conditions set forth below.

       

      7.1 Executed Loan
Documents.  The
Loan Documents including but not limited to (a) this Agreement, (b) the Notes,
(c) the Pledge and Security Agreement and (d) the Warrants, and all other
documents and instruments contemplated by such agreements, shall have been duly
authorized and executed by each of the parties thereto in form and substance
reasonably satisfactory to Lenders, and Borrower shall have delivered sufficient
original counterparts thereof to Lenders.

       

      7.2 Executed Debt Refinancing
Documents.  All
other Debt Refinancing Documents including but not limited to (a) the Purchase
Agreement, (b) the Certificate of Designations of the Series A Preferred Stock,
and (c)  all other documents and instruments contemplated by such
agreements, shall have been duly authorized and executed by each of the parties
thereto in form and substance reasonably satisfactory to Lenders, and Borrower
shall have delivered sufficient original counterparts thereof to
Lenders.

       

      7.3 Certificate of
Designations.  The
Certificate of Designations of the Series A Preferred Stock shall have been
filed with the Secretary of State of the State of Delaware.

       

      7.4 Cancelled Notes.
Each note
holder listed on Schedule 1.3 hereto
shall have delivered its respective note referenced therein to be cancelled upon
Closing pursuant to the Debt Refinancing Documents.  With respect to
each note holder listed on Schedule 1.3 hereto,
all obligations, liabilities, covenants and agreements of the Borrower to the
holders of such notes under or in connection with each of the Note and Warrant
Purchase Agreements, dated as of August 10, 2006, February 5, 2007 and June 15,
2007, respectively, and each related note set forth on Schedule 1.3 hereto,
shall, with respect to each note holder, hereby be terminated and cancelled and
of no further force or effect upon Closing and the satisfaction of each of the
following: (i) with respect to the notes due and payable on May 15, 2008, to
Engmann and Goodman, in accordance with Section 1.1(b)(ii),
and (ii) with respect to each other holder of such notes listed on Schedule 1.3 in
accordance with Section 4.11 of the Purchase Agreement.

       

      7.5 Representations and
Warranties.  Each
of the representations and warranties of Borrower contained in this Agreement or
any other Debt Refinancing Document shall be true and correct in all respects at
and as of the Closing.

       

      7.6 Covenants.  Borrower
shall have performed and complied in all respects with each of the covenants and
agreements required to be performed or complied with by it in this Agreement and
each other Debt Refinancing Document on or before the Closing Date.

       

      
        
          
          

        

        
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      7.7 No
Default.  There
shall not be any Default or Event of Default both immediately before and
immediately after the Closing.

       

      7.8 Lien
Priority.  The
Security Interests in favor of the Lenders pursuant to the Loan Documents shall
be valid and perfected first priority Liens on the Collateral, subject to no
Liens other than Permitted Encumbrances.

       

      7.9 No
Litigation.  No
action, suit, proceeding, claim or dispute shall have been brought or otherwise
have arisen at law, in equity, in arbitration or by or before any Governmental
Authority or arbitrator against Borrower or any of its Subsidiaries or any of
their respective Assets.

       

      7.10 Fees and
Expenses.  All
fees and expenses payable at Closing pursuant to Section 1.4 hereof
shall have been paid in full.

       

      7.11 Closing Certificates;
Opinions.

       

      (a) Officer’s
Certificate.  Lenders shall have received a certificate from
the chief executive officer or chief financial officer of Borrower in form and
substance reasonably satisfactory to Lenders, to the effect that all
representations and warranties of the Borrower contained in this Agreement and
the other Debt Refinancing Documents are true, correct and complete; that
neither Borrower nor any of its Subsidiaries is in violation of any of the
covenants contained in this Agreement and the other Debt Refinancing Documents;
that, after giving effect to the transactions contemplated by this Agreement, no
Default or Event of Default has occurred and is continuing; that Borrower has
satisfied each of the closing conditions to be satisfied hereby; that Borrower
and its Subsidiaries have filed all required tax returns and owe no delinquent
taxes.

       

      (b) Certificate of Secretary of
Borrower.  Lenders shall have received a certificate of the
secretary or assistant secretary of Borrower certifying as to the incumbency and
genuineness of the signature of each officer of Borrower executing any Debt
Refinancing Document and certifying that attached thereto is (i) a true and
complete copy of the certificate of incorporation of the Borrower, and all
amendments thereto including the Certificate of Designations of the Series A
Preferred Stock, certified by the appropriate Governmental Authority in its
jurisdiction of incorporation; (ii) a true and complete copy of the certificate
of incorporation of each of CIC Acquisition Corp., a Delaware corporation, and
all amendments thereto, certified by the appropriate Governmental Authority in
its jurisdiction of incorporation and a true and complete copy of the articles
of association of Communication Intelligence Computer Corporation, Ltd., and all
amendments thereto, as on file as of the date hereof in the People’s Republic of
China and which is in full force and effect on the date hereof; (iii) a true and
complete copy of the bylaws of Borrower as in effect on the date of such
certification; (iv) a true and complete copy of resolutions duly adopted by the
Board of Directors of Borrower authorizing the borrowings contemplated
hereunder, the execution, delivery and performance of this Agreement and the
other Debt Refinancing Documents; (v) a true and complete copy of each of
Borrower’s 

       

      
        
          
          

        

        
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      insurance
policies, as in effect on the date of such certification; and (vi) true,
complete and correct copies of certificates of insurance for each of Borrower’s
insurance policies, except for its directors and officers insurance policy, each
showing Collateral Agent as an additional insured.

       

      (c) Certificates of Good
Standing.  Lenders shall have received certificates as of a
recent date of the good standing of Borrower under the laws of its respective
jurisdictions of incorporation and such other jurisdictions as are requested by
Lenders.

       

      (d) Opinions of
Counsel.  Lenders shall have received favorable opinions of
counsel to Borrower addressed to Lenders with respect to Borrower covering such
matters as requested by Lenders, including, without limitation, the Loan
Documents, the Security Interest, due authorization and other corporate matters,
local laws and choice of laws issues and which are reasonably satisfactory in
form and substance to Lenders.

       

      7.12 Collateral.

       

      (a) Filings and
Recordings.  All filings and recordings that are necessary to
perfect the Security Interest in the Collateral described in the Security
Documents shall have been filed or recorded in all appropriate locations (or
delivered to Lenders for filing), and Lenders shall have received evidence
satisfactory to Lenders that such Security Interest constitutes a valid and
perfected first priority or second priority Lien, as the case may be, therein
subject to Permitted Encumbrances.

       

      (b) Lien
Searches.  Borrower shall have delivered to Lenders the results
of Lien searches of all filings made against each of the Borrower and its
Subsidiaries under the Uniform Commercial Code (and local tax and judgment
filing offices) as in effect in any jurisdiction in which any of its respective
assets are located, indicating, among other things, that the assets of Borrower
and its Subsidiaries and the stock of Borrower and its Subsidiaries are free and
clear of any Lien, except for Permitted Encumbrances.

       

      (c) Stock
Certificates.  All certificates evidencing capital stock of any
pledged entity, accompanied by duly executed instruments of transfer or
assignment in blank, shall have been delivered to Collateral Agent.

       

      7.13 Insurance.  Other
than as set forth on Schedule 2.2(b),
Lenders shall have received certificates of insurance and certified copies of
insurance policies in the form required under Section 2.2(b), and
the Security Documents and otherwise in form and substance reasonably
satisfactory to Lenders.

       

      7.14 Consents.  Other
than any consent that may be required to be obtained  from Basso
Multi-Strategy Holding Fund Ltd., Borrower shall have delivered to Lenders all
necessary approvals, authorizations and consents, if any, of all Persons,
Governmental Authorities, and courts having jurisdiction with respect to the
execution and delivery of this Agreement and the other Loan Documents, the
granting of the Security Interest and all such approvals shall be in form and
substance satisfactory to Lenders.

       

      7.15 No Injunction,
Etc.  No
action, proceeding, investigation, regulation or legislation shall have been
instituted, threatened or proposed before any Governmental Authority or
arbitrator challenging or seeking to enjoin, restrain or prohibit, or to obtain
substantial damages in respect of, or which is related to or arises out of this
Agreement or the other Debt Refinancing Documents or the 

       

      
        
          
          

        

        
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      consummation
of the transactions contemplated hereby or thereby, or which, as determined by
Lenders in their reasonable discretion, would make it inadvisable to consummate
the transactions contemplated by this Agreement and such other Loan Documents.
No order, decree, temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Authority or arbitrator
preventing the transactions contemplated by this Agreement or any other Debt
Refinancing Document shall be in effect.  The making of the Loans and
the consummation of the transactions contemplated by this Agreement and the
other Debt Refinancing Documents shall not be prohibited by any Applicable Law
or other legal requirement and shall not subject any Lender to any penalty or,
in its reasonable judgment, any other liability or onerous condition under any
Applicable Law.

       

      7.16 Fees, Expenses, Taxes,
Etc. Borrower
shall have paid to Lenders the fees set forth or referenced in Section 1.4 and any
other accrued and unpaid fees or commissions due hereunder (including legal fees
and expenses), and to any other Person such amount as may be due thereto in
connection with the transactions contemplated hereby, including all taxes, fees
and other charges in connection with the execution, delivery, recording, filing
and registration of any of the Loan Documents.

       

      7.17 Proceedings and
Documents.  All
opinions, certificates and other instruments and all proceedings in connection
with the transactions contemplated by this Agreement shall be reasonably
satisfactory in form and substance to Lenders.  Lenders shall have
received copies of all other instruments and other evidence as Lenders may
reasonably request, in form and substance reasonably satisfactory to Lenders,
with respect to the transactions contemplated by this Agreement and the taking
of all actions in connection therewith.

       

      7.18 Other
Deliveries.  Such
other agreements, instruments, approvals, opinions, certificates and other
documents as the Lenders may reasonably request in connection with the
transactions contemplated by the Debt Refinancing Documents, all in form an
substance satisfactory to the Lenders, in their sole discretion.

       

      7.19 Post-Closing
Deliveries.  Borrower shall deliver to Lenders, and Lenders
shall have received, as soon as reasonably practicable after the Closing Date,
but in no event later than July 4, 2008, the following:

       

      
        (a) depositary
account control agreements with respect to any accounts of Borrower or its
subsidiaries open at the Closing Date, including the Borrower’s accounts at (i)
Wells Fargo Bank, checking account ***** and money market account *****, and
(ii) Silicon Valley Bank, checking account *****:

         

           (b) favorable
opinions of counsel to Borrower addressed to Lenders with respect to Borrower
covering such matters as requested by Lenders, including, without limitation, as
to the Common Stock underlying the Warrants and Series A Preferred Stock and
perfection of the security interest in the foregoing accounts, which are
reasonably satisfactory in form and substance to Lenders;

       

      
        
          
          

        

        
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      (c) such
evidence satisfactory to the Lenders, in their sole discretion, that Borrower
shall have obtained stockholder approval of, and shall have taken all requisite
actions (including filing an amendment to its Certificate of Incorporation with
the Delaware Secretary of State) to increase the Borrower’s authorized Common
Stock in accordance with Section 2.6, and to
reserve a sufficient number of shares of Common Stock for issuance upon exercise
of the Warrants and conversion of the Series A Preferred Stock; and

       

      (d) such
other agreements, instruments, approvals, opinions, certificates and other
documents as the Lenders may reasonably request, all in form and substance
satisfactory to the Lenders, in their sole discretion.

       

      

      SECTION
8. INTERCREDITOR
PROVISIONS

       

      8.1 Appointment, Powers and
Immunities of Agents.

       

      (a) Each
Lender hereby appoints and authorizes SG Phoenix LLC to act as its collateral
agent (“Collateral
Agent”) hereunder and under the other Loan Documents, in each case with
such powers as are expressly delegated to Collateral Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto.  Collateral Agent shall not have any
duties or responsibilities except those expressly set forth in this Agreement or
in any other Loan Document, or be a trustee or a fiduciary for Borrower or any
Lender or Secured Party.  Notwithstanding anything to the contrary
contained herein or in any other Loan Document, Collateral Agent shall not be
required to take any action that is contrary to this Agreement or any other Loan
Document or any Applicable Law, or that exposes Collateral Agent to any
liability.  Each of Collateral Agent, the Lenders and their respective
Affiliates shall not be responsible to Borrower or to any other Secured Party
for (i) any recitals, statements, representations or warranties made by Borrower
or its Affiliates contained in this Agreement, the other Loan Documents or in
any certificate or other document referred to or provided for in, or received by
Collateral Agent or any Secured Party under this Agreement or any other Loan
Document, (ii) the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement, the other Loan Documents, any Notes or any
other document referred to or provided for herein or therein, or (iii) any
failure by Borrower or its Affiliates to perform their respective obligations
hereunder or thereunder.  Collateral Agent may employ agents and
attorneys-in-fact, and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable
care.

       

      (b) None of
Collateral Agent or its respective directors, officers, employees or agents
shall be responsible for any action taken or omitted to be taken by it or them
hereunder or under any other Loan Document or in connection herewith or
therewith, except for its or their own gross negligence or willful
misconduct.  Without limiting the generality of the foregoing, (a)
Collateral Agent may consult with legal counsel, independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (b) Collateral Agent makes no warranty or
representation to Borrower or any Lender or Secured Party for any statements,
warranties or representations made in or in connection with any Debt Refinancing
Document; (c) Collateral Agent shall have no duty to ascertain or to inquire as
to the performance or observance of any of the terms, covenants or conditions of
any Debt Refinancing Document on the part of any party thereto, to inspect the
property 

       

      
        
          
          

        

        
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      (including
the books and records) of Borrower or any other Person or to ascertain or
determine whether a Material Adverse Effect exists or is continuing; and (d)
Collateral Agent shall not be responsible to Borrower or any Lender or Secured
Party for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Debt Refinancing Document or any other instrument or
document furnished pursuant hereto.  Except as otherwise provided
under this Agreement and the other Loan Documents, Collateral Agent shall take
such action with respect to the Loan Documents as shall be directed by the
Majority Lenders.

       

      8.2 Reliance.  Collateral
Agent shall be entitled to rely upon any certificate, notice or other document
(including any cable, telegram, facsimile, electronic mail or telex) believed by
it to be genuine and correct and to have been signed or sent by or on behalf of
the proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by it.  As to any
other matters not expressly provided for by this Agreement or the other Loan
Documents, Collateral Agent shall not be required to take any action or exercise
any discretion, but shall be required to act or to refrain from acting upon
instructions of the Majority Lenders (except that Collateral Agent shall not be
required to take any action which exposes it to personal liability or which is
contrary to this Agreement, any other Loan Document or any Applicable
Law).  Collateral Agent shall in all cases (including when any action
by Collateral Agent alone is authorized hereunder or under any other Loan
Document, if Collateral Agent elects in its sole discretion to obtain
instructions from the Majority Lenders) be fully protected in acting, or in
refraining from acting, hereunder or under any other Loan Document in accordance
with the instructions of the Majority Lenders, and such instructions of the
Majority Lenders and any action taken or failure to act pursuant thereto shall
be binding on all of the Secured Parties.

       

      8.3 Non-Reliance.  Each
Lender represents that it has, independently and without reliance on Collateral
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of the financial condition and
affairs of the Borrower and its own decision to enter into this Agreement and
agrees that it will, independently and without reliance upon Collateral Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own appraisals and decisions in
taking or not taking action under this Agreement.  Neither Collateral
Agent nor any Lender shall be required to keep informed as to the performance or
observance by the Borrower or its Affiliates under this Agreement or any other
document referred to or provided for herein or to make inquiry of, or to inspect
the properties or books of, the Borrower or its Affiliates.

       

      8.4 Defaults; Material Adverse
Effect.  Neither
Collateral Agent nor any Lender shall be deemed to have knowledge or notice of
the occurrence of any Default, Event of Default or Material Adverse Effect,
unless such Person has received a notice from a Lender or Borrower, referring to
this Agreement, describing such Default, Event of Default or Material Adverse
Effect and indicating that such notice is a notice of the occurrence of such
Default, Event of Default or Material Adverse Effect (as the case may be).
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        such
action with respect to such Default, Event of Default or Material Adverse Effect
as is provided in the Pledge and Security Agreement, or if not provided for
therein, as Collateral Agent shall be reasonably directed by the Majority
Lenders; provided,
however, that unless
and until Collateral Agent shall have received such directions, Collateral Agent
may (but shall not be obligated to) take such action, or refrain from king such
action, with respect to such Default, Event of Default or Material Adverse
Effect as it shall deem advisable in the best interest of the
Lenders.

      

       

      8.5 Successor
Agent.  Collateral
Agent may resign at any time by giving fifteen days’ written notice thereof to
the Secured Parties and Borrower.  Collateral Agent may be removed
involuntarily only for a material breach of its duties and obligations hereunder
and under the other Loan Documents or for gross negligence or willful misconduct
in connection with the performance of its respective duties hereunder or under
the other Loan Documents and then only upon the affirmative vote of the Majority
Lenders.  Upon any such resignation or removal, the Majority Lenders
shall have the right, upon notice to Borrower, to appoint a successor Collateral
Agent under this Agreement.  If no successor Collateral Agent shall
have been so appointed and shall have accepted such appointment, within 30 days
after such resignation or removal (as the case may be), the retiring or removed
Collateral Agent may, on behalf of the Secured Parties, appoint a successor
Collateral Agent hereunder upon notice to the Secured Parties and the
Borrower.  Such successor Collateral Agent shall be a Lender or an
Affiliate of a Lender, if any Lender or Affiliate shall be willing to serve, and
otherwise shall be a commercial bank having a combined capital and surplus of at
least $10,000,000.  Upon the acceptance of any appointment as
Collateral Agent, such successor Collateral Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent, and the retiring Collateral Agent shall be discharged from its
duties and obligations as Collateral Agent under the Loan
Documents.  After any Collateral Agent’s resignation or removal
hereunder, the provisions of this Section 8 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Collateral Agent under the Loan Documents.

      

      8.6 Authorization.  Collateral
Agent is hereby authorized by the Lenders and Secured Parties to execute,
deliver and perform each of the Loan Documents to which Collateral Agent is or
is intended to be a party, and each Lender and Secured Party agrees to be bound
by all of the agreements of Collateral Agent contained in the Loan
Documents.  Collateral Agent is further authorized by the Lenders and
Secured Parties to (a) release Liens on property that Borrower is permitted to
sell, transfer or otherwise release pursuant to the terms of this Agreement or
the other Loan Documents, (b) perform all of its obligations under this Section 8 and (c)
enter into agreements supplemental hereto for the purpose of curing any formal
defect, inconsistency, omission or ambiguity in this Agreement or any Loan
Document to which it is a party.

       

      8.7 Other
Roles.  With
respect to any Loans made by it or any of its Affiliates and any Note issued to
it or any of its Affiliates, Collateral Agent (or any such Affiliates of
Collateral Agent) in its individual capacity shall have the same rights and
powers under the Loan Documents and any other Debt Refinancing Documents as any
other Lender or Secured Party and may exercise the same as though it were not
Collateral Agent or an Affiliate of Collateral Agent.  Collateral
Agent and its Affiliates may accept deposits from, lend money to, act as trustee
under indentures of, and generally engage in any kind of business with Borrower
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      account
therefor to the Lenders or Secured Parties.  For the avoidance of
doubt, SG Phoenix LLC or any of its Affiliates (or any permitted successor or
assign) may act as Collateral Agent notwithstanding any potential or actual
conflict of interest presented by the foregoing and Borrower and each of the
Lenders and Secured Parties hereby waives any claim against Collateral Agent and
any of its Affiliates based upon any conflict of interest that such Person may
have with regard to acting as a Lender or Collateral Agent hereunder and acting
in such other roles.

      

      8.8 Amendments and
Waivers.

       

      (a) Majority Lenders’
Consent.  No
amendment, modification, termination or waiver of any provision of the Loan
Documents, or consent to any departure by the Borrower therefrom, shall in any
event be effective without the written concurrence of the Majority Lenders and
any additional consents required by this Section
8.8.

       

      (b) Other
Consents.  No
amendment, modification, termination or waiver of any provision of the Loan
Documents, or consent to any departure by Borrower therefrom, shall amend,
modify, terminate or waive any provision of this Section 8 as the same
applies to Collateral Agent, or any other provision hereof as the same applies
to the rights or obligations of Collateral Agent, in each case without the
consent of Collateral Agent.

       

      (c) Execution of Amendments,
etc.  Any
amendment, modification, waiver or consent under the Debt Refinancing Documents
requiring consent or approval of Lenders shall be binding on all Lenders upon
execution by the Majority Lenders on the date thereof and, if applicable,
Borrower.  Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was
given.  No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in similar or
other circumstances.  Any amendment, modification, termination, waiver
or consent effected in accordance with this Section 8.8 shall be
binding upon each Lender at the time outstanding, each future Lender and, if
signed by the Borrower, on the Borrower.

       

      SECTION
9. MISCELLANEOUS

       

      9.1 Indemnities

       

      .  Borrower
agrees to indemnify, pay, and hold Lenders and Collateral Agent and their
respective Affiliates and the officers, directors, employees, agents, and
attorneys (individually, “Indemnitee”, and
collectively, “Indemnitees”) harmless from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits and claims of any kind or nature whatsoever that may
be imposed on, incurred by, or asserted against the Indemnitee as a result of
Lenders or Collateral Agent being a party to this Agreement with Borrower, or
otherwise in connection with this Agreement and Borrower, any of the other Loan
Documents or any of the transactions contemplated hereby or thereby with respect
to Borrower; provided,
that Borrower shall not have an obligation to an Indemnitee hereunder with
respect to liabilities arising from the gross negligence or willful misconduct
of that Indemnitee or as a result of an Indemnitee’s failure to perform its
obligations hereunder, in each such case as determined by a final non appealable
judgment of a court of competent jurisdiction.  This Section 9.1 and all
indemnification provisions contained within any other Loan Document shall
survive the termination of this Agreement.

       

      
        
          
          

        

        
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      9.2 Notices.  Any
required notice or other communication shall be in writing addressed to the
respective party as set forth below and may be personally delivered, facsimiled,
sent by overnight courier service or U.S. mail and shall be deemed to have been
given: (a) if delivered in person, when delivered; (b) if delivered by
facsimile, on the date of transmission if transmitted on a Business Day before
2:00 p.m. (New York, New York time) and otherwise on the Business Day next
succeeding the date of transmission; (c) if delivered by overnight courier, two
(2) Business Days after delivery to the courier properly addressed; or (d) if
delivered by U.S. mail, four (4) Business Days after deposit with postage
prepaid and proper address.  The addresses for such notices and
communications shall be as follows:

       

      
        	
                 
      

              	
                If
      to the Borrower:

              	
                Communication
      Intelligence Corporation

              

      

      275 Shorewood Drive, Suite
#500

      Redwood Shores, California
94065

      Attn:  Frank
Dane

      Facsimile:  (650)
802-7777

      

      
        	
                 
      

              	
                With
      a copy (which shall not constitute notice)
to:

              

      

       

      
        	
                 
      

              	
                Davis
      Wright Tremaine LLP

              

      

      
        	
                 
      

              	
                23rd
      Floor

              

      

      
        	
                 
      

              	
                1300
      S.W. Fifth Ave.

              

      

      
        	
                 
      

              	
                Portland,
      Oregon 97201

              

      

      
        	
                 
      

              	
                Attn:  Michael
      C. Phillips

              

      

      
        	
                 
      

              	
                Facsimile:  (503)
      778-5299

              

      

      

      
        	
                 
      

              	
                If
      to Phoenix:

              	
                Phoenix
      Venture Fund LLC

              

      

      
        	
                 
      

              	
                110
      East 59th
      Street, Suite 1901

              

      

      
        	
                 
      

              	
                New
      York, New York  10022

              

      

      
        	
                 
      

              	
                Attn:  Andrea
      Goren

              

      

      
        	
                 
      

              	
                Facsimile:  (212)
      202-7565

              

      

      

      
        	
                 
      

              	
                With
      a copy (which shall not constitute notice)
to:

              

      

      

      
        	
                 
      

              	
                Thelen
      Reid Brown Raysman & Steiner
LLP

              

      

      
        	
                 
      

              	
                875
      Third Avenue

              

      

      
        	
                 
      

              	
                New
      York, New York 10022

              

      

      
        	
                 
      

              	
                Attn:  Herman
      Sassower, Esq.

              

      

      
        	
                 
      

              	
                Facsimile:  (212)
      603-2001

              

      

       

      

       

      
        	 	 If to
      Engmann:  	 Michael W.
      Engmann 
	 	 38 San
      Fernando Way
	 	 San Francisco,
      California 94127
	 	 Facsimile:  (415)
      781-4641

      

       

      
        
          
          

        

        
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              	If to
      Goodman:  	 Ronald Goodman
      
	 	 31 Tierra
      Verde Court
	 	Walnut Creek,
      California 94598
	 	 Facsimile:
      (925) 933-7548

      

                                                          

      
        	 If
      to Collateral Agent:	 SG
      Phoenix LLC
	
                 
      

              	
                110
      East 59th
      Street, Suite 1901

              

      

      
        	
                 
      

              	
                New
      York, New York  10022

              

      

      
        	
                 
      

              	
                Attn:  Andrea
      Goren

              

      

      
        	
                 
      

              	
                Facsimile:  (212)
      202-7565

              

      

      

      
        	
                 
      

                  With
      a copy (which shall not constitute notice) to:

                

              	
                 

              

      

      

      
        	
                 
      

              	
                Thelen
      Reid Brown Raysman & Steiner
LLP

              

      

      
        	
                 
      

              	
                875
      Third Avenue

              

      

      
        	
                 
      

              	
                New
      York, New York 10022

              

      

      
        	
                 
      

              	
                Attn:  Herman
      Sassower, Esq.

              

      

      
        	
                 
      

              	
                Facsimile:  (212)
      603-2001

              

      

      

      9.3 Failure or Indulgence Not
Waiver; Remedies Cumulative.  No
failure or delay on the part of Lenders or Collateral Agent to exercise, nor any
partial exercise of, any power, right or privilege hereunder or under any other
Loan Documents shall impair such power, right, or privilege or be construed to
be a waiver of any Default or Event of Default.  All rights and
remedies existing hereunder or under any other Loan Document are cumulative to
and not exclusive of any rights or remedies otherwise available.

       

      9.4 Marshaling; Payments Set
Aside.  Lenders
shall not be under any obligation to marshal any assets in payment of any or all
of the Obligations.  To the extent that Borrower or any other Person
makes payment(s) or Lenders enforce their Liens or exercises their right of
set-off, and such payment(s) or the proceeds of such enforcement or set-off is
subsequently invalidated, declared to be fraudulent or preferential, set aside,
or required to be repaid by anyone (whether by demand, litigation, settlement or
otherwise), then to the extent of such recovery, the Obligations or part thereof
originally intended to be satisfied, and all Liens, rights and remedies
therefore, shall be reinstated and continued in full force and effect as if such
payment had not been made or such enforcement or set off had not
occurred.

       

      9.5 Severability.  The
invalidity, illegality, or unenforceability in any jurisdiction of any provision
under the Loan Documents shall not affect or impair the remaining provisions in
the Loan Documents or any such invalid, unenforceable or illegal provision in
any jurisdiction in which it is not invalid, unenforceable or
illegal.

       

      9.6 Headings.  Sections
and Section headings are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purposes or be given
substantive effect.

       

      9.7 Applicable
Law.  THIS
AGREEMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE 

       

      
        
          
          

        

        
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      INTERNAL
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES
THAT REQUIRE OR PERMIT APPLICATION OF THE LAWS OF ANY OTHER STATE OR
JURISDICTION.

       

      9.8 Successors and
Assigns.  This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.  Borrower may not assign
its rights or Obligations hereunder without the written consent of the Majority
Lenders.

       

      9.9 Participations.

       

                   
(a) Participations.  Each
Lender may sell to one or more commercial banks, commercial finance lenders,
other financial institutions or any other Person, participations in the Loans
and other extensions of credit made and to be made by it to the Borrower
hereunder.  Borrower acknowledges that in selling such participations,
such Lender may grant to its participants certain rights to consent to waivers,
amendments and other actions with respect to this Credit Agreement, provided that the consent of
any participant shall be limited solely to matters as to which Lenders may be
requested to consent under Section 3 and Section 4
hereof.  Except for such consent rights, if any, granted by such
Lender to any of its participants, no participant shall have any rights as a
Lender hereunder, and notwithstanding the sale of any participation by a Lender,
such Lender shall remain solely responsible to the other parties hereto for the
performance of its obligations hereunder, and the Borrower and the other Lenders
may continue to deal solely with such Lender with respect to all matters
relating to this Agreement and the transactions contemplated
hereby.  In addition, all amounts payable under this Agreement to such
Lender shall continue to be paid directly to, or at the direction of, such
Lender.

       

      (b) Cooperation of
Borrower.  If necessary, Borrower agrees to (i) execute any
documents (including Additional Notes) reasonably required to effectuate and
acknowledge each participation effected pursuant to Section 9.9(a); (ii)
make Borrower’s management available to meet with prospective participants; and
(iii) assist Lenders in the preparation of information relating to the financial
affairs of the Borrower as any prospective participant reasonably may request.
Subject to Section
9.12, Borrower authorizes each Lender to disclose to any prospective
participant any and all information in its possession concerning Borrower and
its financial affairs which has been delivered to such Lender by or on behalf of
Borrower pursuant to this Agreement, or which has been delivered to such Lender
by or on behalf of Borrower in connection with its credit evaluation of Borrower
prior to entering into this Agreement.

       

      9.10 No Fiduciary
Relationship.  No
provision in the Loan Documents and no course of dealing between the parties
shall be deemed to create any fiduciary duty owing to Borrower or its
Subsidiaries by Lenders.

       

      9.11 Construction.  Lenders
and Borrower acknowledge that each of them has had the benefit of legal counsel
of its own choice and has been afforded an opportunity to review the Loan
Documents with its legal counsel and that the Loan Documents shall be
constructed as if jointly drafted by Lenders and Borrower.

       

      
        
          
          

        

        
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      9.12 Confidentiality.  Each
Lender agrees to hold in confidence any confidential information that it may
receive from Borrower and its Subsidiaries pursuant to this Agreement that is
identified as being confidential or proprietary, except for disclosure: (a) on a
confidential need-to-know basis to its Affiliates and legal counsel, independent
public accountants and other professional advisors; (b) to regulatory officials
having jurisdiction over it; (c) as required or requested by Applicable Law or
legal process; (d) in connection with any legal proceeding between or among any
Lender and Borrower and/or their respective Subsidiaries or Affiliates (provided that, in the event
such Lender is so required to disclose such confidential information pursuant to
clause (c) of this Section 9.12, such
Lender shall promptly notify Borrower (unless legally prohibited from so doing),
so that Borrower or its Subsidiaries, as applicable, may seek, at their sole
cost and expense, a protective order or other appropriate remedy); and (e)
subject to Section
9.9, to another Person in connection with a disposition or proposed
disposition to that Person of all or part of that Lenders’ interests hereunder;
provided that such
agrees to comply with the terms of this Section
9.12.  For purposes of the foregoing, “confidential
information” shall mean all information respecting Borrower or its Subsidiaries,
other than (i) information previously filed by Borrower or its Subsidiaries with
any Governmental Authority and available to the public or otherwise made
available to third parties on a non-confidential basis, (ii) information
previously published in any public medium from a source other than, directly or
indirectly, a Lender in violation of this Section 9.12 and
(iii) information obtained by a Lender from a source independent of Borrower or
its Subsidiaries.

      

      9.13 Consent to Jurisdiction and
Service of Process.

       

      (a) BORROWER
HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED
STATES FEDERAL COURT OR STATE COURT IN THE STATE OF NEW YORK, COUNTY OF NEW
YORK, HAVING SUBJECT MATTER JURISDICTION OVER ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO ANY LOAN DOCUMENTS.  BORROWER HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR
HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT, PERSONAL JURISDICTION OF ANY SUCH COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM.  NOTHING HEREIN SHALL LIMIT THE RIGHT OF LENDERS
TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION.

       

      (b) BORROWER
HEREBY AGREES THAT SERVICE OF THE SUMMONS AND COMPLAINT AND ALL OTHER PROCESS
WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE EFFECTED BY
MAILING BY REGISTERED MAIL, RETURN RECEIPT REQUESTED, A COPY OF SUCH PROCESS TO
BORROWER AT THE ADDRESS TO WHICH NOTICES TO BORROWER ARE THEN TO BE SENT
PURSUANT TO SECTION
9.2 AND THAT PERSONAL SERVICE OF PROCESS SHALL NOT BE
REQUIRED.  NOTHING HEREIN SHALL BE CONSTRUED TO PROHIBIT SERVICE OF
PROCESS BY ANY OTHER METHOD PERMITTED BY LAW.

       

      
        
          
          

        

        
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      9.14 Waiver of Jury
Trial.  LENDERS
AND BORROWER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER
LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN OR AMONG THEM RELATING TO THE SUBJECT
MATTER OF THIS LOAN TRANSACTION AND ANY RELATIONSHIP THAT IS BEING ESTABLISHED
AMONG ANY OF THEM.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS.  LENDER AND BORROWER ACKNOWLEDGE THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH
HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH
WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE
DEALINGS.  LENDERS AND BORROWER FURTHER WARRANT AND REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.  THIS WAIVER IS IRREVOCABLE, AND THE WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THE LOAN
DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
LOANS.  IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.  LENDERS AND BORROWER ALSO
WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS
WAIVER, BE REQUIRED OF LENDERS.

       

      9.15 Survival of Warranties and
Certain Agreements.  All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement, the making of the Loans, and the
execution and delivery of the Notes.  Notwithstanding anything in this
Agreement or implied by law to the contrary, the agreements of Borrower set
forth in Sections
1.4, 9.1, 9.13, 9.14 and 9.15 (together with
any other Sections stated herein to so survive) shall survive the payment of the
Loans and the termination of this Agreement.

       

      9.16 Entire
Agreement.  This
Agreement, the Notes and the other Loan Documents referred to herein embody the
final, entire agreement among the parties hereto and supersede any and all prior
commitments, agreements, representations, understandings, whether oral or
written, relating to the subject matter hereof and may not be contradicted or
varied by evidence of prior, contemporaneous or subsequent oral agreements or
discussions of the parties hereto.

       

      9.17 Counterparts;
Effectiveness.  This
Agreement and any amendments, waivers, consents or supplements may be executed
in any number of counterparts and by different parties hereto in separate
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      delivered
shall be deemed an original, but all of which counterparts together shall
constitute but one and the same instrument.  This Agreement shall
become effective upon the execution of a counterpart hereof by each of the
parties hereto.

       

      SECTION
10. DEFINITIONS

       

      10.1 Certain Defined
Terms

       

      .  The
terms defined below are used in this Agreement as so defined.  Terms
defined in the preamble, recitals and elsewhere in this Agreement are used in
this Agreement as so defined.

       

      (a) “1933 Act” has the meaning set
forth in Section
5.18.

       

      (b) “1934 Act” has the meaning set
forth in Section
2.3.

       

      (c) “1940 Act” has the meaning set
forth in Section
3.16.

       

      (d) “Additional Note” has the
meaning set forth in Section
1.2(b).

       

      (e) “Additional Warrants” has the
meaning set forth in Section
1.2(b).

       

      (f) “Accounting Changes” has the
meaning set forth in Section
4.2.

       

      (g) “Affiliate” means (i) with
respect to Borrower or any of its Subsidiaries, any Person: (A) directly or
indirectly controlling, controlled by, or under common control with such Person
or (B) directly or indirectly owning or holding five percent (5%) or more of any
equity interest in Borrower or any of its Subsidiaries; and (ii) with respect to
Lenders, any Person which controls or is controlled by or is under common
control with such Person.  For purposes of this definition, “control”
(including with correlative meanings, the terms “controlling,” “controlled by”
and “under common control with”) means the possession directly or indirectly of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or by contract or
otherwise.

       

      (h) “Agreement” means this Credit
Agreement (including all Schedules and Exhibits hereto), as amended, modified
and supplemented from time to time as permitted herein.

       

      (i) “Applicable Law” means, in
respect of any Person, all provisions of constitutions, statutes, rules,
regulations and orders of governmental bodies or regulatory agencies applicable
to such Person, and all orders, decisions, judgments and decrees of all courts
and arbitrators in proceedings or actions to which the Person in question is a
party or by which it is bound.

       

      (j) “Asset Disposition” means the
disposition, whether by sale, lease, transfer, loss, damage, destruction,
condemnation or otherwise, by Borrower or any of its Subsidiaries, of any of the
following: (i) any of the capital stock of Borrower or any of its Subsidiaries;
or (ii) any or all of the operating assets of Borrower or any of its
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      inventory
to customers in the ordinary course of business, dispositions of obsolete
equipment not used or useful in the business of Borrower or any of its
Subsidiaries and de
minimis asset sales, or (iii) sales of Cash Equivalents for fair
value.

       

      (k) “Bankruptcy Code” means Title
11 of the United States Code entitled “Bankruptcy,” as amended from time to
time, or any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect and all rules and regulations promulgated
thereunder.

       

      (l) “Borrower” has the meaning set
forth in the Preamble.

       

      (m) “Business Day” means any day
excluding Saturday, Sunday and any day which is a legal holiday under the laws
of the State of New York, or is a day on which banking institutions located in
such state are closed or which the Federal Reserve Banks are
closed.

       

      (n) “Capital Lease” means any
lease of real or personal property which is required to be capitalized under
GAAP.

       

      (o) “Cash Equivalents” means: (i)
marketable direct obligations issued or unconditionally guarantied by the United
States Government or issued by any agency thereof and backed by the full faith
and credit of the United States, in each case maturing within one (1) year from
the date of acquisition thereof; (ii) commercial paper maturing no more than one
(1) year from the date issued and, at the time of acquisition, having a rating
of at least A 1 from Standard & Poor’s Rating Service or at least P 1 from
Moody’s Investors Service, Inc.; (iii) certificates of deposit or bankers’
acceptances maturing within one (1) year from the date of issuance thereof
issued by, or overnight reverse repurchase agreements from, any commercial bank
organized under the laws of the United States of America or any state thereof or
the District of Columbia having combined capital and surplus of not less than
$500,000,000; and (iv) time deposits maturing no more than thirty (30) days from
the date of creation thereof with commercial banks having membership in the
Federal Deposit Insurance Corporation in amounts at any one such institution not
exceeding the lesser of $100,000 or the maximum amount of insurance applicable
to the aggregate amount of Borrower’s deposits at such institution.

       

      (p) “Change of Control” has the
meaning set forth in Section
6.1(s).

       

      (q) “Closing Date” means June 5,
2008.

       

      (r) “Collateral” has the meaning
set forth in Section 2 of the Security Agreement, and includes the Pledged Stock
as such term is defined in the recitals of the Pledge and Security
Agreement.

       

      (s) “Collateral Agent” has the
meaning set forth in Section
8.1(a).

       

      (t) “Common Stock” means the
common stock of the Borrower, par value $0.01 per share, and any securities into
which such common stock may hereafter be reclassified or for which it may be
exchanged as a class.

       

      
        
          
          

        

        
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      (u) “Compliance Certificate” has
the meaning set forth in Section
4.1(b).

       

      (v) “Contingent Obligation” means,
as applied to any Person, any direct or indirect contingent liability of that
Person: (i) 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; or (ii) with respect to any letter of credit issued for
the account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings.  Contingent Obligations shall also include
(A) the direct or indirect guaranty, endorsement (other than for collection or
deposit in the ordinary course of business), co-making, discounting with
recourse or sale with recourse by such Person of the obligation of another, (B)
the obligation to make take-or-pay or similar payments if required regardless of
nonperformance by any other party or parties to an agreement, other than
pursuant to routine agreements entered into in the ordinary course of business,
and (C) any liability of such Person for the obligations of another through any
agreement to purchase, repurchase or otherwise acquire such obligation or any
property constituting security therefore, to provide funds for the payment or
discharge of such obligation or to maintain the solvency, financial condition or
any balance sheet item or level of income of another.  The amount of
any Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if not a fixed and determined amount, the
maximum amount so guaranteed.

       

      (w) “Control” or “control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management, policies or activities of such Person, whether
through ownership of voting securities, by contract or otherwise.

       

      (x) “Debt Refinancing” means,
collectively, the following: (i) the conversion of the outstanding debt set
forth on Schedule
1.3 of this Agreement into Loans under this Agreement and the tender of
the promissory notes evidencing such debt to the Borrower for cancellation; (ii)
the tender of certain Promissory Notes (as defined under the Purchase Agreement)
to the Borrower for cancellation in full payment for shares of Series A
Preferred Stock as set forth in the Purchase Agreement and (iii) each of the
other transactions contemplated hereby and by the other Debt Refinancing
Documents..

       

      (y) “Debt Refinancing Documents”
means the Loan Documents and the Share Lending Agreement, dated as of the date
hereof, by and among Phoenix, Engmann and Goodman and all other instruments,
documents and agreements executed by or on behalf of Borrower or any of its
Subsidiaries, and delivered concurrently herewith or at any time hereafter to or
for the benefit of any Lender in connection with the Loans and other
transactions contemplated by this Agreement, all as amended, supplemented or
modified from time to time.

       

      (z) “Default” means a condition or
event that, after notice or lapse of time or both, would constitute an Event of
Default if that condition or event were not cured or removed within any
applicable grace or cure period.

       

      
        
          
          

        

        
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      (aa) “Engmann” has the meaning set
forth in the preamble.

       

      (bb) “Environmental Laws” means all
applicable federal, state or local laws, statutes, rules, regulations or
ordinances, codes, common law, consent agreements, orders, decrees, judgments or
injunctions issued, promulgated, approved or entered thereunder relating to
public health, safety or the pollution or protection of the environment,
including those relating to releases, discharges, emissions, spills, leaching,
or disposals of hazardous substances (including petroleum, crude oil or any
fraction or derivative thereof, or other hydrocarbons) to air, water, land or
ground water, to the withdrawal or use of ground water, to the use, handling or
disposal of polychlorinated biphenyls, asbestos or urea formaldehyde, to the
treatment, storage, disposal or management of hazardous substances (including
petroleum, crude oil or any fraction or derivative thereof, or other
hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or
other controlled, prohibited, or regulated substances, including, without
limitation, any such provisions under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. § 9601, et seq.), and the Resource
Conservation and Recovery Act of 1976, as amended (42 U.S.C. § 6901, et seq.).

       

      (cc) “Evaluation Date” has the
meaning set forth in Section
5.21.

       

      (dd) “Event of Default” has the
meaning set forth in Section
6.1.

       

      (ee) “GAAP” means generally
accepted accounting principles as set forth in statements from Auditing
Standards No. 69 entitled “The Meaning of Present Fairly in Conformance with
Generally Accepted Accounting Principles in the Independent Auditors Reports’”
issued by the Auditing Standards Board of the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial Accounting
Standards Board that are applicable to the circumstances as of the date of
determination.

       

      (ff) “Goodman” has the meaning set
forth in the preamble.

       

      (gg) “Governmental Authority” means
any nation, province, or state or any political subdivision of any of the
foregoing, and any government or any Person exercising executive, legislative,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity exercising such functions owned or controlled,
through stock or capital ownership or otherwise, by any of the
foregoing.

       

      (hh) “Indebtedness” means, as
applied to any Person, without duplication: (i) all indebtedness for borrowed
money including but not limited to, the Obligations; (ii) that portion of
obligations with respect to Capital Leases or other capitalized agreements that
is properly classified as a liability on a balance sheet in conformity with
GAAP; (iii) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money; (iv) any obligation
owed for all or any part of the deferred purchase price of property or services
except trade payables arising in the ordinary course of business not more than
ninety (90) days past due; (v) all indebtedness secured by any Lien on any
property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
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      the fair
value of such property or asset; (vi) fixed rate hedging obligations that are
due (after giving effect to any period of grace or notice requirement applicable
thereto) and remain unpaid; (vii) obligations with respect to principal under
Contingent Obligations for the repayment of money or the deferred purchase price
of property, whether or not then due and payable (calculated as the amount of
such principal); and (viii) obligations under partnership, organizational or
other agreements to fund capital contributions or other equity calls with
respect to any Person or Investment, or to redeem, repurchase or otherwise make
payments in respect to capital stock or other securities of such
Person.

       

      (ii) “Indemnitee” or “Indemnitees”
has the meaning set forth in Section
9.1.

       

      (jj) “Initial Warrant” or “Initial Warrants” has the
meaning set forth in Section
1.9.

       

      (kk) “Intellectual Property Rights”
has the meaning set forth in Section
5.8.

       

      (ll) “Investment” means (i) any
direct or indirect purchase or other acquisition by Borrower or any of its
Subsidiaries of any beneficial interest in, including stock, partnership
interest or other equity securities of, any other Person; and (ii) any direct or
indirect loan, advance, transfer, guarantee, assumption of liability or other
obligation or liability, or capital contribution by Borrower or any of its
Subsidiaries to any other Person, including all Indebtedness and accounts
receivable from that other Person that are not current assets or did not arise
from sales to that other Person in the ordinary course of
business.  The amount of any Investment shall be the original cost of
such Investment plus the cost of all additions thereto, without any adjustments
for increases or decreases in value, or write-ups, write-downs or write-offs
with respect to such Investment.

       

      (mm) “Investors” means the
purchasers of the Series A Preferred Stock under the Purchase
Agreement.

       

      (nn) “IRC” means the Internal
Revenue Code of 1986, as amended from time to time, and all rules and
regulations promulgated thereunder.

       

      (oo) “Lender” or “Lenders” has the meaning set
forth in the Preamble.

       

      (pp) “Lien” means any lien,
mortgage, pledge, security interest, charge or encumbrance of any kind, whether
voluntary or involuntary (including any conditional sale or other title
retention agreement and any lease in the nature thereof), and any agreement to
give any lien, mortgage, pledge, security interest, charge or
encumbrance.

       

      (qq) “Loan” or “Loans” has the meaning set
forth in Section
1.1(a).

       

      (rr) “Loan Documents” means this
Agreement, the Notes, the Security Documents, the Warrants, the Purchase
Agreement, the Registration Rights Agreement and all other instruments,
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      any of
its Subsidiaries, and delivered concurrently herewith or at any time hereafter
to or for the benefit of any Lender in connection with the Loans and other
transactions contemplated by this Agreement, all as amended, supplemented or
modified from time to time.

       

      (ss) “Majority Lenders” means, at
any time, any Lender or Lenders holding pro rata Obligations which in the
aggregate exceed 50%.

       

      (tt) “Material Adverse Effect”
means (i) a material adverse effect upon the business, operations, properties or
assets, or condition (financial or otherwise) or prospects or upon Borrower or
any of its Subsidiaries taken as a whole, or (ii) the impairment of the ability
of Borrower, or any of its Subsidiaries to perform its material Obligations
under any Loan Document to which it is a party or of Lenders to enforce any Loan
Document or collect any of the Obligations.  In determining whether
any individual event could reasonably be expected
to have a Material Adverse Effect, notwithstanding that such event does not of
itself have such effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event and all other then existing
events could reasonably be expected to have a Material Adverse
Effect.

       

      (uu) “Material Contracts” means (i)
the Material Contracts listed on Schedule 5.15, (ii)
any contract or any other agreement, written or oral, of Borrower or any of its
Subsidiaries involving monetary liability of or to any such Person in an
aggregate amount in excess of One Hundred Thousand Dollars ($100,000) per annum
and (iii) any other contract or agreement, written or oral, of Borrower or any
of its Subsidiaries the failure to comply with which could reasonably be
expected to have a Material Adverse Effect.

       

      (vv) “Maturity Date” means the
earlier of (i) the date payment is due under the Notes as a result of
acceleration or otherwise; and (ii) June 5, 2010.

       

      (ww) “Net Proceeds” means cash
proceeds received by Borrower or any of its Subsidiaries from any Asset
Disposition, or debt or equity issuance including insurance proceeds, awards of
condemnation, and payments under notes or other debt securities received in
connection with any Asset Disposition, net of (i) the reasonable costs incurred
or accrued in connection with such sale, lease, transfer, issuance or other
disposition (including taxes attributable to such sale, lease, transfer or
issuance, including, if the disposing Person is a limited liability company, S
corporation or a partnership, taxes attributable to its members, shareholders or
partners with respect to such disposition) and (ii) amounts applied to repayment
of Indebtedness (other than the Obligations) secured by a Lien on the asset or
property disposed.

       

      (xx) “Note” or “Notes” means any promissory
note contemplated by Section 1.1(a),
substantially in the form attached hereto as Exhibit 1.1(a), or
any combination thereof, and any replacements, restatements, renewals or
extensions of any such notes, in whole or in part.

       

      (yy) “Obligation” or “Obligations” means all
obligations, liabilities and Indebtedness of every nature of Borrower from time
to time owed to Lenders under the Loan Documents, including the unpaid principal
amount of all debts, claims and indebtedness, 

       

      
        
          
          

        

        
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          EXHIBIT
10-41

        

      

       

       

      accrued
and unpaid interest and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now or from time
to time hereafter owing, due or payable, or any combination thereof, whether
before or after the filing of a proceeding under the Bankruptcy Code by or
against Borrower.

       

      (zz) “Permitted Encumbrances” means
the following:

       

      (i) Liens for
taxes, assessments or other governmental charges not yet due and payable or
Liens for taxes, assessment or other governmental charges due and payable if the
same are being diligently contested in good faith and by appropriate proceedings
and then only if and to the extent that adequate reserves therefore are
maintained on the books of Borrower and its Subsidiaries, as applicable, in
accordance with GAAP;

       

      (ii) Liens of
landlords, carriers, warehousemen, mechanics, materialmen and other similar
Liens imposed by Applicable Law, which are incurred in the ordinary course of
business for sums not more than ninety (90) days delinquent or which are being
diligently contested in good faith; provided that a reserve or
other appropriate provision shall have been made therefore and the aggregate
amount of liabilities secured by such Liens is less than $100,000;

       

      (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other types of social security
(other than any Lien imposed by the Employee Retirement Income Security Act of
1974 or any rule or regulation promulgated thereunder), or to secure the
performance of tenders, statutory obligations, surety, stay, customs and appeal
bonds, bids, leases, government contracts, trade contracts, performance and
return of money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money);

       

      (iv) deposits,
in an aggregate amount not to exceed $50,000, made in the ordinary course of
business to secure liability to insurance carriers;

       

      (v) any
attachment or judgment Lien which, individually or when aggregated, does not
constitute an Event of Default under Section 6.1(i)
(whether individually or when aggregated with other such Liens);

       

      (vi) Liens in
favor of Lenders;

       

      (vii) Liens
securing purchase money security agreements and Capital Leases permitted under
Section 3.1(d);
provided that such
Liens do not encumber any property other than the items purchased with the
proceeds of such Indebtedness or leased pursuant to such Indebtedness and such
Liens do not secure any amounts other than amounts necessary to purchase or
lease such items; and

       

      (viii) Liens
permitted pursuant to this Agreement which secure refinanced or replaced
Indebtedness which had been secured by a Lien.

       

      (aaa) “Person” means and includes
natural persons, corporations, limited liability companies, limited
partnerships, limited liability partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political 

       

      
        
          
          

        

        
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          EXHIBIT
10-41

        

      

       

       

      subdivisions
thereof and their respective permitted successors and assigns (or in the case of
a governmental person, the successor functional equivalent of such
Person).

       

      (bbb) “Phoenix” has the meaning set
forth in the Preamble.

       

      (ccc) “Pledge and Security
Agreement” means the pledge and security agreement, dated as of even date
herewith, substantially in the form of Exhibit 10.1(ccc)
annexed hereto, executed by Borrower in favor of Lenders.

       

      (ddd) “Purchase Agreement” means the
securities purchase agreement, dated as of the date hereof, by and among
Borrower and the purchasers of the Series A Preferred Stock listed
therein.

       

      (eee) “Real Property” has the
meaning set forth in Section
5.6.

       

      (fff) “Registration Rights
Agreement” means the registration rights agreement, dated as of the date
hereof, by and among Borrower and investors signatory thereto.

       

      (ggg) “Restricted Junior Payment”
means, except as contemplated in the Purchase Agreement: (i) any dividend or
other distribution, direct or indirect, on account of any equity interest in
Borrower or any of its Subsidiaries, including any shares of any class of stock
of Borrower or any of its Subsidiaries now or hereafter outstanding, except a
dividend payable solely in shares of a class of stock to the holders of that
class; (ii) any redemption, repurchase, conversion, exchange, retirement,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, prior to its stated maturity, of any equity interest in Borrower or
any of its Subsidiaries, including any shares of any class of stock of Borrower
or any of its Subsidiaries now or hereafter outstanding (except repurchases of
shares of common stock held by an employee upon termination of employment);
(iii) any payment or prepayment of interest on, principal of, premium, if any,
redemption, conversion, exchange, purchase, retirement, defeasance, sinking fund
or similar payment with respect to, any Indebtedness prior to its stated
maturity or payment date, or in contravention of any subordination provisions
for the benefit of Lenders; and (iv) any payment made prior to its stated
maturity, to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire any equity interest in Borrower or any of its
Subsidiaries, including any shares of any class of stock of Borrower or any of
its Subsidiaries now or hereafter outstanding.

       

      (hhh) “SEC” means the U.S.
Securities and Exchange Commission.

       

      (iii) “Secured Party” or “Secured
Parties” means Collateral Agent, or any Lender, or any of their
respective Affiliates, and each of their respective successors, transferees and
assigns.

       

      (jjj) “Security Documents” means,
collectively, all instruments, documents and agreements executed by or on behalf
of Borrower to provide collateral security with respect to the Obligations,
including, without limitation, the Pledge and Security 

       

      
        
          
          

        

        
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          EXHIBIT
10-41

        

      

       

       

      Agreement,
depositary account control agreements and all instruments, documents and
agreements executed pursuant to the terms of the foregoing, in such case, as
amended, modified and supplemented from time to time.

       

      (kkk) “Security Interest” means all
Liens in favor of Lenders, created hereunder or under any of the Security
Documents to secure the Obligations.

       

      (lll) “Series A Preferred Stock”
means shares designated Series A Cumulative Convertible Preferred Stock issued
by the Borrower, par value $0.01 per share.

       

      (mmm) “Subsidiary” means, with
respect to any Person, any corporation, partnership, association or other
business entity of which more than fifty percent (50%) of the total voting power
of shares of stock (or equivalent ownership or controlling interest) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof.

       

      (nnn) “Warrants” means the Initial
Warrants and the Additional Warrants.

       

      10.2 Other Definitional
Provisions

       

      .  References
to “Sections,” “Exhibits” and “Schedules” shall be to Sections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided.  Any of the terms defined in Section 10.1 may,
unless the context otherwise requires, be used in the singular or the plural
depending on the reference.  In this Agreement, “hereof,” “herein,”
“hereto,” “hereunder” and the like mean and refer to this Agreement as a whole
and not merely to the specific section, paragraph or clause in which the
respective word appears; words importing any gender include the other gender;
references to “writing” include printing, typing, lithography and other means of
reproducing words in a tangible visible form; the words “including,” “includes”
and “include” shall be deemed to be followed by the words “without limitation”;
references to agreements and other contractual instruments shall be deemed to
include subsequent amendments, assignments, and other modifications thereto, but
only to the extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement or any other Loan Document; references
to Persons include their respective permitted successors and assigns or, in the
case of governmental Persons, Persons succeeding to the relevant functions of
such Persons; and all references to statutes and related regulations shall
include any amendments of same and any successor statutes and
regulations.

       

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EXHIBIT
10-41

      

      WITNESS the due execution
hereof by the respective duly authorized officers of the undersigned as of the
date first written above.

       

      LENDERS:

      

      PHOENIX
VENTURE FUND LLC,

      as
Lender

      

            By:
SG Phoenix Ventures LLC,

                   its
Managing Member

      

                   By: /s/
Andrea
Goren                                                               

       

                  Name:
Andrea
Goren          

       

                  Title: 
Member                 
    

       

       

       

      

                                           

                                                                                                                        
/s/ Michael Engmann

                                                                                                                
     
MICHAEL ENGMANN, as Lender

       

                                                                                

                                            

                                           /s/ Ronald Goodman

      RONALD
GOODMAN, as Lender

       

       

       

      BORROWER:

      

      COMMUNICATION
INTELLIGENCE

       CORPORATION,
as Borrower

      

      

      By: /S/
Guido D. Digregorio

      Name: Guido D. DiGregorio

      Title: Chief Executive Officer
and

                      President

       

      
        
          
             -
50 - 

          

           

        

        
           

          
            

          

        

        
           

        
EXHIBIT
10-41

      COLLATERAL AGENT:

       

      SG
PHOENIX LLC,

      as
Collateral Agent

      

      By:  
/s/Andrea
Goren                                     
 

       

      Name: 
Andrea
Goren                                 
 

       

      Title: 
Member                                        
  

       

       

       

       

       

       

       

       

       

       

       

      -51-

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