Document:

exhibit10-2.htm

    EXECUTION COPY 

     

    
      	 

    

     

     

    LOAN AND SECURITY AGREEMENT

     

     

     

    dated as of June 29,
2010 

     

    among 

     

    
UNIFY CORPORATION,
as Borrower, 

     

    
The Guarantors Party Hereto From Time to Time, 

     

    
and 

     

    
HERCULES TECHNOLOGY II,
L.P.,
as Lender 

     

     

     

    
    

     

    
      	 

 

    

    
    

    TABLE OF CONTENTS

     

    
      	
            	
            	
            	
            	Page
	SECTION 1.	    
    	      
      DEFINITIONS AND RULES OF CONSTRUCTION	1
	             
      	1.1	
            	Definitions	1
	 	1.2	
            	Rules of Construction	23
	
            	1.3	
            	Accounting and Other Terms	24
	
            	1.4	
            	Uniform Commercial Code	24
	SECTION 2.	
            	       THE LOANS	24
	
            	2.1	
            	Revolving Loan	24
	
            	2.2	
            	Term Loan	25
	
            	2.3	
            	Maximum Interest	27
	
            	2.4	
            	Late Fee; Default Interest	27
	 	2.5	
            	Voluntary Prepayments	27
	
            	2.6	
            	Mandatory Prepayments	28
	
            	2.7	
            	Prepayment Charge	30
	
            	2.8	
            	[Intentionally Omitted]	30
	
            	2.9	
            	Unused Line Fee	30
	
            	2.10	
            	Payments Generally	30
	SECTION 3.	 	      
      SPECIAL PROVISIONS RELATING TO LIBOR AND TAXES; ETC	31
	
            	3.1	
            	[Intentionally Omitted]	31
	 	3.2	 	Special Provisions Applicable to the
      LIBOR Rate	31
	
            	3.3	
            	Payments Free of Taxes; Obligation to Withhold; Payments on Account
      of Taxes	31
	 	3.4	 	Evidence of Debt	34
	SECTION 4.	
            	       SECURITY INTEREST	34
	 	4.1	 	Grant of a Security Interest	34
	 	4.2	 	Authorization to File Financing
      Statements	34
	 	4.3	 	Other Actions	35
	
            	4.4	
            	Relation to Other Security Documents	37
	
            	4.5	
            	Power of Attorney	37

    

    -i- 

     

    

    
    

    TABLE OF CONTENTS
(continued) 

     

    
      	
            	
            	
            	
            	Page
	SECTION 5.	       	      
      CONDITIONS PRECEDENT TO LOANS	38
	             
      	5.1	
            	Initial Advance	38
	
            	5.2	
            	All Advances	41
	
            	5.3	
            	No Default	41
	SECTION 6.	
            	      
      REPRESENTATIONS AND WARRANTIES	42
	
            	6.1	
            	Organization, Qualification and Other Information	42
	
            	6.2	
            	Power; Authorization	42
	
            	6.3	
            	No Contravention; Liens	42
	
            	6.4	
            	Consents	42
	
            	6.5	
            	Binding Effect	43
	
            	6.6	
            	No Defaults; Material Adverse
      Effect	43
	 	6.7	
            	Financial Statements	43
	
            	6.8	
            	Ownership of Property; Liens;
      Indebtedness and Investments	43
	
            	6.9	
            	Collateral Documents	44
	
            	6.10	 	Absence of Litigation	44
	
            	6.11	
            	Laws	45
	
            	6.12	
            	Material Agreements and Other
      Contracts	45
	
            	6.13	
            	Conduct of Business; Compliance with Laws; Regulatory
    Permits	45
	
            	6.14	
            	Transactions With Affiliates	45
	
            	6.15	
            	Information Correct and Current	45
	
            	6.16	
            	Tax Matters	46
	
            	6.17	
            	Solvency	46
	
            	6.18	
            	Intellectual Property; Intellectual
      Property Rights; Etc	46
	
            	6.19	
            	Financial Accounts	47
	
            	6.20	
            	Capitalization and
Subsidiaries	47
	
            	6.21	
            	Employee Loans	47
	
            	6.22	
            	Environmental Laws	47
	
            	6.23	
            	ERISA	47
	
            	6.24	
            	Margin Stock	48

    

    -ii- 

     

    

    
    

    TABLE OF CONTENTS
(continued) 

     

    
      	
            	
            	
            	
            	Page
	             
      	6.25	       	Regulated Entities	48
	 	6.26	
            	Internal Accounting and Disclosure Controls	49
	
            	6.27	
            	Employee Relations	49
	
            	6.28	
            	Foreign Corrupt Practices	49
	
            	6.29	
            	Sarbanes-Oxley Act	49
	
            	6.30	
            	Patriot Act	49
	
            	6.31	
            	[Intentionally Omitted]	50
	
            	6.32	
            	Eligible Accounts	50
	
            	6.33	
            	Acquisition Documents	50
	
            	6.34	 	Customers	50
	SECTION 7.	
            	      
      INSURANCE; INDEMNIFICATION	50
	
            	7.1	
            	Coverage	50
	
            	7.2	
            	Certificates	50
	
            	7.3	
            	Indemnity	51
	SECTION 8.	
            	      
      AFFIRMATIVE COVENANTS	51
	
            	8.1	
            	Financial Reports	51
	
            	8.2	
            	Notices	53
	
            	8.3	
            	Corporate Existence and Maintenance of Properties	55
	
            	8.4	
            	Compliance with Laws; Conduct of
      Business; Regulatory Permits	55
	
            	8.5	
            	Taxes	55
	
            	8.6	
            	Books and Records	55
	
            	8.7	
            	Use of Proceeds	55
	
            	8.8	
            	Collateral Protection
Generally	55
	
            	8.9	
            	Additional Intellectual Property	56
	
            	8.10	
            	Additional Collateral	56
	
            	8.11	
            	Joinder	56
	
            	8.12	
            	Inspection Rights; Audit Rights; Field
      Exams; Appraisals; Etc.	57
	
            	8.13	
            	Material Agreements	57
	
            	8.14	
            	Lender Meetings	57

    

    -iii- 

     

    

    
    

    TABLE OF CONTENTS
(continued) 

     

    
      	
            	
            	
            	
            	Page
	             
      	8.15	       	SBA Information	57
	
            	8.16	
            	Compromise of Agreements	58
	
            	8.17	
            	Further Assurances	58
	
            	8.18	
            	Availability of Shares	58
	
            	8.19	
            	Post-Closing Covenants	58
	
            	8.20	
            	Information Statement	59
	SECTION 9.	
            	      
      NEGATIVE COVENANTS	59
	
            	9.1	
            	Liens	59
	
            	9.2	
            	Indebtedness; Prepayment of
      Indebtedness	59
	
            	9.3	
            	Investments	60
	
            	9.4	
            	Restricted Payments	60
	
            	9.5	
            	Payment of Restricted Junior Payments	60
	 	9.6	
            	Transfers	60
	
            	9.7	
            	Fundamental Changes	60
	
            	9.8	
            	Acquisitions	60
	
            	9.9	
            	No Negative Pledges	60
	
            	9.10	
            	Transactions with Affiliates	61
	 	9.11	
            	Accounting Changes	61
	
            	9.12	
            	Modification of Organizational Documents
      and Material Agreements	61
	
            	9.13	 	Organizational Changes; Locations of Collateral	61
	
            	9.14	
            	Deposit Accounts and Securities
      Accounts	61
	
            	9.15	
            	Change in Nature of Business	61
	
            	9.16	
            	[Intentionally Omitted]	61
	
            	9.17	
            	Non-circumvention	62
	
            	9.18	
            	Financial Covenants	62
	
            	9.19	
            	Modification of Seller Notes	62
	
            	9.20	
            	Foreign Subsidiary Deposit
      Accounts	62
	
            	9.21	
            	Stock Options	63
	SECTION 10.	
            	      
      [INTENTIONALLY OMITTED]	63

    

    -iv- 

     

    

    
    

    TABLE OF CONTENTS
(continued) 

     

    
      	
            	
            	
            	
            	Page
	SECTION 11.	       	      
      EVENTS OF DEFAULT	63
	             
      	11.1	
            	Non-payment	63
	
            	11.2	
            	Specific Covenants; Other
    Defaults	63
	
            	11.3	
            	Repudiation of Guaranty and other Collateral Documents	63
	
            	11.4	
            	Invalidity of Loan Documents	63
	
            	11.5	
            	Liens	64
	
            	11.6	
            	Representations and Warranties	64
	
            	11.7	
            	Insolvency	64
	
            	11.8	
            	Attachments; Judgments	64
	
            	11.9	
            	Cross-Defaults	65
	
            	11.10	
            	Material Agreements	65
	
            	11.11	
            	Change in Control	65
	
            	11.12	
            	Suspension of Business	65
	
            	11.13	
            	[Intentionally Omitted]; or	65
	
            	11.14	
            	ERISA Event	65
	 	11.15	
            	Material Adverse Effect	65
	
            	11.16	
            	Common Stock	65
	
            	11.17	
            	Subordination of Seller Notes	65
	SECTION 12.	 	      
      REMEDIES	65
	
            	12.1	
            	General	65
	
            	12.2	
            	Collection; Foreclosure	66
	
            	12.3	
            	Standards for Exercising Rights and Remedies	67
	
            	12.4	
            	Marshalling of Assets	67
	
            	12.5	
            	Cumulative Remedies	67
	SECTION 13.	
            	      
      GUARANTY	67
	
            	13.1	
            	Guaranty	67
	
            	13.2	
            	Waivers by Guarantors	68
	
            	13.3	
            	Benefit of Guaranty	68
	
            	13.4	
            	Waiver of Subrogation, Etc.	68

    

    -v- 

     

    

    
    

    TABLE OF CONTENTS
(continued) 

     

    
      	
            	
            	
            	
            	Page
	             
      	13.5	       	Election of Remedies	68
	 	13.6	
            	Limitation	69
	
            	13.7	
            	Contribution with Respect to Guaranty
      Obligations	69
	
            	13.8	
            	Liability Cumulative	70
	
            	13.9	
            	Stay of Acceleration	70
	
            	13.10	
            	Benefit to Borrower	70
	SECTION 14.	
            	      
      MISCELLANEOUS	70
	
            	14.1	
            	Severability	70
	
            	14.2	
            	Notice	70
	
            	14.3	
            	Entire Agreement; Amendments and Waivers	71
	
            	14.4	
            	No Strict Construction	71
	
            	14.5	
            	No Waiver	71
	
            	14.6	
            	Survival	71
	
            	14.7	
            	Successors and Assigns	71
	
            	14.8	
            	Governing Law	72
	
            	14.9	
            	Consent to Jurisdiction and Venue	72
	
            	14.10	
            	Mutual Waiver of Jury Trial / Judicial
      Reference	72
	
            	14.11	 	Professional Fees	73
	
            	14.12	
            	Confidentiality	73
	
            	14.13	
            	Assignment of Rights	74
	
            	14.14	
            	Revival of Secured Obligations	74
	
            	14.15	
            	Counterparts	75
	
            	14.16	
            	No Third Party Beneficiaries	75
	
            	14.17	
            	Publicity	75

    

    -vi- 

     

    

    
    

    Table of Addenda, Schedules and
Exhibits

     

    
      	Addenda	             
      	
            
	  
	Addendum 1	
            	SBIC Additional
Requirements
	  
	Annex A	
            	Consolidated Adjusted EBITDA
      Adjustments
	  
	Schedules	
            	
            
	  
	Schedule 1	
            	Subsidiaries
	Schedule 1A	
            	Existing Permitted Indebtedness
	Schedule 1B	
            	Existing Permitted
  Investments
	Schedule 1C	
            	Existing Permitted Liens
	Schedule 1.1(a)	
            	Existing Indebtedness
	Schedule 6.1	
            	Organization, Qualification and Other Information
	Schedule 6.3	
            	No Contravention; Liens
	Schedule 6.10	
            	Absence of Litigation
	Schedule 6.12	
            	Material Agreements
	Schedule 6.13	
            	Conduct of Business; Compliance with Laws; Regulatory
    Permits
	Schedule 6.14	
            	Transactions with
Affiliates
	Schedule 6.16	
            	Tax Matters
	Schedule 6.18(a)	
            	Intellectual Property
	Schedule 6.18(b)	
            	Intellectual Property Infringement
	Schedule 6.19	
            	Financial Assets (Deposit Accounts and
      Securities Accounts)
	Schedule 6.20	
            	Capitalization; Subsidiaries
	Schedule 6.22	 	Environmental Laws
	Schedule 6.23	
            	ERISA Matters
	Schedule 6.27	
            	Employee Relations
	Schedule 6.34	
            	Suppliers and Customers
	Schedule 8.19(b)	
            	Trademarks to be Transferred from Gupta
      Technologies, LLC
	Schedule 9.18	
            	Financial Covenants
	  
	Exhibits	
            	
            
	  
	Exhibit A	
            	Advance Request and Attachment to
      Advance Request
	Exhibit B-1	
            	Revolving Note
	Exhibit B-2	
            	Term Note
	Exhibit C	
            	Compliance Certificate
	Exhibit D	
            	Joinder Agreement
	Exhibit E	
            	Borrowing Base Certificate
	Exhibit F	
            	ACH Debit Authorization
    Agreement
	Exhibit G	
            	Securities Pledge Agreement
	Exhibit H	
            	Form of
Warrant

    

    

    
    

    LOAN AND SECURITY AGREEMENT

     

              THIS LOAN AND SECURITY AGREEMENT is made and dated as of June 29, 2010 and is entered into by and among
(i) UNIFY CORPORATION, a Delaware corporation (hereinafter referred
to as “Borrower”), (ii) each other Person identified as a
“Guarantor” hereto from time to time, and (iii) HERCULES TECHNOLOGY II, L.P., a Delaware limited partnership (“Lender”). 

     

    RECITALS 

     

              A. Borrower has requested Lender make
available to Borrower a revolving facility in an aggregate principal amount of
up to SIX MILLION DOLLARS ($6,000,000) (the “Maximum Revolving Loan Amount”); 

     

              B. Borrower has requested Lender to make
available to Borrower a term loan in an aggregate principal amount equal to
TWENTY-FOUR MILLION DOLLARS ($24,000,000) (the “Maximum Term Loan Amount”); and 

     

              C. Lender is willing to make the Revolving
Loan and the Term Loan (as each such term is defined in Section 1.1 hereof) on the terms and conditions set forth
in this Agreement. 

     

    AGREEMENTS 

     

              NOW, THEREFORE, for
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower, each Guarantor and Lender agree as follows:

     

    SECTION 1. DEFINITIONS AND RULES OF
CONSTRUCTION 

     

              1.1 Definitions. Unless otherwise defined herein, the
following capitalized terms shall have the following meanings: 

     

                        “Account Control
Agreement(s)” means any
agreement entered into by and among Lender, Borrower and/or any Guarantor and a
third party depository bank, securities intermediary or other institution in
which Borrower or such Guarantor maintains a Deposit Account or Securities
Account and which grants Lender a perfected, first priority security interest in
and Lien on the subject account or accounts. 

     

                        “Accounts” means any “accounts”, as such term is
defined in the UCC. 

     

                        “ACH Authorization” means the ACH Debit Authorization Agreement
in substantially the form of Exhibit F. 

     

                        “Acquisition” means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly, in (i) the
acquisition of all or substantially all of the assets of a Person, or of all or
substantially all of any business line, unit or division of a Person, (ii) the
acquisition of in excess of 50% of the Equity Interests of any Person, or
otherwise causing any Person to become a Subsidiary, or (iii) a merger or
consolidation or any other combination with another Person. 

     

                        “Acquisition Agreement” means the Agreement and Plan of Merger dated
as of June 29, 2010, by and among Borrower, Merger Sub, the Target and certain
shareholders of the Target.

     

    

    
    

                        “Acquisition Documents” means, collectively, (i) the Acquisition
Agreement, (ii) the Daegis Registration Rights Agreement, (iii) the Seller
Notes, and (iv) all other documents, agreements and instruments executed and
delivered in connection therewith. 

     

                        “Advance(s)” means a Revolving Loan Advance and/or a Term
Loan Advance. 

     

                        “Advance Date” means the funding date of any Advance.

     

                        “Advance Request” means a request for an Advance submitted by
Borrower to Lender in substantially the form of Exhibit A and in form and substance satisfactory to
Lender. 

     

                        “Affiliate” means, with respect to any Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.

     

                        “Agreement” means this Loan and Security Agreement, as
amended, amended and restated, modified, replaced, refinanced, supplemented or
otherwise in effect from time to time. 

     

                        “Allocable Amount” has the meaning given to such term in Section 13.7(b) hereof. 

     

                        “Assignee” has the meaning given to it in Section 14.13 hereof. 

     

                        “Board of Directors Fees” has the meaning given to such term in the
definition of “Restricted Junior Payments”. 

     

                        “Borrower” has the meaning given to such term in the
Preamble to this Agreement. 

     

                        “Borrowing Base” means, as of the date of determination, an
amount equal to:

     

              (i) 85% of the book value of Eligible Accounts
at such time; minus

     

              (ii) Reserves imposed by Lender from time to
time in Lender’s Permitted Discretion. 

     

                        “Borrowing Base Certificate” means a borrowing base certificate
substantially in the form of Exhibit E and in form and substance satisfactory to
Lender. 

     

                        “Business Day” means a day in which the banking
institutions in the State of California are open for business. 

     

                        “Change in Control” means an event or a series of events by
which: 

     

                        (a) any “person” or “group” (as such terms are
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but
excluding any employee benefit plan of such person or its subsidiaries, and any
person or entity acting in its capacity as trustee, agent or other fiduciary or
administrator of any such plan) other than the existing equity owners of
Borrower as of the Closing Date becomes the “beneficial owner” (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a
person or group shall be deemed to have “beneficial ownership” of all securities
that such person or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time (such right, an
“option right”)), directly or indirectly, 25% or more of the Common Stock
entitled to vote for members of the board of directors or equivalent governing
body of Borrower on a
fully-diluted basis (and taking into account all such Common Stock that such
“person” or “group” has the right to acquire pursuant to any option right); or

     

    2

     

    

    
    

                        (b) during any period of 24 consecutive
months, a majority of the members of the board of directors or other equivalent
governing body of Borrower cease to be composed of individuals (i) who were
members of that board or equivalent governing body on the first day of such
period, (ii) whose election or nomination to that board or equivalent governing
body was approved by individuals referred to in clause (i) above constituting at
the time of such election or nomination at least a majority of that board or
equivalent governing body or (iii) whose election or nomination to that board or
other equivalent governing body was approved by individuals referred to in
clauses (i) and (ii) above constituting at the time of such election or
nomination at least a majority of that board or equivalent governing body
(excluding, in the case of both clause (ii) and clause (iii), any individual
whose initial nomination for, or assumption of office as, a member of that board
or equivalent governing body occurs as a result of an actual or threatened
solicitation of proxies or consents for the election or removal of one or more
directors by any person or group other than a solicitation for the election of
one or more directors by or on behalf of the board of directors); or

     

                        (c) any Person or two or more Persons acting
in concert shall have acquired by contract or otherwise, or shall have entered
into a contract or arrangement that, upon consummation thereof, will result in
its or their acquisition of the power to exercise, directly or indirectly, a
controlling influence over the management or policies of Borrower, or control
over the Common Stock entitled to vote for members of the board of directors or
equivalent governing body of Borrower on a fully-diluted basis (and taking into
account all such Common Stock that such Person or Persons have the right to
acquire pursuant to any option right) representing 25% or more of the combined
voting power of such Common Stock; or 

     

                        (d) Borrower shall cease, directly or
indirectly, to own and control legally and beneficially 100% of the Equity
Interests in any Subsidiary of Borrower, unless otherwise expressly permitted
under Section 9.6 hereof; provided, that, consolidation of
Subsidiaries by merger or dissolution of Subsidiaries from time to time
permitted pursuant to Section 9.7 hereof, shall not be deemed a Change in
Control.

     

                        “Change in Law” means the occurrence, after the date of this
Agreement, of any of the following: (a) the adoption or taking effect of any
law, rule, regulation or treaty, (b) any change in any law, rule, regulation or
treaty or in the administration, interpretation or application thereof by any
Governmental Authority or (c) the making or issuance of any request, guideline
or directive (whether or not having the force of law) by any Governmental
Authority. 

     

                        “Claims” has the meaning given to it in Section 14.10 hereof. 

     

                        “Class” means each separate class of Loans
comprising, as the context may require, all of the outstanding Revolving Loans
at such time or the outstanding Term Loan at such time. 

     

                        “Closing Date” means the date of this Agreement.

     

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

     

                        “Collateral” means the property described in Section 4.1 hereof. 

     

    3

     

    

    
    

                        “Collateral Access
Agreements” means an
agreement reasonably satisfactory in form, scope and substance to Lender
executed by (a) a bailee or other Person in possession of Collateral, or (b)
a landlord of Real Estate leased
by Borrower or any Guarantor, in each case, pursuant to which such landlord,
bailee or other Person (i) acknowledges the Lien granted to Lender on the
Collateral, (ii) releases or subordinates such Person’s Liens in the Collateral
held by such Person or located on such Real Estate, and (iii) (A) as to any
bailee or other Person, provides Lender with access to the Collateral held by
such bailee or other Person or located in or on such Real Estate, and (B) as to
any landlord, provides Lender with access to the Collateral located in or on
such Real Estate and a reasonable time to sell and remove of the Collateral from
such Real Estate. 

     

                        “Collateral Assignment of Acquisition
Documents” means, each of
the Collateral Assignment of Acquisition Documents in form and substance
satisfactory to the Lender, in each case delivered in connection with each
Permitted Acquisition. 

     

                        “Collateral Documents” means, collectively, Section 4 of this Agreement, the Securities Pledge
Agreements, the Account Control Agreements, the Intellectual Property Security
Agreements, the Mortgages, the Collateral Access Agreements, the Collateral
Assignment of Acquisition Documents, the UCC Financing Statements, and all other
documents or instruments executed and/or delivered pursuant to the terms hereof
or thereof, or all other documents or instruments which purport to grant a
security interest in and Lien on assets of a Person as security for the Secured
Obligations. 

     

                        “Common Equity Interest” means Equity Interests constituting the
common equity security or interest of a Person. 

     

                        “Common Stock” means the authorized common stock of
Borrower.

     

                        “Compliance Certificate” means a compliance certificate in the form
of Exhibit C attached hereto and in form and substance
(including supporting details) satisfactory to Lender. 

     

                        “Confidential Information” has the meaning given to it in Section 14.12 hereof. 

     

                        “Consolidated Adjusted
EBITDA” means, as of any
date of determination, an amount equal to Consolidated Net Income of Borrower
and its Subsidiaries for the most recently completed applicable Measurement
Period, plus (a) the following to the extent deducted in
calculating Consolidated Net Income for such Measurement Period and without
duplication: (i) Consolidated Interest Expenses paid or accrued in such
applicable Measurement Period, (ii) the provision for Federal, state, local and
foreign income taxes payable in such applicable Measurement Period, (iii)
depreciation and amortization expense, (iv) non-cash stock option expenses
calculated in accordance with GAAP, (v) other non-recurring expenses reducing
Consolidated Net Income which do not represent a cash item in such period or any
future period, (vi) non-cash charges for equity based compensation, (vii) fees,
legal fees and expenses incurred and paid in connection with the preparation and
negotiation of this Agreement and the other Loan Documents and the consummation
of the Initial Acquisition in an aggregate amount not to exceed $1,500,000,
(viii) all adjustments to EBITDA for periods prior to the Closing Date for all
Six Month Measurement Periods EBITDA and Twelve Month Measurement Periods EBITDA
calculations, including excess compensation adjustments, restructuring
adjustments and adjustment items provided to Lender prior to the date of this
Agreement; provided, that, the aggregate adjustments for this subclause (ix)
shall not exceed the amount set forth on Annex A attached hereto, and (x) cash expenses
actually paid in such period for field exams and appraisals conducted by
Borrower at Lender’s request as herein provided; in each case, for Borrower and
its Subsidiaries on a consolidated basis for such applicable Measurement Period;
and minus (b) the following, to the extent included in
calculating Consolidated Net Income: (i) Federal, state, local and foreign
income tax credits and (ii) all non-cash items increasing Consolidated Net
Income; in each case of or by Borrower and its Subsidiaries for such applicable
Measurement Period. For purposes of this calculation and without duplication,
with respect to any period of determination, the consolidated adjusted EBITDA of
a wholly-owned Subsidiary acquired as a result of a Permitted Acquisition, which
shall be calculated in a manner consistent with the methodology set forth for
Consolidated Adjusted EBITDA herein, may be included in the calculation of
Consolidated Adjusted EBITDA as though such Permitted Acquisition was
consummated on the first day of the applicable Measurement Period (the “Acquired Entity EBITDA”). The Acquired Entity EBITDA shall be
calculated by reference to the audited financial results of the acquired entity,
if available for such applicable Measurement Period, or if such audited
financial results are not available for such Measurement Period, any unaudited
financial results or management-prepared results as are approved by Lender in
respect of such acquired entity.

     

    4

     

    

    
    

                        “Consolidated Debt Service
Charges” means, for any
Measurement Period, the sum of (a) Consolidated Interest Expense paid in cash or
required to be paid in cash during such Measurement Period, plus (b) scheduled principal payments paid in cash
or required to be paid in cash (excluding amortization of discounts on warrant
and closing costs) on account of Consolidated Funded Indebtedness (including,
without limitation, on any of the Loans hereunder) during such Measurement
Period; in each case of or by Borrower and its Subsidiaries for such applicable
Measurement Period. 

     

                        “Consolidated Excess Cash
Flow” means, as of any
date of determination, an amount equal to (a) Consolidated Adjusted EBITDA for
the most recently completed Twelve Month Measurement Period, minus (b) the sum (without duplication) of: (i)
capital expenditures made in cash and not financed (other than from the proceeds
of the Revolving Loans) during such period, (ii) Consolidated Interest Expense
paid in cash during such period, (iii) the aggregate amount of Federal, state,
local and foreign income taxes paid in cash during such period, (iv) scheduled
repayments and/or voluntary or mandatory prepayments of and the Term Loan made
in cash during such period. 

     

                        “Consolidated Fixed Charge Coverage
Ratio” means, as of any
date of determination, the ratio of (a) Consolidated Adjusted EBITDA for the
most recently completed Twelve Month Measurement Period, minus the provision for Federal, state, local and
foreign income taxes payable for such Measurement Period, minus cash capital expenditures made during such
Measurement Period to (b) Consolidated Debt Service Charges for
such Measurement Period; in each case of or by Borrower and its Subsidiaries for
such Measurement Period. 

     

                        “Consolidated Funded
Indebtedness” means, as of
any date of determination, for Borrower and its Subsidiaries on a consolidated
basis, the sum (without duplication) of (a) the outstanding principal amount of
all obligations, whether current or long-term, for borrowed money (including
Secured Obligations hereunder) and all obligations evidenced by bonds,
debentures, notes, loan agreements or other similar instruments, (b) all
purchase money Indebtedness, (c) all direct obligations arising under letters of
credit (including standby and commercial), bankers’ acceptances, bank
guaranties, surety bonds and similar instruments, (d) all obligations in respect
of the deferred purchase price of property or services (other than trade
accounts payable in the ordinary course of business not past due for more than
sixty (60) days), (e) in respect of any capitalized lease of any Person, the
capitalized amount thereof that would appear on a balance sheet of such Person
prepared as of such date in accordance with GAAP, (f) all guarantees with
respect to outstanding Indebtedness of the types specified in clauses (a) through (e) above of Persons other than Borrower or any
Subsidiary, and (g) all Indebtedness of the types referred to in clauses (a) through (f) above of any partnership or joint venture
(other than a joint venture that is itself a corporation or limited liability
company) in which Borrower or any Subsidiary is a general partner or joint
venturer, unless such Indebtedness is expressly made non-recourse to Borrower or
such Subsidiary, provided that Consolidated Funded Indebtedness shall
not include intercompany balances of the Loan Parties or Interest Rate Hedging
Agreements to the extent permitted hereunder, except to the extent any amount
under an Interest Rate Hedging Agreement is then due and payable.

     

    5

     

    

    
    

                        “Consolidated Interest
Expense” means, for any
Measurement Period, the sum of (a) all interest, premium payments, fees, charges
and related expenses (including amortization for discounts for warrants and loan
closing fees and related expenses) in connection with borrowed money (including
capitalized interest) or in connection with the deferred purchase price of
assets, in each case to the extent treated as interest in accordance with GAAP,
and (b) the portion of rent expense under capitalized leases that is treated as
interest in accordance with GAAP; in each case, of or by Borrower and its
Subsidiaries on a consolidated basis for the most recently completed Measurement
Period.

     

                        “Consolidated Net Income” means, as of any date of determination, the
net income (or loss) of Borrower and its Subsidiaries on a consolidated basis
for the most recently completed Measurement Period, determined in accordance
with GAAP, after excluding extraordinary gains and extraordinary losses for that
Measurement Period. 

     

                        “Consolidated Total Leverage
Ratio” means, as of any
date of determination, the ratio of (a) Consolidated Funded Indebtedness as of
such date to (b) Consolidated Adjusted EBITDA for the most recently completed
Twelve Month Measurement Period. 

     

                        “Contingent Obligation” means, as applied to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect to
(i) any indebtedness, lease, dividend, letter of credit or other obligation of
another Person, including any such obligation directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable; (ii)
any obligations with respect to undrawn letters of credit, corporate credit
cards or merchant services issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall
not include endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement. 

     

                        “Control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ability to exercise voting power, by
contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

     

                        “Copyright License” means any written agreement granting any
right to use any Copyright or Copyright registration, now owned or hereafter
acquired by Borrower or any Guarantor or in which Borrower or any Guarantor now
holds or hereafter acquires any interest. 

     

                        “Copyrights” means all copyrights, whether registered or
unregistered, held pursuant to the laws of the United States, any State thereof,
or of any other country. 

     

                        “Daegis Registration Rights
Agreement” means the
Registration Rights Agreement dated as of June 29, 2010, made by Borrower in
favor of the holders of the Common Stock acquired pursuant to the Acquisition
Agreement. 

     

                        “Debtor Relief Laws” means the Bankruptcy Code of the United
States, and all other liquidation, conservatorship, bankruptcy, assignment for
the benefit of creditors, moratorium, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief Laws of the United States or other
applicable jurisdictions from time to time in effect and affecting the rights of
creditors generally.

     

    6

     

    

    
    

                        “Default” means any event or condition that
constitutes an Event of Default or that, with the giving of any notice, the
passage of time, or both, would be an Event of Default. 

     

                        “Default Rate” has the meaning given to it in Section 2.4(b) hereof. 

     

                        “Deposit Accounts” means any “deposit accounts,” as such term
is defined in the UCC, and includes any checking account, savings account, or
certificate of deposit. 

     

                        “Domestic Subsidiary” means any Subsidiary organized or formed, as
applicable, under the laws of the United States of America, any State thereof or
the District of Columbia. 

     

                        “Eligible Accounts” means Accounts arising in the ordinary
course of Borrower’s business. Lender reserves the right at any time and from
time to time after the Closing Date, to adjust any of the criteria set forth
below and to establish new criteria in its Permitted Discretion. Unless
otherwise agreed by Lender, Eligible Accounts shall not include the following:

     

                   (a) Accounts that the account debtor has failed to pay in full within 90 days
of the original invoice date; 

     

                   (b) Accounts owing by an account debtor, including its Affiliates, whose
total obligations to Borrower exceed 15% of all Eligible Accounts; 

     

                   (c) Accounts owing by an account debtor, including its Affiliates, 25% of
whose Accounts the account debtor has failed to pay within 90 days of original
invoice date; 

     

                   (d) Accounts owing by an account debtor that does not have its principal
place of business in the United States or that is due in a currency other than
U.S. Dollars exceeding 40% of all Eligible Accounts; 

     

                   (e) Accounts owing by an account debtor that Borrower owes money, goods
and/or services or is otherwise obligated to, but only to the extent of the
potential amount owed; 

     

                   (f) other than maintenance agreements in the ordinary course of business,
Accounts arising out of deferred revenue;

     

                   (g) Accounts owing by an Affiliate of Borrower; 

     

                   (h) Accounts that are the obligation of an account debtor that is the United
States government or a political subdivision thereof, unless Lender, in its sole
discretion, has agreed to the contrary in writing and Borrower, if necessary or
desirable, has complied with respect to such obligation with the Federal
Assignment of Claims Act of 1940 or any other law restricting assignment
thereof;

     

                   (i) Accounts that arise with respect to goods that are delivered on a
bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale
or other terms by reason of which the payment by the account debtor is or may be
conditional;

     

    7

     

    

    
    

                   (j) Accounts (i) upon which Borrower’s right to receive payment is not
absolute or is contingent upon the fulfillment of any condition whatsoever or
(ii) as to which Borrower is not able to bring suit or otherwise enforce its
remedies against the account debtor through judicial process;

     

                   (k) Accounts not owned by Borrower free and clear of all Liens of any other
Person except the Liens in favor of Lender and other Permitted Senior Eligible
Account Liens; 

     

                   (l) Accounts not subject to a first priority, perfected Lien in favor of
Lender other than Permitted Senior Eligible Account Liens; 

     

                   (m) Accounts that do not arise from the sale of goods or the performance of
services by Borrower in the ordinary course of business; and 

     

                   (n) Accounts the collection of which Lender determines in its Permitted
Discretion to be doubtful. 

     

                        “Employee Benefit Plan” means any “employee benefit plan” as defined
in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to
by, or required to be contributed to by, any Loan Party or any of its respective
Subsidiaries or ERISA Affiliates. 

     

                        “Environmental Laws” means all applicable Federal, state, local
or foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, the exposure of
humans thereto, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all regulatory authorizations, codes, decrees,
demands or demand letters, injunctions, judgments, licenses, notices of
violation or similar notice letters, orders, permits, plans or regulations
issued, entered, promulgated or approved thereunder. 

     

                        “Equity Interests” means, with respect to any Person, all of
the shares of capital stock of (or other ownership or profit interests in) such
Person, all of the warrants, options or other rights for the purchase or
acquisition from such Person of shares of capital stock of (or other ownership
or profit interests in) such Person, all of the securities convertible into or
exchangeable for shares of capital stock of (or other ownership or profit
interests in) such Person or warrants, rights or options for the purchase or
acquisition from such Person of such shares (or such other interests), and all
of the other ownership or profit interests in such Person (including
partnership, member or trust interests therein), whether voting or nonvoting,
and whether or not such shares, warrants, options, rights or other interests are
outstanding on any date of determination. 

     

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

     

                        “ERISA Affiliate” means, as to Borrower or any Guarantor, any
trade or business (whether or not incorporated) that is a member of a group
which includes Borrower or such Guarantor and which is treated as a single
employer under Section 414 of the Code. 

     

    8

     

    

    
    

                        “ERISA Event” means (a) a “reportable event” within the
meaning of Section 4043 of ERISA and the regulations issued thereunder with
respect to any Pension Plan; (b) the failure to meet the minimum funding standards of Sections 412 and
430 of the Code with respect to any Pension Plan (whether or not waived in
accordance with Section 412(c) of the Code) or the failure to make by its due
date a required installment under Section 430(j) of the Code with respect to any
Pension Plan or the failure to make any required contribution to a Multiemployer
Plan; (c) the provision pursuant to Section 4041(a)(2) of ERISA by the
administrator of any Pension Plan of a notice of intent to terminate such plan
in a distress termination described in Section 4041(c) of ERISA; (d) the
withdrawal by any of the Loan Parties, any of their respective Subsidiaries or
any of their respective ERISA Affiliates from any Pension Plan with two or more
contributing sponsors or the termination of any such Pension Plan resulting in
liability to any of the Loan Parties, any of their respective Subsidiaries or
any of their respective ERISA Affiliates pursuant to Section 4063 or 4064 of
ERISA; (e) the institution by the PBGC of proceedings to terminate any Pension
Plan, or the occurrence of any event or condition which might constitute grounds
under ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan; (f) the imposition of liability on any of the Loan
Parties, any of their respective Subsidiaries or any of their respective ERISA
Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the
application of Section 4212(c) of ERISA; (g) the withdrawal of any of the Loan
Parties, any of their respective Subsidiaries or any of their respective ERISA
Affiliates in a complete or partial withdrawal (within the meaning of Sections
4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential
liability therefor, or the receipt by any of the Loan Parties, any of their
respective Subsidiaries or any of their respective ERISA Affiliates of notice
from any Multiemployer Plan that it is in reorganization or insolvency pursuant
to Section 4241 or 4245 of ERISA, or that it intends to terminate or has
terminated under Section 4041A or 4042 of ERISA; (h) the occurrence of an act or
omission which could give rise to the imposition on any of the Loan Parties, any
of their respective Subsidiaries or any of their respective ERISA Affiliates of
fines, penalties, taxes or related charges under Sections 4975 through 4980E of
the Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of
ERISA in respect of any Employee Benefit Plan; (i) the assertion of a material
claim (other than routine claims for benefits) against any Employee Benefit Plan
other than a Multiemployer Plan or the assets thereof, or against any of the
Loan Parties, any of their respective Subsidiaries or any of their respective
ERISA Affiliates in connection with any Employee Benefit Plan; (j) receipt from
the Internal Revenue Service of notice of the failure of any Pension Plan (or
any other Employee Benefit Plan intended to be qualified under Section 401(a) of
the Code) to qualify under Section 401(a) of the Code, or the failure of any
trust forming part of any Pension Plan to qualify for exemption from taxation
under Section 501(a) of the Code unless the failure is cured within any cure
period specified in the notice; (k) the failure to make any contribution to a
Pension Plan or Multiemployer Plan which could result in the imposition of a
Lien pursuant to Section 401(a)(29) or 430(k) of the Code or pursuant to ERISA;
(l) the imposition of a Lien pursuant to Section 401(a)(29) or 430(k) of the
Code or pursuant to ERISA with respect to any Pension Plan; (m) the
determination that any Pension Plan, or notice to any Loan Party of any of its
respective Subsidiaries or ERISA Affiliates that a Multiemployer Plan, is
considered an at-risk plan or a plan in endangered or critical status within the
meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 or 305 of
ERISA; or (o) any event or condition with respect to an Employee Benefit Plan
that could result in liability in excess of $200,000 during the term hereof,
other than a liability to pay premiums or benefits when due.

     

                        “Event of Default” has the meaning given to it in Section 11 hereof. 

     

                        “Event of Loss” means, with respect to Borrower or any
Guarantor (a) any and all damage to, or loss or destruction of, or loss of title
to, all or any portion of the Collateral (i) in excess of $100,000 in the
aggregate for any fiscal year or (ii) that results, individually or in the
aggregate, in a Material Adverse Effect; or (b) any taking of any property of
Borrower or any Guarantor or any portion thereof, in or by condemnation or other
eminent domain proceedings pursuant to any law, general or special, or by reason
of the temporary requisition of the use of such assets or any portion thereof,
by any Governmental Authority, civil or military (i) in excess of $25,000 in the
aggregate for any fiscal year or (ii) that results, either individually or in
the aggregate, in a Material Adverse Effect. 

     

    9

     

    

    
    

                        “Excluded Deposit Accounts” means (i) a Deposit Account for which Lender
is the depositary bank and is in automatic control or (ii) any Deposit Accounts
specially and exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of Borrower’s or any Guarantor’s
salaried employees. 

     

                        “Excluded Taxes” means, with respect to Lender or any other
recipient of any payment to be made by or on account of any obligation of
Borrower hereunder, (a) taxes imposed on or measured by its overall net income
(however denominated), and franchise taxes imposed on it (in lieu of net income
taxes), by the jurisdiction (or any political subdivision thereof) under the
Laws of which such recipient is organized or in which its principal office is
located or, in the case of Lender, in which its Lending Office is located, (b)
any branch profits taxes imposed by the United States or any similar tax imposed
by any other jurisdiction in which Borrower is located with respect to income
described in subsection (a) above, (c) any backup withholding tax that is
required by the Code to be withheld from amounts payable to Lender that has
failed to comply with clause (A) of Section 3.3(e)(ii), and (d) in the case of a Foreign Lender, any
United States withholding tax that (i) is required to be imposed on amounts
payable to such Foreign Lender pursuant to the Laws in force at the time such
Foreign Lender becomes a party hereto (or designates a new Lending Office) or
(ii) is attributable to such Foreign Lender’s failure or inability (other than
as a result of a Change in Law) to comply with clause (B) of Section 3.3(e)(ii), except to the extent that such Foreign
Lender (or its assignor, if any) was entitled, at the time of designation of a
new Lending Office (or assignment), to receive additional amounts from Borrower
with respect to such withholding tax pursuant to Section 3.3(a)(ii) or (iii). 

     

                        “Existing Indebtedness” means the Indebtedness of Borrower and each
Guarantor existing on the Closing Date which is disclosed on Schedule 1.1(a).

     

                        “Extraordinary Receipts” means any cash received by Borrower or any
Guarantor outside the ordinary course of business (and not consisting of
proceeds described in Section 2.6(d), (e), (f), (g) or (h)), including, without limitation, (a) foreign,
United States Federal, state or local tax refunds, (b) pension plan reversions,
(c) judgments, proceeds of settlements or other consideration of any kind in
connection with any cause of action, and (d) any purchase price adjustment or
proceeds from indemnification claims received in connection with any
Acquisition, including, without limitation the Initial Acquisition.

     

                        “Facility Charge” means two and one-quarter percent (2.25%) of
the Maximum Loan Amount. 

     

                        “Fee Payment” has the meaning given to it in Section 8.20(d).

     

                        “Fee Payment Date” has the meaning given to it in Section 8.20(d).

     

                        “Financial Statements” has the meaning given to it in Section 8.1 hereof.

     

                        “Foreign Accounts” has the meaning given to it in Section 9.20 hereof. 

     

                        “Foreign Lender” means Lender that is organized under the
Laws of a jurisdiction other than that in which Borrower is resident for tax
purposes. For purposes of this definition, the United States, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction. 

     

                        “Foreign Subsidiary” means any Subsidiary that is not a Domestic
Subsidiary. 

     

                        “GAAP” means generally accepted accounting
principles in the United States of America, as in effect from time to time.

     

    10

     

    

    
    

                        “Governmental Authority” means the government of the United States of
America, any other nation or any political subdivision of any of the foregoing,
whether state or local, and any agency, authority, commission, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions
of or pertaining to government. 

     

                        “Guarantor” means, collectively, each Subsidiary of
Borrower and any other Person that has entered into a Guaranty pursuant to the
terms hereof. 

     

                        “Guarantor Payment” has the meaning given to it in Section 13.7(a) hereof. 

     

                        “Guaranty” means, collectively, Section 13 of this Agreement and any other guaranty in a
form, scope and substance reasonably acceptable to Lender and entered into by a
Person to guarantee the Secured Obligations. 

     

                        “Hazardous Materials” has the meaning ascribed to such term in the
definition of “Environmental Laws.” 

     

                        “Hedging Agreements” means any and all rate swap transactions,
basis swaps, credit derivative transactions, forward rate transactions,
commodity swaps, commodity options, forward commodity contracts, equity or
equity index swaps or options, bond or bond price or bond index swaps or options
or forward bond or forward bond price or forward bond index transactions,
interest rate options, forward foreign exchange transactions, cap transactions,
floor transactions, collar transactions, currency swap transactions,
cross-currency rate swap transactions, currency options, spot contracts, or any
other similar transactions or any combination of any of the foregoing (including
any options to enter into any of the foregoing), whether or not any such
transaction is governed by or subject to any master agreement. 

     

                        “Indebtedness” means, as to any Person at a particular
time, without duplication, all of the following, whether or not included as
indebtedness or liabilities in accordance with GAAP: (a) all obligations of such
Person for borrowed money and all obligations of such Person evidenced by bonds,
debentures, notes, loan agreements or other similar instruments; (b) the maximum
amount of all direct or contingent obligations of such Person arising under
letters of credit (including standby and commercial), bankers’ acceptances, bank
guaranties, surety bonds and similar instruments; (c) net obligations of such
Person under any Hedging Agreements; (d) all obligations of such Person to pay
the deferred purchase price of property or services (other than trade accounts
payable in the ordinary course of business and not past due for more than 60
days after the date on which such trade account was created); (e) all capital
lease obligations; (f) all Contingent Obligations; (g) all obligations of such
Person to purchase, redeem, retire, defease or otherwise make any payment in
respect of any Equity Interest in such Person or any other Person or any
warrant, right or option to acquire such Equity Interest, valued, in the case of
a redeemable preferred interest, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends; (h) indebtedness
(excluding prepaid interest thereon) secured by a Lien on property owned or
being purchased by such Person (including indebtedness arising under conditional
sales or other title retention agreements), whether or not such indebtedness
shall have been assumed by such Person or is limited in recourse; and (i) all
Guarantees of such Person in respect of any of the foregoing. 

     

                        “Initial Acquisition” means the Acquisition by Borrower of Target
pursuant to the terms of the Acquisition Documents. 

     

                        “Insolvency Proceeding” is any proceeding by or against any Person
under any Debtor Relief Law, including assignments for the benefit of creditors,
compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief. 

     

    11

     

    

    
    

                        “Intellectual Property” means all of Borrower’s and any Guarantor’s
(i) Copyrights, Trademarks and Patents; (ii) Licenses; (iii) trade secrets and
inventions; (iv) mask works; (v) applications for any of the foregoing; (vi) any
reissues, extensions, or renewals of any of the foregoing; and (vii) all
goodwill associated with any of the foregoing; in each case, together with
Borrower’s or Guarantor’s rights to sue for past, present and future
infringement of Intellectual Property and the goodwill associated therewith.

     

                        “Intellectual Property
Rights” has the meaning
ascribed to such term in Section 6.18(b) hereof. 

     

                        “Intellectual Property Security
Agreements” means,
collectively, all copyright security agreements, trademark security agreements
and patent security agreements or any assignments with respect thereto entered
into by Borrower and/or any Guarantor in favor of Lender, or any other
documents, instrument or agreement which purports to grant a security interest
in and Lien on any Intellectual Property in favor of Lender. 

     

                        “Interest Payment Date” means the first Business Day of each
calendar month and the Revolving Loan Maturity Date or Term Loan Maturity Date,
as applicable. 

     

                        “Interest Period” means (a) initially, the period commencing
on the Advance Date with respect to such Loan and ending the first Business Day
of July 2010; and (b) thereafter, each period commencing on the first Business
Day of each January, April, July or October of any calendar year and ending on
the calendar day immediately prior to such Business Day. 

     

                        “Interest Rate Hedging
Agreements” means Hedging
Agreement constituting interest rate protection contracts entered in the
ordinary course of business of Borrower and not for speculative purposes.

     

                        “Inventory” means all “inventory” as defined in the UCC,
including all goods intended for sale, lease, display or demonstration; all work
in process; and all raw materials, and other materials and supplies of any kind
that are or could be used in connection with the manufacture, printing, packing,
shipping, advertising, sale, lease or furnishing of such goods, or otherwise
used or consumed in such Person’s business (but excluding equipment).

     

                        “Investment” means, as to any Person, any direct or
indirect acquisition or investment by such Person, whether by means of (a) the
purchase or other acquisition of Equity Interests of another Person, (b) a loan,
advance or capital contribution to, guarantee or assumption of debt of, or
purchase or other acquisition of any other debt or interest in, another Person,
or (c) the purchase or other acquisition (in one transaction or a series of
transactions) of assets of another Person that constitute a business unit or all
or a substantial part of the business of, such Person. For purposes of covenant
compliance, the amount of any Investment shall be the amount actually invested,
without adjustment for subsequent increases or decreases in the value of such
Investment. 

     

                        “Joinder Agreements” means for each Subsidiary, a completed and
executed Joinder Agreement in substantially the form attached hereto as
Exhibit D. 

     

                        “Key Customers” has the meaning ascribed to such term in
Section 6.34 hereof. 

     

                        “Laws” means, collectively, all international,
foreign, Federal, state and local statutes, treaties, rules, guidelines,
regulations, ordinances, codes and administrative or judicial precedents or
authorities, including the interpretation or administration thereof by any
Governmental Authority charged with the enforcement, interpretation or
administration thereof, and all applicable administrative orders, directed
duties, requests, licenses, authorizations and permits of, and agreements with,
any Governmental Authority, in each case whether or not having the force of
law.

     

    12

     

    

    
    

                        “Lender” has the meaning ascribed to such term in the
Preamble to this Agreement. 

     

                        “Lender Expenses” are fees, expenses, costs and other amounts
incurred by Lender under the Loan Documents as set forth more fully in
Section 14.11 hereof. 

     

                        “LIBOR Rate” means, as of the date of determination, the
rate per annum reported in The Wall Street Journal for deposits in Dollars two
Business Days prior to the beginning of the applicable Interest Period for such
Interest Period; provided, however, that, notwithstanding the foregoing, in no
event shall the LIBOR Rate be less than 2.00% per annum. In the event that such
rate does not appear in The Wall Street Journal, the LIBOR Rate shall be
determined by reference to such other comparable publicly available publication
or service for reporting or displaying eurodollar rates as may be selected by
Lender.

     

                        “LIBOR Rate Loan” means a Loan that bears interest at a rate
based on the LIBOR Rate. 

     

                        “License” means any Copyright License, Patent License,
Trademark License or other license of rights or interests in Intellectual
Property. 

     

                        “Lien” means any mortgage, deed of trust, pledge,
hypothecation, assignment for security, security interest, encumbrance, levy,
lien or charge of any kind, whether voluntarily incurred or arising by operation
of law or otherwise, against any property, any conditional sale or other title
retention agreement, any lease in the nature of a security interest and any
filing of any financing statement (other than a precautionary financing
statement with respect to a lease that is not in the nature of a security
interest) under the UCC or comparable law of any jurisdiction. 

     

                        “Loan” means, collectively, the Advances made under
this Agreement. 

     

                        “Loan Documents” means this Agreement, the Notes, the ACH
Authorization, the Collateral Documents, the Joinder Agreements, the Guaranty,
the Warrant, the Daegis Registration Rights Agreement, the Subordination
Agreements, any intercreditor agreements, any other subordination agreements and
any other documents executed in connection with the Secured Obligations or the
transactions contemplated hereby, as the same may from time to time be amended,
modified, supplemented or restated. 

     

                        “Loan Party” means Borrower and each Domestic Subsidiary
of Borrower. 

     

                        “Material Adverse Effect” means (a) a material adverse change in, or
material adverse effect upon, the operations, business, properties, assets,
liabilities (actual or contingent), or financial condition of Borrower or any
Guarantor; or (b) a material impairment in the ability of Borrower or any
Guarantor to perform the Secured Obligations in accordance with the terms of the
Loan Documents, or the ability of Lender to enforce any of its rights or
remedies with respect to the Secured Obligations; (c) a material adverse effect
upon the legality, validity, binding effect or enforceability against Borrower
or any Guarantor of any Loan Document to which it is a party; or (d) a material
adverse effect upon the Collateral or Lender’s Liens on the Collateral or the
priority of such Liens. 

     

                        “Material Agreements” means, collectively, (i) the Organization
Documents of Borrower and each Guarantor, (ii) all agreements or documents
(other than the Loan Documents) evidencing Indebtedness of Borrower and/or any
Guarantor in excess of $200,000, (iii) the Acquisition Documents and (iv) any
other contract or other arrangement to which Borrower and/or any Guarantor is a
party (other than the Loan Documents) for which breach, nonperformance,
cancellation, termination or failure to renew would reasonably be expected to
have a Material Adverse Effect.

     

    13

     

    

    
    

                        “Maximum Loan Amount” means the sum of the Maximum Revolving Loan
Amount and the Maximum Term Loan Amount. 

     

                        “Maximum Rate” shall have the meaning assigned to such term
in Section 2.3. 

     

                        “Maximum Revolver Capacity” means, as of the date of determination, the
lesser of (i) the Maximum Revolving Loan Amount and (ii) the Borrowing Base then
in effect. 

     

                        “Maximum Revolving Loan
Amount” shall have the
meaning ascribed to such term in the Recitals to this Agreement. 

     

                        “Maximum Term Loan Amount” shall have the meaning ascribed to such term
in the Recitals to this Agreement. 

     

                        “Measurement Period” means, at any date of determination, the
most recently completed Twelve Month Measurement Period or Six Month Measurement
Period, of Borrower, as applicable. 

     

                        “Merger Sub” means Unify Acquisition Corp., a California
corporation and wholly-owned subsidiary of Borrower. 

     

                        “Mortgage” means any deed of trust, leasehold deed of
trust, mortgage, leasehold mortgage, deed to secure debt, leasehold deed to
secure debt or other document creating a Lien on Real Estate or any interest in
Real Estate. 

     

                        “Multiemployer Plan” means any Employee Benefit Plan which is a
“multiemployer plan” as defined in Section 3(37) or 4001(a)(3) of ERISA.

     

                        “New Guarantor” has the meaning ascribed to such term in
Section 8.11 hereof. 

     

                        “Note(s)” means a Revolving Note and/or a Term Note.

     

                        “Organization Documents” means, (a) with respect to any corporation,
the certificate or articles of incorporation and the bylaws (or equivalent or
comparable constitutive documents with respect to any non-U.S. jurisdiction);
(b) with respect to any limited liability company, the certificate or articles
of formation or organization and operating agreement; and (c) with respect to
any partnership, joint venture, trust or other form of business entity, the
partnership, joint venture or other applicable agreement of formation or
organization and any agreement, instrument, filing or notice with respect
thereto filed in connection with its formation or organization with the
applicable Governmental Authority in the jurisdiction of its formation or
organization and, if applicable, any certificate or articles of formation or
organization of such entity. 

     

                        “Other Taxes” means all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or under any other Loan Document
or from the execution, delivery or enforcement of, or otherwise with respect to,
this Agreement or any other Loan Document. 

     

    14

     

    

    
    

                        “Patent License” means any written agreement granting any
right with respect to any invention on which a Patent is in existence or a
Patent application is pending, in which agreement Borrower and/or any Guarantor
now holds or hereafter acquires any interest. 

     

                        “Patents” means all letters patent of, or rights
corresponding thereto, in the United States or in any other country, all
registrations and recordings thereof, and all applications for letters patent
of, or rights corresponding thereto, in the United States or any other country.

     

                        “PBGC” means the Pension Benefit Guaranty
Corporation or any successor thereto. 

     

                        “Pension Plan” means any Employee Benefit Plan, other than
a Multiemployer Plan, which is subject to Sections 412 and 430 of the Code or
Title IV or Section 302 of ERISA. 

     

                        “Permitted Acquisitions” means the purchase or other acquisition of
all of the Equity Interests in a Person, or all or substantially all of the
assets of any Person, which Equity Interests or assets, as applicable, upon the
consummation of such purchase or other acquisition, will be owned, directly or
indirectly, by a Loan Party (including as a result of a merger or
consolidation); provided that, each of the following conditions have
been satisfied: 

     

                        (i) the lines of business of the Person to be
(or the assets of which are to be) so purchased or otherwise acquired shall be
substantially the same lines of business as one or more of the principal
businesses of the Loan Parties in the ordinary course; 

     

                        (ii) immediately before and immediately after
giving pro forma effect to any such purchase or other acquisition, no Default or
Event of Default shall have occurred and be continuing;

     

                        (iii) the target of such purchase or other
acquisition has positive EBITDA for the most recent four quarters prior to the
acquisition date for which financial statements are available; 

     

                        (iv) Borrower shall have furnished to Lender
(A) at least ten (10) Business Days prior to the consummation of such purchase
or other acquisition, an executed term sheet and/or commitment letter (if any
has been executed) (setting forth in reasonable detail the terms and conditions
of such purchase or other acquisition) and, (B) at least five (5) Business Days
prior to the consummation of such purchase or other acquisition and at the
request of Lender, such other information and documents that Lender may
reasonably request (including, without limitation, any related management,
non-compete, employment, option or other material agreements), any schedules to
such agreements, documents or instruments and all drafts of other material
ancillary agreements, instruments and documents to be executed or delivered in
connection therewith, in all such cases, to the extent then available and then
in the form then available, (C) at least five (5) Business Days prior to the
consummation of such purchase or other acquisition, (1) pro forma financial
statements of Borrower and its Subsidiaries after giving effect to the
consummation of such purchase or other acquisition, and (2) a certificate of the
chief financial officer of Borrower demonstrating on a pro forma basis
compliance with the financial covenants set forth in Section 9.18 hereof after giving effect to the
consummation of such purchase or other acquisition and certifying that all of
the other requirements set forth in this definition have been satisfied or will
be satisfied on or prior to the consummation of such purchase or other
acquisition, and (D) by no later than the date of consummation of such purchase
or other acquisition, executed copies of the purchase and sale agreement and
such other agreements, instruments and other documents (including, without
limitation, the Loan Documents required by Section 8.10 and Section 8.11 and a Collateral Assignment of Acquisition
Documents under the acquisition documents) as Lender reasonably shall
request;

     

    15 

     

    

    
    

                        (v) Borrower shall have delivered to Lender
evidence satisfactory to Lender that all Liens with respect to the assets or
Equity Interests to be acquired shall be free and clear of all Liens, other than
Permitted Liens (or concurrently with the acquisition thereof will be free and
clear of all Liens, other than Permitted Liens) and Lender will have a first
priority perfected security interest in and Lien on such assets or Equity
Interests to be acquired (subject only to Permitted Senior Liens); 

     

                        (vi) such purchase or other acquisition shall
not be hostile and shall have been approved by the board of directors (or other
similar body) and/or the stockholders or other equityholders of the acquisition
target; 

     

                        (vii) the total cash and non-cash
consideration (including the fair market value of all Equity Interests issued or
transferred to the sellers thereof, all indemnities, earnouts and other
contingent cash payment obligations to, and the aggregate amounts paid or to be
paid under non-compete, consulting and other Affiliated agreements with, the
sellers thereof and reserves for liabilities with respect thereto, all
write-downs of property and reserves for liabilities with respect thereto and
all assumptions of debt, liabilities and other obligations in connection
therewith) paid by or on behalf of such Loan Party for any such purchase or
other acquisition, when aggregated with the total cash and noncash consideration
paid by or on behalf of such Loan Party in connection with all other Permitted
Acquisitions shall not exceed $1,000,000 in the aggregate in each fiscal year,
and shall not exceed $5,000,000 in the aggregate during the term of this
Agreement; 

     

                        (viii) such purchase or other acquisition
shall not include or result in any contingent liabilities which would be
reasonably expected to have, either individually or in the aggregate, a Material
Adverse Effect;

     

                        (ix) for any purchase or other acquisition of
Equity Interests of a Person, such Person shall be organized or formed, as
applicable, under the laws of the United States of America, any State thereof or
the District of Columbia; and 

     

                        (x) any and all consents and approvals of any
Governmental Authority, landlord or other Person necessary for the consummation
of such purchase or acquisition shall have been received. 

     

                        “Permitted Discretion” means a determination made in good faith and
in the exercise of reasonable (from the perspective of a secured asset-based
lender) business judgment. 

     

                        “Permitted Indebtedness” means:

     

                        (i) Indebtedness of Borrower or any Guarantor
in favor of Lender arising under this Agreement or any other Loan Document;

     

                        (ii)
Indebtedness existing on the Closing Date which is disclosed in Schedule 1A; 

     

                        (iii) Indebtedness of Borrower or any
Guarantor in respect of capital leases and purchase money obligations for
equipment or other capital assets within the limitations set forth in
clause (iii) of the definition of “Permitted Liens”,
provided that the aggregate amount of all such
Indebtedness shall not exceed $500,000 in the aggregate in any fiscal year;

     

                        (iv) reimbursement obligations in connection
with letters of credit that are secured by cash or cash equivalents and issued
on behalf of Borrower or any Guarantor in an amount not to exceed $100,000 in
the aggregate at any time outstanding;

     

    16

     

    

    
    

                        (v) Indebtedness of Borrower or any Guarantor
to trade creditors incurred in the ordinary course of business that is not past
due for more than ninety (90) days; 

     

                        (vi) Indebtedness of (A) a Loan Party owed to
any other Loan Party, (B) any Foreign Subsidiary owed to any Loan Party, and (C)
any Loan Party owed to any Foreign Subsidiary and existing on the Closing Date
and set forth on Schedule 1A, in each case, which Indebtedness shall (1) be
pledged to Lender to secure the Secured Obligations, (2) be on terms (including
subordination terms) acceptable to Lender, and (3) otherwise constitute a
Permitted Investment; 

     

                        (vii) Contingent Obligations of Borrower or
any Guarantor in respect of any Permitted Indebtedness; 

     

                        (viii) Indebtedness of any Loan Party arising
from the honoring by a bank or other financial institution of a check, draft or
similar instrument drawn against insufficient funds in the ordinary course of
business, provided that such Indebtedness (A) does not exceed
$25,000 in the aggregate at any time for Borrower and its Subsidiaries, taken as
a whole, and (B) is extinguished within five days of its incurrence;

     

                        (ix) Indebtedness of Borrower or any Guarantor
owed to any Person providing worker’s compensation, health, disability or other
employee benefits to Borrower or any Guarantor and constituting reimbursement or
indemnification obligations to such Person in the ordinary course of business of
Borrower and such Guarantor; 

     

                        (x) Indebtedness of Borrower or any Guarantor
in respect of performance bonds, bid bonds, appeal bonds, surety bonds and
similar obligations, in each case, provided in the ordinary course of business
of Borrower and such Guarantor and not in connection with Indebtedness for
borrowed money; 

     

                        (xi) Indebtedness incurred by Borrower or any
Guarantor to finance the payment of insurance premiums incurred in the ordinary
course of business; 

     

                        (xii) Indebtedness incurred by Borrower on the
Closing Date in connection with the Initial Acquisition pursuant to the terms of
the Seller Notes;

     

                        (xiii) other unsecured Indebtedness of the
Loan Parties in an amount not to exceed $50,000 in the aggregate at any time
outstanding; and

     

                        (xiv) extensions, refinancings and renewals of
any items of Permitted Indebtedness, provided that the principal amount is not increased or
the terms modified to impose materially more burdensome terms upon Borrower
and/or any Guarantor, as the case may be. 

     

                        “Permitted Investment” means:

     

                        (i) Investments of Borrower or any Guarantor
in any other Person existing on the Closing Date which are disclosed in
Schedule 1B; 

     

                        (ii) (A) marketable direct obligations issued
or unconditionally guaranteed by the United States of America or any agency or
any State thereof maturing within one year from the date of acquisition thereof,
(B) commercial paper maturing no more than one year from the date of creation
thereof and currently having a rating of at least A-2 or P-2 from either
Standard & Poor’s Corporation or Moody’s Investors Service, (C) certificates
of deposit issued by any bank with assets of at least $500,000,000 maturing no
more than one year from the date of investment therein, and (D) money market
accounts (the foregoing clauses (A) through (D) herein above shall in each case,
with respect to any Foreign Subsidiary, be subject to the terms set forth in
Section 9.20);

     

    17 

     

    

    
    

                        (iii) repurchases of Equity Interests from
former employees, directors, or consultants of a Loan Party under the terms of
applicable repurchase agreements at the original issuance price of such
securities in an aggregate amount not to exceed $25,000 in any fiscal year,
provided that no Default or Event of Default has
occurred, is continuing or would exist after giving effect to the repurchases;

     

                        (iv) (A) Investments by a Loan Party in newly
formed Subsidiaries of a Loan Party organized under the laws of any political
subdivision of the United States of America, provided that the applicable Loan Party has taken, and
caused such newly formed Subsidiary to take, all actions necessary to satisfy
Section 8.10 and Section 8.11; (B) Investments in Foreign Subsidiaries in
the aggregate amount not to exceed $100,000; (C) Investment by a Foreign
Subsidiary in any Loan Party subject to terms acceptable to Lender; and (D)
Investments approved in advance in writing by Lender in its sole discretion;

     

                        (v)
Investments that result in or that constitute a Permitted Acquisition;

     

                        (vi) Investments consisting of loans not
involving the net transfer on a substantially contemporaneous basis of cash
proceeds to employees, officers or directors relating to the purchase of Equity
Interests of Borrower pursuant to employee equity purchase plans or other
similar agreements approved by Borrower’s board of directors (or equivalent
governing body); 

     

                        (vii) Investments consisting of advances to
officers, directors and employees of any Loan Party in an aggregate amount not
to exceed $25,000 at any time outstanding, for travel, entertainment, relocation
and analogous ordinary business purposes; 

     

                        (viii) Investments (including debt
obligations) received in connection with the bankruptcy or reorganization of
customers or suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of a Loan
Party’s business;

     

                        (ix) Investments consisting of notes
receivable of, or prepaid royalties and other credit extensions, to customers
and suppliers who are not Affiliates, in the ordinary course of business,
provided that this clause (ix) shall not apply to Investments of a Loan
Party in any Subsidiary of such Loan Party; 

     

                        (x) Investments by Borrower on the Closing
Date to consummate the Initial Acquisition; and 

     

                        (xi) additional Investments by the Loan
Parties that do not exceed $100,000 in the aggregate at any time outstanding.

     

                        “Permitted Liens” means any and all of the
following:

     

                        (i)
Liens in favor of Lender pursuant to any Loan Document;

     

                        (ii)
Liens existing on the Closing Date which are disclosed in Schedule 1C;

     

                        (iii) Liens securing Indebtedness permitted in
clause (iii) of the definition of “Permitted
Indebtedness”, provided that (A) such Liens do not at any time
encumber any property other than the property financed by such Indebtedness and
(B) the Indebtedness secured thereby does not exceed the cost or fair market
value, whichever is lower, of the property being acquired on the date of
acquisition;

     

    18 

     

    

    
    

                        (iv) Liens on cash or cash equivalents
securing obligations permitted under clause (iv) of the definition of “Permitted
Indebtedness”; 

     

                        (v) Liens for taxes, fees, assessments or
other governmental charges or levies, either not delinquent or being contested
in good faith by appropriate proceedings promptly instituted and diligently
conducted, provided, that the Borrower or applicable Guarantor
maintains adequate reserves therefor in accordance with GAAP; 

     

                        (vi) Liens securing claims or demands of
materialmen, artisans, mechanics, carriers, warehousemen, landlords and other
like Persons arising in the ordinary course of a Borrower’s or Guarantor’s
business and imposed without action of such parties, provided, that the payment thereof is not yet
required;

     

                        (vii) the following deposits, to the extent
made in the ordinary course of business: deposits under worker’s compensation,
unemployment insurance, social security and other similar laws, or to secure the
performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure indemnity, performance or other similar bonds for
the performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure statutory obligations (other than liens arising
under ERISA or environmental liens) or surety or appeal bonds, or to secure
indemnity, and performance or other similar bonds;

     

                        (viii) statutory and common law rights of
set-off and other similar rights solely as to deposits of cash and securities in
favor of banks, other depository institutions and brokerage firms to the extent
securing usual and customary fees and expenses for the maintenance of deposits
or securities accounts; 

     

                        (ix) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of custom duties that
are promptly paid on or before the date they become due;

     

                        (x) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or
arising in the ordinary course of business so long as they do not materially
impair the value or marketability of the related property; 

     

                        (xi) Liens arising from judgments, decrees or
attachments in circumstances which do not constitute an Event of Default
hereunder; 

     

                        (xii) leasehold interests in leases or
subleases and licenses granted in the ordinary course of business and not
interfering in any material respect with the business of the
licensor;

     

                        (xiii) Liens on insurance proceeds securing
the payment of financed insurance premiums that are promptly paid on or before
the date they become due, provided that such Liens extend only to reimbursed
insurance premiums and not to any other property or assets; and 

     

                        (xiv) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness to the extent permitted
hereunder secured by Liens of the type described in clauses (i) through (xii) above (other than clause (iv), clause (viii) and clause (x) above), provided, that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness being extended, renewed or refinanced (as
may have been reduced by any payment thereon) does not increase (other than in
respect of Indebtedness arising under the Loan Documents in accordance with the
terms thereof).

     

    19 

     

    

    
    

                        “Permitted Senior Eligible Account
Liens” means Liens
described in clauses (v), (vi) and (ix) of the definition of “Permitted
Liens”. 

     

                        “Permitted Senior Liens” means Liens described in clauses (vi), (vii) and (viii) of the definition of “Permitted Liens”.

     

                        “Permitted Transfers” means (i) sales of Inventory in the ordinary
course of business, (ii) dispositions of worn-out, obsolete or surplus equipment
at fair market value in the ordinary course of business, (iii) granting of
Permitted Liens, (iv) entering into non-exclusive licenses and sublicenses of
Intellectual Property in the ordinary course of business, (v) abandonment or
cancellation of Intellectual Property that is not material or is no longer used
or useful in any material respect in the business of Borrower or any Guarantor,
(vi) Transfers of assets or Equity Interests from one Loan Party to another Loan
Party, or (vii) other Transfers of assets having a fair market value of not more
than $25,000 in the aggregate in any fiscal year. 

     

                        “Person” means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, other entity or government.

     

                        “Preferred Equity Interest” means, at any given time, any equity
security or interests issued by Borrower that has any rights, preferences or
privileges senior to the Common Stock. 

     

                        “Prepayment Charge” means (i) three percent (3.00%) of the
aggregate principal amount of the Term Loan repaid on such date of
determination, if such prepayment is made in any of the first twelve (12) months
following the Closing Date; (ii) two percent (2.00%) of the aggregate principal
amount of the Term Loan repaid on such date of determination, if such prepayment
is made after twelve (12) months following the Closing Date but prior to
twenty-four (24) months following the Closing Date; (iii) one percent (1.00%) of
the aggregate principal amount of the Term Loan repaid on such date of
determination, if such prepayment is made after twenty four (24) months
following the Closing Date but prior to thirty-six (36) months following the
Closing Date; and (iv) zero percent (0.0%) thereafter.

     

                        “Proceeding” has the meaning assigned to such term in
Section 6.5 hereof. 

     

                        “Real Estate” means all land, together with the buildings,
structures, parking areas, and other improvements thereon, now or hereafter
owned or leased by Borrower or any Guarantor, including all easements,
rights-of-way, and similar rights appurtenant thereto. 

     

                        “Required Information
Statement” has the meaning
assigned to such term in Section 8.20(a) hereof. 

     

                        “Reserves” means reserves from time to time Lender
determines in Lender’s Permitted Discretion as being appropriate, including,
without limitation reserves that (i) ensure that the Borrower and Guarantors
maintain adequate liquidity for the operation of their business, (ii) cover any
deterioration in the amount or value of the Collateral and (iii) reflect
impediments to Lender’s ability to realize upon the Collateral, such reserves
described in clauses (i), (ii) and (iii) shall, in each case, be deemed to be a
reasonable exercise of Lender’s Permitted Discretion. 

     

                        “Restricted Payments” means (a) any dividend or other distribution
(whether in cash, securities or other property) with respect to any capital
stock or other Equity Interest of any Person or any of its Subsidiaries, (b) any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
defeasance, acquisition, cancellation or termination of any such capital stock
or other Equity Interest, or on account of any return of capital to any Person’s
stockholders, partners or members (or the equivalent of any thereof), or (c) any
option, warrant or other right to acquire any such dividend or other
distribution or payment.

     

    20 

     

    

    
    

                        “Restricted Junior Payments” means any payment (whether in cash or other
property or whether by setoff or otherwise) of (a) any fees, allowance or other
similar arrangement directly or indirectly paid or payable to the members of the
board of directors (or equivalent) of any Person in any such Person’s capacity
as a member of the board of directors (or equivalent) of such Person
(“Board of Directors Fees”), or (b) any payment of any Subordinated
Indebtedness, including any payments pursuant to the Seller Notes.

     

                        “Revolving Interest Rate” means for any day, the per annum interest
rate equal to the greater of (i) nine and one-quarter percent (9.25%) and (ii)
the LIBOR Rate, plus seven and one-quarter percent (7.25%).

     

                        “Revolving Loan” means a revolving loan made pursuant to the
terms of Section 2.1 hereof. 

     

                        “Revolving Loan Advance” means any Revolving Loan funds advanced
under this Agreement. 

     

                        “Revolving Loan Maturity
Date” means June 29,
2015. 

     

                        “Revolving Note” means a Promissory Note in substantially the
form of Exhibit B-1.

     

                        “SBA” shall have the meaning assigned to such term
in Section 8.14 hereof.

     

                        “SBIC” shall have the meaning assigned to such term
in Section 8.14 hereof.

     

                        “SBIC Act” shall have the meaning assigned to such term
in Section 8.14 hereof.

     

                        “SEC” means the United States Securities and
Exchange Commission. 

     

                        “SEC Reports” means the periodic and current reports,
registration statements, proxy statements and other reports filed or required to
be filed by Borrower with the SEC pursuant to the Securities Act of 1933, as
amended, and/or the Securities Exchange Act of 1934, as amended, and any
amendments or supplements thereto filed with the SEC.

     

                        “Secured Obligations” means any and all obligations, liabilities
and indebtedness, including without limitation, principal, interest (whether or
not capitalized) and fees (including, but not limited to, interest calculated at
the Default Rate and post-petition interest in any case or proceeding under any
Debtor Relief Law regardless of whether such interest and fees are allowed in
such case or proceeding), Prepayment Charges and other fees, costs (including,
without limitation professional fees and expenses and fees and expenses of
attorneys of Lender), expenses, charges and other obligations under the Loan
Documents, of Borrower and/or any Guarantor, of any and every kind and nature,
howsoever created, arising or evidenced and howsoever owned, held or acquired,
whether now or hereafter existing, whether now due or to become due, whether
primary, secondary, direct, indirect, absolute, contingent or otherwise
(including, without limitation, obligations of performance), whether several,
joint or joint and several, and whether arising or existing under written or
oral agreement or by operation of law.

     

    21 

     

    

    
    

                        “Securities Account” means any “securities account,” as such term
is defined in the UCC, and includes any account in which Investment Property is
maintained. 

     

                        “Securities Pledge Agreement” means, collectively, (i) the Securities
Pledge Agreement executed as of the Closing Date and (ii) each other Securities
Pledge Agreement substantially in the form of Exhibit G hereto. 

     

                        “Seller Notes” means the (a) Subordinated Indemnity Note in
the aggregate principal amount of $1,200,000, and (b) the Subordinated Purchase
Notes in the aggregate principal amount of $5,000,000, in each case, issued as
part of the consideration in the Initial Acquisition and in form and substance,
including any subordination terms contained therein, satisfactory to the
Lender.

     

                        “Six Month Measurement
Period” means, at any date
of determination, the most recently completed six consecutive calendar months of
Borrower. 

     

                        “Solvent” means with respect to any Person as of any
date of determination, that, as of such date, (a) the value of the assets of
such Person (both at fair market value and present fair saleable value) is
greater than the total amount of liabilities (including contingent and
unliquidated liabilities) of such Person, (b) such Person is able to pay all
liabilities of such Person as such liabilities mature and (c) such Person does
not have unreasonably small capital. In computing the amount of contingent or
unliquidated liabilities at any time, such liabilities shall be computed at the
amount that, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability. 

     

                        “Subordination Agreement” means any subordination agreement, in form,
scope and substance acceptable to Lender, in respect of any Subordinated
Indebtedness. 

     

                        “Subordinated Indebtedness” means Indebtedness subordinated to the
Secured Obligations in amounts and on terms and conditions satisfactory to
Lender in its sole discretion, including, without limitation, the Indebtedness
incurred pursuant to the terms of the Seller Notes.

     

                        “Subsidiary” of a Person means a corporation,
partnership, joint venture, limited liability company or other business entity
of which a majority of the shares of securities or other interests having
ordinary voting power for the election of directors or other governing body
(other than securities or interests having such power only by reason of the
happening of a contingency) are at the time beneficially owned, or the
management of which is otherwise controlled, directly, or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise specified, all
references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a
Subsidiary or Subsidiaries of Borrower. As of the Closing Date, Schedule 1 identifies all of Borrower’s
Subsidiaries. 

     

                        “Target” means Strategic Office Solutions, Inc., a
California corporation. 

     

                        “Taxes” means all present or future taxes, levies,
imposts, duties, deductions, withholdings (including backup withholding),
assessments, fees or other charges imposed by any Governmental Authority,
including any interest, additions to tax or penalties applicable thereto.

     

                        “Term Loan” means the term loan funded pursuant to the
terms of Section 2.2 hereof. 

     

                        “Term Loan Cash Interest
Rate” means for any day,
the per annum interest rate equal to the greater of (i) ten and one-quarter
percent (10.25%) and (ii) the LIBOR Rate, plus eight and one-quarter percent
(8.25%).

     

    22 

     

    

    
    

                        “Term Loan Interest Rate” means, for any day, the sum of (A) the Term
Loan Cash Interest Rate and (B) the Term Loan PIK Interest Rate.

     

                        “Term Loan PIK Interest Rate” means, for any day, two percent
(2.00%).

     

                        “Term Loan Advance” means any Term Loan funds advanced under
this Agreement. 

     

                        “Term Loan Maturity Date” means June 29, 2015. 

     

                        “Term Note” means a Term Loan Note in substantially the
form of Exhibit B-2. 

     

                        “Trademark License” means any written agreement granting any
right to use any Trademark or Trademark registration, now owned or hereafter
acquired by Borrower or any Guarantor or in which Borrower or any Guarantor now
holds or hereafter acquires any interest.

     

                        “Trademarks” means all trademarks (registered, common law
or otherwise) and any applications in connection therewith, including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof.

     

                        “Transaction” means, collectively, (i) the consummation of
the Initial Acquisition, (ii) the entering into by Borrower and each Guarantor
of the Loan Documents, (iii) the refinancing of the Existing Indebtedness and
the termination of all commitments with respect thereto, and (iv) the payment of
fees and expenses incurred in connection with the consummation of the foregoing.

     

                        “Transfer” means the sale, transfer, license, lease or
other disposition (including any sale and leaseback transaction) of any property
by any Person or of any Equity Interests of a Person held by any other Person
(or the granting of any option or other right to do any of the foregoing),
including any sale, assignment, transfer or other disposal, with or without
recourse, of any notes or accounts receivable or any rights and claims
associated therewith and any Equity Interests of a Person held by any other
Person. 

     

                        “Twelve Month Measurement
Period” means, at any date
of determination, the most recently completed twelve consecutive calendar months
of Borrower. 

     

                        “UCC” means the Uniform Commercial Code as the
same is, from time to time, in effect in the State of California, provided, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of, or
remedies with respect to, Lender’s Lien on any Collateral is governed by the
Uniform Commercial Code as the same is, from time to time, in effect in a
jurisdiction other than the State of California, then the term “UCC” shall mean
the Uniform Commercial Code as in effect, from time to time, in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority or remedies and for purposes of definitions
related to such provisions.

     

                        “Warrant” means the warrant entered into in connection
with the Loan substantially in the form of Exhibit H with respect to the purchase by the Lender of
the Common Stock of Borrower. 

     

                        “Wells Foreign Accounts” has the meaning given to it in Section 9.20 hereof. 

     

              1.2 Rules of Construction. The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words “include”, “includes” and “including” shall
be deemed to be followed by the phrase “without limitation”. The word “will”
shall be construed to have the same meaning and effect as the word “shall”.
Unless the context requires otherwise, (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person’s successors and
assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, and (d) all references in this Agreement or any
Annex or Schedule hereto to a “Section,” “subsection,” “Exhibit,” “Annex,” or
“Schedule” shall refer to the corresponding Section, subsection, Exhibit, Annex,
or Schedule in or to this Agreement.

     

    23 

     

    

    
    

              1.3 Accounting and Other Terms. Unless otherwise expressly provided herein,
each accounting term used herein shall have the meaning given it under GAAP
applied on a basis consistent with those used in preparing the financial
statements delivered to Lender pursuant to Section 8.1. Notwithstanding any other provision
contained herein, all terms of an accounting or financial nature used herein
shall be construed, and all computations of amounts and ratios referred to
herein shall be made, without giving effect to any election under Statement of
Financial Accounting Standards 159 codified as FASB ASC 825 (or any other
Financial Accounting Standard having a similar result or effect) to value any
Indebtedness or other liabilities of Borrower and/or any Guarantor at “fair
value”, as defined therein.

     

              1.4 Uniform Commercial Code. Unless otherwise defined herein or in the
other Loan Documents, terms that are used herein or in the other Loan Documents
and defined in the UCC shall have the meanings given to them in the UCC.

     

    SECTION 2. THE LOANS 

     

                  
2.1 Revolving Loan.

     

              (a) Advances. Subject to the terms and conditions of this
Agreement, Borrower may request one or more Revolving Loan Advances on or before
the Revolving Loan Maturity Date in an aggregate principal amount up to the
Maximum Revolver Capacity at such time less the aggregate outstanding principal amount of
all Revolving Loan Advances (including the proposed Revolving Loan Advance to be
made), provided Borrower shall request only one (1) such
Revolving Loan Advance in any calendar month, and each Revolving Loan Advance
shall be in a minimum amount of $250,000 or if the amount available to be
borrowed under the Maximum Revolving Loan Amount is less than $250,000, then
such lesser amount. Revolving Loan Advances may be repaid and reborrowed at any
time, without premium or penalty. 

     

              (b) Advance Request. To obtain a Revolving Loan Advance, at least
three (3) Business Days prior to the requested Advance Date, Borrower shall
complete, sign and deliver an Advance Request and Borrowing Base Certificate.
Lender shall fund the Revolving Loan Advance in the manner requested by the
Advance Request provided that each of the conditions precedent to such Revolving
Advance is satisfied as of the requested Advance Date. 

     

              (c) Interest. The principal balance of the Revolving Loan
shall bear interest thereon at the Revolving Interest Rate, calculated based
upon a year consisting of 360 days and payable for the actual number of days
elapsed. The Revolving Interest Rate (i) shall initially be determined as of the
initial Revolving Loan Advance Date for the corresponding Revolving Loan Advance
and (ii) the Revolving Interest Rate determined by reference to the LIBOR Rate
shall thereafter be determined as of the commencement of each successive
Interest Period.

     

    24 

     

    

    
    

              (d) Interest Payments; Maturity
Date. Interest payments
shall be due in arrears on each Interest Payment Date applicable to such
Revolving Loan. The entire principal balance of the Revolving Loan and all
accrued interest and fees on or relating to the Revolving Loan shall be repaid
in full on the Revolving Loan Maturity Date. 

     

                  
2.2 Term Loan. 

     

              (a) Advances. Subject to the terms and conditions of this
Agreement, Lender will make the Term Loan Advances in an amount equal to the
Maximum Term Loan Amount on the Closing Date.

     

              (b) Advance Request. To obtain the Term Loan Advance, at least
two (2) Business Days prior to the Closing Date, Borrower shall complete, sign
and deliver an Advance Request to Lender. Lender shall fund the Term Loan
Advance in the manner requested by the Advance Request. 

     

              (c) Interest. 

     

              (i) Term Loan. The outstanding principal balance of the
Term Loan shall bear interest thereon from the Closing Date at the Term Loan
Interest Rate based on a year consisting of 360 days, with interest computed
daily based on the actual number of days elapsed. 

     

              (ii) Interest Generally. The Term Loan Cash Interest Rate (i) shall
initially be determined as of the Advance Date for the Term Loan and (ii) the
Term Loan Cash Interest Rate determined by reference to the LIBOR Rate shall
thereafter be determined as of the commencement of each successive Interest
Period. 

     

              (d) Payments. 

     

              (i) Interest. Interest payments shall be due in arrears on
each Interest Payment Date. Borrower will pay accrued interest on the Term Loan
on each Interest Payment Date, of which accrued interest calculated at the Term
Loan Cash Interest Rate shall be paid in cash on the applicable Interest Payment
Date and accrued interest calculated at the Term Loan PIK Interest Rate shall be
added to the outstanding principal amount of the Term Loan on the applicable
Interest Payment Date and such accrued interest shall thereafter be principal
under the Term Loan. 

     

              (ii) Amortization. Borrower shall repay the aggregate
outstanding Term Loan principal balance on the first Business Day of each
calendar month, commencing January 2011, as provided in the table set forth
below: 

     

    
      	Period	Amount
	January 2011	$100,000
	February 2011	in each such calendar
      month
	March 2011	 
	April 2011	 
	May
      2011	
            

    

    25

     

    

    
    

    
      	June
      2011	
            
	July
      2011	
            
	August 2011	
            
	September 2011	 
	October 2011	
            
	November 2011	
            
	December 2011	
            
	January 2012	$200,000
	February 2012	in each such calendar
      month
	March 2012	
            
	April 2012	
            
	May
      2012	
            
	June
      2012	
            
	July
      2012	
            
	August 2012	
            
	September 2012	
            
	October 2012	
            
	November 2012	
            
	December 2012	
            
	January 2013	$300,000
	February 2013	in each such calendar
      month
	March 2013	
            
	April 2013	
            
	May
      2013	
            
	June
      2013	
            
	July
      2013	
            
	August 2013	
            
	September 2013	
            
	October 2013	
            
	November 2013	
            
	December 2013	
            
	January 2014	$400,000
	February 2014	in each such calendar
      month
	March 2014	
            
	April 2014	
            
	May
      2014	
            
	June
      2014	
            
	July
      2014	
            
	August 2014	
            
	September 2014	
            
	October 2014	
            
	November 2014	
            
	December 2014	
            
	January 2015	$1,000,000
	February 2015	in each such calendar
      month
	March 2015	
            
	April 2015	
            
	May
      2015	
            
	June
      2015	
            

    

    26

     

    

    
    

              (iii) Term Loan Maturity Date. The entire Term Loan principal balance and
all accrued but unpaid interest and fees on or relating to the Term Loan shall
be due and payable in cash on the Term Loan Maturity Date. 

     

              2.3 Maximum Interest. Notwithstanding any provision in this
Agreement or any other Loan Document, it is the parties’ intent not to contract
for, charge or receive interest at a rate that is greater than the maximum rate
permissible by law that a court of competent jurisdiction shall deem applicable
hereto (which under the laws of the State of California shall be deemed to be
the laws relating to permissible rates of interest on commercial loans) (the
“Maximum Rate”). If a court of competent jurisdiction shall
finally determine that Borrower has actually paid to Lender an amount of
interest in excess of the amount that would have been payable if all of the
Secured Obligations had at all times borne interest at the Maximum Rate, then
such excess interest actually paid by Borrower shall be applied as follows:
first, to the payment of Lender Expenses then due
and payable pursuant to any of the Loan Documents; second, to the payment of accrued interest on the
Term Loan; third, to the payment of accrued interest on the
Revolving Loan; fourth, to the payment of principal outstanding on
the Term Loan in inverse order of maturity; fifth, to the payment of principal outstanding on
the Revolving Loan; sixth, to any other Secured Obligations; and
seventh, after all Secured Obligations are repaid,
the excess (if any) shall be refunded to Borrower or as a court of competent
jurisdiction may direct; provided, however, the application of funds required pursuant
to this Section 2.3 shall be subject to Section 2.10. 

     

              2.4 Late Fee; Default Interest.

     

              (a) Late Fee. In the event any payment is not paid on the
scheduled payment date, an amount equal to two percent (2.00%) of the past due
amount shall be payable on demand.

     

              (b) Default Interest. In addition to the Late Fee, upon the
occurrence and during the continuation of an Event of Default hereunder, the
Secured Obligations shall bear interest at the following rate(s) (such rate(s)
the “Default Rate”): (a) the outstanding principal amount of
the Revolving Loan shall bear interest at the Revolving Loan Interest Rate,
plus two percent (2.00%) per annum, such
additional interest to be paid in cash, (b) the outstanding principal amount of
the Term Loan shall bear interest at the Term Loan Interest Rate, plus two percent (2.00%) per annum, such
additional interest to be paid in cash, and (c) all other Secured Obligations
shall bear interest at the Term Loan Interest Rate, plus two percent (2.00%) per annum, such
additional interest to be paid in cash. Upon the occurrence and during the
continuance of an Event of Default and subject to Section 2.3, all accrued interest, including accrued
interest calculated at the Term Loan PIK Interest Rate, shall be payable on
demand in cash. In the event any interest is not paid when due hereunder,
delinquent interest shall be added to principal and shall bear interest on
interest, compounded at the rates set forth in Section 2.1(c), Section 2.2(c) or Section 2.4, as applicable.

     

         2.5 Voluntary Prepayments. 

     

              (a) Revolving Loan. Borrower may prepay the Revolving Loan in
whole or in part from time to time without premium or penalty.

     

              (b) Term Loan. Borrower may prepay, at Borrower’s option
upon at least seven (7) Business Days prior written notice to Lender, in whole
(or, in part with the prior consent of Lender in its sole and absolute
discretion), the Term Loan, together with all Secured Obligations arising as a
result of or relating to the Term Loan, together with all accrued and unpaid
interest thereon, plus the Prepayment Charge on the amounts so
prepaid, provided that any prepayment of the Term Loan (i)
shall be in a minimum amount of $500,000 with increments of $250,000 in excess
thereof (or, with the written consent of Lender, in Lender’s sole discretion, in
such other amounts and increments), or if the aggregate principal amount of the
Term Loan is less than such amounts, then the then outstanding aggregate
principal amount of the Term Loan; and (ii) shall be applied pro rata to all
scheduled principal installments thereof. If Borrower prepays the outstanding
aggregate amount of the Term Loan as herein provided, on such date of repayment,
Lender’s commitment to make Revolving Loans shall terminate and all Secured
Obligations shall be repaid in full in cash on such date.

     

    27 

     

    

    
    

              2.6 Mandatory Prepayments. 

     

              (a) Maximum Revolver Capacity If, at any time, the aggregate outstanding
principal amount of all Revolving Loan Advances exceeds the Maximum Revolver
Capacity, Borrower shall immediately repay the Revolving Loans in the amount of
such excess to Lender. 

     

              (b) Maturity Date. Borrower shall repay the Revolving Loans and
the Term Loan as provided in Section 2.1(d) and Section 2.2(d)(iii). 

     

              (c) Amortization of Term Loan. Borrower shall repay the Term Loan as
provided in Section 2.2(d). 

     

              (d) Consolidated Excess Cash
Flow. On or prior to the
date which is one hundred and twenty (120) days following the end of each fiscal
year of Borrower, commencing with the fiscal year ending April 30, 2011 and
until such time as the Consolidated Total Leverage Ratio as at such fiscal year
end, calculated based on a Twelve Month Measurement Period, is less than 1.0 to
1.0, Borrower shall promptly prepay the principal amount of the Term Loan and
accrued and unpaid interest thereon in an amount equal to the lesser of (x) the
outstanding amount of the Term Loan and (y) fifty percent (50.00%) of the
Consolidated Excess Cash Flow. Such amounts shall be applied as set forth in
Section 2.6(j) and Section 2.10. No Prepayment Charge shall accrue as a
result of any mandatory prepayment of the Term Loan pursuant to this
Section 2.6(d). 

     

              (e) Asset Sales. If Borrower or any Guarantor Transfers any
of its assets or properties (other than Permitted Transfers), which results in
the realization by such Person of net cash proceeds, then Borrower shall
promptly prepay the Loans in an amount equal to the lesser of (x) the
outstanding amount of the Loans and (y) 100% of such net cash proceeds upon
receipt thereof by such Person (but in any event within one (1) Business Day
thereafter). Amounts prepaid pursuant to this Section 2.6(e) shall be applied as provided in Section 2.6(j) and Section 2.10 below. 

     

              (f) Incurrence of Indebtedness. If Borrower or any Guarantor incurs or
issues any Indebtedness (other than Permitted Indebtedness), Borrower shall
promptly prepay the Loans in an amount equal to the lesser of (x) the
outstanding amount of the Loan and (y) 100% of all net cash proceeds received
therefrom by such Person (but in any event within one (1) Business Day
thereafter). Amounts prepaid pursuant to this Section 2.6(f) shall be applied as provided in Section 2.6(j) and Section 2.10 below. 

     

              (g) Issuance of Equity. If Borrower or any Guarantor sells or issues
any of its Equity Interests (other than as expressly permitted pursuant to Section 9.4(b) and Section 9.4(c)), Borrower may elect to apply up to fifty
percent (50%) of the net cash proceeds received therefrom to prepay the Term
Loan; provided, that, such prepayment is made within fifteen (15) days from the issuance of such Equity
Interests. No Prepayment Charge shall accrue as a result of any prepayment of
the Term Loan pursuant to this Section 2.6(g). Amounts prepaid pursuant to this
Section 2.6(g) shall be applied as provided in Section 2.6(j) and Section 2.10 below. 

     

    28 

     

    

    
    

              (h) Events of Loss If Borrower or any
Guarantor receives net cash proceeds from an Event of Loss (without giving
effect to the qualifications set forth in clause (A)(i) or (A)(ii) or clause (B)(i) or (B)(ii) thereof), Borrower shall prepay the Loans in
an amount equal to the lesser of (x) the outstanding amount of the Loans and (y)
100% of the net cash proceeds received therefrom by such Person (but in any
event within one (1) Business Day thereafter). Amounts prepaid pursuant to this
Section 2.6(h) shall be applied as provided in Section 2.6(j) and Section 2.10 below. 

     

              (i) Extraordinary Receipts; Insurance Proceeds. 

     

              (x) (A) If Borrower or any Guarantor receives
(1) any Extraordinary Receipts equal to or in excess of $50,000 or (2) net cash
proceeds equal to or in excess of $50,000 in the aggregate from insurance
proceeds, or (B) if Lender, as loss payee, receives net cash proceeds equal to
or in excess of $50,000 in the aggregate from insurance proceeds, then Borrower
shall promptly prepay the Loans in an amount equal to 100% of such Extraordinary
Receipts and/or insurance proceeds received therefrom by such Person (but in any
event within one (1) Business Day thereafter). 

     

              (y) (A) If Borrower or any Guarantor receives
(1) any Extraordinary Receipts of less than $50,000 or (2) net cash proceeds
less than $50,000 in the aggregate from insurance proceeds, or (B) if Lender, as
loss payee, receives net cash proceeds of less than $50,000 in the aggregate
from insurance proceeds, then Borrower shall, at Borrower’s election and upon
written notice thereof to Lender, either (A) prepay the Loans in an amount equal
to 100% of such Extraordinary Receipts and/or insurance proceeds received
therefrom by such Person (but in any event within one (1) Business Day
thereafter) or (B) so long as no Default or Event of Default shall have occurred
and be continuing, reinvest all or any portion of such Extraordinary Receipts
and/or net cash proceeds in the purchase or replacement of operating assets so
long as within one hundred and twenty (120) days after the receipt of such
Extraordinary Receipts and/or net cash proceeds such purchase or reinvestment
shall have been consummated, provided that if such purchase or reinvestment shall
not have been so consummated, within one (1) Business Day following such one
hundred and twenty (120) day period, Borrower shall prepay the Loans in an
amount equal to 100% of such Extraordinary Receipts and/or net cash proceeds
received and not subject to any reinvestment as herein
provided. 

     

              (z) Amounts prepaid pursuant to this Section 2.6(i) shall be applied as
provided in Section 2.6(j) and Section 2.10 below. 

     

              (j) Application of Mandatory
Prepayments.

     

              (i) Consolidated Excess Cash
Flow. Mandatory
prepayments made pursuant to Section 2.6(d) shall be applied as follows: first, to the payment of Lender Expenses then due
and payable pursuant to any of the Loan Documents; second, to the payment of accrued interest on the
Term Loan; third, to the payment of principal outstanding on
the Term Loan in inverse order of maturity; fourth, to any other Secured Obligations arising in
respect of the Term Loan; and fifth, after all the Secured Obligations described in this Section 2.6(j)(i) are repaid, the excess (if any) shall be
refunded to Borrower or as a court of competent jurisdiction may direct.

     

    29

     

    

    
    

              (ii) Mandatory Prepayments
Generally. All mandatory
prepayments made pursuant to Section 2.6(e), Section 2.6(f), Section 2.6(g), Section 2.6(h) and/or Section 2.6(i) shall be applied as follows: first, to the payment of Lender Expenses then due
and payable pursuant to any of the Loan Documents; second, to the payment of accrued interest on the
Term Loan; third, to the payment of accrued interest on the
Revolving Loan; fourth, to the payment of principal outstanding on
the Term Loan in inverse order of maturity; fifth, to the payment of principal outstanding on
the Revolving Loan (together with a permanent commitment reduction thereunder in
the amount of such payment); sixth, to any other Secured Obligations; and
seventh, after all Secured Obligations are repaid,
the excess (if any) shall be refunded to Borrower. 

     

              (iii) Mandatory prepayments made pursuant to this Section 2.6 shall include all accrued and unpaid interest
on the amount of the Secured Obligations, as applicable, so prepaid.

     

              2.7 Prepayment Charge. Borrower agrees that the Prepayment Charge
is a reasonable calculation of Lender’s lost profits in view of the difficulties
and impracticality of determining actual damages resulting from an early
repayment of the Term Loan. In addition, Borrower agrees that such Prepayment
Charge shall be payable if any portion of the Term Loan is repaid (whether as a
result of acceleration, whether voluntarily or involuntarily mandatory
repayments or otherwise) but not on account of any prepayment arising under
Sections 2.6(d) or 2.6(g) hereof. 

     

              2.8 [Intentionally Omitted]. 

     

              2.9 Unused Line Fee. Borrower shall pay to Lender for the period
commencing on the Closing Date and continuing through the Revolving Loan
Maturity Date in respect of the Revolving Loan, a commitment fee in an amount
equal to one-half of one percent per annum (0.50%), on the sum of the average
daily unused portion of the Revolving Loan facility. All commitment fees payable
pursuant to this Section shall be payable by Borrower in arrears on the first
Business Day of each fiscal quarter of Borrower, commencing the first Business
Day following the Closing Date continuing through the Revolving Loan Maturity
Date. 

     

              2.10 Payments Generally. 

     

              (a) Application to LIBOR Rate
Loans. Amounts to be
applied to the prepayment or repayment of principal of the Loans shall be
applied first to reduce the outstanding principal amount of the LIBOR Rate Loans
of any Class. 

     

              (b) Payments Generally. Except as otherwise expressly provided
herein, all payments made by Borrower or any Guarantor shall be made in cash to
Lender, at Lender’s office in United States Dollars and in immediately available
funds not later than 2:00 p.m. (Pacific Time) on the date specified herein. All
payments received by Lender after 2:00 p.m. (Pacific Time) shall be deemed
received on the next succeeding Business Day and any applicable interest or fee
shall continue to accrue. If any payment to be made by Borrower or any Guarantor
shall come due on a day other than a Business Day, payment shall be made on the
next following Business Day, and such extension of time shall be reflected when
computing interest or fees, as the case may be.

     

    30

     

    

    
    

              (c) ACH Authorization. Lender will initiate debit entries to
Borrower’s account as authorized on the ACH Authorization on each payment date
of all periodic obligations payable to Lender under the Revolving Loan and the
Term Loan. 

     

    SECTION 3. SPECIAL PROVISIONS RELATING TO LIBOR
AND TAXES; ETC. 

     

              3.1 [Intentionally Omitted].

     

              3.2 Special Provisions Applicable to the LIBOR
Rate. 

     

              (a) Determinations Generally. The LIBOR Rate may be adjusted by Lender on
a prospective basis to take into account any additional or increased costs of
maintaining or obtaining any eurodollar or LIBOR deposits or increased costs due
to changes in applicable law occurring subsequent to the commencement of the
then applicable Interest Period, including without limitation changes in tax
laws and changes in the reserve requirements imposed by the Board of Governors
of the Federal Reserve System (or any successor), which additional or increased
costs would increase the cost of funding loans bearing interest at the LIBOR
Rate. In any such event, Lender shall give Borrower notice of such a
determination and adjustment and Borrower may, by notice to Lender require such
Lender to furnish to Borrower a statement setting forth the basis for adjusting
such LIBOR Rate and the method for determining the amount of such adjustment. In
the event that any change in market conditions or any law, regulation, treaty,
or directive, or any change therein or in the interpretation of application
thereof, shall at any time after the date hereof, in the reasonable opinion of
Lender, make it unlawful or impractical for Lender to fund or maintain a LIBOR
Loan or to continue such funding or maintaining, or to determine or charge
interest rates at the LIBOR Rate, Lender shall give notice of such changed
circumstances to Borrower and (i) in the case of any LIBOR Rate Loans that are
outstanding, interest for the next thirty (30) days shall accrue at the per
annum rate in effect on the date of such notice, and (ii) Borrower and Lender
shall negotiate in good faith the interest rate to be applicable after the
termination of such thirty (30) day period and if the parties cannot mutually
agree on an interest rate to be applicable thereafter, Borrower shall repay
(without prepayment penalty) the Secured Obligations in full in cash upon the
termination of such thirty (30) day period. 

     

              (b) No Requirement of Matched
Funding. Anything to the
contrary contained herein notwithstanding, neither Lender, nor any participant,
is required actually to acquire eurodollar deposits to fund or otherwise match
fund any Secured Obligation as to which interest accrues at the LIBOR Rate. The
provisions of this Section 3.2(b) shall apply as if Lender or such participants
had match funded any Secured Obligation as to which interest is accruing at the
LIBOR Rate by acquiring eurodollar deposits for each Interest Period in the
amount of the LIBOR Rate Loans. 

     

              3.3 Payments Free of Taxes; Obligation to
Withhold; Payments on Account of Taxes.

     

              (a) (i) Any and all payments by or on account of any obligation of Borrower
or any Guarantor hereunder or under any other Loan Document shall to the extent
permitted by applicable Laws be made free and clear of and without reduction or
withholding for any Taxes. If, however, applicable Laws require Borrower, any
Guarantor or Lender to withhold or deduct any Tax, such Tax shall be withheld or
deducted in accordance with such Laws as determined by Borrower or Lender, as
the case may be, upon the basis of the information and documentation to be
delivered pursuant to subsection (e) below. 

     

    31

     

    

    
    

              (ii) If Borrower, any Guarantor or Lender
shall be required by the Code to withhold or deduct any Taxes, including both
United States Federal backup withholding and withholding taxes, from any
payment, then (A) Lender shall withhold or make such deductions as are
determined by Lender to be required based upon the information and documentation
it has received pursuant to subsection (e) below, (B) Lender shall timely pay the full
amount withheld or deducted to the relevant Governmental Authority in accordance
with the Code, and (C) to the extent that the withholding or deduction is made
on account of Taxes or Other Taxes, the sum payable by Borrower and/or any
Guarantor, as the case may be, shall be increased as necessary so that after any
required withholding or the making of all required deductions (including
deductions applicable to additional sums payable under this Section) Lender
receives an amount equal to the sum it would have received had no such
withholding or deduction been made. 

     

              (b) Payment of Other Taxes by Borrower and
Guarantor. Without
limiting the provisions of subsection (a) above, Borrower and each Guarantor shall
timely pay any Other Taxes to the relevant Governmental Authority in accordance
with applicable law. 

     

              (c) Tax Indemnifications. Without limiting the provisions of
subsection (a) or (b) above, Borrower and each Guarantor shall, and
do hereby, jointly and severally, indemnify Lender, and shall make payment in
respect thereof within 10 days after demand therefor, for the full amount of any
Taxes or Other Taxes (including Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) withheld or deducted by
Borrower or Lender or paid by Lender (excluding taxes imposed on or measured by
the net income of Lender), and any penalties, interest and reasonable expenses
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of any such payment or liability
delivered to Borrower by a Lender shall be conclusive absent manifest
error. 

     

              (d) Evidence of Payments. Upon request by Borrower after any payment of Taxes by Borrower, any
Guarantor or Lender to a Governmental Authority as provided in this Section 3.3, Borrower shall deliver to Lender or Lender
shall deliver to Borrower, as the case may be, the original or a certified copy
of a receipt issued by such Governmental Authority evidencing such payment, a
copy of any return required by Laws to report such payment or other evidence of
such payment reasonably satisfactory to Borrower or Lender, as the case may be.

     

              (e) Status of Lenders; Tax
Documentation.

     

              (i) Lender shall deliver to Borrower, at the time or times prescribed by
applicable Laws or when reasonably requested by Borrower, such properly
completed and executed documentation prescribed by applicable Laws or by the
taxing authorities of any jurisdiction and such other reasonably requested
information as will permit Borrower to determine (A) whether or not payments
made hereunder or under any other Loan Document are subject to Taxes, (B) if
applicable, the required rate of withholding or deduction, and (C) Lender’s
entitlement to any available exemption from, or reduction of, applicable Taxes
in respect of all payments to be made to Lender by Borrower or any Guarantor, as
the case may be, pursuant to this Agreement or otherwise to establish such
Lender’s status for withholding tax purposes in the applicable
jurisdiction. 

     

              (ii) Without limiting the generality of the foregoing, if Borrower is resident
for tax purposes in the United States,

     

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              (A) each Lender that is a “United States
person” within the meaning of Section 7701(a)(30) of the Code shall deliver to
Borrower, upon request of Borrower, executed originals of Internal Revenue
Service Form W-9 or such other documentation or information prescribed by
applicable Laws or reasonably requested by Borrower as will enable Borrower to
determine whether or not such Lender is subject to backup withholding or
information reporting requirements; and

     

              (B) each Foreign Lender that is entitled under
the Code or any applicable treaty to an exemption from or reduction of
withholding tax with respect to payments hereunder or under any other Loan
Document shall deliver to Borrower (in such number of copies as shall be
requested by the recipient) on or prior to the date on which such Foreign Lender
becomes a Lender under this Agreement (and from time to time thereafter upon the
request of Borrower, but only if such Foreign Lender is legally entitled to do
so), whichever of the following is applicable: 

     

              (I) executed originals of Internal Revenue
Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to
which the United States is a party, 

     

              (II) executed originals of Internal Revenue
Service Form W-8ECI, 

     

              (III) executed originals of Internal Revenue
Service Form W-8IMY and all required supporting
documentation, 

     

              (IV) in the case of a Foreign Lender claiming
the benefits of the exemption for portfolio interest under section 881(c) of the
Code, (x) a certificate to the effect that such Foreign Lender is not (A) a
“bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent
shareholder” of Borrower within the meaning of section 881(c)(3)(B) of the Code,
or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of
the Code and (y) executed originals of Internal Revenue Service Form W-8BEN,
or 

     

              (V) executed originals of any other form
prescribed by applicable Laws as a basis for claiming exemption from or a
reduction in United States Federal withholding tax together with such
supplementary documentation as may be prescribed by applicable Laws to permit
Borrower to determine the withholding or deduction required to be made.

     

              (iii) Lender shall promptly (A) notify
Borrower of any change in circumstances which would modify or render invalid any
claimed exemption or reduction, and (B) take such steps as shall not be
disadvantageous to it, in the reasonable judgment of Lender, and as may be
reasonably necessary (including the re-designation of its Lending office) to
avoid any requirement of applicable Laws of any jurisdiction that Borrower make
any withholding or deduction for taxes from amounts payable to such
Lender. 

     

    33

     

    

    
    

              (f) Treatment of Certain
Refunds. If Lender
determines, in its sole discretion, that it has received a refund of any Taxes
or Other Taxes as to which it has been indemnified by Borrower or with respect to which Borrower has
paid additional amounts pursuant to this Section, it shall pay to Borrower an
amount equal to such refund (but only to the extent of indemnity payments made,
or additional amounts paid, by Borrower under this Section with respect to the
Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses incurred by Lender and without interest (other than any interest paid
by the relevant Governmental Authority with respect to such refund),
provided that Borrower, upon the request of Lender,
agrees to repay the amount paid over to Borrower (plus any penalties, interest
or other charges imposed by the relevant Governmental Authority) to Lender in
the event Lender is required to repay such refund to such Governmental
Authority. This subsection shall not be construed to require Lender to make
available its tax returns (or any other information relating to its taxes that
it deems confidential) to Borrower or any other Person. 

     

              (g) Survival. This Section 3.3 shall survive the expiration or other
termination of this Agreement and the other Loan Documents. 

     

              3.4 Evidence of Debt. The Advances made by Lender shall be
evidenced by one or more accounts or records maintained by Lender in the
ordinary course of business. The accounts or records maintained by Lender shall
be conclusive absent manifest error of the amount of the Advance made by Lender
to Borrower and the interest and payments thereon. Any failure to so record or
any error in doing so shall not, however, limit or otherwise affect the
obligation of Borrower hereunder to pay any amount owing with respect to the
Secured Obligations. Upon the request of Lender, Borrower shall execute and
deliver to Lender a Note, which shall evidence Lender’s Loans in addition to
such accounts or records. Lender may attach schedules to its Note and endorse
thereon the date, type (if applicable), amount and maturity of its Loans and
payments with respect thereto. 

     

    SECTION 4. SECURITY INTEREST 

     

              4.1 Grant of a Security
Interest. As security for
the prompt, complete and indefeasible payment when due (whether on the payment
dates or otherwise) of all the Secured Obligations, Borrower and each Guarantor
grants to Lender a security interest in all of Borrower’s or such Guarantor’s
personal property now owned or hereafter acquired or arising, and all proceeds
and products thereof (all of the same being hereinafter called the “Collateral”): all personal and fixture property of every
kind and nature including all goods (including Inventory, equipment and any
accessions thereto), instruments (including promissory notes), documents
(including, if applicable, electronic documents), Accounts (including
health-care-insurance receivables), chattel paper (whether tangible or
electronic), Deposit Accounts, Securities Accounts, cash, money, letters of
credit, letter-of-credit rights (whether or not the letter of credit is
evidenced by a writing), commercial tort claims, securities and all other
investment property (but excluding thirty-five percent (35%) of the voting
capital stock of any Foreign Subsidiary that constitutes a Permitted Investment
to the extent that such grant of a security interest would give rise to a
material adverse tax consequence to Borrower or any Guarantor), instruments
(including promissory notes), supporting obligations, any other contract rights
or rights to the payment of money, insurance claims and proceeds, Intellectual
Property and Licenses, and all general intangibles (including all payment
intangibles). 

     

              4.2 Authorization to File Financing
Statements. Borrower and
each Guarantor hereby irrevocably authorizes Lender at any time and from time to
time to file in any filing office in any Uniform Commercial Code jurisdiction
any initial financing statements and amendments thereto that (a) indicate the
Collateral (i) as all assets of Borrower and/or such Guarantor or words of
similar effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of
Section 11 of the UCC or, as applicable, Article 9 of such jurisdiction, or (ii)
as being of an equal or lesser scope or with greater detail, and (b) provide any
other information required by part 5 of Section 11 of the UCC or, as applicable,
Article 9 of such other jurisdiction for the sufficiency or filing office
acceptance of any financing statement or amendment, including (i) whether
Borrower or such Guarantor is an organization, the type of organization and any
organizational identification number issued to Borrower or such Guarantor and,
(ii) in the case of a financing statement filed as a fixture filing or
indicating Collateral as as-extracted collateral or timber to be cut, a
sufficient description of real property to which the Collateral relates.
Borrower and each Guarantor agrees to furnish any such information to Lender
promptly upon request. Borrower and each Guarantor also ratifies its
authorization for Lender to have filed in any Uniform Commercial Code
jurisdiction any like initial financing statements or amendments thereto if
filed prior to the date hereof. 

     

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              4.3 Other Actions. Further to insure the attachment, perfection
and first priority (subject to Permitted Senior Liens) of, and the ability of
Lender to enforce Lender’s Liens, Borrower and each Guarantor agrees, in each
case at Borrower’s or such Guarantor’s expense, to take the following actions
with respect to the following Collateral and without limitation on Borrower’s or
such Guarantor’s other obligations contained in this
Agreement: 

     

              (a) Promissory Notes and Tangible Chattel
Paper. If Borrower or any
Guarantor shall, now or at any time hereafter, hold or acquire any promissory
notes or tangible chattel paper, Borrower or such Guarantor shall, at Lender’s
request, forthwith endorse, assign and deliver the same to Lender, accompanied
by such instruments of transfer or assignment duly executed in blank as Lender
may from time to time specify. 

     

              (b) Deposit Accounts. Other than with respect to amounts deposited
pursuant to Section 9.20, for each Deposit Account that Borrower or
any Guarantor, now or at any time hereafter, opens or maintains, Borrower or
such Guarantor shall, prior to or concurrently with the opening of such Deposit
Account, pursuant to an Account Control Agreement in form and substance
reasonably satisfactory to Lender, cause the depositary bank to agree to comply,
without further consent of Borrower or such Guarantor, at any time during the
continuance of an Event of Default with instructions from Lender to such
depositary bank directing the disposition of funds from time to time credited to
such deposit account. The provisions of this paragraph shall not apply to any
Excluded Deposit Accounts. 

     

              (c) Investment Property. If Borrower or any Guarantor shall, now or
at any time hereafter, hold or acquire any certificated securities constituting
Collateral, Borrower or such Guarantor shall forthwith endorse, assign and
deliver the same to Lender, accompanied by such instruments of transfer or
assignment duly executed in blank as Lender may from time to time specify (but
excluding thirty-five percent (35%) of the voting capital stock of any Foreign
Subsidiary that constitutes a Permitted Investment to the extent that such grant
of a security interest would give rise to a material adverse tax consequence to
Borrower or any Guarantor). If any securities constituting Collateral now or
hereafter acquired by Borrower or any Guarantor are uncertificated and are
issued to Borrower or its nominee, or such Guarantor or its nominee, directly by
the issuer thereof, Borrower or such Guarantor shall immediately notify Lender
thereof and, at Lender’s request and option, either (i) cause the issuer to
enter into an agreement under Section 8-106 of the UCC whereby the issuer agrees
with instructions originated by Lender without further consent by Borrower or
any Guarantor, or (ii) pursuant to an Account Control Agreement in form and
substance satisfactory to Lender, arrange for Lender to become the registered
owner of the securities. If any securities, whether certificated or
uncertificated, or other investment property now or hereafter acquired by
Borrower or any Guarantor that constitutes Collateral are held by Borrower or
its nominee, or any Guarantor or its nominee, through a securities intermediary
or commodity intermediary, Borrower or such Guarantor shall immediately notify
Lender thereof and, at Lender’s request and option, either (x) cause such
securities intermediary or (as the case may be) commodity intermediary to enter
into an Account Control Agreement, or (y) pursuant to an agreement in form and
substance satisfactory to Lender, in the case of financial assets or other
investment property held through a securities intermediary, arrange for Lender
to become the entitlement holder with respect to such investment property, with
Borrower or such Guarantor being permitted, only with the consent of Lender, to
exercise rights to withdraw or otherwise deal with such investment property. The
provisions of this paragraph shall not apply to any financial assets credited to
a securities account for which Lender is the securities
intermediary.

     

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              (d) Collateral in the Possession of a
Bailee. If any Collateral
in excess of $10,000 is, now or at any time hereafter, in the possession of a
bailee, Borrower or the applicable Guarantor shall promptly notify Lender
thereof and, at Lender’s request and option, shall promptly obtain a bailee
acknowledgment and access agreement in form and substance reasonably
satisfactory to Lender. 

     

              (e) Letter-of-credit Rights. If Borrower or any Guarantor is, now or at
any time hereafter, a beneficiary under a letter of credit with a notional
amount in excess of $100,000, Borrower or such Guarantor shall promptly notify
Lender thereof and, at the request and option of Lender, Borrower or such
Guarantor shall, pursuant to an agreement in form and substance reasonably
satisfactory to Lender, either (i) arrange for the issuer and any confirmer of
such letter of credit to consent to an assignment to Lender of the proceeds of
the letter of credit or (ii) arrange for Lender to become the transferee
beneficiary of the letter of credit. 

     

              (f) Commercial Tort Claims. If Borrower or any Guarantor shall, now or
at any time hereafter, hold or acquire a commercial tort claim in an amount
greater than $100,000, Borrower or such Guarantor shall promptly (but in any
event within two (2) Business Days thereof) notify Lender in a writing signed by
Borrower or such Guarantor of the particulars thereof and grant to Lender in
such writing a security interest therein and in the proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance
reasonably satisfactory to Lender. 

     

              (g) Other Actions as to any and all
Collateral. Borrower and
each Guarantor further agrees, upon the request of Lender and at Lender’s
option, to take any and all other actions as Lender may reasonably determine to
be necessary or useful for the attachment, perfection and first priority
(subject to Permitted Senior Liens) of, and the ability of Lender to enforce,
Lender’s Lien in any and all of the Collateral, including (i) executing,
delivering and, where appropriate, filing financing statements and amendments
relating thereto under the UCC, to the extent, if any, that Borrower’s or any
applicable Guarantor’s signature thereon is required therefor, (ii) causing
Lender’s name to be noted as secured party on any certificate of title for a
titled good if such notation is a condition to attachment, perfection or
priority of, or ability of Lender to enforce, Lender’s security interest in such
Collateral, (iii) complying with any provision of any statute, regulation or
treaty of the United States as to any Collateral if compliance with such
provision is a condition to attachment, perfection or priority of, or ability of
Lender to enforce, Lender’s security interest in such Collateral, (iv) using
commercially reasonable efforts to obtain governmental and other third party
waivers, consents and approvals, in form and substance reasonably satisfactory
to Lender, including any consent of any licensor, lessor or other person
obligated on Collateral, (v) using commercially reasonable efforts to obtain
obtaining Collateral Access Agreements from mortgagees and landlords in form and
substance reasonably satisfactory to
Lender, (vi) creating and perfecting Liens in favor of Lender in any real
property acquired after the Closing Date, and (vii) taking all actions under any
earlier versions of the UCC or under any other law, as reasonably determined by
Lender to be applicable in any relevant UCC or other jurisdiction, including any
foreign jurisdiction. In addition to the foregoing, Borrower and each Guarantor
shall concurrently with the delivery of a Compliance Certificate in connection
with the delivery of the Financial Statements described in Section 8.1(b) (and at such other times as Lender may
reasonably request), (w) provide Lender with a report of all new material
patentable, copyrightable or trademarkable materials acquired or generated by
Borrower or any Guarantor during the prior period which Borrower or any
Guarantor registered with the United States Patent and Trademark Office or the
Library of Congress, as applicable, (x) cause all Patents and Trademarks, and
cause all Copyrights that are material to Borrower’s or any Guarantor’s
business, in each case, acquired or generated by Borrower or any Guarantor, that
are not already the subject of a registration with the appropriate filing office
(or an application therefor diligently prosecuted) to be registered with such
appropriate filing office in a manner sufficient to impart constructive notice
of Borrower’s or such Guarantor’s ownership thereof, (y) cause to be prepared,
executed, and delivered to Lender supplemental schedules to the applicable Loan
Documents to identify such Patents, Copyrights and Trademarks as being subject
to the security interests created thereunder, and (z) execute and deliver to
Lender at Lender’s request Intellectual Property Security Agreements with
respect to such Patents, Trademarks or Copyrights for filing with the
appropriate filing office. 

     

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              4.4 Relation to Other Security
Documents. Concurrently
herewith Borrower and certain Subsidiaries are executing and delivering to
Lender a Securities Pledge Agreement, pursuant to which such Person is assigning
to Lender certain Collateral as set forth in such agreements. The provisions of
such agreements are supplemental to the provisions of this Agreement, and
nothing contained in such agreements shall derogate from any of the rights or
remedies of Lender. Neither the delivery of, nor anything contained in, such
agreements shall be deemed to prevent or postpone the time of attachment or
perfection of any security interest in such Collateral created
hereby. 

     

              4.5 Power of Attorney. Borrower and each Guarantor hereby
irrevocably makes, constitutes, and appoints Lender (and any of Lender’s
officers, employees, professional advisors or agents designated by Lender) as
Borrower’s and each Guarantor’s true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Borrower and each
Guarantor, or in Lender’s own name, to: (a) if Borrower or any Guarantor refuses
to, or fails timely to execute and deliver any of the documents or take any of
the actions described in Section 4.2, sign the name of Borrower or such Guarantor
on any of the documents described in Section 4.2, (b) at any time that an Event of Default has
occurred and is continuing, generally to sell, transfer, pledge, make any
agreement with respect to or otherwise dispose of or deal with any of the
Collateral in such manner as is consistent with the Uniform Commercial Code or
any other relevant jurisdiction and as fully and completely as though Lender
were the absolute owner thereof for all purposes, and to do, at Borrower’s or
such Guarantor’s expense, at any time, or from time to time, all acts and things
which Lender deems necessary or useful to protect, preserve or realize upon the
Collateral and Lender’s security interest therein, in order to effect the intent
of this Agreement and the other Loan Documents, (c) at any time that an Event of
Default has occurred and is continuing, sign any Borrower’s or Guarantor’s name
on any invoice or bill of lading relating to the Collateral, drafts against
account debtors, or notices to account debtors, (d) at any time that an Event of
Default has occurred and is continuing, send requests for verification of
accounts, instruments, documents, chattel paper, supporting obligations, letters
of credit and proceeds of letters of credit, letter-of-credit rights, customer
lists, software, and business records related thereto, (e) at any time that an
Event of Default has occurred and is continuing, endorse Borrower and each
Guarantor’s name on any collection item that may come into Lender’s possession,
(f) at any time that an Event of Default has occurred and is continuing, make,
settle, and adjust all claims under Borrower’s and each Guarantor’s policies of
insurance and make all determinations and decisions with respect to such
policies of insurance, and (g) at any time that an Event of Default has occurred
and is continuing, settle and adjust disputes and claims respecting the
accounts, instruments, documents, chattel paper, supporting obligations, letters
of credit and proceeds of letters of credit, letter-of-credit rights, customer
lists, software, and business records related thereto, or general intangibles
directly with account debtors, for amounts and upon terms that Lender determines
to be reasonable, and Lender may cause to be executed and delivered any
documents and releases that Lender determines to be necessary. The appointment
of Lender as Borrower’s and each Guarantor’s attorney, and each and every one of
its rights and powers, being coupled with an interest, is irrevocable until all
of the Secured Obligations (other than inchoate indemnification obligations for
which no claim has then been made) have been fully and indefeasibly repaid in
cash and performed and Lender’s obligations to extend credit hereunder are
terminated.

     

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    SECTION 5. CONDITIONS PRECEDENT TO
LOANS

     

              The
obligations of Lender to make the Loan hereunder are subject to the satisfaction
by the Borrower and each Guarantor of the following conditions:

     

              5.1 Initial Advance. On or prior to the Closing Date, Borrower
and each Guarantor shall have delivered to Lender the following documents (all
in form, scope and substance satisfactory to Lender):

     

              (a) Loan Documents. Duly executed copies of the following Loan
Documents (with originals to be delivered promptly following the Closing
Date):

     

                                  (i) this Agreement;

     

                                  (ii) the Revolving Note;

     

                                  (iii) the Term Loan Note;

     

                                  (iv) the Securities Pledge Agreement;

     

                                  (v) the Intellectual Property Security Agreements;

     

                                  (vi) the Account Control Agreements with Wells Fargo Bank, N.A.;

     

                                  (vii) the ACH Authorization;

     

                                  (viii) the Perfection Certificate;

     

                                  (ix) the Daegis Registration Rights Agreement; and

     

                                  (x) the Warrant.

     

              (b) Pledged Collateral. Delivery to Lender of all (i) certificates
representing the Pledged Collateral (as defined in the Securities Pledge
Agreement), accompanied by undated stock or membership transfer powers executed
in blank, and (ii) other possessory Collateral, together with all documents of
transfer with respect thereto.

     

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              (c) Legal Opinion. Duly executed copy of the legal opinion of
the Loan Parties’ counsel (with originals to be delivered promptly following the
Closing Date), which opinion shall be in form and substance satisfactory to
Lender.

     

              (d) Secretary’s Certificate. Duly executed secretary’s certificate of a
duly authorized officer of Borrower and each Guarantor (with originals to be
delivered promptly following the Closing Date) attaching:

     

              (i) certified copies of the Organization Documents, as amended through the
Closing Date, of Borrower and each Guarantor;

     

              (ii)
certified copy of resolutions of
Borrower’s and each Guarantor’s board of directors (or equivalent) evidencing
approval of (A) the Loans and other transactions evidenced by the Loan
Documents; and (B) the Warrant and transactions evidenced thereby;

     

              (iii)
the title, name and specimen
signature of each officer duly authorized to sign the Loan
Documents;

     

              (iv)
a certificate of good standing
for Borrower and each Guarantor from its jurisdiction of organization;
and

     

              (v)
a certificate of good standing
(foreign qualification) from all other jurisdictions in which it does business
and where the failure to be qualified, either individually or in the aggregate,
would have a Material Adverse Effect.

     

              (e)
Closing Date Officer’s
Certificate. A certificate
of Borrower’s Chief Executive Officer or Chief Financial Officer of Borrower (i)
either (x) attaching copies of all consents, licenses and approvals required in
connection with the consummation by Borrower and each Guarantor and the
execution, delivery and performance by Borrower and each Guarantor and the
validity against Borrower and each Guarantor of the Loan Documents to which
Borrower and/or the applicable Guarantors are a party and such consents,
licenses and approvals obtained shall be in full force and effect or (y) stating
that no such consents, licenses or approvals are so required, (ii) certifying
that no fact or condition exists that would (or would, with the passage of time,
the giving of notice, or both) constitute an Event of Default and no event that
has had or would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect has occurred and is continuing, (iii) all
conditions precedent set forth in Section 5 (with respect to any Advances on the Closing
Date) have been satisfied, (iv) certifying and attaching true, correct and
complete copies of the Acquisition Documents and all Subordinated Indebtedness
documents, (v) certifying that Consolidated Adjusted EBITDA as of the Closing
Date, calculated on a pro forma basis assuming the consummation of the Initial
Acquisition and determined for the Twelve Month Measurement Period ended April
30, 2010, equals or exceeds $10,695,110 and attaching the calculation thereof,
(vi) certifying that Borrower and its Subsidiaries, taken as a whole, are
Solvent after giving effect to the Transactions and (vii) certifying that the
Borrower and each Guarantor is Solvent after giving effect to the
Transactions.

     

              (f)
UCC Search Results; Filings. The results of UCC and other lien searches
(and the equivalent thereof in all applicable foreign jurisdictions) with
respect to the Collateral, indicating no Liens other than Permitted Liens or
Liens that will be terminated on or prior to the consummation of the
Transaction. Evidence of the completion of or arrangements reasonably
satisfactory to Lender for all actions, recordings and filings of or with
respect to the Collateral Documents that Lender may reasonably deem necessary or
desirable in order to perfect the Liens created thereby.

     

    39

     

    

    
    

              (g) Repayment of Prior
Obligations. Evidence
satisfactory to Lender that all obligations of the Target, Borrower and each
Guarantor will be repaid in full from the proceeds of the initial Loans and all
Liens upon any of the property of Borrower and/or any Guarantor (including,
without limitation, the assets to be acquired by Borrower pursuant to the terms
of the Acquisition Documents) shall be terminated immediately upon such payment
and all commitments to lend with respect to such obligations shall terminate,
together with payoff letters in form, scope and substance satisfactory to
Lender.

     

              (h)
Insurance Certificates. Certificates of insurance and endorsements
from an independent insurance broker, identifying insurers, types of insurance,
insurance limits, and policy terms, and otherwise describing the insurance
obtained in accordance with the provisions of Section 7.1 and Section 7.2, and such other information as required
pursuant to such Section 7.1 and Section 7.2. 

     

              (i) SBA Documents. Completed and executed SBA Forms 480, 652
and 1031 (Parts A and B), together with a business plan showing Borrower’s
financial projections (including balance sheets and income and cash flows
statements) for the period described therein and a written statement (whether
included in the purchase agreement or pursuant to a separate statement)
regarding its intended use of proceeds from the sale of securities to Lender.

     

              (j) Exams. Commercial finance and collateral audit
reports, an accounts receivable agings report, an accounts payable aging report,
appraisals and such other information relating to the Collateral as Lender shall
reasonably request, in each case, accompanied by such supporting detail and
documentation as Lender shall reasonably request. 

     

              (k) [Intentionally Omitted].

     

              (l) Capitalization. Evidence satisfactory to Lender of the
capitalization of Borrower and each Guarantor. 

     

              (m) Initial Acquisition.

     

              (i) Evidence satisfactory to Lender that the Acquisition Documents are in
full force and effect and, concurrently with the closing of this Agreement, the
Initial Acquisition shall be consummated pursuant to the terms of the
Acquisition Documents.

     

              (ii) Certified copies of the each Seller Note and each Acquisition
Document.

     

              (iii) A duly executed copy of the legal opinion of Farella Braun + Martel LLP,
counsel for the Target, which opinion shall be in form and substance
satisfactory to the Lender, with respect to the Initial Acquisition and is
either (A) addressed to the Lender or (B) accompanied by a reliance letter from
such counsel addressed to the Lender that expressly states that the Lenders may
rely on such opinion.

     

              (iv) Evidence, in form and substance satisfactory to Lender, of the filing of
the certificate of merger with the Secretary of State of the Sate of California
with respect to the consummation of the merger.

     

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              (n) Payment of Fees. Payment of the Facility Charge,
reimbursement of Lender’s current expenses reimbursable pursuant to this
Agreement and payment of fees and expenses of Lender’s counsel, which amounts
may be deducted from the initial Advance.

     

              (o) Other Documents and
Information. Such other
documents and information as Lender may reasonably request.

     

              5.2 All Advances. On each Advance Date:

     

              (a) Advance Request. Lender shall have received (i) an Advance
Request for the relevant Advance as required by Section 2.1(b) or Section 2.2(b), as applicable, each duly executed by
Borrower’s Chief Executive Officer or Chief Financial Officer, and (ii) any
other documents Lender may reasonably request.

     

              (b) Representations and
Warranties. The
representations and warranties set forth in this Agreement and each other Loan
Document shall be true and correct on and as of the Advance Date with the same
effect as though made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date in which case
such representations and warranties shall be true and correct as of such earlier
date.

     

              (c) Compliance. Borrower and each Guarantor shall be in
compliance with all the terms and provisions set forth herein and in each other
Loan Document on its part to be observed or performed, and at the time of and
immediately after such Advance no Default or Event of Default shall have
occurred and be continuing.

     

              (d) Other. Each Advance Request shall be deemed to
constitute a representation and warranty by Borrower and each Guarantor on the
relevant Advance Date as to the matters specified in paragraphs (b) and (c) of this Section 5.2 and as to the matters set forth in the
Advance Request.

     

              5.3 No Default. As of the Closing Date and each Advance
Date, (i) no fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute a Default or an Event of Default
and (ii) no event that has had or would reasonably be expected to have a
Material Adverse Effect has occurred and is continuing.

     

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    SECTION 6. REPRESENTATIONS AND
WARRANTIES

     

              Borrower
and each Guarantor represent and warrant that:

     

              6.1 Organization, Qualification and Other
Information. Borrower and
each Guarantor (a) is duly incorporated or formed, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation or
organization, (b) is duly qualified in all jurisdictions in which the nature of
its business or location of its properties require such qualifications, except
where the failure to be so qualified could not reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect, and (c) has
the power and authority to own their properties, carry on their business as now
being conducted, enter into the Loan Documents to which such Person is a party
and carry out the transactions contemplated hereby. Borrower’s and each
Guarantor’s present name, former names (if any), locations, place of formation,
tax identification number, organizational identification number and other
information are correctly set forth in Schedule 6.1, as may be updated by Borrower in a written
notice (including any Compliance Certificate) provided to Lender after the
Closing Date, provided that no such notice shall be deemed a waiver
of any Default or Event of Default arising as a result of such disclosure).

     

              6.2 Power; Authorization. Borrower and each Guarantor has the
requisite power and authority to enter into and to perform its obligations under
this Agreement and the other Loan Documents to which the Borrower or such
Guarantor is a party. Borrower’s and each Guarantor’s execution, delivery and
performance of this Agreement and all other Loan Documents to which Borrower or
such Guarantor is a party and the consummation by Borrower or such Guarantor of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate (or equivalent) action of Borrower or such Guarantor.
The individual or individuals executing the Loan Documents are duly authorized
to do so. 

     

              6.3 No Contravention; Liens. Borrower and each Guarantor’s execution,
delivery and performance of this Agreement and all other Loan Documents to which
Borrower or the applicable Guarantor is a party and the consummation by Borrower
or such Guarantor of the transactions contemplated hereby and thereby: (a) does
not violate any provisions of Borrower’s or such Guarantor’s Organization
Documents, or the terms of any capital stock or other Equity Interests of
Borrower or any Guarantor, (b) will not result in a violation of any Law, order,
injunction, judgment, decree or writ to which Borrower or such Guarantor is
subject, (c) except as described on Schedule 6.3, will not conflict with, or constitute a
breach or default (or an event which, with notice or lapse of time or both,
would become a breach or default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which Borrower or any Guarantor is a party, and (d)
will not result in the creation or imposition of any Lien upon the Collateral,
other than Permitted Liens. 

     

              6.4 Consents. Neither Borrower nor any Guarantor is
required to obtain any consent, authorization, approval, order, license,
franchise, permit, certificate or accreditation of, or make any filing or
registration with, any court, Governmental Authority or any regulatory or
self-regulatory agency or authority or any other Person (including, without
limitation, any equityholder of Borrower) in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Loan Documents, in
each case in accordance with the terms hereof or thereof (other than (x) the
resolutions and consents of the stockholders and directors obtained prior to the
Closing Date and (y) the filings required by the Collateral Documents). All
consents, authorizations, approvals, orders, licenses, franchises, permits,
certificates or accreditations of, filings and registrations which Borrower and
each such Guarantor is required to obtain in connection with Borrower’s or such
Guarantor’s execution, delivery and performance of this Agreement and all other
Loan Documents to which Borrower or such Guarantor is a party and the
consummation by Borrower or such Guarantor of the transactions contemplated
hereby and thereby have been obtained or effected on or prior to the Closing
Date, other than any Current Report on Form 8-K required to be filed after the
Closing Date as a result of the execution of this Agreement. None of Borrower or
any Guarantor is aware of any facts or circumstances which might prevent
Borrower or any Guarantor from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence.

     

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              6.5 Binding Effect. This Agreement and the other Loan Documents
have been duly executed and delivered by Borrower and each Guarantor party
hereto and thereto, and constitutes the legal, valid and binding obligations of
Borrower and each Guarantor party hereto and thereto, enforceable against
Borrower and each Guarantor in accordance with their respective terms, except as
such enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies.

     

              6.6 No Defaults; Material Adverse
Effect.

     

              (a) No Default. No Default or Event of Default exists or
would result from the incurring of any Secured Obligation by Borrower or any
Guarantor or the grant or perfection of Lender’s Lien on the Collateral or the
consummation of the Transactions.

     

              (b) Material Adverse Effect. Since January 31, 2010, no event that has had
or would reasonably be expected to have a Material Adverse Effect has occurred
and is continuing. Neither Borrower nor any Guarantor is aware of any event
likely to occur that is reasonably expected to result in a Material Adverse
Effect.

     

              6.7 Financial Statements. Each of the consolidated audited financial
statements of Borrower and its Subsidiaries dated April 30, 2009 and
consolidated unaudited financial statements of Borrower and its Subsidiaries
dated April 30, 2010 for the fiscal year then ended have been prepared in
accordance with GAAP, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of Borrower
and its Subsidiaries as of the dates thereof and the results of its operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).

     

              6.8 Ownership of Property; Liens; Indebtedness and
Investments.

     

              (a) Ownership of Property. Borrower and each Guarantor has (i) good and
marketable title to (in the case of fee interests in real property), (ii) valid
leasehold interests in (in the case of leasehold interests in real or personal
property), (iii) valid licensed rights in (in the case of licensed interests in
Intellectual Property and all rights with respect thereto), and (iv) good and
marketable title to (in the case of all other personal property) all of its real
property and other properties and assets owned by it which are material to the
business of Borrower or such Guarantor, in each case free and clear of all Liens
other than Permitted Liens. Any real property and facilities held under lease by
Borrower or any Guarantor are held by it under valid, subsisting and enforceable
leases.

     

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              (b) Indebtedness. Except for Permitted Indebtedness, neither
Borrower nor any Guarantor has any outstanding Indebtedness. Schedule 1A sets forth a complete and accurate list of
all Indebtedness held by Borrower or any Guarantor on the date hereof, showing
as of the date hereof the amount, obligor or issuer and maturity, if any,
thereof.

     

              (c) Investments. Except for Permitted Investments, neither
Borrower nor any Guarantor has any outstanding Investments. Schedule 1B sets forth a complete and accurate list of
all Investments held by Borrower or any Guarantor on the date hereof, showing as
of the date hereof the amount, obligor or issuer and maturity, if any,
thereof.

     

              (d) Liens. Except for Permitted Liens, there are no
Liens on any of the properties of Borrower or any Guarantor. Schedule 1C sets forth a complete and accurate list of
all Liens on the properties or assets of Borrower or any Guarantor on the date
hereof, showing as of the date hereof the secured party of record, described the
collateral subject to such Liens, describing the obligations and the outstanding
amounts secured by such Liens and the maturity, if any of such obligations.

     

              6.9 Collateral Documents. The Collateral Documents are effective to
create in favor of Lender, a legal, valid, binding, and (upon the filing of the
appropriate UCC financing statements and Intellectual Property Security
Agreements and the recording of the Mortgages, in each case in the appropriate
governmental filing office, possession by Lender of Collateral which is
perfected by possession only and “control” by Lender of Collateral which is
perfected by “control” only) enforceable perfected first priority security
interest and Lien (subject only to Permitted Senior Liens) in the Collateral
described therein as security for the obligations under the Loan Documents to
the extent that a legal, valid, binding, and enforceable security interest and
Lien in such Collateral may be created under applicable law including without
limitation, the Uniform Commercial Code as in effect in any applicable
jurisdiction and any other applicable Governmental Authority. Borrower and each
Guarantor has the power and authority to grant to Lender a first priority Lien
(subject only to Permitted Senior Liens) in the Collateral owned by Borrower or
such Guarantor as security for the Secured Obligations. 

     

              6.10 Absence of Litigation. Except as set forth in Schedule 6.10, there is no action, suit, proceeding, claim,
dispute, inquiry or investigation before or by any court, public board,
government agency (including, without limitation, the SEC, self-regulatory
organization or other governmental body) or any other Governmental Authority (in
each case, a “Proceeding”) pending or, to the best knowledge of
Borrower and each Guarantor, threatened, at law, in equity, in arbitration or
before any Governmental Authority, against Borrower or any Guarantor, or against
Borrower’s or any Guarantor’s officers or directors or properties which (i)
purport to affect or pertain to this Agreement, the other Loan Documents, or any
of the transactions contemplated hereby or thereby, (ii) would reasonably be
expected to result, either individually or in the aggregate, in a Material
Adverse Effect, or (iii) if adversely determined, would reasonably be expected
to result, either individually or in the aggregate, in a Material Adverse
Effect.

     

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              6.11 Laws. Neither Borrower nor any Guarantor is in
violation of any Law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, where such
violation or default, either individually or in the aggregate, would reasonably
be expected to result in a Material Adverse Effect.

     

              6.12 Material Agreements and Other
Contracts. The agreements
filed as exhibits to the Borrower’s SEC Reports and Schedule 6.12 (as either may be updated by Borrower from
time to time after the Closing Date in a written notice to Lender, provided,
that no such notice shall be deemed a waiver of any Default or Event of Default
arising as a result of such disclosure) contains a true, correct and complete
list of all the Material Agreements of Borrower or any Guarantor, and all such
Material Agreements are in full force and effect and no defaults currently exist
thereunder. Neither Borrower nor any Guarantor (i) is a party to any contract,
agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument, either individually
or in the aggregate, would reasonably be expected to result in a Material
Adverse Effect, or (ii) is in violation of any term of or in default under any
contract, agreement or instrument relating to any Indebtedness or any contract,
agreement or instrument entered into in connection therewith that, either
individually or in the aggregate, would reasonably be expected to result in a
Material Adverse Effect. 

     

              6.13 Conduct of Business; Compliance with Laws;
Regulatory Permits.
Neither Borrower nor any Guarantor is in violation of any term of or in default
under its Organization Documents. Neither Borrower nor any Guarantor is in
violation of any judgment, decree or order or any statute, ordinance, rule or
regulation applicable to Borrower or any Guarantor. Except as set forth on
Schedule 6.13, Borrower and each Guarantor possesses all
consents, authorizations, approvals, orders, licenses, franchises, permits,
certificates and accreditations and all other appropriate regulatory authorities
necessary to conduct their respective businesses, and neither Borrower nor any
Guarantor has received any notice of proceedings relating to the revocation or
modification of any such consents, authorizations, approvals, orders, licenses,
franchises, permits, certificates, or accreditations. 

     

              6.14 Transactions With
Affiliates. Except (i) as
set forth on Schedule 6.14 and
(ii) for transactions permitted under Section 9.9, neither Borrower nor any Guarantor or any of
the officers, directors or employees of Borrower or any Guarantor is presently a
party to any transaction with Borrower or any Guarantor (other than for ordinary
course services as employees, officers or directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from, any such officer, director or employee or, to the
knowledge of Borrower or any Guarantor, any corporation, partnership, trust or
other entity in which any such officer, director, or employee has a substantial
interest or is an officer, director, trustee or partner. 

     

              6.15 Information Correct and
Current. No information,
report, Advance Request, Compliance Certificate, Borrowing Base Certificate, SEC
Report, financial statement, exhibit or schedule furnished, by or on behalf of
Borrower or any Guarantor to Lender in connection with any Loan Document or
included therein or delivered pursuant thereto contained, contains or will
contain any material misstatement of fact or omitted, omits or will omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were, are or will be made, not misleading
at the time such statement was made or deemed made. Additionally, any and all
financial or business projections provided by Borrower to Lender shall be (i)
provided in good faith and based on the most current data and information
available to Borrower, and (ii) the most current of such projections provided to
Borrower’s board of directors. 

     

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              6.16 Tax Matters. Except as set forth on Schedule 6.16, Borrower and each Guarantor (i) has made or
filed all foreign, federal and state income and all other material tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith by appropriate proceedings promptly instituted and
diligently conducted, and (iii) has set aside on its books adequate reserves in
accordance with GAAP for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be delinquent by the taxing
authority of any jurisdiction (other than those (x) identified on Schedule 6.16 and (y) being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and subject
to adequate reserves taken by Borrower or such Guarantor as shall be required in
conformity with GAAP), and the officers of Borrower and each Guarantor know of
no basis for any such claim.

     

              6.17 Solvency. Before and after giving effect to (a) the
Loans made on or prior to the date of this representation and warranty is made
or remade, (b) the disbursement of the proceeds of such Loans by Borrower to its
Subsidiaries, and (c) the other Transactions, Borrower and its Subsidiaries
taken as a whole are Solvent and Borrower and each Guarantor is
Solvent.

     

              6.18 Intellectual Property; Intellectual Property
Rights; Etc.

     

              (a) Intellectual Property Owned. Schedule 6.18(a) (as may be updated by Borrower in a written
notice provided after the Closing Date to Lender, provided that no such notice shall be deemed a waiver
of any Default or Event of Default arising as a result of such disclosure) is a
true, correct and complete list of each of Borrower’s and each Guarantor’s
Patents, registered Trademarks, registered Copyrights, and material agreements
under which Borrower or such Guarantor licenses Intellectual Property from third
parties (other than shrink-wrap software licenses), together with application or
registration numbers, as applicable, owned by Borrower or such Guarantor.

     

              (b) Intellectual Property
Rights. Borrower and each
Guarantor owns or possesses adequate and valid rights to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights
(“Intellectual Property Rights”) that are necessary to conduct its
respective businesses as now conducted, and such Intellectual Property Rights
are free and clear of all liens, encumbrances and defects other than Permitted
Liens. Neither Borrower’s nor any Guarantor’s Intellectual Property Rights have
expired or terminated, or are expected to expire or terminate within five (5)
years from the Closing Date. Except as described on Schedule 6.18(b), (i) neither Borrower nor any Guarantor has
any knowledge of any infringement, misappropriation, dilution or other violation
by Borrower or any Guarantor of Intellectual Property Rights of other Persons;
(ii) neither Borrower nor any Guarantor has any knowledge of any infringement,
misappropriation, dilution or other violation by any other Persons of the
Intellectual Property Rights of Borrower or any Guarantor; (iii) there is no
claim, action or proceeding pending or, to the knowledge of Borrower and each
Guarantor, threatened in writing, against Borrower or any Guarantor regarding
its Intellectual Property Rights or the Intellectual Property Rights of other
Persons; and (iv) neither Borrower nor any Guarantor is aware of any facts or
circumstances which might give rise to any of the foregoing infringements or
claims, actions or proceedings. Borrower and each Guarantor has taken and is
taking commercially reasonable security measures, consistent with industry
standards, to maintain and protect the secrecy, confidentiality and value of its
Intellectual Property Rights.

     

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              6.19 Financial Accounts. Schedule 6.19 (as may be updated by Borrower in a written
notice provided after the Closing Date to Lender, provided that no such notice shall be deemed a waiver
of any Default or Event of Default arising as a result of such disclosure) is a
true, correct and complete list of (a) all banks and other financial
institutions at which Borrower or any Guarantor maintains Deposit Accounts and
(b) all institutions at which Borrower or any Guarantor maintains a Securities
Account; in each case of clauses (a) and (b), such exhibit correctly identifies the name,
address and telephone number of each depository bank or other financial
institution, the name in which the account is held, a description of the purpose
of the account, and the complete account number therefor.

     

              6.20 Capitalization and
Subsidiaries. Schedule 6.20 (as may be updated by Borrower in a written
notice provided after the Closing Date to Lender, provided that no such notice shall be deemed a waiver
of any Default or Event of Default arising as a result of such disclosure), sets
forth the capitalization of Borrower and each Guarantor and a true, correct and
complete list of each Guarantor and each other Person in which Borrower owns,
directly or indirectly, any Equity Interests. 

     

              6.21 Employee Loans. Neither Borrower nor any Guarantor has any
outstanding loans to any employee, officer or director of Borrower or any
Guarantor nor has Borrower or any Guarantor guaranteed the payment of any loan
made to an employee, officer or director of Borrower or any Guarantor by a third
party, in each case, except to the extent expressly permitted under Section 9.3. 

     

              6.22 Environmental Laws. Except as set forth on Schedule 6.22, Borrower and each Guarantor (a)(i) is in
compliance with any and all Environmental Laws, (ii) has received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct its respective businesses, (iii) is in compliance with all terms and
conditions of any such permit, license or approval, and (iv) has no outstanding
Liability under any Environmental Laws and is not aware of any facts that would
reasonably be expected to result in liability under any Environmental Laws, in
each of the foregoing clauses of this Section 6.22(a), except to the extent, either individually or
in the aggregate, a Material Adverse Effect could not reasonably be expected to
occur, and (b) has provided Lender with copies of all environmental reports,
assessments and other documents in any way related to any actual or potential
liability under any Environmental Laws.

     

              6.23 ERISA.

     

              (a) Schedule 6.23(a) hereto
contains a complete list as of the date hereof of all of the Employee Benefit
Plans.

     

              (b) Except as set forth on
Schedule 6.23(b), no Loan Party or any of its respective
Subsidiaries or ERISA Affiliates (i) maintains or has maintained any Pension
Plan, (ii) is required, or has been required, to contribute to any Multiemployer
Plan or (iii) provides or has provided post-retirement medical or insurance
benefits with respect to employees or former employees (other than benefits
required under Section 601 of ERISA, Section 4980B of the Code or applicable
state law).

     

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              (c) Except as set forth on Schedule 6.23(c), each of the Employee Benefit Plans has been
maintained, administered and operated in all material respects in accordance
with all applicable laws, including ERISA and the Code, and no Loan Party or any
of its respective Subsidiaries or ERISA Affiliates has received any notice or
has any knowledge to the effect that it is not in full compliance with any of
the requirements of ERISA, the Code or applicable state law with respect to any
Employee Benefit Plan. No ERISA Event exists or has occurred in the last five
(5) years and the Loan Parties, their respective Subsidiaries and their
respective ERISA Affiliates are not aware of any fact, event or circumstance
that would reasonably be expected to constitute or result in an ERISA Event.
Each Employee Benefit Plan which is intended to qualify under Section 401(a) of
the Code has received a favorable determination letter (or opinion letter in the
case of a prototype Employee Benefit Plan) to the effect that such Employee
Benefit Plan is so qualified and there exists no reasonable basis for the
revocation of such determination or opinion letter.

     

              (d) No Loan Party or any of its respective Subsidiaries or ERISA Affiliates
has (i) any unpaid minimum required contributions under any Pension Plan or
Multiemployer Plan, whether or not waived, (ii) any liability under Section 4201
or 4243 of ERISA for any withdrawal, or partial withdrawal, from any
Multiemployer Plan or (iii) any liability or knowledge of any facts or
circumstances which could result in any liability to the PBGC, the Internal
Revenue Service, the Department of Labor or any participant in connection with
any Employee Benefit Plan (other than routine claims for benefits under the
Employee Benefit Plan).

     

              (e) No actions, suits or claims with respect to the Employee Benefit Plans
are pending or to the knowledge of the Loan Parties, their respective
Subsidiaries and their respective ERISA Affiliates, threatened, and no Loan
Party or any of its Subsidiaries or ERISA Affiliates has any knowledge of any
facts which could give rise to or would reasonably be expected to give rise to
any actions, suits or claims with respect to the Employee Benefit
Plans.

     

              (f) No (i) Loan Party or any of its respective Subsidiaries or ERISA
Affiliates, (ii) to the knowledge of each Loan Party and its respective
Subsidiaries and ERISA Affiliates, director, officer or employee of such Loan
Party and its respective Subsidiaries and ERISA Affiliates, or (iii) trustee,
administrator, “party in interest” (as defined in Section 3(14) of ERISA),
“disqualified person” (as defined in Section 4975 of the Code) or any other
“fiduciary” (as defined in Section 3(21) of ERISA) of an Employee Benefit Plan,
has any liability (including a tax, penalty or interest) for failure to comply
with ERISA or the Code for any action or failure to act in connection with the
administration or investment of any Employee Benefit Plan.

     

              (g)
No Loan Party or any of its
respective Subsidiaries or ERISA Affiliates has any unpaid material liability,
fine, penalty or tax with respect to any Employee Benefit Plan for which any
Loan Party or any of its respective Subsidiaries or ERISA Affiliates would be
liable.

     

              6.24 Margin Stock. Neither Borrower nor any Guarantor is
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds from any
Loan will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin stock, or for any
purpose that violates, or is inconsistent with, the provisions of Regulation T,
U or X of the Board of Governors of the Federal Reserve System. 

     

              6.25 Regulated Entities. Neither Borrower nor any Guarantor is a
“registered investment company” or a company “controlled” by a “registered
investment company” or a “principal underwriter” of a “registered investment
company” as such terms are defined in the Investment Company Act of 1940, as
amended. Neither Borrower nor any Guarantor is subject to regulation under the
Federal Power Act, the Interstate Commerce Act, any state public utilities code
or any other Federal or state statute, rule or regulation limiting its ability
to incur Indebtedness, pledge its assets or perform its Secured Obligations
under the Loan Documents.

     

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              6.26 Internal Accounting and Disclosure
Controls. Borrower and
each Guarantor maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (a) transactions are executed in accordance
with management’s general or specific authorizations, (b) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset and liability accountability, (c)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization, and (d) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference. During the twelve (12) months immediately prior to
the Closing Date, neither Borrower nor any Guarantor has received any notice or
correspondence from any accountant relating to any potential material weakness
in any part of the system of internal accounting controls of Borrower or any
Guarantor.

     

              6.27 Employee Relations. Except as set forth in Schedule 6.27, neither Borrower nor any Guarantor is a
party to any collective bargaining agreement or employs any member of a union in
such person’s capacity as a union member or to perform union labor work.
Borrower and each Guarantor believes that its relations with its employees are
good. As of the Closing Date, no executive officer of Borrower or any Guarantor
has notified Borrower or such Guarantor that such officer intends to leave
Borrower or such Guarantor or otherwise terminate such officer’s employment with
Borrower or such Guarantor. As of the Closing Date, no executive officer of
Borrower or any Guarantor, to the knowledge of Borrower or any Guarantor, is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant. Borrower and each Guarantor is in compliance with all federal, state,
local and foreign laws and regulations respecting labor, employment and
employment practices and benefits, terms and conditions of employment and wages
and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.

     

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

     

              6.29 Sarbanes-Oxley Act. Borrower is in material compliance with any
and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are
applicable to Borrower as of the Closing Date, and any and all applicable rules
and regulations promulgated by the SEC thereunder that are applicable to
Borrower as of the Closing Date.

     

              6.30 Patriot Act. To the extent applicable, Borrower and each
Guarantor is in compliance, in all material respects, with (a) the Trading with
the Enemy Act, as amended, and each of the foreign assets control regulations of
the United States Treasury Department and any other enabling legislation or
executive order relating thereto, and (b) the Uniting and Strengthening America
by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
(Title III of Pub. L. 107-56 (signed into law October 26, 2001)).

     

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              6.31 [Intentionally Omitted].

     

              6.32 Eligible Accounts. For any Eligible Account in any Borrowing
Base Certificate, all statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing such Eligible Accounts are
and shall be true and correct (except for any good faith immaterial errors
promptly corrected when discovered) and all such invoices, instruments and other
documents, and all of Borrower’s books are genuine and in all respects what they
purport to be. All sales and other transactions underlying or giving rise to
each Eligible Account shall comply in all material respects with all applicable
Laws and governmental rules and regulations. Borrower has no knowledge of any
actual or imminent Insolvency Proceeding of any account debtor whose accounts
are an Eligible Account in any Borrowing Base Certificate. To the best of
Borrower’s knowledge, all signatures and endorsements on all documents,
instruments, and agreements relating to all Eligible Accounts are genuine, and
all such documents, instruments and agreements are legally enforceable in
accordance with their terms.

     

              6.33 Acquisition Documents. To the knowledge of Borrower and each
Guarantor, each of the representations and warranties contained in the
Acquisition Documents made by Persons other than Borrower and the Guarantors is
true and correct. The Initial Acquisition has been consummated in accordance
with the Acquisition Documents and applicable Law.

     

              6.34 Customers. Schedule 6.34 sets forth the top ten customers of Borrower
and its Subsidiaries (including the Target), determined by to the dollar amount
paid to Target by such customers for the fiscal year ended April 30, 2010 (such
customers hereinafter referred to as the “Key Customers”).

     

    SECTION 7. INSURANCE;
INDEMNIFICATION 

     

              7.1 Coverage. Borrower and each Guarantor shall cause to
be carried and maintained commercial general liability insurance, on an
occurrence form, against risks customarily insured against in Borrower’s or such
Guarantor’s line of business. Such risks shall include the risks of bodily
injury, including death, property damage, personal injury, advertising injury,
and contractual liability per the terms of the indemnification provisions found
in Section 7.3. Borrower and Guarantors must maintain a
minimum of $2,000,000 of commercial general liability insurance for each
occurrence. Borrower and Guarantors have and agree to maintain a minimum of
$2,000,000 of directors and officers’ insurance for each occurrence and
$5,000,000 in the aggregate. So long as Lender has any commitment to make any
Advances to Borrower or there are any Secured Obligations outstanding, Borrower
and each Guarantor shall also cause to be carried and maintained insurance upon
the Collateral, insuring against all risks of physical loss or damage howsoever
caused, in an amount not less than the full replacement cost of the Collateral,
provided that such insurance may be subject to standard exceptions and
deductibles. Borrower and Guarantors shall also carry and maintain a fidelity
insurance policy in an amount not less than $100,000.

     

              7.2 Certificates. Borrower shall deliver to Lender
certificates of insurance in form and substance reasonably satisfactory to
Lender that evidence Borrower and each Guarantor’s compliance with its insurance
obligations in Section 7.1 and the obligations contained in this
Section 7.2. Borrower’s insurance certificate shall state
Lender is an additional insured for commercial general liability, an additional
insured and a lender’s loss payee for all risk property damage insurance,
subject to the insurer’s approval, a lender’s loss payee for fidelity insurance,
and a lender’s loss payee for property insurance and additional insured for
liability insurance for any future insurance that Borrower or any Guarantor may
acquire from such insurer. Borrower shall deliver to Lender additional insured
endorsements for liability and lender’s loss payable endorsements for all risk
property damage insurance and fidelity, each in form and substance reasonably
satisfactory to Lender. All certificates of insurance will provide for a minimum
of thirty (30) days advance written notice to Lender of cancellation or any
other change adverse to the Lender’s interests and for ten (10) days in the case
of nonpayment of premium. Any failure of Lender to scrutinize such insurance
certificates for compliance is not a waiver of any of Lender’s rights, all of
which are reserved.

     

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              7.3 Indemnity. Borrower and each Guarantor hereby agrees to
and does indemnify and hold Lender and its officers, directors, employees,
agents, in-house attorneys, representatives, professional advisors (including,
without limitation, attorneys) and shareholders harmless from and against any
and all claims, costs, expenses, damages and liabilities (including such claims,
costs, expenses, damages and liabilities based on liability in tort, including
strict liability in tort), including reasonable attorneys’ fees and
disbursements and other costs of investigation or defense (including those
incurred upon any appeal), that may be instituted or asserted against or
incurred by Lender or any such Person as the result of credit having been
extended, suspended or terminated under this Agreement and the other Loan
Documents or the administration of such credit, or in connection with or arising
out of the transactions contemplated hereunder and thereunder, or any actions or
failures to act in connection therewith, or arising out of the handling,
disposition or utilization of the Collateral, or Lender relying on any
instruction of Borrower or any Guarantor, or any other actions taken or not
taken by Lender hereunder or under any Loan Document, excluding in all cases
claims resulting solely from Lender’s gross negligence or willful misconduct as
determined by a court of competent jurisdiction in a final non-appealable order.
Borrower and each Guarantor agrees to pay, and to save Lender harmless from, any
and all liabilities with respect to, or resulting from any delay in paying, any
and all excise, sales or other similar taxes (excluding taxes imposed on or
measured by the net income of Lender) that may be payable or determined to be
payable with respect to any of the Collateral or this Agreement. This
Section 7.3 shall survive the expiration or other
termination of this Agreement and the other Loan Documents. 

     

    SECTION 8. AFFIRMATIVE
COVENANTS 

     

         Borrower and each
Guarantor covenants and agrees as follows: 

     

              8.1 Financial Reports. Borrower shall furnish to Lender the
following documents and financial statements as herein provided (the
“Financial Statements”): 

     

              (a) Monthly Financial
Statements. As soon as
practicable (and in any event within 30 days) after the end of each month,
unaudited interim and year-to-date financial statements of Borrower and its
Subsidiaries as of the end of such month (prepared on a consolidated and
consolidating basis), including balance sheet and related statements of income
and cash flows accompanied by a report detailing any material contingencies
(including the commencement of any material litigation by or against Borrower or
any of its Subsidiaries) or any other occurrence that would reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect, all certified by Borrower’ Chief Executive Officer or Chief Financial
Officer to the effect that they have been prepared in accordance with GAAP,
subject to normal year end adjustments and absence of footnote
disclosure;

     

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              (b) Quarterly Financial
Statements. As soon as
practicable (and in any event within 45 days) after the end of each calendar
quarter, unaudited interim and year-to-date financial statements of Borrower and
its Subsidiaries as of the end of such calendar quarter (prepared on a
consolidated and consolidating basis), including balance sheet and related
statements of income and cash flows accompanied by a report detailing any
contingencies (including the commencement of any litigation by or against
Borrower or any Guarantor) or any other occurrence that would reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect, certified by Borrower’ Chief Executive Officer or Chief Financial
Officer to the effect that they have been prepared in accordance with GAAP,
subject to normal year end adjustments and absence of footnote
disclosure;

     

              (c) Annual Financial Statements. As soon as practicable (and in any event
within one hundred twenty (120) days) after the end of each fiscal year,
unqualified audited financial statements of Borrower and its Subsidiaries as of
the end of such year (prepared on a consolidated and consolidating basis, if
applicable), including balance sheet and related statements of income and cash
flows, and setting forth in comparative form the corresponding figures for the
preceding fiscal year, certified by a firm of independent certified public
accountants selected by Borrower and reasonably acceptable to Lender, which
financial statements shall not be subject to any “going-concern” or like
qualification or exception or any qualification or exception as to scope of such
audit, and which shall be accompanied by any management report from such
accountants;

     

              (d) Compliance Certificate; Borrowing Base
Certificate. So long as
Lender has any commitment to make any Advances to Borrower or any Secured
Obligations are outstanding, Borrower shall deliver to Lender (i) a Compliance
Certificate concurrently with the delivery of the Financial Statements described
in paragraphs (a), (b) and (c) of this Section 8.1, and (ii) as soon as practicable (and in any
event within ten (10) days after the end of each calendar month), a Borrowing
Base Certificate, determined as at the end of the most recently completed
calendar month or such other date as Lender may require, and agings of accounts
receivable and accounts payable, accompanied by supporting detail and
documentation as Lender shall have requested.

     

              (e) SEC Filings. Promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports that Borrower has made available to holders of its Equity
Interests and copies of any regular, periodic and special reports or
registration statements that Borrower files with the SEC or any Governmental
Authority that may be substituted therefor, or any national securities exchange;
and

     

              (f) [Intentionally Omitted]

     

              (g) Projections. Promptly following the fiscal year end of
Borrower and in any event within thirty (30) days after the fiscal year end of
Borrower, (i) financial and business projections of Borrower and its
Subsidiaries, as well as budgets, operating plans and other financial
information reasonably requested by Lender and (ii) a schedule identifying (A)
the top ten suppliers to Borrower, determined by the dollar amount paid by
Borrower and its Subsidiaries to such suppliers for the Fiscal Year then ended,
and (B) the top ten customers of Borrower, determined by to the dollar amount
paid to Borrower and its Subsidiaries by such customers for the Fiscal Year then
ended. In addition, promptly following their approval by Borrower’s board of
directors, financial and business projections, budgets, operating plans and
other financial information reasonably requested by Lender.

     

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    The executed Compliance Certificate may be sent via facsimile to Lender
at (650) 473-9194 or via e-mail to sbhaumik@herculestech.com. All Financial
Statements required to be delivered pursuant to clauses (a), (b) and (c) shall be sent via e-mail to
financialstatements@herculestech.com with a copy to kgrossman@herculestech.com,
provided, that if e-mail is not available or sending
such Financial Statements via e-mail is not possible, they shall be sent via
facsimile to Lender at: (866) 468-8916, attention Chief Credit
Officer.

     

              8.2 Notices. Borrower shall deliver to Lender, in form
and detail (including supporting information) reasonably satisfactory to Lender:

     

              (a) Default or Event of Default. Prompt (but in any event within two (2)
Business Days) notice of the occurrence of any Default or Event of
Default.

     

              (b) Material Adverse Effect. Prompt notice of any matter that has
resulted or would reasonably be expected to result in a Material Adverse
Effect.

     

              (c) Transfers. Prompt notice of any Transfer of any assets
that would give rise to a mandatory repayment of the Secured Obligations
pursuant to Section 2.6.

     

              (d) New Subsidiaries. Advance notice (at least ten (10) Business
Days) of each Subsidiary formed subsequent to the Closing Date.

     

              (e) Certain Collateral. Prompt (but in any event within five (5)
Business Days) notice of any promissory note, tangible chattel paper, letter of
credit or commercial tort claim held or acquired by Borrower or any Guarantor in
or relating to an amount greater than $100,000.

     

              (f) Schedules. Prompt notice if any information contained
on Schedule 6.1, Schedule 6.12, Schedule 6.18, Schedule 6.19 or Schedule 6.20 shall become incorrect or incomplete after
the Closing Date and, shall promptly update such information in a written notice
(including in any Compliance Certificate) to Lender, satisfactory to Lender and
upon Lender’s receipt thereof, Lender may update such Schedule to include such
updated information, provided that no update shall be deemed a waiver of
any Default or Event of Default resulting from matters disclosed
therein.

     

              (g) Independent Public Account
Reports. Promptly upon
receipt thereof, copies of any reports submitted by Borrower’s independent
public accountants in connection with each annual, interim or special audit or
review of any type of the financial statements or internal control systems of
Borrower or any of its Subsidiaries made by such accountants, including any
comment letters submitted by such accountants to management of Borrower or any
of its Subsidiaries in connection with their services.

     

              (h) Notice of Litigation. Promptly upon any officer of Borrower or any
Guarantor obtaining knowledge of (i) the institution of, or non frivolous threat
of, any adverse Proceeding not previously disclosed in writing by Borrower to
Lender, or (ii) any material development in any adverse Proceeding that, in the
case of either clause (i) or (ii) if adversely determined, could be reasonably
expected to have a Material Adverse Effect, or seeks to enjoin or otherwise
prevent the consummation of, or to recover any damages or obtain relief as a
result of, the transactions contemplated hereby, written notice thereof together
with such other information as may be reasonably available to Borrower to enable
Lender and its counsel to evaluate such matters.

     

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              (i) ERISA. (i) Promptly upon becoming aware of the
occurrence of or forthcoming occurrence of any ERISA Event, a written notice
specifying the nature thereof, the action(s) any Loan Party or any of its
respective Subsidiaries or ERISA Affiliates has taken, is taking or proposes to
take with respect thereto and, when known, any action taken or threatened by the
Internal Revenue Service, the Department of Labor or the PBGC with respect
thereto; and (ii) with reasonable promptness, copies of (1) at the request of
Lender, each Schedule B (Actuarial Information) to the annual report (Form 5500
Series) filed by any of the Loan Parties, any of their respective Subsidiaries
or any of their respective ERISA Affiliates with the Internal Revenue Service
with respect to each Pension Plan; (2) all notices received by any of the Loan
Parties, any of their respective Subsidiaries or any of their respective ERISA
Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event, but in
no event later than ten (10) days after the notice is received by such Loan
Party or its respective Subsidiary or ERISA Affiliate; (3) any annual notices or
actuarial reports relating to the Pension Plans or Multiemployer Plans received
by any of the Loan Parties, any of their respective Subsidiaries or any of their
ERISA Affiliates and (4) copies of such other documents or governmental reports
or filings relating to any Employee Benefit Plan as Lender shall reasonably
request, including, but not limited to, each annual and other report with
respect to each Pension Plan and Multiemployer Plan.

     

              (j) Insurance Report. Upon request of Lender, a report by
Borrower’s and each Guarantor’s insurance broker(s) in form and substance
satisfactory to Lender outlining all material insurance coverage maintained as
of the date of such report by Borrower and/or any Guarantor and all material
insurance coverage planned to be maintained by Borrower and/or any Guarantor in
the immediately succeeding fiscal year.

     

              (k) Environmental Reports and
Audits. As soon as
practicable following receipt thereof, copies of all environmental audits and
reports with respect to environmental matters at any facility or property used
by Borrower or any Guarantor or which relate to any environmental liabilities of
Borrower or any Guarantor which, in any such case, individually or in the
aggregate, would reasonably be expected, either individually or in the
aggregate, to result in a Material Adverse Effect.

     

              (l) Corporate (Company)
Information. Thirty (30)
days’ prior written notice of any change (i) in Borrower’s or any Guarantor’s
legal name, (ii) in Borrower’s or any Guarantor’s jurisdiction of incorporation
or organization, or (iii) in any Loan Parties’ Federal Taxpayer Identification
Number or state organizational identification number.

     

              (m) Tax Returns. Within ten (10) days following request by
Lender, copies of each federal income tax return filed by or on behalf of
Borrower or any Guarantor and requested by Lender.

     

              (n) Event of Loss. Promptly (and in any event within three (3)
Business Days) notice of (i) any claim with respect to any liability against
Borrower or any Guarantor that (A) is in excess of $100,000 and (B) would
reasonably be expected to result in a Material Adverse Effect or (ii) any event
which, with or without the passage of time, would reasonably be expected to
constitute an Event of Loss.

     

              (o) Eligibility of Accounts. Prompt notice of any event or circumstance
which to Borrower’s knowledge would cause Lender to consider any then existing
Account as no longer constituting an Eligible Account.

     

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              (p) Other Information. Promptly upon request of Lender, such other
information and data with respect to Borrower or any Guarantor as from time to
time may be reasonably requested. 

     

              8.3 Corporate Existence and Maintenance of
Properties. Borrower and
each Guarantor shall maintain and preserve (a) its existence and good standing
in the jurisdiction of its organization and (b) its qualification to do business
and good standing in each jurisdiction where the nature of its business makes
such qualification necessary (other than such jurisdictions in which the failure
to be so qualified or in good standing could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect). Borrower
and each Guarantor shall maintain or cause to be maintained in good repair,
working order and condition, ordinary wear and tear excepted, all properties
used or useful in the business of Borrower or such Guarantor and from time to
time will make or cause to be made all appropriate repairs, renewals and
replacements thereof.

     

              8.4 Compliance with Laws; Conduct of Business;
Regulatory Permits.
Borrower and each Guarantor shall comply with: (a) all material Laws wherever
its business is conducted, (b) the provisions of its Organization Documents, (c)
all material agreements and instruments by which it and any of its properties
may be bound and (d) all applicable decrees, orders and judgments, the
non-compliance of which could not reasonably be expected to result in an Event
of Default hereunder. Borrower and each Guarantor shall engage only in the line
of business engaged in on the Closing Date and businesses incidental thereto.
Borrower and each Guarantor shall maintain in full force and effect, valid and
binding, all material consents, authorizations, approvals, orders, licenses,
franchises, permits, certificates and accreditations and all other appropriate
regulatory authorities necessary to conduct their respective
businesses.

     

              8.5 Taxes. Borrower and each Guarantor shall pay when
due all Federal, state and provincial taxes and all other material local taxes,
fees or other charges of any nature whatsoever (together with any related
interest or penalties) now or hereafter imposed or assessed against Borrower,
any Guarantor or the Collateral or upon Borrower’s or any Guarantor’s ownership,
possession, use, operation or disposition thereof or upon Borrower’s or any
Guarantor’s rents, receipts or earnings arising therefrom. Borrower and each
Guarantor shall file, on or before the due date therefor all personal property
tax returns in respect of the Collateral. Notwithstanding the foregoing,
Borrower and any Guarantor may contest, in good faith and by appropriate
proceedings promptly instituted and diligently conducted, taxes for which
Borrower or such Guarantor maintains adequate reserves therefor in accordance
with GAAP.

     

              8.6 Books and Records. Borrower and each Guarantor shall maintain
proper books of records and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all financial
transactions and matters involving the assets and business of such
Person.

     

              8.7 Use of Proceeds. Borrower will use the proceeds (a) from the
Term Loan to (i) fund a portion of the purchase price of the Initial
Acquisition, (ii) refinance the Existing Indebtedness and (iii) to pay fees,
expenses and costs associated with the Transaction and (b) from the Revolving
Loan for general working capital purposes of the Loan Parties not in
contravention of any law or of any Loan Document.

     

              8.8 Collateral Protection
Generally. Borrower and
each Guarantor shall give Lender prompt written notice of any legal process
affecting the Collateral, such other property and assets of Borrower or any
Guarantor, or any Liens thereon. Borrower and each Guarantor shall protect and
defend such Person’s title to its assets from and against all other Persons
claiming any interest adverse to Borrower or any Guarantor, and Borrower and
each Guarantor shall at all times to keep such Person’s property and assets free
and clear from any legal process or Liens whatsoever (except for Permitted
Liens), and shall give Lender prompt written notice of any legal process
affecting such Person’s assets.

     

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              8.9 Additional Intellectual
Property. Concurrently
with the delivery of a Compliance Certificate in connection with the delivery of
the financial statements described in Section 8.1(b) (and at such other times as Lender may
reasonably request), Borrower shall (a) provide Lender with a report of all new
patentable, copyrightable or trademarkable materials acquired or generated by
Borrower or any Guarantor during the prior period which has been registered and
the filing office in which the registration has been made, and (b) cause to be
prepared, executed, and delivered to Lender supplemental schedules to the
applicable Loan Documents to identify such Intellectual Property as being
subject to the security interests created thereunder, and (c) execute and
deliver to Lender at Lender’s request security agreements with respect to such
Intellectual Property for filing with the appropriate filing
office.

     

              8.10 Additional Collateral. With respect to any property (real or
personal or otherwise) acquired after the Closing Date by Borrower or any
Guarantor as to which Lender does not have a perfected Lien, Borrower or such
Guarantor shall promptly (a) execute and deliver to Lender, or its agent, such
amendments to the Collateral Documents or such other documents as Lender deems
necessary or advisable to grant to Lender a security interest in such property
and (b) take all other actions necessary or advisable in the discretion of
Lender to grant to Lender a perfected first priority security interest in such
property, including, without limitation, the filing of Mortgages and UCC
financing statements in such jurisdictions as may be required by the Collateral
Documents or by Law or as may be requested by Lender.

     

              8.11 Joinder. Borrower and each Guarantor shall provide
Lender with at least ten (10) days prior written notice of the formation or
acquisition of any Subsidiaries by Borrower or any Guarantor. For any
Subsidiaries of Borrower or any Guarantor formed or acquired after the Closing
Date, Borrower and Guarantors shall at their own expense, upon formation or
acquisition of such Subsidiary, cause each such Subsidiary to execute a Joinder
Agreement obligating such Subsidiary to any or all of the Loans Documents deemed
necessary or appropriate by Lender and cause the applicable Person that owns the
Equity Interests of such Subsidiary to pledge to Lender 100% of the Equity
Interests owned by such Borrower or Guarantor of each such Subsidiary formed or
acquired after the Closing Date and execute and deliver all documents or
instruments required thereunder or appropriate to perfect the security interest
created thereby (but excluding thirty-five percent (35%) of the voting capital
stock of any Foreign Subsidiary to the extent that such grant of a security
interest would give rise to a material adverse tax consequence to Borrower or
any Guarantor). In the event a Person becomes a Guarantor (a “New Guarantor”) pursuant to the
Joinder Agreement, upon such execution the New Guarantor shall be bound by all
the terms and conditions hereof and the other Loan Documents to the same extent
as though such New Guarantor had originally executed the Loan Documents. The
addition of a New Guarantor shall not in any manner affect the obligations of
Borrower or any Guarantor hereunder or thereunder. Borrower, each Guarantor and
Lender hereto acknowledges that the schedules and exhibits hereto or thereto may
be amended or modified in connection with the addition of any New Guarantor to
reflect information relating to such New Guarantor. Compliance with this
Section 8.11 shall not excuse any violation any provision
of this Agreement or any other Loan Document.

     

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                8.12 Inspection Rights; Audit Rights; Field Exams;
Appraisals; Etc.

       

    

              (a) Inspection Rights; Audit
Rights. Borrower and each
Guarantor shall permit Lender or any agent or designee of Lender, including,
without limitation, its attorneys, accountants and professional advisors, to
inspect the Collateral and examine and make copies and abstracts of the books of
account and records of such Person at reasonable times and upon reasonable
notice during normal business hours (unless an Event of Default shall have
occurred and be continuing, in which event no notice shall be required and
Lender shall have access at any and all times during the continuance thereof).
In addition, Lender or such agent or designee of Lender shall have the right to
meet with management and officers of Borrower or such Guarantor to discuss such
books of account and records and significant business issues affecting Borrower
or such Guarantor.

     

              (b) Field Exams. Borrower and each Guarantor shall permit
Lender or any agent or designee of Lender, including, without limitation, its
attorneys, accountants and professional advisors, to conduct field examinations
of the Collateral, at the sole cost of Borrower and Guarantors and at such
reasonable times and intervals as Lender may reasonably request (unless an Event
of Default shall have occurred and be continuing, in which event no notice shall
be required and Lender shall have access at any and all times during the
continuance thereof). Without limiting the foregoing, Borrower and each
Guarantor agrees that Lender may conduct such field exams at least once each
fiscal quarter of Borrower at Borrower and Guarantors’ expense. So long as no
Event of Default has occurred and is continuing, Borrower and Guarantor shall
not be required to reimburse amounts over $10,000 per quarter (or over $40,000
in the aggregate in any fiscal year) with respect to such field
examinations.

     

              (c) Appraisals. Borrower and each Guarantor, at Lender’s
request and upon reasonable notice, and at Borrower’s and Guarantors’ sole cost
and expense, obtain an appraisal of the Collateral and the books of Borrower and
its Subsidiaries from an independent appraisal firm satisfactory to Lender
(which may be Affiliated with Lender). Without limiting the foregoing, Borrower
and each Guarantor agrees that Lender may conduct such appraisals at least once
each fiscal quarter of Borrower at the Borrower’s and Guarantors’ expense. So
long as no Event of Default has occurred and is continuing, Borrower and
Guarantors shall not be required to reimburse amounts over $10,000 per year with
respect to such appraisals.

     

              8.13 Material Agreements. Borrower and each Guarantor shall perform
and observe all the terms and provisions of each Material Agreement to be
performed or observed by such Person, maintain each such Material Agreement in
full force and effect, enforce each such Material Agreements in accordance with
its terms, take all such action to such end as may be from time to time
requested by Lender and, upon request of Lender, make to each other party to
each such Material Agreement such demands and requests for information and
reports or for action as Borrower or any Guarantor is entitled to make under
such Material Agreement, except, in any case, where the failure to do so, either
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.

     

              8.14 Lender Meetings. Borrower and each Guarantor, upon the
request of Lender, participate in a meeting with Lender twice during each fiscal
year of Borrower to be held at Borrower’s corporate offices (or at such other
location as may be agreed to by Borrower and Lender) at such time as may be
agreed to by Borrower and Lender.

     

              8.15 SBA Information. Lender has received a license from the U.S.
Small Business Administration (“SBA”) to extend loans as a small business
investment company (“SBIC”) pursuant to the Small Business Investment
Act of 1958, as amended, and the associated regulations (collectively, the
“SBIC Act”). Portions of the loan to Borrower will be
made under the SBA license and the SBIC Act. Addendum 1 to this Agreement
outlines various responsibilities of Lender and Borrower associated with an SBA
loan, and such Addendum 1 is hereby incorporated in this Agreement.

     

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              8.16 Compromise of Agreements. With respect to Accounts with a combined
value in excess of ten percent (10%) of Borrower’s or any Guarantors’ Accounts
then outstanding, neither Borrower nor any Guarantor shall (a) grant any
material extension of the time of payment thereof, (b) to any material extent,
compromise, compound or settle the same for less than the full amount thereof,
(c) release, wholly or partly, any Person liable for the payment thereof, or (d)
allow any credit or discount whatsoever thereon other than trade discounts
granted by such Person in the ordinary course of business of such
Person.

     

              8.17 Further Assurances. Borrower and each Guarantor shall promptly
upon request by Lender, (a) correct any material defect or error that may be
discovered in any Loan Document or in the execution, acknowledgment, filing or
recordation thereof, and (b) do, execute, acknowledge, deliver, record,
re-record, file, re-file, register and re-register any and all such further
acts, deeds, certificates, assurances and other instruments as Lender may
reasonably require from time to time in order to (i) carry out more effectively
the purposes of the Loan Documents, (ii) to the fullest extent permitted by
applicable law, subject Borrower’s or any Guarantor’s properties, assets, rights
or interests to the Liens now or hereafter intended to be covered by any of the
Collateral Documents, (iii) perfect and maintain the validity, effectiveness and
priority of any of the Collateral Documents and any of the Liens intended to be
created thereunder and (iv) assure, convey, grant, assign, transfer, preserve,
protect and confirm more effectively unto Lender the rights granted or now or
hereafter intended to be granted to Lender under any Loan Document or under any
other instrument executed in connection with any Loan Document to which Borrower
or any Guarantor is or is to be a party.

     

              8.18 Availability of Shares. Borrower shall at all times have a minimum
of 718,860 authorized and unreserved shares of Common Stock (after accounting
for all outstanding shares, all options, warrants, convertible securities and
other purchase rights, and all option plans) to satisfy conversion and exercise
rights under the Warrant.

     

              8.19 Post-Closing Covenants.

     

              (a) Collateral Access
Agreements. On or before
the thirtieth (30th) day following request therefor, Borrower shall deliver to
Lender, Collateral Access Agreements with respect to each location of a Loan
Party as Lender may reasonably request.

     

              (b) Transfer of Certain Trademarks of Gupta
Technologies, LLC. On or
before the thirtieth (30th) day following the Closing Date, Borrower shall
deliver to Lender (i) evidence of the proper assignment and transfer from Gupta
Technologies, LLC to Borrower of the Trademarks listed on Schedule 8.19(b) attached hereto, and (ii) supplemental
schedules to the applicable Loan Documents to identify those Trademarks as being
subject to the security interests created thereunder.

     

              (c) Closing of Certain Deposit
Accounts. On or before the
sixtieth (60th) day following the Closing Date, Borrower shall deliver to Lender
evidence in form and substance satisfactory to Lender of the closing of the
following Deposit Accounts of AXS-One Inc.: Silicon Valley Bank account numbers:
4860462615 RR ZGQ; 3300650708; 3300459813; 3300459828; 3300649870; and Bank of
Montreal account number 1032464.

     

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              (d) Dissolution of Gupta Technologies
GmbH. On or before the one
hundred and eightieth (180th) day following the Closing Date, Borrower shall
deliver to Lender, evidence in form and substance satisfactory to Lender, of the
dissolution of Gupta Technologies GmbH.

     

              (a)
Account Control
Agreements. On or before
the thirtieth (30th) day following the Closing Date, Borrower shall deliver
fully executed copies of the Account Control Agreements by and among Lender, the
applicable Guarantors and Bank of America, N.A., and such agreements shall be in
form and substance satisfactory to Lender. 

     

              8.20 Information Statement.

     

              (a) On or before July 31, 2010, Borrower shall have filed with the SEC, an
information statement (the “Required Information
Statement”), in accordance
with Regulation 14C under the Securities Exchange Act of 1934, as amended, with
respect to the action by written consent of Borrower’s stockholders approving
the issuance of Common Stock issuable upon exercise of the Warrant.

     

              (b) Borrower shall promptly provide to Lender copies of all correspondence
from and to the SEC staff regarding the Required Information
Statement.

     

              (c) Upon SEC staff clearance of the Required Information Statement, Borrower
shall promptly (but in no event later than ten (10) Business Days thereafter),
deliver the Required Information Statement to the stockholders of
Borrower.

     

              (d) Borrower shall pay to Lender on the Fee Payment Date (as hereinafter
defined) a cash fee in the amount of $1,000,000 (the “Fee Payment”), unless the Warrant is deemed exercisable
and is in full force and effect in accordance with its terms prior to the Fee
Payment Date. Fee Payment Date shall mean the earlier of (x) at Lender’s
election, an Event of Default hereunder, (y) acceleration of the Loans hereunder
in accordance with Section 12.1, or (z) demand at any time after the date
that is one-hundred and twenty (120) days following the Closing Date. If the Fee
Payment is made, the Warrant shall be returned to Borrower for cancellation
without any additional consideration from Borrower. 

     

    SECTION 9. NEGATIVE COVENANTS 

     

         Borrower and each
Guarantor covenants and agrees as follows:

     

              9.1 Liens. Neither Borrower nor any Guarantor shall,
directly or indirectly, allow or suffer to exist any Liens, other than Permitted
Liens.

     

              9.2 Indebtedness; Prepayment of
Indebtedness.

     

              (a) Indebtedness. Neither Borrower nor any Guarantor shall
create, incur, assume, guarantee, suffer to exist or be or remain liable with
respect to any Indebtedness, or engage in any sale-leaseback, synthetic lease or
similar transaction, other than Permitted Indebtedness.

     

              (b) Prepayment of Indebtedness. Neither Borrower nor any Guarantor shall
prepay any Indebtedness or take any actions which impose on such Person an
obligation to prepay any Indebtedness, or make any payment in violation of any
subordination terms of any Indebtedness, except for (i) the conversion of
Indebtedness into equity securities and the payment of cash in lieu of
fractional shares in connection with such conversion and (ii) so long as no
Default or Event of Default then exists or would arise as a result thereof, for
the prepayment of Permitted Indebtedness described under clauses (i), (iii) (iv), (v), (vi)(A) and (iv)(B) of the definition of “Permitted
Indebtedness”.

     

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              9.3 Investments. Neither Borrower nor any Guarantor shall
directly or indirectly acquire or own, or make any Investment in or to any
Person, other than Permitted Investments.

     

              9.4 Restricted Payments. Neither Borrower nor any Guarantor shall (a)
make any Restricted Payments, or (b) repurchase or redeem any Equity Interest,
in each case other than: (w) repurchases of Equity Interests pursuant to clause
(iii) of the definition of Permitted Investments, (x) each Subsidiary of
Borrower may make Restricted Payments to Borrower or any other Loan Party,
ratably according to their respective holdings of the type of Equity Interest in
respect of which such Restricted Payment is being made, (y) Borrower and each
Guarantor may declare and make dividend payments or other distributions payable
solely in the Equity Interest or other common Equity Interests of such Person,
and (z) issuance of the Warrant.

     

              9.5 Payment of Restricted Junior
Payments. Neither Borrower
nor any Guarantor shall, voluntarily or involuntarily, make any Restricted
Junior Payment to any Person, other than the Board of Directors Fees,
provided that such Board of Directors Fees shall not
exceed $350,000 in the aggregate in any fiscal year of Borrower.

     

              9.6 Transfers. Neither Borrower nor any Guarantor shall,
voluntarily or involuntarily make any Transfer in any portion of such Person’s
assets and properties, other than Permitted Transfers.

     

              9.7 Fundamental Changes. Neither Borrower nor any Guarantor shall,
merge or consolidate with or into another Person, provided that upon not less than five (5) Business
Days prior written notice to Lender (or such shorter period as Lender may agree
in writing) any Subsidiary of Borrower may merge or consolidate with and into
any other Subsidiary of Borrower so long as (i) if Borrower is a party to such
merger of consolidation, Borrower shall be the continuing or surviving entity
and (ii) if any other Loan Party is a party to such merger or consolidation,
such other Loan Party shall be the continuing or surviving entity. Neither
Borrower nor any Guarantor (other than Gupta Technologies GmbH) shall dissolve
or liquidate without the prior written consent of Lender.

     

              9.8 Acquisitions. Neither Borrower nor any Guarantor shall be
a party to any Acquisition, other than a Permitted Acquisition.

     

              9.9 No Negative Pledges. Neither Borrower nor any Guarantor shall:
(i) enter into or permit to exist any arrangement or agreement (excluding this
Agreement and the other Loan Documents) which directly or indirectly prohibits
such Person from creating, assuming or incurring any Lien upon its properties,
revenues or assets whether now owned or hereafter acquired, or (ii) enter into
any agreement, contract or arrangement (excluding this Agreement and the other
Loan Documents) restricting the ability of such Person to pay or make dividends
or distributions in cash or kind to Borrower or any Guarantor, to make loans,
advances or other payments of whatsoever nature to Borrower or any Guarantor, or
to make transfers or distributions of all of any part of its assets to Borrower
or any Guarantor; in each case other than (x) restrictions on specific assets
which assets are the subject of purchase money security interests to the extent
included as a Permitted Lien, and (y) customary anti-assignment provisions
contained in leases and licensing agreements entered into by Borrower or such
Guarantor in the ordinary course of business.

     

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              9.10 Transactions with
Affiliates. Neither
Borrower nor any Guarantor shall, 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 Borrower or any Guarantor,
whether or not in the ordinary course of business, other than on terms that are
fair and reasonable and comparable to the terms which would be obtainable by
such Borrower or Guarantor at the time in a comparable arm’s length transaction
with a Person other than an Affiliate and are fully disclosed in writing to
Lender prior to the consummation thereof. 

     

              9.11 Accounting Changes. Neither Borrower nor any Guarantor shall,
make any change in each of their respective (a) accounting policies or reporting
practices (unless required by the SEC or by changes in GAAP) or (b) fiscal years
or fiscal quarters. The fiscal year of Borrower shall end on April
30.

     

              9.12 Modification of Organizational Documents and
Material Agreements.
Neither Borrower nor any Guarantor shall consent to any amendment, supplement,
waiver or other modification of, its Organization Document or any Material
Agreements, unless, in either such case, amendment, supplement, waiver or other
modification is of an immaterial or ministerial nature. 

     

              9.13 Organizational Changes; Locations of
Collateral. Neither
Borrower nor any Guarantor shall change its legal name or jurisdiction of
formation without thirty (30) days’ prior written notice to Lender. Neither
Borrower nor any Guarantor shall change its legal form without the prior written
consent of Lender, in its sole discretion. Neither Borrower nor any Guarantor
shall relocate its chief executive office or its principal place of business
unless: (i) it has provided at least thirty (30) days’ prior written notice to
Lender; and (ii) with respect to each Loan Party, such relocation shall be
within the continental United States. Borrower and each Guarantor agree not to
effect or permit any change referred to in the preceding three sentences hereof
unless all filings have been made under the UCC or otherwise and all other
actions that are required in order for Lender to continue at all times following
such change to have a valid, legal and perfected security interest in all the
Collateral as contemplated in the Collateral Documents and other Loan Documents.
Neither Borrower nor any Guarantor shall, relocate any item of Collateral (other
than (x) sales of Inventory in the ordinary course of business, (y) relocations
of equipment having an aggregate value of up to $25,000 in any fiscal year, and
(z) relocations of Collateral from a location described on Schedule 6.1 to another location described on Schedule 6.1) unless (A) it has provided prompt prior
written notice to Lender, (B) with respect to each Loan Party, such relocation
is within the continental United States and, (C) if such relocation is to a
third party bailee, it has delivered a Collateral Access
Agreement. 

     

              9.14 Deposit Accounts and Securities
Accounts. Other than as
set forth in Section 9.20, neither Borrower nor any Guarantor shall
maintain any Deposit Accounts or Securities Accounts, except with respect to
which Lender has an Account Control Agreement, other than any Excluded Deposit
Accounts. 

     

              9.15 Change in Nature of
Business. Neither Borrower
nor any Guarantor shall engage in any material line of business substantially
different from those lines of business conducted by Borrower or such Guarantor
on the date hereof or any business substantially related or incidental
thereto. 

     

              9.16 [Intentionally Omitted]. 

     

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              9.17 Non-circumvention. Neither Borrower nor any Guarantor shall by
amendment of its Organization Documents, or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Agreement or the other
Loan Documents, and will at all times in good faith carry out all of the
provisions of this Agreement and the other Loan Documents and take all action as
may be required to protect the rights of Lender. 

     

              9.18 Financial Covenants. 

     

              (a) Minimum Consolidated Adjusted
EBITDA. Neither Borrower
nor any Guarantor shall permit the minimum Consolidated Adjusted EBITDA,
determined on a Six Month Measurement Period basis, at any time during any of
the periods described in the table attached hereto as Schedule 9.18 to be less than the amount set forth opposite
such period on such Schedule 9.18; 

     

              (b) Consolidated Total Leverage
Ratio. Neither Borrower
nor any Guarantor shall permit the Consolidated Total Leverage Ratio as at the
end of the periods described in the table attached hereto as Schedule 9.18 to be greater than the ratio set forth below
opposite such period on such Schedule 9.18; 

     

              (c) Consolidated Fixed Charge Coverage
Ratio. Neither Borrower
nor any Guarantor shall permit the Consolidated Fixed Charge Coverage Ratio as
at the end of the periods described in the table attached hereto as Schedule 9.18 to be less than the ratio set forth opposite
such period on such Schedule 9.18; 

     

    provided, however, that on or before the fifteenth (15th) day following
the Closing Date, Schedule 9.18 shall be amended and restated in its entirety
to reflect modifications to the Financial Covenants set forth in clause (a)
herein above and such amended and restated Schedule 9.18 shall be accepted by Lender in writing and
shall be in form and substance satisfactory to Borrower and Lender; provided,
further, that Borrower and Lender agree to negotiate in good faith with respect
to such amendment of the financial covenants set forth in this Section 9.18 to preserve the original intent hereof and
until so amended and agreed, such financial covenants shall continue to be
computed as set forth on Schedule 9.18 hereto . 

     

              9.19 Modification of Seller
Notes. Borrower shall not
amend, restate, supplement or otherwise modify the provisions of any Seller Note
without the Lender’s prior written consent.

     

              9.20 Foreign Subsidiary Deposit
Accounts. Neither Borrower
nor any Guarantor shall transfer funds to any Deposit Account or maintain funds
in any Deposit Account, if the depository bank is not organized under the laws
of the United States of America, any State thereof or the District of Columbia
with such Deposit Account domiciled in the United States of America, any State
thereof or the District of Columbia (such account, a “Foreign Account”) except with respect to limited funds which
are reasonably required to finance the ongoing operational expenses of Foreign
Subsidiaries in the ordinary course of business and provided that the aggregate
amount of such funds shall at no time be greater than (a) $500,000 in the
aggregate as to all such Foreign Subsidiaries (other than the Foreign Accounts
of Borrower maintained with Wells Fargo Bank, N.A. domiciled in the Cayman
Islands (account numbers 7776001716, 7770005473 and 7770005465) (collectively, the “Wells Foreign Accounts”), and (b) $1,000,000 in the aggregate as to
all Wells Foreign Accounts; provided that the Wells Foreign Accounts shall,
notwithstanding anything contained herein to the contrary, be subject to an
Account Control Agreement. Furthermore, any Foreign Accounts shall be prohibited
from entering into “overdraft”. For the purposes of this Section 9.20, “overdraft” shall mean an aggregate negative
balance in such Foreign Account taking into account all other deposit and saving
accounts with such bank. 

     

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              9.21 Stock Options. Borrower shall not issue options or other
rights (including restricted stock, “phantom stock” or securities convertible or
exchangeable for shares of capital stock) under its 2001 Stock Option Plan, 2002
Director Restricted Stock Plan or any incentive equity plan approved by the
Borrower's stockholders after the Closing Date for the purchase or acquisition
from the Borrower of more than 550,000 shares of its Common Stock or other
Equity Interests (net of any forfeitures and cancellations), as such number of
shares may be increased or decreased to reflect stock splits, reverse stock
splits or stock dividends, in any twelve (12) month period, with such first
twelve (12) month period to commence on the Closing Date. 

     

    SECTION 10. [INTENTIONALLY
OMITTED]. 

     

    SECTION 11. EVENTS OF DEFAULT 

     

              The
occurrence of any one or more of the following events shall be an Event of
Default: 

     

              11.1 Non-payment. Borrower or any Guarantor fails to pay any
amount due under this Agreement, the Notes or any of the other Loan Documents on
the due date; or 

     

              11.2 Specific Covenants; Other
Defaults. Borrower or any
Guarantor breaches or defaults in the performance of any covenant or Secured
Obligation under this Agreement, the Notes, or any of the other Loan Documents,
(a) with respect to a default under any of Section 7, Sections 8.1 (other than Section 8.1(o)), 8.3, 8.4, 8.5, 8.6, 8.7, 8.12, 8.19, failure to pay the Fee Payment when due
under Section 8.20(d), or Section 9, upon the occurrence of such default; or (b)
with respect to any other default under any covenant (other than Section 8.1(o) and Sections 8.20(a) through 8.20(c)), under this Agreement or any other Loan
Document (other than as set forth in this Section 11) such default continues for more than ten
(10) days after the earlier of the date on which (i) Lender has given notice of
such default to Borrower and (ii) Borrower or any Guarantor has knowledge of
such default; or 

     

              11.3 Repudiation of Guaranty and other Collateral
Documents. Any Guarantor
shall purport to revoke, terminate or otherwise not be bound by the Guaranty as
to any future Advances, Loans or any other Secured Obligations. The repudiation
by Borrower or any Guarantor of any of its obligations under any Collateral
Document, or any Collateral Document or any term thereof shall cease to be, or
is asserted by Borrower or any Guarantor not to be, a legal, valid and binding
obligation of Borrower or any Guarantor enforceable in accordance with its
terms; or 

     

              11.4 Invalidity of Loan
Documents. Any provision
of any Loan Document shall at any time and for any reason cease to be in full
force and effect or is declared to be null and void, or the validity or
enforceability thereof shall be contested by Borrower or any Guarantor, or the
validity or enforceability thereof shall be contested by any other Person in
writing or in any judicial proceeding, or a proceeding shall be commenced by
Borrower, any Guarantor or by any Governmental Authority having jurisdiction
over Borrower or any Guarantor, seeking to establish the invalidity or
unenforceability thereof, or Borrower or any Guarantor denies that it has any or
further liability or obligation under
any provision of any Loan Document, or purports to revoke, terminate or rescind
any provision of any Loan Document; or 

     

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              11.5 Liens. Any Lien against any material portion of the
Collateral intended to be created by any Collateral Document shall at any time
for whatever reason cease to be a perfected, first priority Lien (subject only
to Permitted Senior Liens to the extent the Loan Documents expressly permit such
Liens to have priority), or shall be invalidated, subordinated or otherwise
cease to be in full force and effect; or any security interest purported to be
created by any Collateral Document shall cease to be, or shall be asserted by
Borrower or any Guarantor not to be, a valid grant of a security interest in all
or any portion of the Collateral (except as expressly otherwise provided under
and in accordance with the terms of such Loan Document); or 

     

              11.6 Representations and
Warranties. Any
representation, warranty, certification or statement of fact made or deemed made
by or on behalf of Borrower or any Guarantor herein, in any other Loan Document,
or in any document delivered in connection herewith or therewith shall be
incorrect or misleading in any material respect when made or deemed made;
or 

     

              11.7 Insolvency. Borrower or any Guarantor (A) (i) shall make
an assignment for the benefit of creditors; or (ii) shall be unable to pay its
debts as they become due, or be unable to pay or perform under the Loan
Documents, or shall become insolvent; or (iii) shall file a voluntary petition
in bankruptcy; or (iv) shall file any petition, answer, or document seeking for
itself any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation pertinent to such circumstances; or (v) shall seek or consent to or
acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower
or such Guarantor or of all or any substantial part (i.e., 33-1/3% or more) of
the assets or property of Borrower or such Guarantor; or (vi) shall cease
operations of its business as its business has normally been conducted, or
terminate substantially all of its employees, or becomes insolvent; or (vii)
Borrower or such Guarantor or its directors or majority shareholders (or
equivalent position) shall take any action initiating any of the foregoing
actions described in clauses (A)(i) through (A)(vi); or (B) either (i) thirty (30) days shall
have expired after the commencement of an involuntary action against Borrower or
any Guarantor seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, without such action being dismissed or all orders or
proceedings thereunder affecting the operations or the business of Borrower or
such Guarantor being stayed; or (ii) a stay of any such order or proceedings
shall thereafter be set aside and the action setting it aside shall not be
timely appealed; or (iii) Borrower or such Guarantor shall file any answer
admitting or not contesting the material allegations of a petition filed against
Borrower or such Guarantor in any such proceedings; or (iv) the court in which
such proceedings are pending shall enter a decree or order granting the relief
sought in any such proceedings; or (v) thirty (30) days shall have expired after
the appointment, without the consent or acquiescence of Borrower or such
Guarantor, of any trustee, receiver or liquidator of Borrower or such Guarantor
or of all or any substantial part of the properties of Borrower or such
Guarantor without such appointment being vacated; or 

     

              11.8 Attachments; Judgments. Any portion of Borrower’s or any Guarantor’s
assets is attached or seized, or a levy is filed against any such assets, or a
judgment or judgments is/are entered for the payment of money, individually or
in the aggregate, of at least $200,000, or Borrower or any Guarantor is enjoined
or in any way prevented by court order from conducting any part of its business;
or 

     

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              11.9 Cross-Defaults. The occurrence of any default under any
agreement or obligation of Borrower or any Guarantor involving any Indebtedness
in excess of $200,000. The material breach by Borrower or any Guarantor of any
agreement or agreements (in each case, other than the Loan Documents) to which
it is a party that involves the payment to or by Borrower or such Guarantor,
individually or in the aggregate, of more than $200,000 (whether by setoff or
otherwise) in any six (6) month period; or 

     

              11.10 Material Agreements. Any default or event of default (monetary or
otherwise) which would reasonably be expected to have a Material Adverse Effect
shall occur with respect to any Material Agreement; or

     

              11.11 Change in Control. A Change in Control occurs without the prior
written consent of the Lender; or 

     

              11.12 Suspension of Business. Borrower or any Guarantor liquidates,
dissolves, terminates or suspends its business operations or otherwise fails to
operate its business in the ordinary course except as otherwise expressly
provided in this Agreement; or 

     

              11.13 [Intentionally Omitted]; or 

     

              11.14 ERISA Event. (a) There occurs one or more ERISA Events
which individually or in the aggregate result(s) in or would reasonably be
expected to result in liability of Borrower and/or any Guarantor in excess of
$200,000 during the term hereof; or (b) the present value of all benefit
liabilities under all Pension Plans (determined on a plan termination basis
using the assumptions prescribed by the PBGC for purposes of Section 4044 of
ERISA) exceeds, in the aggregate, as of the last valuation date, the fair market
value of the assets of such Pension Plans allocable to such benefits under Title
IV of ERISA, by an amount in excess of $200,000; or 

     

              11.15 Material Adverse Effect. A circumstance has occurred that would
reasonably be expected to have a Material Adverse Effect; or 

     

              11.16 Common Stock. The Common Stock shall not be listed or
traded on any national securities exchange, or shall cease to be actively quoted
on the OTC Bulletin Board, for any period in excess of thirty (30) consecutive
days; or 

     

              11.17 Subordination of Seller
Notes. Any subordination
provision, in whole or in part, of any Seller Note shall at any time and for any
reason cease to be in full force and effect or is declared to be null and void,
or the validity or enforceability thereof shall be contested by any party
thereto, or the validity or enforceability thereof shall be contested by any
other Person in writing or in any judicial proceeding.

     

    SECTION 12. REMEDIES 

     

              12.1 General. Upon and during the continuance of any one
or more Events of Default: (i) Lender may, at its option, terminate its
commitment to make any Advance; (ii) Lender may, at its option, accelerate and
demand payment of all or any part of the Secured Obligations, together with a
Prepayment Charge and declare them to be immediately due and payable (provided,
that upon the occurrence of an Event of Default of the type described in
Section 11.7, Lender’s commitment to make any Advance
shall automatically terminate and the Loans and all of the Secured Obligations
shall automatically be accelerated and made due and payable, in each case
without any further notice or act); (iii) Lender may, at its option, notify any
account debtor of Borrower or any Guarantor to make payment directly to Lender,
compromise the amount of any such account on Borrower’s or such Guarantor’s
behalf and endorse Lender’s name without recourse on any such payment for
deposit directly to Lender’s account; and (iv) Lender may, at its option,
exercise all rights and remedies with respect to the Collateral under the Loan
Documents or otherwise available to it under the UCC and other applicable law,
including the right to release, hold, sell, lease, liquidate, collect, realize
upon, or otherwise dispose of all or any part of the Collateral and the right to
occupy, utilize, process and commingle the Collateral. All Lender’s rights and
remedies shall be cumulative and not exclusive.

     

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              12.2 Collection; Foreclosure. Upon the occurrence and during the
continuance of any Event of Default, Lender may, at any time or from time to
time, apply, collect, liquidate, sell in one or more sales, lease or otherwise
dispose of, any or all of the Collateral, in its then condition or following any
commercially reasonable preparation or processing, in such order as Lender may
elect. Lender may require Borrower and/or any Guarantor to assemble the
Collateral and make it available to Lender at a place designated by Lender. Any
such sale may be made either at public or private sale at its place of business
or elsewhere. Unless the Collateral is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender shall give to Borrower or Guarantor, as applicable, at least ten days
prior written notice of the time and place of any public sale of Collateral or
of the time after which any private or other intended disposition is to be made.
Borrower and each Guarantor agrees that such ten days’ notice is reasonable
notice. In addition, Borrower and each Guarantor waives any and all rights that
it may have to a judicial hearing in advance of the enforcement of any of
Lender’s rights and remedies hereunder, including its right following an Event
of Default to take immediate possession of the Collateral and to exercise its
rights and remedies with respect thereto. The proceeds of any sale, disposition
or other realization upon all or any part of the Collateral shall be applied by
Lender in the following order of priorities: 

     

    First,
to Lender in an amount sufficient to pay in full Lender’s costs and
professionals’ and advisors’ fees and expenses as described in Section 14.11; 

     

    Second, to Lender in an amount equal to the then
unpaid amount of the Secured Obligations (including principal, interest, and the
Default Rate interest), in such order and priority as Lender may choose in its
sole discretion; and 

     

    Finally, after the full, final, and indefeasible
payment in cash of all of the Secured Obligations, to any creditor holding a
junior Lien on the Collateral, or to Borrower or its representatives or as a
court of competent jurisdiction may direct. 

     

    Lender shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies with the
obligations of a secured party under the UCC. 

     

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              12.3 Standards for Exercising Rights and
Remedies. To the extent
that applicable law imposes duties on Lender to exercise remedies in a
commercially reasonable manner, Borrower and each Guarantor acknowledges and
agrees that it is not commercially unreasonable for Lender (a) to fail to incur
expenses reasonably deemed significant by Lender to prepare Collateral for
disposition or otherwise to fail to complete raw material or work in process
into finished goods or other finished products for disposition, (b) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or third
party consents for the collection or disposition of Collateral to be collected
or disposed of, (c) to fail to exercise collection remedies against account
debtors or other persons obligated on Collateral or to fail to remove Liens on
or any adverse claims against Collateral, (d) to exercise collection remedies
against account debtors and other persons obligated on Collateral directly or
through the use of collection agencies and other collection specialists, (e) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (f) to
contact other persons, whether or not in the same business as Borrower or
Guarantors, for expressions of interest in acquiring all or any portion of the
Collateral, (g) to hire one or more professional auctioneers to assist in the
disposition of Collateral, whether or not the collateral is of a specialized
nature, (h) to dispose of Collateral by utilizing Internet sites that provide
for the auction of assets of the types included in the Collateral or that have
the reasonable capability of doing so, or that match buyers and sellers of
assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to
disclaim disposition warranties, (k) to purchase insurance or credit
enhancements to insure Lender against risks of loss, collection or disposition
of Collateral or to provide to Lender a guaranteed return from the collection or
disposition of Collateral, or (l) to the extent deemed appropriate by Lender, to
obtain the services of brokers, investment bankers, consultants and other
professionals to assist Lender in the collection or disposition of any of the
Collateral. Borrower and each Guarantor acknowledges that the purpose of this
Section 12.3 is
to provide non-exhaustive indications of what actions or omissions by Lender
would fulfill Lender duties under the Uniform Commercial Code or any other
relevant jurisdiction in Lender’s exercise of remedies against the Collateral
and that other actions or omissions by Lender shall not be deemed to fail to
fulfill such duties solely on account of not being indicated in this Section 12.3. Without
limitation upon the foregoing, nothing contained in this Section 12.3 shall be
construed to grant any rights to Borrower or any Guarantor or to impose any
duties on Lender that would not have been granted or imposed by this Agreement
or by applicable law in the absence of this Section 12.3.

     

              12.4 Marshalling of Assets. Lender shall be under no obligation to
marshal any of present or future collateral security (including, without
limitation, the Collateral) for, or other assurances of payment of, the Secured
Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order. Borrower and each Guarantor
hereby agrees that Borrower or such Guarantor will not invoke any law relating
to the marshaling of collateral which might cause delay in or impede the
enforcement of Lender’s rights and remedies under this Agreement or any of the
other Loan Documents, or under any other instrument creating or evidencing any
of the Secured Obligations or under which any of the Secured Obligations is
outstanding or by which any of the Secured Obligations is secured or payment
thereof is otherwise assured and, Borrower and each Guarantor hereby irrevocably
waives the benefits of all such laws. 

     

              12.5 Cumulative Remedies. The rights, powers and remedies of Lender
hereunder shall be in addition to all rights, powers and remedies given by
statute or rule of law and are cumulative. The exercise of any one or more of
the rights, powers and remedies provided herein shall not be construed as a
waiver of or election of remedies with respect to any other rights, powers and
remedies of Lender. 

     

    SECTION 13. GUARANTY 

     

              13.1 Guaranty. Each Guarantor, jointly and severally,
hereby absolutely and unconditionally guarantees to Lender and its successors
and assigns the full and prompt payment (whether at stated maturity, by
acceleration or otherwise) and performance of, all Secured Obligations. Each
Guarantor agrees that its guaranty obligation hereunder is a continuing guaranty
of payment and performance and not of collection, that its obligations under
this Section 13 shall not be discharged until payment and
performance, in full, of the obligations under the Loan Documents has occurred
and all commitments (if any) to lend hereunder have been terminated, and that
its obligations under this Section 13 shall be absolute and unconditional,
irrespective of, and unaffected by: 

     

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              (a) the genuineness, validity, regularity, enforceability or any future
amendment of, or change in, this Agreement, any other Loan Document or any other
agreement, document or instrument to which Borrower or any Guarantor is or may
become a party; 

     

              (b) the absence of any action to enforce this Agreement (including this
Section 13) or any other Loan Document or the waiver or
consent by Lender with respect to any of the provisions
thereof; 

     

              (c) the insolvency of Borrower or any Guarantor; or

     

              (d) any other action or circumstances that might otherwise constitute a legal
or equitable discharge or defense of a surety or guarantor. 

     

              Each Guarantor shall be regarded, and shall be
in the same position, as principal debtor with respect to the obligations
guaranteed hereunder. 

     

              13.2 Waivers by Guarantors. Each Guarantor expressly waives all rights
it may have now or in the future under any statute, or at common law, or at law
or in equity, or otherwise, to compel Lender to marshal assets or to proceed in
respect of the obligations guaranteed hereunder against Borrower or any other
Guarantor, any other party or against any security for the payment and
performance of the obligations under the Loan Documents before proceeding
against, or as a condition to proceeding against, such Guarantor. It is agreed
among each Guarantor that the foregoing waivers are of the essence of the
transaction contemplated by this Agreement and the other Loan Documents and
that, but for the provisions of this Section 13 and such waivers, Lender would decline to
enter into this Agreement. 

     

              13.3 Benefit of Guaranty. Each Guarantor agrees that the provisions of
this Section 13 are for the benefit of Lender and its
successors, transferees, endorsees and assigns, and nothing herein contained
shall impair, as between Borrower or any Guarantor and Lender, the obligations
of Borrower or such Guarantor under the Loan Documents. 

     

              13.4 Waiver of Subrogation, Etc. Notwithstanding anything to the contrary in
this Agreement or in any other Loan Document, and except as set forth in
Section 13.7, each Guarantor hereby expressly and
irrevocably waives any and all rights at law or in equity to subrogation,
reimbursement, exoneration, contribution, indemnification or set off and any and
all defenses available to a surety, guarantor or accommodation co-obligor. Each
Guarantor acknowledges and agrees that this waiver is intended to benefit Lender
and shall not limit or otherwise affect such Guarantor’s liability hereunder or
the enforceability of this Section 13, and that Lender and its successors and
assigns are intended third party beneficiaries of the waivers and agreements set
forth in this Section 13.4.

     

              13.5 Election of Remedies. If Lender may, under applicable law, proceed
to realize their benefits under any of the Loan Documents, Lender may, at its
sole option, determine which of its remedies or rights it may pursue without
affecting any of its rights and remedies under this Section 13. If, in the exercise of any of its rights and
remedies, of Lender shall forfeit any of its rights or remedies, including its
right to enter a deficiency judgment against Borrower or any Guarantor or any
other Person, whether because of any applicable laws pertaining to “election of
remedies” or the like, Borrower and each Guarantor hereby consents to such
action by Lender and waives any claim based upon such action, even if such
action by Lender shall result in a full or partial loss of any rights of
subrogation that Borrower or any Guarantor might otherwise have had but for such
action by Lender. Any election of remedies that results in the denial or
impairment of the right of Lender to seek a deficiency judgment against Borrower
or any Guarantor shall not impair Borrower or any other Guarantor’s obligation
to pay the full amount of the obligations under the Loan Documents.

     

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              13.6 Limitation. Notwithstanding any provision herein
contained to the contrary, each Guarantor’s liability under this Section 13 (which liability is in any event in addition
to amounts for which Borrower is primarily liable under the Loan Documents)
shall be limited to an amount not to exceed as of any date of determination the
greater of: 

     

              (a) the net amount of all amounts advanced to such Guarantor under this
Agreement or otherwise transferred to, or for the benefit of, such Guarantor
(including any interest and fees and other charges); and 

     

              (b) the amount that could be claimed by Lender from such Guarantor under this
Section 13 without rendering such claim voidable or
avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law after taking into account, among other
things, such Guarantor’s right of contribution and indemnification from Borrower
or each other Guarantor under Section 13.7. 

     

              13.7 Contribution with Respect to Guaranty
Obligations. 

     

              (a) To the extent that any Guarantor shall make a payment under this
Section 13 of all or any of the obligations under the
Loan Documents (other than financial accommodations made to that Guarantor for
which it is primarily liable) (a “Guarantor Payment”) that, taking into account all other
Guarantor Payments then previously or concurrently made by any other Guarantor,
exceeds the amount that such Guarantor would otherwise have paid if each
Guarantor had paid the aggregate obligations under the Loan Documents satisfied
by such Guarantor Payment in the same proportion that such Guarantor’s
“Allocable Amount” (as defined below) (as determined
immediately prior to such Guarantor Payment) bore to the aggregate Allocable
Amounts of each Guarantor as determined immediately prior to the making of such
Guarantor Payment, then, following indefeasible payment in full in cash of the
obligations under the Loan Documents and termination of the Loan Documents
(including all commitments (if any) to lend hereunder), such Guarantor shall be
entitled to receive contribution and indemnification payments from, and be
reimbursed by, each other Guarantor for the amount of such excess, pro rata
based upon their respective Allocable Amounts in effect immediately prior to
such Guarantor Payment. 

     

              (b) As of any date of determination, the “Allocable Amount” of any Guarantor
shall be equal to the maximum amount of the claim that could then be recovered
from such Guarantor under this Section 13 without rendering such claim voidable or
avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law. 

     

              (c) This Section 13.7 is intended only to define the relative
rights of Guarantor and nothing set forth in this Section 13.7 is intended to or shall impair the
obligations of Borrower and Guarantors, jointly and severally, to pay any
amounts as and when the same shall become due and payable in accordance with the
terms of this Agreement, including Section 13.1. Nothing contained in this Section 13.7 shall limit the liability of Borrower or any
Guarantor to pay the financial accommodations made directly or indirectly to
Borrower or such Guarantor and accrued interest, fees and expenses with respect
thereto for which Borrower or such Guarantor shall be primarily
liable.

     

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              (d) The parties hereto acknowledge that the rights of contribution and
indemnification hereunder shall constitute assets of the Guarantor to which such
contribution and indemnification is owing. 

     

              (e) The rights of the indemnifying Guarantor against other Guarantor under
this Section 13.7 shall be exercisable upon the full and
indefeasible payment of the Secured Obligations under the Loan Documents and the
termination of the Loan Documents. 

     

              13.8 Liability Cumulative. The liability of each Guarantor under this
Section 13 is in addition to and shall be cumulative
with all liabilities of Borrower and each other Guarantor to Lender under this
Agreement and the other Loan Documents to which Borrower or such Guarantor is a
party or in respect of any obligations under the Loan Documents or obligation of
the Borrower or any other Guarantor, without any limitation as to amount, unless
the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary. 

     

              13.9 Stay of Acceleration. If acceleration of the time for payment of
any amount payable by Borrower and/or any Guarantor under this Agreement is
stayed upon the insolvency, bankruptcy or reorganization of Borrower or any
Guarantor, all such amounts otherwise subject to acceleration under the terms of
this Agreement shall nonetheless be payable jointly and severally by Borrower
and Guarantors hereunder forthwith on demand by Lender. 

     

              13.10 Benefit to Borrower. Borrower and each Guarantor is engaged in
related businesses and integrated to such an extent that the financial strength
and flexibility of each such Person has a direct impact on the success of each
other Person. Borrower and each Guarantor will derive substantial direct and
indirect benefit from the extension of credit made hereunder. 

     

    SECTION 14. MISCELLANEOUS 

     

              14.1 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this
Agreement. 

     

              14.2 Notice. Except as otherwise provided herein, any
notice, demand, request, consent, approval, declaration, service of process or
other communication (including the delivery of Financial Statements) that is
required, contemplated, or permitted under the Loan Documents or with respect to
the subject matter hereof shall be in writing, and shall be deemed to have been
validly served, given, delivered, and received upon the earlier of: (i) the day
of transmission by facsimile or hand delivery or delivery by an overnight
express service or overnight mail delivery service; or (ii) the third calendar
day after deposit in the United States mails, with proper first class postage
prepaid, in each case addressed to the party to be notified as follows:

     

              (a) If to Lender: 

     

    
    

     

    
      	                        	
              HERCULES TECHNOLOGY II,
      L.P. 
Legal
      Department 
Attention:
      Chief Legal Officer and Kevin L. Grossman, Managing Director

              400 Hamilton
      Avenue, Suite 310 
Palo Alto, CA 94301 
Facsimile: 650-473-9194 
Telephone:
      650-289-3068 

            

    

     

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              (b) If to Borrower or any
Guarantor: 

     

    
      	                        	
              UNIFY CORPORATION
 
      
Attention: Chief
      Financial Officer 
1420 Rocky Ridge Drive, Suite 380 
Roseville, CA
      95661-2875 
Facsimile: 916-218-4377 
Telephone: 916-218-4700
      

            

    

     

              or to
such other address as each party may designate for itself by like
notice.

     

              14.3 Entire Agreement; Amendments and
Waivers. This Agreement,
the Notes, and the other Loan Documents constitute the entire agreement and
understanding of the parties hereto in respect of the subject matter hereof and
thereof, and supersede and replace in their entirety any prior proposals, term
sheets, letters, negotiations or other documents or agreements, whether written
or oral, with respect to the subject matter hereof or thereof (including
Lender’s proposal letter dated June 2, 2010). None of the terms of this
Agreement or any of the other Loan Documents may be amended, modified or waived
except by a written instrument executed by each of the parties to such Loan
Document. 

     

              14.4 No Strict Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement. 

     

              14.5 No Waiver. The powers conferred upon Lender by this
Agreement are solely to protect its rights hereunder and under the other Loan
Documents and its interest in the Collateral and shall not impose any duty upon
Lender to exercise any such powers. No omission or delay by Lender at any time
to enforce any right or remedy reserved to it, or to require performance of any
of the terms, covenants or provisions hereof by Borrower or any Guarantor at any
time designated, shall be a waiver of any such right or remedy to which Lender
is entitled, nor shall it in any way affect the right of Lender to enforce such
provisions thereafter. 

     

              14.6 Survival. All agreements, representations and
warranties contained in this Agreement, the Notes and the other Loan Documents
or in any document delivered pursuant hereto or thereto shall be for the benefit
of Lender and shall survive the execution and delivery of this Agreement and the
expiration or other termination of this Agreement. 

     

              14.7 Successors and Assigns. The provisions of this Agreement and the
other Loan Documents shall inure to the benefit of and be binding on Borrower
and each Guarantor and their respective permitted assigns (if any). Neither
Borrower nor any Guarantor shall assign its obligations under this Agreement,
the Notes or any of the other Loan Documents without Lender’s express prior
written consent, and any such attempted assignment shall be void and of no
effect. Lender may assign, transfer, or endorse its rights hereunder and under
the other Loan Documents without prior notice to Borrower or any Guarantor, and
all of such rights shall inure to the benefit of Lender’s successors and
assigns.

     

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              14.8 Governing Law. This Agreement, the Notes and the other Loan
Documents have been negotiated and delivered to Lender in the State of
California, and shall have been accepted by Lender in the State of California.
Payment to Lender by Borrower or any Guarantor of the Secured Obligations is due
in the State of California. This Agreement, the Notes and the other Loan
Documents shall be governed by, and construed and enforced in accordance with,
the laws of the State of California, excluding conflict of laws principles that
would cause the application of laws of any other
jurisdiction. 

     

              14.9 Consent to Jurisdiction and
Venue. All judicial
proceedings (to the extent that the reference requirement of Section 14.10 is not applicable) arising in or under or
related to this Agreement, the Notes or any of the other Loan Documents may be
brought in any state or federal court located in the State of California. By
execution and delivery of this Agreement, each party hereto generally and
unconditionally: (a) consents to nonexclusive personal jurisdiction in Santa
Clara County, State of California; (b) waives any objection as to jurisdiction
or venue in Santa Clara County, State of California; (c) agrees not to assert
any defense based on lack of jurisdiction or venue in the aforesaid courts; and
(d) irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement, the Notes or the other Loan Documents. Service
of process on any party hereto in any action arising out of or relating to this
Agreement shall be effective if given in accordance with the requirements for
notice set forth in Section 14.2, and shall be deemed effective and received
as set forth in Section 14.2. Nothing herein shall affect the right to
serve process in any other manner permitted by law or shall limit the right of
either party to bring proceedings in the courts of any other
jurisdiction. 

     

              14.10 Mutual Waiver of Jury Trial / Judicial
Reference.

     

              (a) Because disputes arising in connection with complex financial
transactions are most quickly and economically resolved by an experienced and
expert person and the parties wish applicable state and federal laws to apply
(rather than arbitration rules), the parties desire that their disputes be
resolved by a judge applying such applicable laws. BORROWER, EACH GUARANTOR AND
LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE
OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER
CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY BORROWER OR ANY GUARANTOR
AGAINST LENDER OR ITS ASSIGNEE OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER OR
ANY GUARANTOR. This waiver extends to all such Claims, including Claims that
involve Persons other than Borrower or any Guarantor and Lender; Claims that
arise out of or are in any way connected to the relationship between Borrower or
any Guarantor and Lender; and any Claims for damages, breach of contract, tort,
specific performance, or any equitable or legal relief of any kind, arising out
of this Agreement or any other Loan Document.

     

              (b) If the waiver of jury trial set forth in Section 14.10(a) is ineffective
or unenforceable, the parties agree that all Claims shall be resolved by
reference to a private judge sitting without a jury, pursuant to Code of Civil
Procedure Section 638, before a mutually acceptable referee or, if the parties
cannot agree, a referee selected by the Presiding Judge of the Santa Clara
County, California. Such proceeding shall be conducted in Santa Clara County,
California, with California rules of evidence and discovery applicable to such
proceeding. 

     

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              (c) In the event Claims are to be resolved by judicial reference, either
party may seek from a court identified in Section 14.9, any prejudgment order, writ or other relief
and have such prejudgment order, writ or other relief enforced to the fullest
extent permitted by law notwithstanding that all Claims are otherwise subject to
resolution by judicial reference. 

     

              14.11 Professional Fees. Borrower and each Guarantor promises to pay
Lender on demand for costs and expenses, reasonable legal expenses and
attorneys’ fees (whether for internal or outside counsel), incurred by Lender in
connection with: (i) documentation and consummation of the transactions
contemplated hereunder and any other transactions between Borrower or any
Guarantor and Lender, including, without limitation, UCC and other public record
searches and filings, overnight courier or other express or messenger delivery,
appraisal costs, surveys, title insurance and environmental audit or review
(including due diligence review) costs; (ii) collection, protection or
enforcement of any rights in or to the Collateral; (iii) collection of any
Secured Obligations; (iv) administration and enforcement of Lender’s rights
under this Agreement or any other Loan Document (including, without limitation,
any costs and expenses of any third party provider, appraiser, consultant or
other specialist engaged by Lender for such purposes); (v) costs associated with
any refinancings or restructurings of the transactions contemplated by this
Agreement and the other Loan Documents, whether in the nature of a “work-out” in
any insolvency or bankruptcy proceeding or otherwise, and whether or not
consummated; (vi) all out-of-pocket costs and expenses of Lender and its
assignee(s) (including, without limitation, attorneys’ fees) in connection with
the assignment, transfers or syndication of the Notes in an aggregate amount not
to exceed $10,000; and (vii) from and against all liability for any intangibles,
documentary, stamp or other similar taxes, fees and excises, if any, including
any interest and penalties, and any finder’s or brokerage fees, commissions and
expenses (other than any fees, commissions or expenses of finders or brokers
engaged by Lender), that may be payable in connection with the transactions
contemplated by this Agreement and the other Loan Documents. Without limiting
the foregoing, if (a) any Note or other Loan Document is placed in the hands of
an attorney for collection or enforcement or is collected or enforced through
any legal proceeding or Lender otherwise takes action to collect amounts due
under such Note or such Loan Document or to enforce the provisions of such Note
or such Loan Document or (b) there occurs any bankruptcy, reorganization,
receivership of Borrower or any Guarantor or other proceedings affecting
creditors’ rights and involving a claim under such Note or such Loan Document,
then Borrower and Guarantors shall pay the costs incurred by Lender for such
collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, but not limited to,
attorneys’ fees and disbursements (including such fees and disbursements related
to seeking relief from any stay, automatic or otherwise, in effect under any
Debtor Relief Law). This Section 14.11 shall survive the expiration or other
termination of this Agreement and the other Loan Documents. 

     

              14.12 Confidentiality. Lender acknowledges that certain items of
Collateral and information provided to Lender by Borrower and Guarantors are
confidential and proprietary information of Borrower or such Guarantor, if and
to the extent such information either (x) is marked as confidential by Borrower
or such Guarantor at the time of disclosure, or (y) should reasonably be
understood to be confidential (the “Confidential Information”). Accordingly, Lender agrees that any
Confidential Information it may obtain in the course of acquiring,
administering, or perfecting Lender’s security interest in the Collateral shall
not be disclosed to any other person or entity in any manner whatsoever, in
whole or in part, without the prior written consent of Borrower or such
Guarantor, except that Lender may disclose any such information: (a) to its own
directors, officers, employees, accountants, counsel and other professional
advisors and to its Affiliates if Lender in its sole discretion determines that
any such party should have access to such information in connection with such
party’s responsibilities in connection with the Loan or this Agreement and,
provided that such recipient of such Confidential Information either (i) agrees
to be bound by the confidentiality provisions of this paragraph or (ii) is
otherwise subject to confidentiality restrictions that reasonably protect
against the disclosure of Confidential Information; (b) if such information is
generally available to the public; (c) if required or appropriate in any report,
statement or testimony submitted to any governmental authority having or
claiming to have jurisdiction over Lender; (d) if required or appropriate in
response to any summons or subpoena or in connection with any litigation, to the
extent permitted or deemed advisable by Lender’s counsel; (e) to comply with any
legal requirement or law applicable to Lender; (f) to the extent reasonably
necessary in connection with the exercise of any right or remedy under any Loan
Document, including Lender’s sale, lease, or other disposition of Collateral
after default; (g) to any participant or assignee of Lender or any prospective
participant or assignee; provided, that such participant or assignee or
prospective participant or assignee agrees in writing to be bound by this
Section prior to disclosure; or (h) otherwise with the prior consent of
Borrower; provided, that any disclosure made in violation of this Agreement
shall not affect the obligations of Borrower, any Guarantor or any of their
Affiliates or any guarantor under this Agreement or the other Loan Documents.
Lender acknowledges that it is aware, and that it will advise its directors,
officers, employees, accountants, counsel and other professional advisors who
receive information from the Loan Parties hereunder, that the United States
securities laws prohibit any person who has received material, non-public
information concerning the Borrower from purchasing or selling securities of the
Borrower or from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities.

     

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              14.13 Assignment of Rights. Borrower acknowledges and understands that
Lender may sell and assign all or part of its interest hereunder and under the
Note(s) and Loan Documents to any person or entity (an “Assignee”). After such assignment the term “Lender” as
used in the Loan Documents shall mean and include such Assignee, and such
Assignee shall be vested with all rights, powers and remedies of Lender
hereunder with respect to the interest so assigned; but with respect to any such
interest not so transferred, Lender shall retain all rights, powers and remedies
hereby given. No such assignment by Lender shall relieve Borrower or any
Guarantor of any of its obligations hereunder. Lender agrees that, upon receipt
of Borrower’s written request, in the event of any transfer by it of the
Note(s), it will endorse thereon a notation as to the portion of the principal
of the Note(s), which shall have been paid at the time of such transfer and as
to the date to which interest shall have been last paid thereon. Lender further
acknowledges (a) Lender is an “accredited investor” within the meaning of Rule
501(a) of Regulation D under the Securities Act of 1933, is familiar with the
business and affairs of Borrower and knowledgeable and experienced in financial
and business matters such that Lender is capable of evaluating the merits and
risks of an investment in the Notes; (b) that the Notes are being acquired for
Lender’s account, for investment purposes only, and not with any view toward the
resale or distribution thereof, or with any present intention of selling,
assigning or distributing all or any portion of the Notes; and (c) that the
Notes may not be sold or transferred unless subsequently registered with the SEC
or an exemption from registration is available. 

     

              14.14 Revival of Secured
Obligations. This
Agreement and the Loan Documents shall remain in full force and effect and
continue to be effective if any petition is filed by or against Borrower or any
Guarantor for liquidation or reorganization, if Borrower or any Guarantor
becomes insolvent or makes an assignment for the benefit of creditors, if a
receiver or trustee is appointed for all or any significant part of Borrower’s
or any Guarantor’s assets, or if any payment or transfer of Collateral is
recovered from Lender. The Loan Documents and the Secured Obligations and
Collateral security shall continue to be effective, or shall be revived or
reinstated, as the case may be, if at any time payment and performance of the
Secured Obligations or any transfer of Collateral to Lender, or any part thereof
is rescinded, avoided or avoidable, reduced in amount, or must otherwise be
restored or returned by, or is recovered from, Lender or by any obligee of the
Secured Obligations, whether as a
“voidable preference,” “fraudulent conveyance,” or otherwise, all as though such
payment, performance, or transfer of Collateral had not been made. In the event
that any payment, or any part thereof, is rescinded, reduced, avoided,
avoidable, restored, returned, or recovered, the Loan Documents and the Secured
Obligations shall be deemed, without any further action or documentation, to
have been revived and reinstated except to the extent of the full, final, and
indefeasible payment to Lender in cash. 

     

    74

     

    

    
    

              14.15 Counterparts. This Agreement and any amendments, waivers,
consents or supplements hereto may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument. Delivery of an executed counterpart
of a signature page of this Agreement by facsimile or other electronic imaging
means shall be effective as delivery of a manually executed counterpart of this
Agreement. 

     

              14.16 No Third Party
Beneficiaries. No
provisions of the Loan Documents are intended, nor will be interpreted, to
provide or create any third-party beneficiary rights or any other rights of any
kind in any person other than Lender and Borrower unless specifically provided
otherwise herein, and, except as otherwise so provided, all provisions of the
Loan Documents will be personal and solely between Lender, Borrower and the
Guarantors.

     

              14.17 Publicity. On or after the Closing Date, Lender may use
Borrower’s and/or Guarantor’s name and logo, and include a brief description of
the relationship between Borrower and/or Guarantors and Lender, in Lender’s
marketing materials, provided that prior to such use, the Borrower will have an
opportunity to review and approve such materials, such approval not to be
unreasonably withheld and if Borrower does not respond within twenty-four hours
of Lender’s request thereof, Lender’s use of Borrower’s name and logo shall be
deemed approved by Borrower.

     

    [Remainder of Page Intentionally Left Blank]

     

    75

     

    

    
    

         IN WITNESS WHEREOF,
Borrower, the Guarantors and Lender have duly executed and delivered this Loan
and Security Agreement as of the day and year first above written. 

     

    
      	
            	Borrower:	
            	
            
	
            	 
	
            	UNIFY CORPORATION
	
            	 	
            	
            
	
            	Signature:	
            	/s/ Todd E.
      Wille
	
            	Print Name:	 	Todd E.
  Wille
	
            	Title:	
            	President and
      CEO
	
            	 
 
	 	Guarantors:	
            	
            
	
            	 
	
            	UNIFY INTERNATIONAL
  (US)
	
            	CORPORATION
	
            	 
	 	Signature:	      	/s/ Todd E.
      Wille
	
            	Print Name:	
            	Todd E.
  Wille
	
            	Title:	
            	President
	
            	 
  
	
            	AXS-ONE INC.
	
            	 	
            	
            
	
            	Signature:	
            	/s/ Todd E.
      Wille
	
            	Print Name:	
            	Todd E.
  Wille
	
            	Title:	
            	President
	
            	 
 
	
            	UNIFY ACQUISITION
  CORP.
	
            	 
	
            	Signature:	
            	/s/ Todd E.
      Wille
	
            	Print Name:	
            	Todd E.
  Wille
	
            	Title:	
            	President

    

    Signature Pages to
Loan and Security Agreement 

     

    

    
    

     

    
      	
            	CIPHERSOFT INC.
	
            	 	
            	
            
	
            	Signature:	
            	/s/ Todd E.
      Wille
	
            	Print Name:	 	Todd E.
  Wille
	
            	Title:	
            	President
	
            	 
 
	
            	REALEASE, LLC
	
            	 
	 	Signature:	      	/s/ Todd E.
      Wille
	
            	Print Name:	
            	Todd E.
  Wille
	
            	Title:	
            	President
	
            	 
  
	
            	GUPTA TECHNOLOGIES,
  GMBH
	
            	 	
            	
            
	
            	Signature:	
            	/s/ Todd E.
      Wille
	
            	Print Name:	
            	Todd E.
  Wille
	
            	Title:	
            	President
	
            	 
 
	
            	UNIFY CORPORATION FRANCE
      S.A.
	
            	 
	
            	Signature:	
            	/s/ Todd E.
      Wille
	
            	Print Name:	
            	Todd E.
  Wille
	
            	Title:	
            	President

    

     

    Signature Pages to
Loan and Security Agreement 

     

    

    
    

    
      	
            	STRATEGIC OFFICE SOLUTIONS,
      INC.
	
            	 	
            	
            
	
            	Signature:	
            	/s/ Todd E.
      Wille
	
            	Print Name:	 	Todd E.
  Wille
	
            	Title:	
            	President
	
            	 
 
	
            	GUPTA TECHNOLOGIES,
  GMBH
	
            	 
	 	Signature:	      	/s/ Steven D.
      Bonham
	
            	Print Name:	
            	Steven D.
    Bonham
	
            	Title:	
            	Chief Financial
      Officer

    

    Signature Pages to
Loan and Security Agreement 

     

    

    
    

    Accepted in Palo
Alto, California: 

     

    
      	
            	Lender:	
            
	
            	 
	
            	HERCULES TECHNOLOGY II,
      L.P.,
	
            	a Delaware limited partnership	
            
	
            	 
	 	By:	Hercules Technology SBIC	
            
	
            	
            	Management, LLC, its General
      Partner 
	
            	 
	
            	By:	Hercules Technology Growth Capital, 
	
            	
            	Inc., its Manager	
            
	
            	 
	
            	 
	
            	By:	/s/ R. Nicholas
      Martitsch	
            
	
            	Name:   	R. Nicholas
      Martitsch
	
            	Its:	Associate General
      Counsel

    

    Signature Pages to
Loan and Security Agreement 

     

    

    
    

    ADDENDUM 1 TO LOAN AND SECURITY AGREEMENT

     

              (a) Borrower’s Business. For purposes of this Addendum 1, Borrower shall be deemed to include
its “affiliates” as defined in Title 13 Code of Federal Regulations Section
121.103. Borrower represents and warrants to Lender (as of the Closing Date and
for a period of one year thereafter) and covenants to Lender as follows:

     

    
      	                       
    	1.	      	Size Status.
      Borrower does not have tangible net worth in excess of $18 million or
      average net income after Federal income taxes (excluding any carry-over
      losses) for the preceding two completed fiscal years in excess of $6
      million;
	
            	 
	
            	2.	
            	No Relender.
      Borrower’s primary business activity does not involve, directly or
      indirectly, providing funds to others, purchasing debt obligations,
      factoring, or long-term leasing of equipment with no provision for
      maintenance or repair;
	
            	 
	
            	3.	
            	No Passive
      Business. Borrower is engaged in a regular and continuous business
      operation (excluding the mere receipt of payments such as dividends,
      rents, lease payments, or royalties). Borrower’s employees are carrying on
      the majority of day to day operations. Borrower will not pass through
      substantially all of the proceeds of the Loan to another
  entity;
	
            	 
	
            	4.	
            	No Real Estate
      Business. Borrower is not classified under Major Group 65 (Real Estate) or
      Industry No. 1531 (Operative Builders) of the SIC Manual. The proceeds of
      the Loan will not be used to acquire or refinance real property unless
      Borrower (x) is acquiring an existing property and will use at least 51
      percent of the usable square footage for its business purposes; (y) is
      building or renovating a building and will use at least 67 percent of the
      usable square footage for its business purposes; or (z) occupies the
      subject property and uses at least 67 percent of the usable square footage
      for its business purposes.
	
            	 
	
            	5.	
            	No Project
      Finance. Borrower’s assets are not intended to be reduced or consumed,
      generally without replacement, as the life of its business progresses, and
      the nature of Borrower’s business does not require that a stream of cash
      payments be made to the business’s financing sources, on a basis
      associated with the continuing sale of assets (e.g., real estate
      development projects and oil and gas wells). The primary purpose of the
      Loan is not to fund production of a single item or defined limited number
      of items, generally over a defined production period, where such
      production will constitute the majority of the activities of Borrower
      (e.g., motion pictures and electric generating plants).
	
            	 
	
            	6.	
            	No Farm Land
      Purchases. Borrower will not use the proceeds of the Loan to acquire farm
      land which is or is intended to be used for agricultural or forestry
      purposes, such as the production of food, fiber, or wood, or is so taxed
      or zoned.
	
            	
            	
            	 
	
            	7.	
            	No Foreign Investment. The proceeds of the
      Loan will not be used substantially for a foreign operation. At the time
      of the Loan, Borrower will not have more than 49 percent of its employees
      or tangible assets located outside the United States. The representation
      in this subsection (7) is made only as of the date hereof and shall not
      continue for one year as contemplated in the first sentence of this
      Section 1.
	
            	 

    

    

    
    

              (b) Small Business Administration Documentation. Lender acknowledges that Borrower completed,
executed and delivered to Lender SBA Forms 480, 652 and 1031 (Parts A and B)
together with a business plan showing Borrower’s financial projections
(including balance sheets and income and cash flows statements) for the period
described therein and a written statement (whether included in the purchase
agreement or pursuant to a separate statement) from Lender regarding its
intended use of proceeds from the sale of securities to Lender (the
“Use of Proceeds Statement”). Borrower represents and warrants to Lender
that the information regarding Borrower and its affiliates set forth in the SBA
Form 480, Form 652 and Form 1031 and the Use of Proceeds Statement delivered as
of the Closing Date is accurate and complete. 

     

              (c) Inspection. The
following covenants contained in this Section (c) are intended to supplement and not to
restrict the related provisions of the Loan Documents. Subject to the preceding
sentence, Borrower will permit, for so long as Lender holds any debt or equity
securities of Borrower, Lender or its representative, at Lender’ expense, and
examiners of the SBA to visit and inspect the properties and assets of Borrower,
to examine its books of account and records, and to discuss Borrower’s affairs,
finances and accounts with Borrower’s officers, senior management and
accountants, all at such reasonable times as may be requested by Lender or the
SBA. 

     

              (d) Annual Assessment.
Promptly after the end of each calendar year (but in any event prior to February
28 of each year) and at such other times as may be reasonably requested by
Lender, Borrower will deliver to Lender a written assessment of the economic
impact of Lender’ investment in Borrower, specifying the full-time equivalent
jobs created or retained in connection with the investment, the impact of the
investment on the businesses of Borrower in terms of expanded revenue and taxes,
other economic benefits resulting from the investment (such as technology
development or commercialization, minority business development, or expansion of
exports) and such other information as may be required regarding Borrower in
connection with the filing of Lender’s SBA Form 468. Lender will assist Borrower
with preparing such assessment. In addition to any other rights granted
hereunder, Borrower will grant Lender and the SBA access to Borrower’s books and
records for the purpose of verifying the use of such proceeds. Borrower also
will furnish or cause to be furnished to Lender such other information regarding
the business, affairs and condition of Borrower as Lender may from time to time
reasonably request.

     

              (e) Use of Proceeds. Borrower will use the proceeds from the Loan only for funding the
Acquisition and general working capital purposes. Borrower will deliver to
Lender from time to time promptly following Lender’s request, a written report,
certified as correct by Borrower’s Chief Financial Officer, verifying the
purposes and amounts for which proceeds from the Loan have been disbursed.
Borrower will supply to Lender such additional information and documents as
Lender reasonably requests with respect to its use of proceeds and will permit
Lender and the SBA to have access to any and all Borrower records and
information and personnel as Lender deems necessary to verify how such proceeds
have been or are being used, and to
assure that the proceeds have been used for the purposes specified in
Section 8.7. 

     

    

    
    

              (f) Activities and Proceeds. Neither Borrower nor any of its affiliates (if any) will engage in any
activities or use directly or indirectly the proceeds from the Loan for any
purpose for which a small business investment company is prohibited from
providing funds by the SBIC Act, including 13 C.F.R. §107.720. Without obtaining
the prior written approval of Lender, Borrower will not change within 1 year of
the date hereof, Borrower’s current business activity to a business activity
which a licensee under the SBIC Act is prohibited from providing funds by the
SBIC Act. 

     

              (g) Redemption Provisions. Notwithstanding any provision to the contrary contained in the
Certificate of Incorporation of Borrower, as amended from time to time (the
“Charter”), if, pursuant to the redemption provisions contained in the Charter,
Lender is entitled to a redemption of its Warrant, such redemption (in the case
of Lender) will be at a price equal to the redemption price set forth in the
Charter (the “Existing Redemption Price”). If, however, Lender delivers written
notice to Borrower that the then current regulations promulgated under the SBIC
Act prohibit payment of the Existing Redemption Price in the case of an SBIC
(or, if applied, the Existing Redemption Price would cause the Preferred Equity
Interest to lose its classification as an “equity security” and Lender has
determined that such classification is unadvisable), the amount Lender will be
entitled to receive shall be the greater of (i) fair market value of the
securities being redeemed taking into account the rights and preferences of such
securities plus any costs and expenses of Lender incurred in making or
maintaining the Warrant, and (ii) the Existing Redemption Price where the amount
of accrued but unpaid dividends payable to Lender is limited to Borrower’s
earnings plus any costs and expenses of Lender incurred in making or maintaining
the Warrant; provided, however, the amount calculated in subsections (i) or (ii)
above shall not exceed the Existing Redemption Price. 

     

              (h) Cost of Money. Notwithstanding any provision to the contrary contained in the Loan
Documents, all interest and fees charged pursuant to the Loan Documents shall
comply with the provisions of 13 C.F.R. § 107.855, including, without
limitation, that such amounts shall not exceed the Cost of Money ceiling (as
defined hereafter). The current Cost of Money ceiling for this Loan is 14.5
percent.

     

              (i) Compliance and Resolution. Borrower agrees that a failure to comply with Borrower’s obligations
under this Addendum, or any other set of facts or circumstances where it has
been asserted by any governmental regulatory agency (or Lender believes that
there is a substantial risk of such assertion) that Lender and its affiliates
are not entitled to hold, or exercise any significant right with respect to, any
securities issued to Lender by Borrower, will constitute a breach of the
obligations of Borrower under the financing agreements between Borrower and
Lender. In the event of (i) a failure to comply with Borrower’s obligations
under this Addendum; or (ii) an assertion by any governmental regulatory agency
(or Lender believes that there is a substantial risk of such assertion) of a
failure to comply with Borrower’s obligations under this Addendum, then (i)
Lender and Borrower will meet and resolve any such issue in good faith to the
satisfaction of Borrower, Lender, and any governmental regulatory agency, and
(ii) upon request of Lender, Borrower will cooperate and assist with any
assignment of the financing agreements from Hercules Technology II, L.P. to
Hercules Technology Growth Capital, Inc.

     

    

    
    

    SECURED REVOLVING PROMISSORY NOTE

     

    
      	$6,000,000	June [___], 2015

    

         FOR VALUE RECEIVED, Unify Corporation, a
Delaware corporation, for itself and each of its Subsidiaries (the “Borrower”) hereby promises to pay to the order of
Hercules Technology II, L.P., a Delaware limited partnership or the holder of
this Note (the “Lender”) at 400 Hamilton Avenue, Suite 310, Palo
Alto, CA 94301 or such other place of payment as the holder of this Secured
Revolving Promissory Note (this “Promissory Note”) may specify from time to time in writing,
in lawful money of the United States of America, the principal amount of Six
Million Dollars ($6,000,000) or such other principal amount as Lender has
advanced to Borrower, together with interest thereon, all as provided in the
Loan Agreement referred to below 

     

         This Promissory Note is the Note referred to
in, and is executed and delivered in connection with, that certain Loan and
Security Agreement dated as of June [___], 2010 among Borrower, the Guarantors
party thereto from time to time, and Lender (as the same may from time to time
be amended, modified or supplemented in accordance with its terms, the
“Loan Agreement”), and is entitled to the benefit and
security of the Loan Agreement and the other Loan Documents (as defined in the
Loan Agreement), to which reference is made for a statement of all of the terms
and conditions thereof. All payments shall be made in accordance with the Loan
Agreement. All terms defined in the Loan Agreement shall have the same
definitions when used herein, unless otherwise defined herein. An Event of
Default under the Loan Agreement shall constitute a default under this
Promissory Note.

     

         Borrower waives presentment and demand for
payment, notice of dishonor, protest and notice of protest under the UCC or any
applicable law. Borrower agrees to make all payments under this Promissory Note
without setoff, recoupment or deduction and regardless of any counterclaim or
defense. This Promissory Note has been negotiated and delivered to Lender and is
payable in the State of California. This Promissory Note shall be governed by
and construed and enforced in accordance with, the laws of the State of
California, excluding any conflicts of law rules or principles that would cause
the application of the laws of any other jurisdiction. 

     

    
      	
            	UNIFY
      CORPORATION

  
	
            	 
By:
	
            	Title:

    

    

    
    

    SECURED TERM PROMISSORY NOTE

     

    
      	$24,000,000	June [___], 2010

    

         FOR VALUE RECEIVED, Unify Corporation, a
Delaware corporation, for itself and each of its Subsidiaries (the “Borrower”) hereby promises to pay to the order of
Hercules Technology II, L.P., a Delaware limited partnership or the holder of
this Note (the “Lender”) at 400 Hamilton Avenue, Suite 310, Palo
Alto, CA 94301 or such other place of payment as the holder of this Secured Term
Promissory Note (this “Promissory Note”) may specify from time to time in writing,
in lawful money of the United States of America, the principal amount of
Twenty-Four Million Dollars ($24,000,000) or such other principal amount as
Lender has advanced to Borrower, together with interest thereon, all as provided
in the Loan Agreement referred to below.

     

         This Promissory Note is the Note referred to
in, and is executed and delivered in connection with, that certain Loan and
Security Agreement dated as of June [___], 2010 among Borrower, the Guarantors
party thereto from time to time, and Lender (as the same may from time to time
be amended, modified or supplemented in accordance with its terms, the
“Loan Agreement”), and is entitled to the benefit and
security of the Loan Agreement and the other Loan Documents (as defined in the
Loan Agreement), to which reference is made for a statement of all of the terms
and conditions thereof. All payments shall be made in accordance with the Loan
Agreement. All terms defined in the Loan Agreement shall have the same
definitions when used herein, unless otherwise defined herein. An Event of
Default under the Loan Agreement shall constitute a default under this
Promissory Note.

     

         Borrower waives presentment and demand for
payment, notice of dishonor, protest and notice of protest under the UCC or any
applicable law. Borrower agrees to make all payments under this Promissory Note
without setoff, recoupment or deduction and regardless of any counterclaim or
defense. This Promissory Note has been negotiated and delivered to Lender and is
payable in the State of California. This Promissory Note shall be governed by
and construed and enforced in accordance with, the laws of the State of
California, excluding any conflicts of law rules or principles that would cause
the application of the laws of any other jurisdiction. 

     

    
      	
            	UNIFY
      CORPORATION

  
	
            	 
By:
	
            	Title:

    

    

    
    

    Schedules and Exhibits
Omittedexhibit10-3.htm

    EXECUTION COPY

     

    REGISTRATION RIGHTS
AGREEMENT

     

         This Registration Rights Agreement (this
“Agreement”) is made as of June 29, 2010 by Unify Corporation, a Delaware
corporation (the “Company”), for the benefit of the Holders (as such term is
hereinafter defined). The Company hereby confirms that the rights granted under
this Agreement constitute a material inducement to the Holders to participate in
(i) the merger of Strategic Office Solutions, Inc., a California corporation
doing business as Daegis (“Daegis”), with Unify Acquisition Corp., a California
corporation and wholly-owned subsidiary of the Company (“Merger Sub”), pursuant
to the Merger Agreement (as defined herein) and (ii) in the Warrant (as defined
herein), as applicable. Each Holder, by its participation or request to
participate in any Registration effected pursuant to this Agreement, shall be
deemed to have confirmed such Holder’s agreement to comply with the applicable
provisions of this Agreement.

     

         NOW, THEREFORE, the Company hereby
agrees, in favor of the Holders, as follows:

     

         1. Definitions. In addition to those terms defined elsewhere
in this Agreement, the following terms shall have the following meanings
wherever used in this Agreement:

     

              “Act” shall mean the Securities Act of 1933,
as amended, and any successor statute from time to time.

     

              “Affiliate”
shall mean, with respect to any person, any other person controlling, controlled
by or under common control with the first person.

     

              “Common
Stock” means the common stock of
the Company, par value $0.001 and any other class of securities into which such
shares may hereafter have been reclassified or changed.

     

              “Company”
shall mean Unify Corporation, a Delaware corporation, and shall include any
successor thereto.

     

              “Costs
and Expenses” shall mean all of the costs and expenses relating to any subject
Registration Statement, including but not limited to registration, filing and
qualification fees, blue sky expenses, costs of listing any Shares on any
exchange or other trading media, and printing expenses, fees and disbursements
of counsel and accountants to the Company, and reasonable fees and disbursements
of (i) a single counsel (in addition to appropriate local counsel) to the
Holders (other than Hercules) and (ii) separate counsel to Hercules;
provided, however, that underwriting discounts and commissions
attributable solely to the securities registered for the benefit of Holders,
fees and disbursements of any additional counsel to Holders, and all other
expenses attributable solely to Holders shall be borne by each subject
Holder.

     

              “Daegis”
shall mean Strategic Office Solutions, Inc., a California corporation doing
business as Daegis.

     

              “Effectiveness
Date” has the meaning set forth in Section 2(b).

     

              “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended, and any
successor statute from time to time.

     

    

    
    

              “Filing
Date” has the meaning set forth in Section 2(a).

     

              “Hercules”
shall mean Hercules Technology II, L.P., a Holder for purposes of this
Agreement.

     

              “Holder”
or “Holders” means the holder or holders, as the case may be, from time to time
of Registrable Shares.

     

              “Liquidated
Damages” shall have the meaning set forth in Sections 2(f) and
(2g).

     

              “Merger
Agreement” shall mean the Agreement and Plan of Merger dated as of June 29,
2010, by and among the Company, Merger Sub, Daegis, and certain shareholders of
Daegis.

     

              “Merger
Consideration” shall mean the 2,085,714 shares of Common Stock issued to the
shareholders of Daegis under the Merger Agreement, and the shares of Common
Stock issuable upon conversion of the convertible notes issued to the
shareholders of Daegis under the Merger Agreement.

     

              “Merger
Sub” shall mean Unify Acquisition Corp., a California corporation and
wholly-owned subsidiary of the Company.

     

              “Person”
shall mean any individual, corporation, partnership, limited partnership,
limited liability company, trust, or other entity of any kind, and any
government or department or agency thereof.

     

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

     

              “Registrable
Shares” shall mean all Shares, excluding any Shares which may then be sold by
the Holder thereof without restriction (including, without limitation, volume
restriction) pursuant to Rule 144 promulgated under the Act.

     

              “Registration”
shall mean any registration of Common Stock pursuant to a registration statement
filed by the Company with the SEC in respect of any class of Common Stock,
other than a registration statement in respect of
employee stock options or other employee benefit plans or in respect of any
merger, consolidation, acquisition or like combination on Form S-4, Form S-8 or
any equivalent form of registration then in effect.

     

    - 2 -

     

    

    
    

              “Registration
Period” shall mean, with respect to a Registration Statement, the period of time
from the effective date of such Registration Statement until such date as is the
earlier of (a) the date on which all of the Registrable Shares covered by such
Registration Statement shall have been sold to the public, or (b) the date on
which the Shares (in the opinion of counsel to the Company evidenced by a
written opinion issued to the Holders in form reasonably acceptable to the
Holders) may be immediately sold without restriction (including, without
limitation, as to volume restrictions) by each Holder thereof without
registration under the Act.

     

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

     

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

     

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

     

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

     

              “SEC”
shall mean the United States Securities and Exchange Commission, or any
successor agency or agencies performing the functions thereof.

     

              “Shares”
shall mean, collectively, (i) the Common Stock and/or other securities issued
and/or issuable from time to time as Merger Consideration, (ii) the shares of
Common Stock issued by the Company under the Warrant and (iii) any additional or
other Shares issued in respect of any of the foregoing Shares by reason of any
stock split, stock dividend, merger, share exchange, recapitalization or other
such event.

     

              “Warrant”
shall mean the Warrant to purchase Common Stock No. 1 of the Company dated June
29, 2010 in favor of Hercules.

     

              “Warrant Exercise Date” shall mean any time on
or after the twenty-first (21st) day following the Company’s distribution of an
information statement to its stockholders, in accordance with Regulation 14C
under the Securities Exchange Act of 1934, as amended, with respect to the
action taken by the Company’s stockholders by written consent approving the
issuance of the Warrant Shares.

     

    - 3 -

     

    

    
    

         2. Shelf Registration.

     

              (a) The Company shall prepare and file with the SEC (i) not later than sixty
(60) days after the date of this Agreement (the “Filing Date”), a Registration
Statement or Registration Statements (as necessary) on a form that is
appropriate under the Act (and, if available, pursuant to Rule 415 promulgated
under the Act), covering the resale of all of the Registrable Shares, in an
amount sufficient to cover the resale of all Shares. The Registration Statement
shall be on Form S-3 (except if the Company is not then eligible to register for
resale the Registrable Shares on Form S-3, in which case such registration shall
be on another appropriate form in accordance herewith).

     

              (b) Subject to the terms of this Agreement, the Company shall use its best
efforts to cause the Registration Statement(s) required by this Section 2 to be
declared effective under the Act as promptly as possible after the filing
thereof, but in any event not later than one hundred twenty (120) days after the
date of this Agreement (the “Effectiveness Date”).

     

              (c) Subject to the terms of this Agreement, the Company shall use its best
efforts to keep each Registration Statement under this Section 2 effective at
all times during the applicable Registration Period.

     

              (d) If any offering pursuant to a Registration Statement pursuant to this
Section 2 involves an underwritten offering (which may only be with the consent
of the Company, which shall not be unreasonably withheld or delayed), the
Holders (acting by a majority in interest) shall have the right to select legal
counsel and an investment banker or bankers and manager or managers to
administer to the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company; provided that Hercules shall have the right to select its
own legal counsel.

     

              (e) The Company shall notify the Holders via facsimile or electronic mail of
the effectiveness of the Registration Statement within three business days of
the Company telephonically confirming effectiveness with the Commission. The
Company shall, by 9:30 AM Eastern Time on the Trading Day that is three business
days after the Effective Date, file a Form 424(b)(5) with the
Commission.

     

    - 4 -

     

    

    
    

              (f) If: (i) the Registration Statement or Registration Statements (as
necessary) are not filed on or prior to its Filing Date (ii) the Company files
such Registration Statement(s) without affording the Holders the opportunity to
review and comment on the same as required by Section 2(i) hereof; (iii) a
Registration Statement(s) filed or required to be filed hereunder is not
declared effective by the Commission by the Effectiveness Date; or (iv) after
the effective date of a Registration Statement, such Registration Statement
ceases for any reason to remain continuously effective as to all Registrable
Shares included in such Registration Statement during the Registration Period,
or the Holders are otherwise not permitted to utilize such Registration
Statement(s) to resell such Registrable Shares (A) for the reasons set forth in
Section 2(h) hereof or (B) for any other reason, more than an aggregate of 60
calendar days (which will not include more than 30 consecutive days) during any
12-month period (any such failure or breach being referred to as an “Event”, and
for purposes of clause (i), (ii) and (iii), the date on which such Event occurs
and for purposes of clause (iv) the date on which such period,
as applicable, is exceeded
being referred to as “Event Date”), then, in addition to any other rights the
Holders may have hereunder or under applicable law, on each such Event Date and
on each monthly anniversary of each such Event Date (if the applicable Event
shall not have been cured by such date) until the applicable Event is cured, the
Company shall pay to each Holder (except Hercules which will receive liquidated
damages as described below in Section 2(g)) an amount in cash, as partial
liquidated damages and not as a penalty, equal to $0.01167 per Share for any
unregistered Registrable Share then held by such Holder. The aggregate
liquidated damages for all Holders other than Hercules shall be limited to $0.07
per Share. If the Company fails to pay any partial liquidated damages pursuant
to this Section in full within seven days after the date payable, the Company
will pay interest thereon at a rate of 18% per annum (or such lesser maximum
amount that is permitted to be paid by applicable law) to the Holder, accruing
daily from the date such partial liquidated damages are due until such amounts,
plus all such interest thereon, are paid in full. The partial liquidated damages
pursuant to the terms hereof shall apply on a daily pro rata basis for any
portion of a month prior to the cure of an Event.

     

              (g) Notwithstanding Section 2(f) above, if: (i) the Registration Statement or
Registration Statements (as necessary) are not filed on or prior to the Filing
Date (ii) the Company files such Registration Statement(s) without affording the
Holders the opportunity to review and comment on the same as required by Section
2(i) hereof; (iii) a Registration Statement(s) filed or required to be filed
hereunder is not declared effective by the Commission by the Effectiveness Date;
or (iv) after the effective date of a Registration Statement, such Registration
Statement ceases for any reason to remain continuously effective as to all
Registrable Shares included in such Registration Statement during the
Registration Period, or Hercules is otherwise not permitted to utilize such
Registration Statement(s) to resell such Registrable Shares (A) for the reasons
set forth in Section 2(h) hereof or (B) for any other reason, in each case, for
more than 30 consecutive calendar days or for more than 60 calendar days in the
aggregate during any twelve-month period (which need not be consecutive business
days) (any such failure or breach being referred to as an “Event”, and for
purposes of clause (i), (ii) and (iii), the date on which such Event occurs and
for purposes of clause (iv) the date on which such period, as applicable, is
exceeded being referred to as an “Event Date”), then, in addition to any other
rights Hercules may have hereunder or under applicable law, the Company shall
pay to Hercules an amount in cash, as partial liquidated damages and not as a
penalty, an amount equal to (x) on the one month anniversary of the Event Date,
$100,000, and (y) on each one month anniversary of the Event Date occurring
thereafter (if the applicable Event shall not have been cured by such monthly
anniversary) until the applicable Event is cured, a cumulative amount equal to
(1) the aggregate amount paid on the one month anniversary of the Event Date and
each succeeding monthly anniversary, if any, plus (2) $100,000 for each passing
of an additional thirty (30) days thereafter, which amount will be pro-rated if
the Event is cured prior to the next monthly anniversary; provided that the total aggregate amount shall not exceed
$500,000 per month. For example, if an Event occurs and is ongoing for
forty-five (45) days, the amount of the partial liquidated damages payable by
the Company to Hercules pursuant to the terms hereof, would equal $200,000
($100,000 for the first thirty (30) days plus $200,000 multiplied by the 0.5 to
account for the fact that the Event was cured fifteen (15) days before the next
monthly anniversary). Solely to the extent (i) the Warrant is not exercisable in
accordance with its terms by the Warrant Exercise Date and (ii) the Warrant has
been returned to the Company for cancellation in accordance with Section 8.20 of
the Loan and Security Agreement of even date herewith between the Company,
certain subsidiaries of the Company as guarantors and Hercules, this Section 2(g) shall terminate at
cancellation of the Warrant, the Shares issuable upon exercise of the Warrant
shall cease to be Registrable Shares and Hercules shall have no further rights
or obligations under this Agreement. 

     

    - 5 -

     

    

    
    

              (h) If the Registrable Shares are registered for resale under an effective
Registration Statement, the Holders shall cease any distribution of such Shares
under such Registration Statement:

     

                   (i) for a period of up to
sixty (60) days if (A) such distribution would require the public disclosure of
material non-public information concerning any transaction or negotiations
involving the Company or any of its Affiliates that, in the reasonable judgment
of the Company’s Board of Directors, would materially interfere with such
transaction or negotiations, or (B) such distribution would otherwise require
premature disclosure of information that, in the reasonable judgment of the
Company’s Board of Directors, would adversely affect or otherwise be detrimental
to the Company; provided that the Company shall not invoke this clause
(i) more than twice in any twelve (12) month period or for more than an
aggregate of ninety (90) days in any such twelve (12) month period;

     

                   (ii) not more than once in any twelve (12) month period, for up to thirty (30)
days, upon the request of the Company if the Company proposes to file a
Registration Statement under the Act for the offering and sale of securities for
its own account in an underwritten offering and the managing underwriter
therefor shall advise the Company in writing that in its opinion the continued
distribution of the Registrable Shares would adversely affect the offering of
the securities proposed to be registered for the account of the Company;
and

     

                   (iii) for a period of up to sixty (60) days after the filing of the Company’s
annual report on Form 10-K or Form 10-KSB or other event that requires the
filing of a post-effective amendment to any Registration Statement hereunder, so
long as the Company has filed and is during such period actively pursuing
effectiveness of such post-effective amendment with the staff of the
SEC.

     

    The Company shall
promptly notify the Holders in writing at such time as (x) such transactions or
negotiations have been otherwise publicly disclosed or terminated, or (y) such
non-public information has been publicly disclosed or counsel to the Company has
determined that such disclosure is not required due to subsequent
events.

     

              (i) The Company shall (i) not
less than five business days prior to filing of the Registration Statement,
provide to each Holder for his, her or its review (A) a copy of the Registration
Statement proposed to be filed, and all amendments and supplements thereto, in
each case to the extent of any information with respect to the Holders, their
and their Affiliates’ beneficial ownership of securities of the Company, and
their intended method of disposition of Registrable Shares, and (B) all requests
for acceleration or effectiveness thereof and any correspondence between the
Company and the SEC relating to the Registration Statement (collectively, the
“Registration Documents”), for a reasonable period of time prior to their filing
with the SEC, (ii) not file (or send) any Registration Documents in a form to
which such Holder reasonably objects, (iii) not request acceleration of such
Registration Statement without prior notice to such Holder and (iv) consider all
appropriate comments that are timely provided by such Holder with respect to the
Registration Statement. The sections of such Registration Statement covering
information with respect to the Holders, their and their Affiliates’ beneficial
ownership of securities of the Company, and their intended method of disposition
of Registrable Shares shall conform to the information provided to the Company
by the Holders.

     

    - 6 -

     

    

    
    

              (j) The Registration Statement pursuant to this Section 2 shall not include
any securities other than Registrable Shares.

     

              (k)
The Company shall bear all of the
Costs and Expenses of the Registration pursuant to this Section 2.

     

         3. Piggyback Registration. In the event that the Company shall propose
a Registration at any time after the first anniversary of the date hereof when a
Registration Statement is not effective pursuant to Section 2 above, then the
Company shall give to each Holder written notice (the “Registration Notice”) of
such proposed Registration (which notice shall include a statement of the
proposed filing date thereof, the underwriters and/or managing underwriters of
the subject offering, and any other known material information relating to the
proposed Registration) not less than twenty (20) or more than sixty (60)
calendar days prior to the filing of the subject Registration Statement, and
shall, subject to the limitations provided in this Section 3, include in such
Registration Statement all or a portion of the Registrable Shares owned by
and/or issuable to each Holder, as and to the extent that such Holder may
request same to be so included by means of written notice given to the Company
within ten (10) business days after the Company’s giving of the Registration
Notice. Each Holder shall be permitted to withdraw all or any part of its
Registrable Shares from a Registration Statement by written notice to the
Company given at any time prior to the effective date of the Registration
Statement. The Company shall bear all of the Costs and Expenses of any
Registration described in this Section 3; provided, however, that each Holder shall pay, pro rata based upon the number of its Registrable
Shares included therein, the underwriters’ discounts, commissions and
compensation attributable solely to the inclusion of such Registrable Shares in
the overall public offering. Notwithstanding anything to the contrary contained
herein, the Company’s obligation to include a Holder’s Registrable Shares in any
such Registration Statement shall be subject, at the option of the Company, to
the following further conditions:

     

              (a) The distribution for the account of such Holder shall be underwritten by
the same underwriters (if any) who are underwriting the distribution of the
securities for the account of the Company and/or any other persons whose
securities are covered by such Registration Statement, and shall be made at the
same underwriter discount or commission applicable to the distribution of the
securities for the account of the Company and/or any other Persons whose
securities are covered by such Registration Statement; and such Holder shall
enter into an agreement with such underwriters containing customary
indemnification and other provisions;

     

              (b) If at any time after giving the Registration Notice, and prior to the
effective date of the Registration Statement filed in connection with such
Registration Notice, the Company shall determine for any reason not to proceed
with the subject Registration, the Company may, at its election, give written
notice of such determination to the Holders and, thereupon, shall be relieved of
its obligation to register any of the Holders’ Registrable Shares in connection
with such Registration; 

     

    - 7 -

     

    

    
    

              (c) In connection with an underwritten public offering pursuant to a
Registration Statement under this Section 3, if and only if the managing
underwriter(s) thereof shall advise the Company in writing that, due to adverse
market conditions or the potential adverse impact on the offering to be made for
the account of the Company, the securities to be included in such Registration
will not include all of the Registrable Shares requested to be so included by
the Holders, then the Company will promptly furnish each such Holder with a copy
of such written statement and may require, by written notice to each such Holder
accompanying such written statement, that the distribution of all or a specified
portion of such Registrable Shares be excluded from such distribution (with any
such “cutback” to be allocated among the subject Holders (and, if applicable,
any other holders of Common Stock to be included in such Registration) in
proportion to the relative number of shares of Common Stock requested by such
Persons to be included in such Registration); and

     

              (d)
The Company shall not be
obligated to effect any registration of Shares incidental to the Registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans on
Form S-4, Form S-8 or any equivalent form of registration then in
effect.

     

         4. Registration Procedures. In the case of each Registration effected by
the Company in which Registrable Shares are to be sold for the account of any
Holder, the Company, at its sole cost and expense, will use its best efforts
to:

     

              (a) prepare and file with the SEC such amendments and supplements, including
post-effective amendments, to such Registration Statement and the Prospectus
included therein as may be necessary to effect and maintain the effectiveness of
such Registration Statement, until the completion of the distribution of the
Registrable Shares included therein, as may be required by the applicable rules
and regulations of the SEC and the instructions applicable to the form of such
Registration Statement, and furnish to the Holders of the Registrable Shares
covered thereby copies of any such supplement or amendment not less than three
business days prior to the date first used and/or filed with the SEC, and comply
with the provisions of the Act with respect to the disposition of all the Shares
to be included in such Registration Statement;

     

              (b) provide (i) the Holders of the Registrable Shares to be included in such
Registration Statement, (ii) the underwriters (which term, for purposes of this
Agreement, shall include a person deemed to be an underwriter within the meaning
of Section 2(11) of the Act), if any, thereof, (iii) the sales or placement
agent, if any, therefor, (iv) one counsel for such underwriters or agent , (v)
not more than one counsel for all the Holders (other than Hercules) of such
Registrable Shares and (vi) separate counsel for Hercules, the reasonable
opportunity review such Registration Statement, each Prospectus included therein
or filed with the SEC, and each amendment or supplement thereto, in each case to
the extent of any disclosures regarding the Holders, their and their Affiliates’
beneficial ownership of securities of the Company, and their intended method of
disposition of the Registrable Shares included in such Registration Statement
(or any amendment to any such information previously included in such
Registration Statement (including any amendment or supplement thereto) or any
Prospectus included therein);

     

    - 8 -

     

    

    
    

              (c) for a reasonable period prior to the filing of such Registration
Statement, and not more than once in any calendar quarter throughout the period
specified above, make available for inspection by the Persons referred to in
Section 4(b) above such financial and other information and books and records of
the Company, and cause the officers, directors, employees, counsel and
independent certified public accountants of the Company to respond to such
inquiries, as shall be reasonably necessary, in the judgment of the respective
counsel referred to in such Section 4(b), to conduct a reasonable investigation
within the meaning of the Act; provided, however, that each such party shall be required to
maintain in confidence and not disclose to any other person or entity any
information or records reasonably designated by the Company in writing as being
confidential, until such time as and to the extent that (i) such information
becomes a matter of public record or generally available to the public (whether
by virtue of its inclusion in such Registration Statement or otherwise, other
than by reason of a breach hereof), (ii) such party shall be required to
disclose such information pursuant to the subpoena or order of any court or
other governmental agency or body having jurisdiction over the matter, or (iii)
such information is required to be set forth in such Registration Statement or
the Prospectus included therein or in an amendment to such Registration
Statement or an amendment or supplement to such Prospectus in order that such
Registration Statement, Prospectus, amendment or supplement, as the case may be,
does not include an untrue statement of a material fact or omit to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; and further provided, that the Company need not make such
information available, nor need it cause any officer, director or employee to
respond to such inquiry, unless each such Holder of Registrable Shares to be
included in a Registration Statement hereunder, upon the Company’s request,
executes and delivers to the Company a specific undertaking to substantially the
same effect contained in the immediately preceding proviso;

     

              (d)
promptly notify in writing the
Holders of Registrable Shares to be included in a Registration Statement
hereunder, the sales or placement agent, if any, therefor and the managing
underwriter of the securities being sold, (i) when such Registration Statement
or the Prospectus included therein or any Prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to such registration
statement or any post-effective amendment, when the same has become effective,
(ii) of any comments by the SEC and by the blue sky or securities commission or
regulator of any state with respect thereto or any request by the SEC for
amendments or supplements to such Registration Statement or the Prospectus or
for additional information, (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of such registration statement or the initiation of
any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any Shares
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose, or (v) if it shall be the case, at any time when a Prospectus
is required to be delivered under the Act, that such Registration Statement,
Prospectus, or any document incorporated by reference in any of the foregoing
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;

     

    - 9 -

     

    

    
    

              (e) avoid the issuance of,
or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of the Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable Shares
for sale in any jurisdiction, as soon as practicable;

     

              (f) if requested by any managing underwriter or underwriter, any placement or
sales agent or any Holder of Registrable Shares to be included in a Registration
Statement, promptly incorporate in a Prospectus, Prospectus supplement or
post-effective amendment such information as is required by the applicable rules
and regulations of the SEC and as such managing underwriter or underwriters,
such agent or such Holder may reasonably specify should be included therein
relating to the terms of the sale of the Registrable Shares included thereunder,
including, without limitation, information with respect to the number of
Registrable Shares being sold by such Holder or agent or to such underwriters,
the name and description of such Holder, the offering price of such Registrable
Shares and any discount, commission or other compensation payable in respect
thereof, the purchase price being paid therefor by such underwriters and with
respect to any other terms of the offering of the Registrable Shares to be sold
in such offering; and make all required filings of such Prospectus, Prospectus
supplement or post-effective amendment promptly after notification of the
matters to be incorporated in such Prospectus, Prospectus supplement or
post-effective amendment;

     

              (g) furnish, without charge, to each Holder of Registrable Shares to be
included in such Registration Statement hereunder, each placement or sales
agent, if any, therefor, each underwriter, if any, thereof and the counsel
referred to in Section 4(b) an executed copy of such Registration Statement,
each such amendment and supplement thereto (in each case excluding all exhibits
and documents incorporated by reference) and such number of copies of the
Registration Statement (excluding exhibits thereto and documents incorporated by
reference therein unless specifically so requested by such Holder, agent or
underwriter, as the case may be) and the Prospectus included in such
Registration Statement (including each preliminary Prospectus and any summary
Prospectus), in conformity with the requirements of the Act, as such Holder,
agent, if any, and underwriter, if any, may reasonably request in order to
facilitate the disposition of the Shares owned by such Holder, sold by such
agent or underwritten by such underwriter and to permit such Holder, agent and
underwriter to satisfy the Prospectus delivery requirements of the Act; and the
Company hereby consents to the use of such Prospectus and any amendment or
supplement thereto by each such Holder and by any such agent and underwriter, in
each case in the form most recently provided to such person by the Company, in
connection with the offering and sale of the Shares covered by the Prospectus
(including such preliminary and summary Prospectus) or any supplement or
amendment thereto;

     

              (h) timely (i) register or qualify (to the extent legally required) the
Shares to be included in such Registration Statement under such other securities
laws or blue sky laws of such jurisdictions to be designated by the Holders of
such Shares participating in such Registration and each placement or sales
agent, if any, therefor and underwriter, if any, thereof, as any Holder and each
underwriter, if any, of the securities being sold shall reasonably request, (ii)
keep such registrations or qualifications in effect and comply with such laws so
as to permit the continuance of offers, sales and dealings therein in such
jurisdictions for so long as may be necessary to enable such Holder, agent or
underwriter to complete its distribution of the Registrable Shares pursuant to
such Registration Statement, and (iii) take any and all such actions as may be
reasonably necessary or advisable to enable such Holder, agent, if any, and
underwriter to consummate the disposition in such jurisdictions of such Shares;
provided, however, that the Company shall not be required for
any such purpose to (A) qualify generally to do business as a foreign
corporation or a broker-dealer in any jurisdiction wherein it would not
otherwise be required to qualify but for the requirements of this Section 4(h),
(B) subject itself to taxation in any such jurisdiction, or (C) consent to
general service of process in any such jurisdiction; 

     

    - 10 -

     

    

    
    

              (i) cooperate with the
Holders of the Registrable Shares to be included in a Registration Statement
hereunder and the managing underwriter(s) to facilitate the timely preparation
and delivery of certificates representing Registrable Shares to be sold, which
certificates shall be printed, lithographed or engraved, or produced by any
combination of such methods, in customary form to permit the transfer thereof
through the Company’s transfer agent; and enable such Registrable Shares to be
in such denominations and registered in such names as the managing
underwriter(s) may request at least two (2) business days prior to any sale of
the Registrable Shares;

     

              (j) provide a CUSIP number for all Shares, not later than the effective date
of the Registration Statement;

     

              (k) in the event that Registrable Shares included in any Registration
Statement are to be sold to or through any underwriter or placement or sales
agent, (i) make such representations and warranties to the Holders of such
Registrable Shares and the placement or sales agent, if any, therefor and the
underwriters, if any, thereof in form, substance and scope as are customarily
made in connection with any offering of equity securities pursuant to any
appropriate agreement and/or in a registration statement filed on the form
applicable to such Registration Statement; (ii) if so requested by any such
underwriter or placement or sales agent, obtain an opinion of counsel to the
Company in customary form and covering such matters, of the type customarily
covered by such an opinion, as the managing underwriters, if any, and/or the
placement or sales agent may reasonably request, addressed to such Holders and
the placement or sales agent, if any, therefor and the underwriters, if any,
thereof and dated the effective date of such Registration Statement (and if such
Registration Statement contemplates an underwritten offering of a part or of all
of the Shares included in such Registration Statement, dated the date of the
closing under the underwriting agreement relating thereto) (it being agreed that
the matters to be covered by such opinion shall include, without limitation, the
due organization of the Company and its subsidiaries, if any; the qualification
of the Company and its subsidiaries, if any, to transact business as foreign
entities; the due authorization, execution and delivery of this Agreement and of
any underwriting agreement; the absence, to such counsel’s knowledge, of pending
or threatened material legal or governmental proceedings involving the Company
or any subsidiary; the absence of a known breach by the Company or its
subsidiaries of, or a default under, agreements binding the Company or any
subsidiary; the absence of governmental approvals required to be obtained in
connection with the Registration Statement, the offering and sale of the Shares,
this Agreement or any underwriting agreement; the compliance as to form of such
Registration Statement and any documents incorporated by reference therein with
the requirements of the Act; and the effectiveness of such Registration
Statement under the Act); (iii) if so requested by any such underwriter or
placement or sales agent, obtain a “cold comfort” letter or letters from the
independent certified public accountants of the Company addressed to the Holders
and the placement or sales agent, if any, therefor and the underwriters, if any,
thereof, dated (A) the effective date of such Registration Statement, and (B)
the effective date of the most recent (or, if so stated in the request therefor,
the next) Prospectus supplement to the Prospectus included in such Registration
Statement or post-effective amendment to such Registration Statement which
includes unaudited or audited financial statements as of a date or for a period
subsequent to that of the latest such statements included in such Prospectus
(and, if such Registration Statement contemplates an underwritten offering
pursuant to any Prospectus supplement to the Prospectus included in such
Registration Statement or post-effective amendment to such Registration
Statement which includes unaudited or audited financial statements as of a date
or for a period subsequent to that of the latest such statements included in
such Prospectus, dated the date of the closing under the underwriting agreement
relating thereto), such letter or letters to be in customary form and covering
such matters of the type customarily covered by letters of such type; (iv)
deliver such documents and certificates, including officers’ certificates, as
may be customary and reasonably requested by Holders of the Registrable Shares
being sold and the placement or sales agent, if any, therefor and the managing
underwriters, if any, thereof to evidence the accuracy of the representations
and warranties made pursuant to clause (i) above and the compliance with or
satisfaction of any agreements or conditions contained in the underwriting
agreement or other agreement entered into by the Company; and (v) undertake such
obligations relating to expense reimbursement, indemnification and contribution
as are provided in Sections 2, 3 and 5 hereof;

     

    - 11 -

     

    

    
    

              (l) notify in writing each
Holder of Registrable Shares of any proposal by the Company to amend or waive
any provision of this Agreement and of any amendment or waiver effected pursuant
thereto, each of which notices shall contain the text of the amendment or waiver
proposed or effected, as the case may be;

     

              (m) engage to act on behalf of the Company, with respect to the Registrable
Shares to be so registered, a registrar and transfer agent having such duties
and responsibilities (including, without limitation, registration of transfers
and maintenance of stock registers) as are customarily discharged by such an
agent, and to enter into such agreements and to offer such indemnities as are
customary in respect thereof; and

     

              (n) otherwise comply with all applicable rules and regulations of the SEC,
and make available to the Holders, as soon as practicable, but in any event not
later than 18 months after the effective date of such Registration Statement, an
earnings statement covering a period of at least twelve (12) months which shall
satisfy the provisions of Section 11(a) of the Act and Rule 158
thereunder.

     

         5. Indemnification by the
Company.

     

              (a) The Company shall, not withstanding any termination of this Agreement,
indemnify each Holder and its Affiliates from and against any claim, loss, cost,
charge or liability of any kind, including amounts paid in settlement and
reasonable attorneys’ fees, which may be incurred by the Holder or Affiliate as
a result of any breach of any representation or warranty or covenant of the
Company contained in this Agreement or in any certificate delivered on the
closing date of any public offering of Shares.

     

    - 12 -

     

    

    
    

              (b) The Company shall
indemnify and hold harmless each Holder and its Affiliates, any underwriter (as
defined in the Act) for any Holder, each officer and director of a Holder, legal
counsel and accountants for a Holder, and each person, if any, who controls a
Holder or such underwriter within the meaning of the Act, against any losses,
expenses, claims, damages or liabilities, joint or several, to which such Holder
or any such Affiliate, underwriter, officer, director or controlling person
becomes subject, under the Act or any rule or regulation thereunder or
otherwise, insofar as such losses, expenses, claims, damages or liabilities (or
actions in respect thereof) (i) are caused by any untrue statement or alleged
untrue statement of any material fact contained in any preliminary Prospectus
(if used prior to the effective date of the Registration Statement), or
contained, on the effective date thereof, in any Registration Statement in which
Registrable Shares were included, the Prospectus contained therein, any
amendment or supplement thereto, or any other document related to such
Registration Statement, or (ii) arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) arise out
of any violation by the Company of the Act or any rule or regulation thereunder
applicable to the Company and relating to actions or omissions otherwise
required of the Company in connection with such registration. The Company shall
reimburse each Holder and any such Affiliate, underwriter, officer, director or
controlling person for any legal or other expenses reasonably incurred by such
Holder, or any such officer, director, underwriter or controlling person in
connection with investigating, defending or settling any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be liable to any
such Persons in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information furnished to the Company in writing by such
Person expressly for inclusion in any of the foregoing documents. This indemnity
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld or
delayed.

     

         6. Further Obligations of
Holders. The obligations
of the Company with respect to any particular Holder are subject to such
Holder’s agreement to the following (which such Holder shall specifically
confirm in writing to the Company upon the Company’s request in connection with
any Registration Statement):

     

              (a) Such Holder shall furnish in writing to the Company all information
concerning such Holder and its and its Affiliates’ holdings of securities of the
Company and its Affiliates, and the intended method of disposition of the
Registrable Shares included in such Registration Statement, as shall be
reasonably required in connection with the preparation and filing of any
Registration Statement covering any of such Holder’s Registrable
Shares.

     

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              (b) Such Holder shall, not withstanding any termination of this Agreement,
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed a Registration Statement, each person (if any) who
controls the Company within the meaning of the Act, and any underwriter (as
defined in the Act) for the Company, against any losses, claims, damages or
liabilities to which the Company or any such director, officer, controlling
person or underwriter may become subject under the Act or any rule or regulation
thereunder or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) (i) are caused by any untrue statement or
alleged untrue statement of any material fact contained in any preliminary
Prospectus (if used prior to the effective date of the Registration Statement),
or contained, on the effective date thereof, in any Registration Statement in
which such Holder’s Registrable Shares were included, the Prospectus contained
therein, any amendment or supplement thereto, or any other document related to
such Registration Statement, or (ii) arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with information furnished to the Company by such Holder in
writing expressly for inclusion in any of the foregoing documents. In no event
shall any Holder be required to pay indemnification hereunder (or contribution
under Section 7(d) below) in an aggregate amount in excess of the net proceeds
received by such Holder in the subject offering. This indemnity shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the subject Holder,
which consent shall not be unreasonably withheld or delayed.

     

         7. Additional Provisions.

     

              (a) Each Holder and each other Person indemnified pursuant to Section 5 above
shall, in the event that it receives written notice of the commencement of any
action against it which is based upon an alleged act or omission which, if
proven, would result in the Company’s having to indemnify it pursuant to Section
5 above, promptly notify the Company, in writing, of the commencement of such
action and permit the Company, if the Company so notifies such Holder within
twenty (20) calendar days after receipt by the Company of notice of the
commencement of the action, to participate in and to assume the defense of such
action with counsel reasonably satisfactory to such Holder; provided, however, that such Holder or other indemnified person
shall be entitled to retain its own counsel at its own expense (except that the
indemnifying party shall bear the expense of such separate counsel if
representation of both parties by the same counsel would be inappropriate due to
actual or potential conflicts of interest). The failure to notify the Company
promptly of the commencement of any such action shall not relieve the Company of
any liability to indemnify such Holder or such other indemnified person, as the
case may be, under Section 5 above, except to the extent that the Company shall
be actually prejudiced or shall suffer any loss by reason of such failure to
give notice, and shall not relieve the Company of any other liabilities which it
may have under this or any other agreement.

     

              (b) The Company and each other Person indemnified pursuant to Section 6 above
shall, in the event that it receives notice of the commencement of any action
against it which is based upon an alleged act or omission which, if proven,
would result in any Holder having to indemnify it pursuant to Section 6 above,
promptly notify such Holder, in writing, of the commencement of such action and
permit such Holder, if such Holder so notifies the Company within twenty (20)
calendar days after receipt by such Holder of notice of the commencement of the
action, to participate in and to assume the defense of such action with counsel
reasonably satisfactory to the Company; provided, however, that the Company or other
indemnified person shall be entitled to retain its own counsel at the Company’s
expense. The failure to notify any Holder promptly of the commencement of any
such action shall not relieve such Holder of liability to indemnify the Company
or such other indemnified person, as the case may be, under Section 6 above,
except to the extent that the subject Holder shall be actually prejudiced or
shall suffer any loss by reason of such failure to give notice, and shall not
relieve such Holder of any other liabilities which it may have under this or any
other agreement.

     

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              (c) No indemnifying party, in
the defense of any such claim or litigation, shall, except with the consent of
each indemnified person who is party to such claim or litigation, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified person of a release from all liability in respect to such claim or
litigation. Each such indemnified person shall furnish such information
regarding itself or the claim in question as an indemnifying party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.

     

              (d) If the indemnification provided for in Sections 5 and 6 is unavailable or
insufficient to hold harmless an indemnified party, then, subject to the limits
set forth in Section 6(b) above, each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the expenses,
claims, losses, damages or liabilities (or actions or proceedings in respect
thereof) referred to in Sections 5 and 6, in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and the sellers of
Shares on the other hand in connection with statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) or expenses, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the sellers of Shares and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Holders agree that it would not be just and equitable if contributions pursuant
to this Section 7(d) were to be determined by pro rata allocation (even if all
sellers of Shares were treated as one entity for such purpose) or by another
method of allocation which does not take account of the equitable considerations
referred to in the first sentence of this Section. The amount paid by an
indemnified person as a result of the expenses, claims, losses, damages or
liabilities (or actions or proceedings in respect thereof) referred to in the
first sentence of this Section 7(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified person in connection with
investigating or defending any claim, action or proceeding which is the subject
of this Section 7(d). No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
obligations of sellers of Shares to contribute pursuant to this Section 7(d)
shall be several in proportion to the respective amounts of Shares sold by them
pursuant to a Registration Statement.

     

         8. Rule 144 Information. For so long as the Company shall remain a
reporting company under the Exchange Act, the Company will at all times keep
publicly available adequate current public information with respect to the
Company of the type and in the manner specified in Rule 144(c) promulgated under
the Act.

     

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         9. Limitations on Subsequent Registration
Rights. From and after the
date of this Agreement, the
Company shall not, without the prior written consent of the Holders of a
majority of the Registrable Shares then outstanding and/or issuable, enter into
any agreement with any holder or prospective holder of any securities of the
Company which would require the Company to include such securities in any
Registration filed under Section 2 hereof.

     

    Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be given by personal delivery, by telecopier (with confirmation of
receipt), by recognized overnight courier service (with all charges prepaid or
billed to the account of the sender), or by certified or registered mail, return
receipt requested, and with postage prepaid, addressed (a) if to the Company, at
its office at 1420 Rocky Ridge Drive, Suite 380, Roseville, California 95661,
Attention: Chief Financial Officer, Telecopier: (916) 218-4377, or such other
address or telecopier number as shall have been specified by the Company to the
Holders by written notice, or (b) if to any Holder, at his, her or its address
or telecopier number as same appears on the records of the Company. All notices
shall be deemed to have been given either at the time of the delivery or
telecopy (with confirmation of receipt) thereof, or, if sent by overnight
courier, on the next business day following delivery thereof to the overnight
courier service, or, if mailed, at the completion of the third business day
following the time of such mailing.

     

         10. Waiver and Amendment. No waiver, amendment or modification of this
Agreement or of any provision hereof shall be valid unless evidenced in writing
and duly executed by the Company and Holders holding, in the aggregate, a
majority of the Registrable Shares then outstanding and/or issuable,
provided that any waiver, amendment or modification of this
Agreement or of any provision that affects Hercules, including but not limited
to Section 2, shall not be valid unless evidenced in writing and duly executed
by the Company and Hercules. No waiver of any default hereunder shall be deemed
a waiver of any other, prior or subsequent default hereunder.

     

         11. Governing Law. This Agreement shall (irrespective of the
place where it is executed and delivered) be governed, construed and controlled
by and under the substantive laws of the State of Delaware, without regard to
conflicts of law principles.

     

         12. Binding Effect. This Agreement shall be binding upon and
shall inure to benefit of the Company and the Holders and their respective
successors in interest from time to time.

     

         13. Dispute Resolution. With respect to all Holders other than
Hercules, any Dispute arising out of this Agreement shall be resolved in
accordance with Section 9.6 (Arbitration) of the Merger Agreement.

     

         14. Jurisdiction and Venue. With respect to Hercules, any dispute which
may arise in connection with this Agreement shall be determined with the
provisions of the Warrant.

     

         15. Captions. The captions and Section headings used in
this Agreement are for convenience only, and shall not affect the construction
or interpretation of this Agreement or any of the provisions
hereof.

     

    - 16 -

     

    

    
    

         16. Gender. All pronouns used in this Agreement in the
masculine, feminine or neutral gender shall, as the context may allow, also
refer to each other gender.

     

         17. Entire Agreement. This Agreement constitutes the sole and
entire agreement and understanding between the parties hereto as to the subject
matter hereof, and supersedes all prior discussions, agreements and
understandings of every kind and nature between them as to such subject
matter.

     

         18. Reliance and Benefit. This Agreement is intended to benefit, and
may be relied upon by, all Holders from time to time, as if such Holders were
expressly named herein, party hereto and signatory hereon.

     

         19. Independent Nature of Holders’ Obligations and
Rights. The obligations of
each Holder hereunder are several and not joint with the obligations of any
other Holder hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder other than as
specified in this Agreement. Nothing contained herein or in any other agreement
or document delivered at any closing, and no action taken by any Holder pursuant
hereto or thereto, shall be deemed to constitute the Holders as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Holders are in any way acting in concert with respect to
such obligations or the transactions contemplated by this Agreement. Each Holder
shall be entitled to protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Holder to be joined as an additional party in any
proceeding for such purpose.

     

    [The remainder of this
page is intentionally blank]

     

    - 17 -

     

    

    
    

         IN WITNESS WHEREOF,
the Company has executed this Agreement as of the date first set forth
above.

     

    
      	UNIFY CORPORATION
	 
 
	By:	/s/ Todd E. Wille	 
	Name:   	Todd E. Wille
	Title:	President and
CEO

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