Document:

Exhibit 10.1

 

 

September 5,
2008

 

Mr. Carl
E. Berg

Berg &
Berg Enterprises, LLC

10050
Bandley Dr.

Cupertino,
CA  95014

 

Re:  Amendment to Promissory Notes

 

Dear
Mr. Berg:

 

Valence Technology, Inc. (the “Company”) and
Berg & Berg Enterprises, LLC (“Berg & Berg”), are currently
parties to two promissory notes: (a) the Promissory Note dated June 26,
2008 (the “June 26 Note”) and (b) the Promissory Note dated July 23,
2008 (the “July 23 Note,” and collectively with the June 26 Note, the
“Original Notes”).  Pursuant to this
letter, the Company and Berg & Berg agree to amend the Original Notes
to: (a) extend the maturity date of the June 26 Note from August 15,
2008 to November 15, 2008; (b) extend the maturity date of the July 23
Note from September 15, 2008 to November 15, 2008; and (c) delete
the fourth paragraph of each of the Original Notes.

 

This letter shall serve as Amendment No. 1 to both
the June 26 Note and the July 23 Note.

 

Kindly indicate your acceptance of the amendments described
above by signing and returning the enclosed copy of this letter.

 

	
   

  	
   

  	
  Sincerely,

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  VALENCE
  TECHNOLOGY, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Roger Williams

  
	
   

  	
   

  	
   

  	
  Roger
  Williams

  
	
   

  	
   

  	
   

  	
  Vice
  President and General Counsel

  
	
  ACCEPTED
  AND AGREED:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BERG &
  BERG ENTERPRISES, LLC

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Carl E. Berg

  	
   

  	
   

  	
   

  
	
   

  	
  Carl
  E. Berg, Managing Member

  	
   

  	
   

  	
   

  

 

 

Valence Technology, Inc.  12201 Technology Blvd. Suite 150, Austin, TX
78727

Tel: 512-527-2900, Fax: 512-527-2910Exhibit 10.1

 

EXECUTION
COPY

 

NOTE
PURCHASE AGREEMENT

 

Among

 

XPLORE
TECHNOLOGIES CORP.

 

XPLORE
TECHNOLOGIES CORPORATION OF AMERICA

 

and

 

THE
PURCHASERS

 

Dated
September 5, 2008

 

 

TABLE
OF CONTENTS

 

	
  1.

  	
  Purchase and Sale of the Notes and the
  Warrants

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Authorization of Issuance of the Notes and
  the Warrants

  	
  2

  
	
   

  	
  1.2

  	
  Purchase and Sale of Initial Closing Notes
  and Initial Closing Warrants

  	
  2

  
	
   

  	
  1.3

  	
  Purchase and Sale of Additional Notes and
  Additional Warrants

  	
  2

  
	
   

  	
  1.4

  	
  Use of Proceeds

  	
  2

  
	
   

  	
  1.5

  	
  Initial Closing

  	
  2

  
	
   

  	
  1.6

  	
  Subsequent Closings

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Term of the Notes; Security for the Notes;
  Subordination

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  General

  	
  3

  
	
   

  	
  2.2

  	
  Security

  	
  3

  
	
   

  	
  2.3

  	
  Subordination

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Representations and Warranties of the
  Borrowers

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Organization and Qualification

  	
  4

  
	
   

  	
  3.2

  	
  Certificate of Incorporation and Bylaws

  	
  4

  
	
   

  	
  3.3

  	
  Corporate Power and Authority

  	
  4

  
	
   

  	
  3.4

  	
  Capitalization

  	
  4

  
	
   

  	
  3.5

  	
  Authorization

  	
  5

  
	
   

  	
  3.6

  	
  Title to Properties and Assets; Leases;
  Insurance

  	
  5

  
	
   

  	
  3.7

  	
  Related-Party Transactions

  	
  5

  
	
   

  	
  3.8

  	
  Permits; Compliance with Applicable Laws

  	
  6

  
	
   

  	
  3.9

  	
  Proprietary Rights

  	
  6

  
	
   

  	
  3.10

  	
  Material Contracts

  	
  6

  
	
   

  	
  3.11

  	
  Absence of Undisclosed Liabilities

  	
  7

  
	
   

  	
  3.12

  	
  Absence of Conflicts

  	
  7

  
	
   

  	
  3.13

  	
  Litigation

  	
  7

  
	
   

  	
  3.14

  	
  Consents

  	
  8

  
	
   

  	
  3.15

  	
  Labor Relations; Employees

  	
  8

  
	
   

  	
  3.16

  	
  Employee Benefit Plans

  	
  8

  
	
   

  	
  3.17

  	
  Tax Returns, Payments and Elections

  	
  8

  
	
   

  	
  3.18

  	
  Brokers or Finders

  	
  9

  
	
   

  	
  3.19

  	
  Offering Exemption

  	
  9

  
	
   

  	
  3.20

  	
  Environmental Matters

  	
  9

  
	
   

  	
  3.21

  	
  Offering of Purchased Shares and Warrants

  	
  10

  
	
   

  	
  3.22

  	
  SEC Reports; Disclosure

  	
  10

  
	
   

  	
  3.23

  	
  Financial Statements

  	
  10

  
	
   

  	
  3.24

  	
  Suppliers and Customers

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Representations and Warranties of the
  Purchasers

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Organization and Qualification

  	
  11

  
	
   

  	
  4.2

  	
  Power and Authority

  	
  11

  

 

i

 

	
   

  	
  4.3

  	
  Authorization

  	
  11

  
	
   

  	
  4.4

  	
  Purchase Entirely for Own Account

  	
  11

  
	
   

  	
  4.5

  	
  Disclosure of Information

  	
  12

  
	
   

  	
  4.6

  	
  Investment Experience

  	
  12

  
	
   

  	
  4.7

  	
  Accredited Investor

  	
  12

  
	
   

  	
  4.8

  	
  Restricted Securities; Legends

  	
  12

  
	
   

  	
  4.9

  	
  No General Solicitation

  	
  12

  
	
   

  	
  4.10

  	
  Absence of Conflicts

  	
  13

  
	
   

  	
  4.11

  	
  Brokers or Finders

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Conditions of the Parties

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Conditions of Purchasers’ Obligations at
  any Closing

  	
  13

  
	
   

  	
  5.2

  	
  Conditions of Initial Purchasers’
  Obligations at the Initial Closing

  	
  14

  
	
   

  	
  5.3

  	
  Conditions of Additional Purchasers’
  Obligations at any Subsequent Closing

  	
  15

  
	
   

  	
  5.4

  	
  Conditions of Borrowers’ Obligations at any
  Closing

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Events of Default and Remedies

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Events of Default

  	
  16

  
	
   

  	
  6.2

  	
  Exercise of Remedies

  	
  17

  
	
   

  	
  6.3

  	
  Waiver of Defaults

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Debt Covenants

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  General

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Indemnification

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  General Indemnification

  	
  18

  
	
   

  	
  8.2

  	
  Indemnification Principles

  	
  18

  
	
   

  	
  8.3

  	
  Claim Notice; Right to Defend

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Certain Definitions

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  Post-Closing Covenants

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.1

  	
  Filing of Financing Statements

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Miscellaneous

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.1

  	
  Survival of Representations and Warranties

  	
  24

  
	
   

  	
  11.2

  	
  Successors and Assigns

  	
  24

  
	
   

  	
  11.3

  	
  Governing Law

  	
  24

  
	
   

  	
  11.4

  	
  Counterparts

  	
  24

  
	
   

  	
  11.5

  	
  Titles and Subtitles

  	
  24

  
	
   

  	
  11.6

  	
  Notices

  	
  24

  
	
   

  	
  11.7

  	
  Expenses

  	
  25

  
	
   

  	
  11.8

  	
  Consents, Amendments and Waivers

  	
  25

  
	
   

  	
  11.9

  	
  Severability

  	
  25

  

 

ii

 

	
   

  	
  11.10

  	
  Entire Agreement

  	
  25

  
	
   

  	
  11.11

  	
  Delays or Omissions

  	
  25

  
	
   

  	
  11.12

  	
  Facsimile and E-Mail Signatures

  	
  25

  
	
   

  	
  11.13

  	
  Other Remedies

  	
  26

  
	
   

  	
  11.14

  	
  Further Assurances

  	
  26

  
	
   

  	
  11.15

  	
  Exchanges; Lost, Stolen or Mutilated Notes
  and Warrants

  	
  26

  
	
   

  	
  11.16

  	
  Termination

  	
  26

  
	
   

  	
  11.17

  	
  Pro Rata

  	
  26

  
	
   

  	
  11.18

  	
  Appointment and Authorization of Phoenix
  Venture Fund LLC as Agent

  	
  26

  

 

iii

 

Exhibit &
Schedules List

 

	
  Exhibit A

  	
   

  	
  -

  	
   

  	
  Form of Note

  
	
  Exhibit B

  	
   

  	
  -

  	
   

  	
  Form of Warrant

  
	
  Exhibit C

  	
   

  	
  -

  	
   

  	
  Form of Security Agreement

  
	
  Exhibit D

  	
   

  	
  -

  	
   

  	
  Form of Subordination Agreement

  
	
  Exhibit E

  	
   

  	
  -

  	
   

  	
  Debt Covenants

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule I

  	
   

  	
   

  	
   

  	
  List of Initial Purchasers

  
	
  Schedule II

  	
   

  	
   

  	
   

  	
  List of Additional Purchasers

  

 

iv

 

NOTE
PURCHASE AGREEMENT

 

THIS NOTE PURCHASE AGREEMENT (this “Agreement”)
is made on the 5th day of September, 2008, by and among Xplore Technologies
Corp., a Delaware corporation (the “Parent”), Xplore Technologies
Corporation of America, a Delaware corporation and wholly-owned subsidiary of
the Parent (the “Subsidiary” and collectively with the Parent, the “Borrowers”),
and the purchasers listed on Schedule I hereto, each of which is herein
referred to as an “Initial Purchaser” and the purchasers listed from
time to time on Schedule II hereto, each of which is herein referred to
as an “Additional Purchaser”, and collectively, as the “Purchasers”.

 

W I T N E S S E T H:

 

WHEREAS, subject to the terms and conditions set
forth herein, the Borrowers desire to issue and sell to the Initial Purchasers
on the Initial Closing Date (i) secured subordinated promissory notes in
the aggregate principal amount of not greater than $3,000,000 maturing on the
Maturity Date (each, an “Initial Closing Note” and, collectively, the “Initial
Closing Notes”) and (ii) warrants to purchase up to such number of
shares of Common Stock as determined by dividing (x) 100% of the aggregate
principal amount of the Initial Closing Notes purchased by such Initial
Purchasers, by (y) the Warrant Exercise Price (each, an “Initial
Closing Warrant” and, collectively, the “Initial Closing Warrants”),
and the Initial Purchasers shall purchase the Initial Closing Notes and the
Initial Closing Warrants from the Borrowers on the terms and conditions set
forth herein;

 

WHEREAS, subject to the terms and conditions set
forth herein, the Borrowers desire to issue and sell to the Additional
Purchasers on any Subsequent Closing Date (i) secured subordinated
promissory notes in the aggregate principal amount which together with the
aggregate principal amount of the Initial Closing Notes does not exceed
$3,000,000 maturing on the Maturity Date (each, an “Additional Note”
and, collectively, the “Additional Notes” and, together with the Initial
Closing Notes, the “Notes”) and (ii) warrants to purchase such
number of shares of Common Stock as determined by dividing (x) 100% of the
aggregate principal amount of the Additional Notes purchased by such Additional
Purchasers, by (y) the Warrant Exercise Price (each, an “Additional
Warrant” and, collectively, the “Additional Warrants” and together
with the Initial Closing Warrants, the “Warrants”), and such Additional
Purchasers shall purchase such Additional Notes and such Additional Warrants
from the Borrowers on the terms and conditions set forth herein;

 

WHEREAS, the Board of Directors of the Parent and of
the Subsidiary has approved the execution and delivery of this Agreement, all
ancillary agreements related hereto, and the transactions contemplated hereby;

 

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

 

 

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

 

1.1                                 Authorization
of Issuance of the Notes and the Warrants.

 

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

 

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

 

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

 

1.3                                 Purchase and Sale of
Additional Notes and Additional Warrants.  At any time and from time to time, but in no
event later than ninety (90) days after the Initial Closing Date, one or more
Additional Purchasers may purchase at one or more Subsequent Closings, (i) Additional
Notes, the aggregate purchase price of which, together with the aggregate
purchase price of the Initial Closing Notes, shall not exceed $3,000,000 and (ii) Additional
Warrants for the number of shares of Common Stock as determined by dividing (x) 100%
of the principal amount of such Additional Notes purchased by such Additional
Purchasers by the Warrant Exercise Price. Schedule II attached hereto
shall be amended from time to time concurrent with each Subsequent Closing to
include the names of the Additional Purchasers purchasing Additional Notes and
Additional Warrants at such Subsequent Closing, as well as the purchase price
of the Additional Notes, and the number of shares of Common Stock that can be
purchased on exercise of the Additional Warrants. The aggregate purchase price
for the Notes and Warrants shall not exceed $3,000,000.

 

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

 

1.5                                 Initial Closing.  The purchase and sale of the Initial Closing
Notes and the Initial Closing Warrants shall take place at the offices of
Thelen Reid Brown Raysman & Steiner LLP, 875 Third Avenue, New York,
New York 10022, promptly upon the satisfaction or waiver

 

2

 

of
the closing conditions set forth in Section 5.1, 5.2 and 5.4 hereto, but
not later than September 5, 2008, or on such other date and at such other
time as the Borrowers and Phoenix Venture Fund LLC, as Agent for the Purchasers
(the “Agent”), mutually agree upon in writing (which time and place is
designated as the “Initial Closing”). The date of the Initial Closing is
referred to herein as the “Initial Closing Date.”  At the Initial Closing, the Borrowers shall
deliver to each Initial Purchaser (i) Initial Closing Notes, in an
original principal amount equal to the dollar amount set forth opposite such
Initial Purchaser’s name under the heading “Initial Closing Note Purchase
Price” on Schedule I hereto and (ii) Initial Closing Warrants
entitling such Initial Purchaser to purchase the number of shares of Common
Stock set forth opposite such Initial Purchaser’s name under the heading “Number
of Initial Closing Warrant Shares” on Schedule I hereto, all against
payment in the amounts set forth opposite such Initial Purchaser’s name under
the heading “Initial Closing Note Purchase Price” on Schedule I
hereto, by wire transfer of immediately available funds to such account as the Borrowers
designate.

 

1.6                                 Subsequent Closings.  Upon the purchase of any Additional Notes and
Additional Warrants subject to the satisfaction or waiver of the closing
conditions set forth in Sections 5.1, 5.3 and 5.4, Subsequent Closings shall
take place at the offices of Thelen Reid Brown Raysman & Steiner LLP,
875 Third Avenue, New York, New York 10022, on such date and at such time as
the Borrowers and the Agent, acting on behalf of the Purchasers, mutually agree
upon in writing (each, a “Subsequent Closing” and collectively, the “Subsequent
Closings”). The date of each applicable Subsequent Closing is referred to
herein as a “Subsequent Closing Date.” At each Subsequent Closing, the
Borrowers shall deliver to each Additional Purchaser (i) an Additional Note,
dated as of such Subsequent Closing Date, in an original principal amount equal
to the dollar amount set forth opposite such Additional Purchaser’s name under
the heading “Additional Note Purchase Price” on Schedule II
hereto, which shall be updated by the Borrower and the Agent, acting on behalf
of the Purchasers, from time to time as necessary upon each Subsequent Closing,
with respect to such Additional Purchaser and (ii) Additional Warrants for
the number of shares of Common Stock set forth opposite such Additional
Purchaser’s name under the heading “Number of Additional Closing Warrant
Shares” in Schedule II hereto.

 

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

 

2.1                                 General.  The Notes shall be issued in the aggregate
principal amount of up to $3,000,000 and shall bear interest, and otherwise be
in the form attached hereto as Exhibit A. Payment of all principal
and accrued and unpaid interest on any Note shall be made in full no later than
the Maturity Date.

 

2.2                                 Security.  The Notes shall be equally and ratably
secured by all of the assets of the Borrowers pursuant to a security agreement
to be entered into on or prior to the Initial Closing Date by the Borrowers and
the Agent, acting on behalf of the Purchasers, substantially in the form
attached hereto as Exhibit C (the “Security Agreement”),
pursuant to which the Borrowers shall grant to the Agent, acting on behalf of
the Purchasers, a first priority security interest in all of the assets of the
Borrowers, subject to the Permitted Liens.

 

2.3                                 Subordination.  The right of repayment of principal of and
interest on the Notes and the security interest of the Purchasers in the assets
of the Borrowers shall be

 

3

 

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

 

3.                                       Representations and Warranties of the
Borrowers.

 

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

 

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

 

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

 

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

 

3.4                                 Capitalization.  Immediately prior to the date hereof, the
Parent is authorized to issue 410,000,000 shares of capital stock of which (i) 300,000,000
are designated as Common Stock, of which 73,291,161 shares are issued and
outstanding (ii) and 110,000,000 are designated as Preferred Stock, of
which (A) 64,000,000 are designated as Series A Preferred

 

4

 

Stock of which 63,178,777 shares are issued
and outstanding, (B) 10,000,000 of which are designated Series B
Preferred Stock of which 9,488,513 shares are issued and outstanding, (C) 20,000,000
of which are designated Series C Preferred Stock of which 15,274,000
shares are issued and outstanding. The Parent owns all of the issued and
outstanding capital stock of the Subsidiary.

 

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

 

3.6                                 Title to
Properties and Assets; Leases; Insurance.

 

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

 

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

 

3.7                                 Related-Party Transactions.  No employee, officer, shareholder, director
or consultant of the Borrowers or member of the immediate family (defined as
parents, spouse, siblings or lineal descendants) of any such officer or
director is indebted to either of the Borrowers for borrowed money, and neither
Borrower is indebted for borrowed money (or

 

5

 

committed
to make loans or extend or guarantee credit) to any of them other than for
reimbursement of expenses incurred in connection with their service to such
Borrower, and amounts accrued but not yet due to employees and other service
providers. To the Knowledge of the Borrowers, except as provided for in this
Agreement and the Loan Documents and except as set forth in the SEC Reports, (a) no
employee, officer, shareholder, director or consultant of such Borrower or any
member of the immediate family of any such officer or director is, directly or
indirectly, interested in any Material Contract or has any other material
business relationship with any Borrower, except stock ownership in or
employment with a Borrower and (b) no officer, director of such Borrower
or any member of the immediate family of such officer or director has any
material business relationship with any competitor of such Borrower.

 

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

 

3.9                                 Proprietary Rights.  Each Borrower is the sole owner, free and
clear of any Liens, other than Permitted Liens, or has a valid license, without
the payment of any royalty (except with respect to off-the-shelf software that is
licensed by such Borrower) and otherwise on commercially reasonable terms, to,
all Proprietary Rights material to the business of such Borrower. As used
herein, the term “Proprietary Rights” means each Borrower’s patents,
trademarks, trade names, service marks, logos, designs, formulations,
copyrights, and other trade rights and all registrations and applications
therefor, all know-how, trade secrets, technology or processes, research and
development, all Internet domain addresses, Web sites and computer programs,
data bases and software documentation and all other intellectual property
owned, licensed or otherwise used by such Borrower (other than off-the-shelf
software that is licensed by such Borrower). Neither Borrower has received any
written demand, claim, notice or inquiry from any person or entity in respect
of the Proprietary Rights material to the business of such Borrower which
challenges, threatens to challenge or inquires as to whether there is any basis
to challenge, the validity of, or the rights of such Borrower in such
Proprietary Rights, and neither Borrower has Knowledge of any basis for any
such challenge. To each Borrower’s Knowledge, such Borrower is not in violation
or infringement of, and has not violated or infringed, any intellectual
property rights of any other person or entity. To such Borrower’s Knowledge no
third party is infringing on the rights of such Borrower in and to such
Proprietary Rights.

 

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

 

6

 

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

 

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

 

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

 

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

 

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

 

3.13                           Litigation.  Except as disclosed in the SEC Reports, there
is no action, claim, litigation, tax or compliance audit, suit or proceeding,
regulatory or administrative enforcement action or governmental inquiry or
investigation, pending, or, to such Borrower’s Knowledge, any threat thereof,
against such Borrower or any of their officers or directors or the assets of
either Borrower. To the Borrower’s Knowledge, there is no reason to believe
that any of the foregoing may occur which, in the aggregate, could reasonably
be expected to have a

 

7

 

Material
Adverse Effect. Neither Borrower is subject to any outstanding judgment, order
or decree directed against such Borrower or any officer or director of any
thereof.

 

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

 

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

 

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

 

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

 

3.17                           Tax Returns, Payments and
Elections.  Each
Borrower has filed all tax returns and reports (including information returns
and reports) as required by Law except to the extent that the failure to so
file did not and could not reasonably be expected to have a Material Adverse
Effect, and such tax returns and reports are true and correct in all material
respects. Each Borrower has paid or made provision for payment of all taxes and
other assessments shown as due on such returns. The provision for taxes of each
Borrower as shown in the Financial Statements (as hereinafter defined) is
adequate in all material respects for all taxes, assessments and governmental
charges due or accrued as of the date thereof with respect to its business,
properties and operations. Neither Borrower has elected pursuant to the
Internal Revenue Code of 1986, as amended (the “Code”), to be treated as
a Subchapter S corporation pursuant to Section 1362(a) or a
collapsible corporation pursuant to Section 341(f) of the Code, nor
has a Borrower made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that could reasonably be expected to have a

 

8

 

Material
Adverse Effect. Neither Borrower has had any tax deficiency proposed or
assessed against it by the Internal Revenue Service or any other foreign,
federal, state or local taxing authority and none have been asserted in writing
or, to a Borrower’s Knowledge, threatened at any time for additional taxes.
Neither Borrower has executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge and none of the
foreign, federal, state or local income or franchise tax or sales or use tax
returns have ever been audited by governmental authorities. Since June 30,
2008, neither Borrower has incurred any taxes, assessments or governmental
charges other than in the ordinary course of business.

 

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

 

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

 

3.20                           Environmental
Matters.

 

(a)                                  Each Borrower complies and has at all
times complied with all federal, state and local Laws, judgments, decrees,
orders, consent agreements, authorizations, permits, licenses, rules,
regulations, common or decision law (including, without limitation, principles
of negligence and strict liability) relating to the protection, investigation
or restoration of the environment (including, without limitation, natural
resources) or the health or safety matters of humans and other living
organisms, including the Resource Conservation and Recovery Act, as amended,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Federal Clean Water Act, as amended, the Federal Clean Air Act, as
amended, the Toxic Substances Control Act, or any state and local analogue
(hereinafter “Environmental Laws”), except where the failure to comply
could not reasonably be expected to have a Material Adverse Effect.

 

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

 

9

 

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

 

3.22                           SEC Reports; Disclosure.  (a)  The Parent has filed all required
forms, reports and documents with the Securities and Exchange Commission (the “SEC”)
since June 22, 2007, each of which has complied in all material respects
with all applicable requirements of the Securities Act and the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and
regulations promulgated thereunder, each as in effect on the date such forms,
reports and documents were filed. The Parent has made available to the Purchasers,
in the form filed with the SEC (including any amendments thereto) its (i) Annual
Report on Form 10-K for the year ended March 31, 2008, (ii) Current
Report on Form 8-K dated June 5, 2008, (iii) Current Report on Form 8-K
dated August 12, 2008, (iv) Current Report on Form 8-K dated August 14,
2008, (v) Current Report on Form 8-K dated September 4, 2008, (vi) Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2008 and (vii) all
definitive proxy statements relating to the Parent’s meeting of shareholders
(whether annual or special) held since June 22, 2007 (collectively, the “SEC
Reports”).

 

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

 

3.23                           Financial Statements.  Included in the SEC Reports are the audited
financial statements of the Borrowers as at and for the years ended March 31,
2008, 2007 and the unaudited financial statements of the Borrowers for the
fiscal quarter ended June 30, 2008 (the “Financial Statements”).
The Financial Statements have been prepared in accordance with GAAP and fairly
present the financial condition and operating results of the Borrowers on a
Consolidated basis as of the dates and for the periods, indicated therein,
except that the unaudited financial statements as at and for the quarter ended June 30,
2008 is subject to normal year-end adjustments and do not contain all notes
required under GAAP. Except as set forth in the Financial Statements, the
Borrowers have no liabilities, obligations or commitments of any nature
(whether accrued, absolute, contingent, unliquidated or otherwise, due or to
become due and regardless of when addressed), which are required to be included
in the Financial Statements in accordance with GAAP other than (a) liabilities
that have arisen in the ordinary course of business since the date of the
Parent’s most recent quarterly report on Form 10-Q that are not reasonably
be expected to have a Material Adverse Effect and (b) obligations to
perform after the date hereof any contracts or agreements which have been
disclosed or which are not required to be disclosed in the SEC Reports because
such contracts and agreements are not material to the Borrowers.

 

3.24                           Suppliers and Customers.  Since June 30, 2008, none of the
Borrowers’ suppliers, vendors, or customers has: (i) terminated or
cancelled a Material Contract or material

 

10

 

business
relationship with any Borrower; (ii) threatened in writing to terminate or
cancel a Material Contract or material business relationship with any Borrower;
(iii) expressed dissatisfaction in writing with the performance of a
Borrower with respect to a Material Contract or material business relationship
with any Borrower; or (iv) demanded in writing any material modification,
termination or limitation of a Material Contract or material business
relationship with any Borrower (excluding any contracts or business
relationship which, if so terminated, cancelled, modified or limited, would not
reasonably be expected to result in a Material Adverse Effect).

 

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

 

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

 

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

 

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

 

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

 

11

 

Borrowers
are relying upon, among other things, the representations and warranties of
such Purchaser contained in this Agreement for purposes of complying with
Regulation D.

 

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

 

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

 

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

 

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

 

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

 

4.9                                 No General Solicitation.  Such Purchaser acknowledges that the Notes
and the Warrants were not offered to such Purchaser by means of: (a) any
advertisement, article,

 

12

 

notice
or other communication published in any newspaper, magazine or similar medium,
or broadcast over television or radio, or (b) any other form of general
solicitation or advertising.

 

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

 

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

 

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

 

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

 

5.                                       Conditions of the Parties.

 

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

 

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

 

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

 

(c)                                  No Material Adverse Effect; Compliance
Certificate. No
Material Adverse Effect shall have occurred between the date hereof and such
Closing Date and the President and/or Chief Executive Officer of each Borrower
shall deliver to the Agent, acting on

 

13

 

behalf of the Purchasers, at each such Closing a
certificate stating that the conditions specified in Sections 5.1(a), (b) and
(c) have been fulfilled and stating that no Material Adverse Effect has
occurred between the date hereof and such Closing Date.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(d)                                 UCC-1 Financing Statements. The Parent shall have prepared in form
and substance reasonably satisfactory to the Agent, acting on behalf of the
Purchasers, copies of financing statements on Form UCC-1 for the Borrowers
and delivered copies of the same to the Agent, acting on behalf of the
Purchasers.

 

14

 

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

 

(f)                                    Administrative Fee to Agent. The Borrowers shall have paid to the
Agent, acting on behalf of the Purchaser, an administrative fee in the
aggregate amount of $60,000.

 

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

 

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

 

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

 

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

 

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

 

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

 

(a)                                  Representations and Warranties. The representations and warranties of
the each Purchasers contained in Section 4 shall be true and correct in
all material respects on and as of such Closing  with the same force and effect as though such
representations and warranties had been made on and as of the date of such
Closing; provided, however, that representations and warranties that contain a
materiality qualification shall be true and correct in all respects.

 

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

 

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

 

15

 

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

 

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

 

6.                                       Events of Default and Remedies.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

17

 

7.                                       Debt Covenants.

 

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

 

8.                                       Indemnification.

 

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

 

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

 

8.3                                 Claim Notice; Right to
Defend.  A party seeking
indemnification (the “Indemnified Party”) under this Section 8
shall promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the Indemnifying Party a claim notice
relating to such Loss (a “Claim Notice”). Each Claim Notice shall
specify the nature of the claim, the applicable provision(s) of this
Agreement or other instrument under which the claim for indemnity arises, and,
if possible, the amount or the estimated amount thereof. No failure or delay in
giving a Claim Notice (so long as the same is given prior to expiration of the
representation or warranty upon which the claim is based) and no failure to
include any specific information relating to the claim (such as the amount or
estimated amount thereof) or any reference to any provision of this Agreement
or other instrument under which the claim arises shall affect the obligation of
the Indemnifying Party unless such failure materially and adversely prejudices
the Indemnifying Party. If such Loss relates to the commencement of any action
or proceeding by a third person, the Indemnified Party shall give a Claim
Notice to

 

18

 

the
Indemnifying Party regarding such action or proceeding and the Indemnifying
Party shall be entitled to participate therein. After the delivery of notice
from the Indemnifying Party to the Indemnified Party of its election to assume
the defense of such action or proceeding, the Indemnifying Party shall not be
liable (except to the extent the proviso to this sentence is applicable, in
which event it will be so liable) to the Indemnified Party under this Section 8
for any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof, provided that each Indemnified
Party shall have the right to employ separate counsel to represent it and
assume its defense (in which case, the Indemnifying Party shall not represent
it) in the event the Indemnifying Party has not assumed the defense thereof
within 10 days of receipt of notice of such claim or commencement of action,
and in which case the fees and expenses of one such separate counsel shall be
paid by the Indemnifying Party. If any Indemnified Party employs such separate
counsel it will not enter into any settlement agreement which is not approved
by the Indemnifying Party, such approval not to be unreasonably withheld. If
the Indemnifying Party so assumes the defense thereof, it may not agree to any
settlement of any such claim or action as the result of which any remedy or
relief, other than monetary damages for which the Indemnifying Party shall be
responsible hereunder, shall be applied to or against the Indemnified Party,
without the prior written consent of the Indemnified Party which consent shall
not be unreasonably withheld. In any action hereunder as to which the
Indemnifying Party has assumed the defense thereof with counsel reasonably
satisfactory to the Indemnified Party, the Indemnified Party shall continue to
be entitled to participate in the defense thereof, with counsel of its own
choice, but, except as set forth above, the Indemnifying Party shall not be
obligated hereunder to reimburse the Indemnified Party for the costs thereof.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

19

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

20

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Loan Documents” shall mean the
Notes, the Security Agreement, the Subordination Agreement, the Warrants and
all agreements related hereto and thereto.

 

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

 

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

 

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

 

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

 

21

 

“Maturity Date” shall mean with
respect to any Note, such date that is eleven (11) months following the Initial
Closing Date.

 

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

 

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

 

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

 

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

 

“Permitted Liens” shall mean the
following: (i) mechanics’, materialmen’s or similar inchoate Liens arising
or incurred in the ordinary course of business relating to liabilities not yet
due and payable; (ii) Liens for current taxes not yet delinquent, or the
validity of which is being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing foreclosure or enforcement of
such Liens and where adequate reserves are established and maintained in
accordance with generally accepted accounting principles; (iii) Liens or
pledges in connection with workmen’s compensation, unemployment insurance or
other social security obligations; (iv) deposits to secure the performance
of bids, trade contracts, leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of alike nature incurred in the
ordinary course of business, (v) Liens in favor of the Senior Lenders, and
(vi) the following Liens evidenced by UCC-1 filings (1) Lien in favor
of CIT Bank regarding all computer equipment and peripherals referenced in the
Loan Agreement #007139097-005 dated August 24, 2005, and secured by UCC-1
filing number 52719061, (2) Lien in favor of Susquehanna Patriot
Commercial Leasing Corp regarding all personal property and/or equipment, and
fixtures, which is the subject of the Equipment Lease Agreement number 22453001
and secured by UCC-1 filing number 53947794 and 60763821, and (3) Lien in
favor of Coactiv Capital Partners LLC regarding all personal property and/or
equipment, and fixtures, which is the subject of the Equipment Lease Agreement
number 22453002 and secured by UCC-1 filing number 60768762 and 72950326.

 

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

 

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

 

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

 

22

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Senior Lender” means each holder of
Senior Indebtedness.

 

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

 

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

 

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

 

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

 

“Warrant Exercise Price” shall mean
$0.27.

 

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

 

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

 

10.          Post-Closing Covenants.

 

10.1         Filing
of Financing Statements.  The Parent
shall have filed, within 5 days of the Initial Closing Date, appropriately
completed and duly executed financing statements on Form UCC-1 with
respect to the Collateral, each to be filed, with respect to the Borrowers with
the Secretary of State of the State of Delaware, in form and substance
reasonably satisfactory to the Agent, acting on behalf of the Purchasers, and
shall provide evidence to the Agent, acting on behalf of the Purchasers, of
such filing.

 

23

 

11.           Miscellaneous.

 

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

 

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

 

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

 

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

 

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

 

11.6                           Notices. All notices
and other communications required or permitted hereunder shall be in writing.
Notices shall be delivered personally, via recognized overnight courier (such
as Federal Express, DHL or Airborne Express) or via certified or registered
mail. Notices may be delivered via facsimile or e-mail, provided that by no
later than two days thereafter such notice is confirmed in writing and sent via
one of the methods described in the previous sentence. Notices shall be
addressed as follows:

 

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

 

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

 

(c)           if
to the Agent, to Phoenix Venture Fund LLC, 110 East 59th Street, Suite 1901,
New York, NY 10022, facsimile number (212) 319-4970, Attention: Philip S. 

 

24

 

Sassower, or at such other address or facsimile number
as such Additional Purchaser shall have furnished to the Parent in writing; or

 

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

 

All notices shall be effective upon receipt.

 

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

 

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

 

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

 

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

 

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

 

11.12                     Facsimile and E-Mail Signatures.
Any signature page delivered by a fax machine or email shall be binding to
the same extent as an original signature page, with regard to 

 

25

 

any agreement subject to the terms hereof or any amendment thereto. Any
party who delivers such a signature page agrees to deliver promptly an
original counterpart to each party to whom the faxed or emailed signature page was
sent.

 

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

 

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

 

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

 

11.16                     Termination. This Agreement
may be terminated at any time prior to the Initial Closing by mutual agreement
of the Borrowers and all Initial Purchasers set forth in writing.

 

11.17                     Pro Rata. Each Purchaser
agrees that, for the benefit of the other Purchasers, any proceeds received by
such Purchaser as a result of the exercise of rights and remedies under this
Agreement will be divided, pro rata, among all Purchasers.

 

11.18                     Appointment and Authorization
of Phoenix Venture Fund LLC as Agent

 

(a)           Appointment. Each Purchaser
hereby irrevocably appoints and authorizes the Agent to (i) be its
attorney in its name and on its behalf to exercise all rights and powers
granted to the Purchasers, and/or the Agent, acting on behalf of the
Purchasers, under this Agreement and the Loan Documents, together with such
powers as are reasonably incidental thereto (including entering into any
amendment, waiver or modification subject to Section 

 

26

 

11.18(b)), and (ii) to hold, dispose, or
otherwise deal with the Collateral (as defined in the Security Agreement) for
its own benefit and the pro rata benefit of the Purchasers, subject to the
terms and conditions of the obligations of the Agent as provided in this
Agreement and in the Loan Documents.

 

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

 

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

 

(d)           No Fiduciary Relationship,
Limitation of Responsibility. Notwithstanding any provision to the contrary
elsewhere in this Agreement or any other Loan Document, the Agent shall not
have any duties or responsibilities, except those expressly set forth herein or
therein, or any fiduciary relationship with any Purchaser, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement, any other Loan Document or any other related
document or otherwise exist against the Agent. The Agent (which term shall
include its affiliates and its own and its affiliates’ officers, directors,
partners, shareholders, employees and agents) shall not be responsible to the
Purchasers for (i) any statements, representations or warranties contained
in this Agreement or any Loan Document or for the failure by a Borrower or any
other party to perform its obligations hereunder or thereunder and shall not by
reason of this Agreement or any other Loan Document be a trustee for any
Purchaser, (ii) any action taken or omitted to be taken by it hereunder or
under any other Loan Document or under any other document or instrument
referred to or provided for herein or therein or in connection herewith or
therewith, except for its own gross negligence or willful misconduct or (iii) any
recitals, statements, representations or warranties made by a Borrower or any
officer or official of a Borrower or any other party contained in this
Agreement, any other Loan Document or any other related document, or in any
certificate or other document or instrument referred to or provided for in, or
received by any of them under, this Agreement, any Loan Document, or any other
related document, or for the value, legality, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement, any Loan
Document, or any other 

 

27

 

related document or any other document or instrument
referred to or provided for herein or therein, for the perfection or priority
of any lien security for the Notes or for any failure by a Borrower to perform
any of its obligations hereunder or thereunder. The Agent shall not be under
any obligation to any Purchaser to ascertain or to inquire as to the observance
or performance of any of the agreements contained in, or conditions of, this
Agreement, any other Loan Document or any other related document or any other
document or instrument referred to or provided for herein or therein, or to
inspect the properties, books or records of the a Borrower.

 

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

 

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

 

(g)           Acknowledgments, Representations
and Warranties of Purchasers to Agent. Each Purchaser expressly
acknowledges that neither the Agent nor any of its officers, directors,
partners, shareholders, employees, agents, attorneys-in-fact or affiliates have
made any representations or warranties to it and that no act by the Agent
hereafter taken, including any review of the affairs of the Borrowers or any
affiliate of the Borrowers, shall be deemed to constitute any representation or
warranty by the Agent to any Purchaser. Each Purchaser represents to the Agent
that it has, independently and without reliance upon the Agent or any other
Purchaser, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrowers and their affiliates and made its own decision to purchase the Notes
hereunder and enter into this Agreement. Each Purchaser also represents that it
shall, independently and without reliance upon the Agent or any other
Purchaser, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement or any other
Loan Document or any other related document and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrowers and their
affiliates. Except for notices, reports and other documents expressly required
to be furnished to the Purchasers by the Agent hereunder and under the Loan
Documents, the Agent shall have no duty or responsibility to provide any
Purchaser with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of the Borrowers or any affiliate of the Borrowers which may
come into the possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.

 

28

 

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

 

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

 

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

 

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

 

(l)            Borrower’s Ability to Rely on
Agent’s Authority. The Borrowers shall be entitled to rely upon any
certificate, notice or other document or other advice, statement or instruction
provided to it by Agent pursuant to this Agreement or the Loan Documents, and
the 

 

29

 

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

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 

30

 

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

 

	
   

  	
  The Borrowers:

  	
   

  
	
   

  	
   

  
	
   

  	
  XPLORE TECHNOLOGIES CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael J. Rapisand

  
	
   

  	
   

  	
  Name:

  	
  Michael J. Rapisand

  
	
   

  	
   

  	
  Title: 

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  XPLORE TECHNOLOGIES

  
	
   

  	
  CORPORATION OF AMERICA

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
					

 

 

Signature Page to Note Purchase Agreement

 

 

	
   

  	
  The Initial Purchasers:

  
	
   

  	
   

  
	
   

  	
  PHOENIX VENTURE FUND LLC

  
	
   

  	
   

  
	
   

  	
  By: SG Phoenix Ventures LLC,

  
	
   

  	
   

  	
    its
  Managing Member

  
	
   

  	
   

  

 

	
   

  	
  By:

  	
  /s/ Philip S. Sassower

  
	
   

  	
   

  	
  Name: 

  	
  Philip S. Sassower

  
	
   

  	
   

  	
  Title:

  	
  Member

  

 

 

Signature Page to Note Purchase Agreement

 

 

The Additional Purchasers:

 

 

Schedule I

 

	
  NAME AND ADDRESS

  OF INITIAL

  PURCHASERS

  	
   

  	
  INITIAL CLOSING 

  NOTE 

  PURCHASE PRICE

  	
   

  	
  NUMBER OF 

  INITIAL CLOSING

   WARRANT SHARES

  	
   

  
	
  Phoenix Venture Fund LLC 

  110 East 59th Street 

  Suite 1901

  New York, NY 10022 

  facsimile number (212) 319-4970

  Attention: Philip S. Sassower

  	
   

  	
  $

  	
  1,000,000.00

  	
   

  	
  3,703,704

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  $

  	
  1,000,000.00

  	
   

  	
  3,703,704

  	
   

  

 

Signature Page to Note Purchase Agreement

 

 

Schedule II

 

	
  NAME AND ADDRESS

  OF

  ADDITIONAL PURCHASERS

  	
   

  	
  ADDITIONAL NOTE 

  PURCHASE PRICE

  	
   

  	
  NUMBER OF 

  ADDITIONAL

  CLOSING

  WARRANT SHARES

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

EXHIBIT A

 

FORM OF
NOTES

 

 

EXHIBIT B

 

FORM OF
WARRANTS

 

 

EXHIBIT C

 

FORM OF
SECURITY AGREEMENT

 

 

EXHIBIT D

 

FORM OF
SUBORDINATION AGREEMENT

 

 

EXHIBIT E

 

Debt
Covenants

 

1.             Affirmative
Covenants.

 

1.1           Taxes. The Borrowers
shall file all tax returns and pay or make adequate provision for the payment
of all taxes, assessments and other charges on or prior to the date when due.

 

1.2           Notice of
Litigation. The Parent shall promptly notify the Agent, acting
on behalf of the Purchasers, in writing of any litigation, suit or
administrative proceeding which may materially and adversely affect the
Collateral or any Borrower’s business, assets, operations, prospects or
condition, financial or otherwise, whether or not the claim is covered by
insurance.

 

1.3           Change In
Location. The Parent shall notify the Agent, acting on
behalf of the Purchasers, in writing 45 days prior to any change in the
location of either Borrower’s chief executive office or the location of any
Collateral, or a Borrower’s opening or closing of any other place of business.

 

1.4           Corporate
Existence. Each Borrower shall maintain its corporate
existence and its qualification to do business and good standing in all states
necessary for the conduct of its business and the ownership of its property and
maintain adequate assets, trademarks, copyrights, licenses and patents, for the
conduct of its business.

 

1.5           Labor Disputes. The Parent
shall promptly notify the Agent, acting on behalf of the Purchasers, in writing
of any material labor dispute to which a Borrower is or may become subject and
the expiration of any labor contract to which a Borrower is a party or bound.

 

1.6           Violations of
Law. The Parent shall promptly notify the Agent, acting on behalf of the
Purchasers, in writing of any violation of any Law of any Governmental
Authority, or of any agency thereof, applicable to a Borrower which may
materially and adversely affect the Collateral or any Borrower’s business,
assets, prospects, operations or condition, financial or otherwise.

 

1.7           Defaults. The Parent
shall notify the Agent, acting on behalf of the Purchasers, in writing within
five Business Days of the occurrence of a Borrower’s default under any note,
indenture, loan agreement, mortgage, lease or other agreement to which such
Borrower is a party or by which such Borrower is bound that is material to its
business, assets, prospects, operations or condition, financial or otherwise,
or any other default under any indebtedness.

 

1.8           Capital
Expenditures. The Parent shall promptly notify the Agent, acting
on behalf of the Purchasers, in writing of any Capital Expenditure materially
affecting a Borrower’s business, assets, prospects, operations or condition,
financial or otherwise.

 

E-1

 

1.9           Books and
Records. Each Borrower shall keep adequate records and books of account with
respect to such Borrower’s business activities in which proper entries are made
in accordance with GAAP, reflecting all of such Borrower’s financial
transactions.

 

1.10         Financial
Statements. The Parent shall furnish to the Agent, acting on
behalf of the Purchasers:

 

(a)           As soon as practicable, and in any event
within two (2) days of the date of filing thereof by the Parent with the
SEC pursuant to the Parent’s reporting requirements under the Exchange Act, the
Parent shall furnish to the Agent, acting on behalf of the Purchasers,
Consolidated statements of income, cash flows and changes in stockholders’
equity of the Borrowers for such fiscal year and a Consolidated balance sheet
of the Borrowers as of the close of such fiscal year, and notes to each, all in
reasonable detail, setting forth in comparative form the corresponding figures
for the preceding calendar year; and

 

(b)           As soon as practicable, and in any event
within two (2) days of the date of filing thereof by the Parent with the
SEC pursuant to the Parent’s reporting requirements under the Exchange Act, the
Parent shall furnish to the Agent, acting on behalf of the Purchasers,
unaudited Consolidated statements of income and cash flows of the Borrowers for
such fiscal quarter and for the period from the beginning of such fiscal year
to the end of such fiscal quarter and an unaudited Consolidated balance sheet
of the Borrowers as of the close of such fiscal quarter, all in reasonable
detail, setting forth in comparative form the corresponding figures for the
same periods or as of the same date during the preceding fiscal year.

 

1.11         Further
Information; Further Assurances. The Parent shall, with
reasonable promptness, provide to the Agent, acting on behalf of the
Purchasers, such further assurances and additional information, reports and
statements respecting each Borrowers’ business, operations, properties and
financial condition as the Agent, acting on behalf of the Purchasers, may from
time to time reasonably request.

 

1.2           Negative
Covenants.

 

Each Borrower covenants and agrees that until all
Note Indebtedness has been paid in full, it will not do any of the following
without the consent of the Agent, acting on behalf of the Purchasers:

 

(a)           merge or consolidate with another corporation
or entity;

 

(b)           acquire any assets, except in the
ordinary course of business;

 

(c)           enter into any other transaction outside
the ordinary course of business;

 

(d)           sell or transfer any Collateral, except
for the sale of finished Inventory in the ordinary course of such Borrower’s
business, the grant of non-exclusive 

 

E-2

 

licenses and similar arrangements for the use of
property of such Borrower in the ordinary course of business, and the sale of obsolete
or unneeded Equipment in the ordinary course of such Borrower’s business;

 

(e)           sell any Inventory on a sale-or-return,
guaranteed sale, consignment, or other contingent basis;

 

(f)            make any loans of any money or other
assets to any Person except for intercompany loans between the Borrowers;

 

(g)           incur any debts, other than debts in the
ordinary course of business which would not reasonably be expected to have in a
Material Adverse Effect;

 

(h)           guarantee or otherwise become liable with
respect to the obligations of another party or entity, other than Permitted
Liens;

 

(i)            redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of such Borrower’s stock;

 

(j)            engage, directly or indirectly, in any
business other than the businesses currently engaged in by such Borrower or
reasonably related thereto;

 

(k)           pay or declare any dividends on such
Borrower’s stock (except for dividends payable solely in stock of such
Borrower); or

 

(l)            dissolve or elect to dissolve.

 

E-3

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