Document:

Exhibit 10.1

 

TERM LOAN AGREEMENT

 

This
Term Loan Agreement (this “Agreement”),
dated as of June 9, 2008 is made by and among Gander Mountain Company, a
Minnesota corporation (the “Company”), and
the lenders named on the signature pages hereto (the “Lenders”).

 

RECITALS

 

A.            The Company desires to borrow money
from the Lenders, upon the terms and conditions stated in this Agreement, up to
an aggregate amount of $10,000,000.00.

 

B.            The capitalized terms used herein
and not otherwise defined have the meanings given them in ARTICLE VIII.

 

TERMS AND CONDITIONS

 

In
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Lenders hereby agree as follows:

 

ARTICLE I

ISSUANCE OF PROMISSORY NOTES

 

1.1           TERM LOANS.  In accordance with the terms of this
Agreement, the Lenders, at the written request of the Company, will make a
series of term loans (the “Term Loans”) to
the Company, on a ratable basis in accordance with the pro rata percentages set
forth on Schedule I, from time to time from the date hereof to and
including December 31, 2008 or the earlier termination of this Agreement
by the mutual agreement of the parties hereto, in an aggregate principal amount
not to exceed $10,000,000.00, with a maximum portion of the principal amount
for each Lender as is set forth on Schedule I.  The Company may prepay the Notes ratably in
accordance with the pro rata percentages set forth on Schedule I and the
terms of such Notes and may reborrow such prepaid amounts ratably under this
Agreement.

 

1.2           THE TERM NOTES.  The Term Loans made by the Lenders shall each
be evidenced by a promissory note (the “Note”) that is
in substantially the form of Exhibit A and is delivered to the
Lenders pursuant to the Agreement.  Any
Note issued pursuant to this Agreement shall have a maturity date of December 31,
2008 (the “Maturity Date”).

 

1.3           MAKING OF TERM LOANS.  The Company may request Term Loans under this
Agreement by giving at least five Business Days’ prior written notice to the
Lender, specifying the date of the requested Term Loan and the amount
thereof.  Any request for a Term Loan
shall be deemed to be a representation that the Borrower’s representations and
warranties contained in ARTICLE II are true and correct as of the date of the
Term Loan and as the date of the Note evidencing such Term Loan as though made
on and as of such dates and that no event has occurred and is continuing, or
will result from such Term Loan, that constitutes an Event of Default or would
constitute an Event of Default but for the requirement that notice be given or
time elapse or both; provided that any such request must be made of the Lenders
on a ratable basis in accordance with their pro rata percentages set forth on Schedule
I.

 

1.4           INTEREST.  The Notes will bear interest as described in
the Notes.  The interest will be payable
as set forth in the Notes.

 

1.5           PAYMENT.  Each Lender will pay the principal amount for
the Notes as is set forth in the notice provided under SECTION 1.3, by
wire transfer of immediately available funds in accordance with the Company’s
written wire instructions, simultaneously with delivery by the Company to each
Lender of the Note(s) in the principal amount(s) so purchased by such
Lender, and the Company will deliver such Notes against delivery of the
purchase price as described above.

 

 

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ARTICLE II

REPRESENTATIONS AND WARRANTIES OF LENDERS

 

Each
Lender represents and warrants to the Company, severally and solely with
respect to itself and its purchase hereunder and not with respect to any other
Lender, that:

 

2.1           ORGANIZATION AND
QUALIFICATION.  To the extent
the Lender is an entity, the Lender is duly incorporated, validly existing and
in good standing under the laws of the state of organization, with full power
and authority (corporate and other) to own, lease, use and operate its
properties, if any, and to carry on its business as and where now owned,
leased, used, operated and conducted.  To
the extent the Lender is an entity, the Lender is duly qualified to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so qualified or in good standing would not have a Material
Adverse Effect.

 

2.2           AUTHORIZATION; ENFORCEMENT.  To the extent the Lender is an entity, (a) the
Lender has all requisite corporate power and authority to enter into and to
perform its obligations under this Agreement and its Note, to consummate the
transactions contemplated hereby and thereby and to purchase the Notes in
accordance with the terms hereof; (b) the execution, delivery and
performance of this Agreement and the Lender’s Note by the Lender and the
consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all required parties and no further consent or
authorization of Lender, its board of directors or its shareholders or members
is required; (c) this Agreement has been duly executed and delivered by
the Lender; and (d) assuming the valid and binding execution of this
Agreement and the Notes by the Company and compliance with the terms of this
Agreement and the Notes by the Company, each of this Agreement and the Lender’s
Note constitutes a legal, valid and binding obligation of the Lender
enforceable against the Lender by the Company in accordance with their
respective terms, except as may be limited by any applicable bankruptcy,
insolvency, reorganization, or moratorium or similar laws affecting the rights
of creditors generally and the application of general principles of
equity.  To the extent the Lender is a
natural person, this Agreement has been duly and validly authorized, executed
and delivered on behalf of the Lender and is a valid and binding agreement of
the Lender, enforceable in accordance with its terms, subject to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the rights of creditors generally and the application of general
principles of equity.

 

2.3           INVESTMENT PURPOSE.  The Lender is purchasing the Note(s) for
its own account and not with a present view toward the public sale or
distribution thereof, except pursuant to sales registered or exempted from
registration under the Securities Act.

 

2.4           ACCREDITED INVESTOR STATUS.  The Lender is an “accredited investor” as
defined in Rule 501(a) of Regulation D.

 

2.5           RELIANCE ON EXEMPTIONS.  The Lender understands that the Note(s) are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and the Lender’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Lender set forth herein in order to determine the
availability of such exemptions and the eligibility of the Lender to acquire
the Note(s).

 

2.6           INFORMATION AND
SOPHISTICATION.  The Lender
and its advisors, if any, have been furnished with all materials relating to
the business, finances and operations of the Company, and materials relating to
the offer and sale of the Note(s), that have been requested by the Lender or
its advisors, if any.  The Lender and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company.  The Lender acknowledges and
understands that its investment in the Note(s) involves a significant degree
of risk, including the risks reflected in the SEC Documents.  The Lender is 

 

 

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experienced
and knowledgeable in financial and business matters, is capable of evaluating
the merits and risks of investing in the Notes, and does not need or desire the
assistance of a knowledgeable representative to aid in the evaluation of such
risks who the Lender intends to use in connection with a decision as to whether
to purchase the Notes.

 

2.7           GOVERNMENTAL REVIEW.  The Lender understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Notes or an
investment therein.

 

2.8           TRANSFER OR RESALE. 
The Lender understands that:

 

                (a)           the Notes have not been and are not
being registered under the Securities Act or any applicable state securities
laws and, consequently, the Lender may have to bear the risk of owning the
Notes for an indefinite period of time because the Notes may not be transferred
unless (i) the resale of the Notes is registered pursuant to an effective
registration statement under the Securities Act; (ii) the Lender has
delivered to the Company an opinion of counsel satisfactory to the Company (in
form, substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Notes to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration; or (iii) the
Notes are sold or transferred pursuant to Rule 144;

 

                (b)           any sale of the Notes made in reliance on Rule 144
may be made only in accordance with the terms of Rule 144 and, if Rule 144
is not applicable, any resale of the Notes under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with another exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and

 

                (c)           neither the Company nor any other person is under any
obligation to register the Notes under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.

 

2.9           LEGENDS.  The Lender understands that until (a) the
Notes may be sold by the Lender under Rule 144(k) or (b) such
time as the resale of the Notes has been registered under the Securities Act,
the Notes will bear a legend restricting transfer.

 

2.10         RESIDENCY.  The Lender is a resident of the jurisdiction
set forth in the address for notice immediately below such Lender’s name on the
signature pages hereto.

 

2.11         NO BROKER FEES.  The Lender has not engaged any brokers,
finders, or agents, and the Lender has not incurred, and neither the Lender nor
the Company will incur, directly or indirectly, as a result of any action taken
by the Lender, any liability for brokerage or finders’ fees or agents’
commissions or any similar charges in connection with this Agreement.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to the Lenders
that:

 

3.1           ORGANIZATION AND
QUALIFICATION. The Company is duly incorporated, validly existing
and in good standing under the laws of the State of Minnesota, with full power
and authority (corporate and other) to own, lease, use and operate its
properties, if any, and to carry on its business as and where now owned,
leased, used, operated and conducted. 
The Company is duly qualified to do business and is in good standing in
every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, except where the failure to be so qualified or in
good standing would not have a Material Adverse Effect.

 

 

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3.2           AUTHORIZATION; ENFORCEMENT.  (a) The Company has all requisite
corporate power and authority to enter into and to perform its obligations
under this Agreement and the Notes, to consummate the transactions contemplated
hereby and thereby and to issue the Notes in accordance with the terms hereof
and thereof; (b) the execution, delivery and performance of this Agreement
and the Notes by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation the issuance of
the Notes) have been duly authorized by the Company’s board of directors and no
further consent or authorization of the Company, its board of directors or its
shareholders is required; (c) this Agreement and the Notes have been duly
executed and delivered by the Company; and (d) assuming the valid and
binding execution of this Agreement by the Lender and compliance with the terms
of this Agreement and the Notes by such Lender, each of this Agreement and the
Notes constitutes a legal, valid and binding obligation of the Company
enforceable against the Company by such Lender in accordance with their
respective terms, except as may be limited by any applicable bankruptcy,
insolvency, reorganization, or moratorium or similar laws affecting the rights of
creditors generally and the application of general principles of equity.

 

3.3           ISSUANCE OF NOTES.  The Note(s) have been duly authorized
and, upon issuance in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable and free from all taxes, liens,
claims, encumbrances and charges with respect to the issuance thereof (other
than liens imposed by an Lender).

 

3.4           NO CONFLICTS; NO VIOLATION.

 

(a)           The execution, delivery and
performance of this Agreement and the Notes by the Company, and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or result in a violation of any
provision of the Company’s Articles of Incorporation or Bylaws, (ii) violate
or 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 could become a
default) under, or give to others any rights of termination, amendment
(including without limitation, the triggering of any anti-dilution provision),
acceleration or cancellation of, any agreement, indenture or instrument to
which the Company is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or by which any property or asset of the Company is bound or
affected (except, in the case of clauses (ii) and (iii), for such
conflicts, breaches, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect).

 

(b)           The Company is not in violation of
its Articles of Incorporation, Bylaws or other organizational documents and the
Company is not in default (and no event has occurred which with notice or lapse
of time or both could put the Company in default) under, and the Company has not
taken any action or failed to take any action that (and no event has occurred
which, without notice or lapse of time or both) would give to others any rights
of termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party or by which any
property or assets of the Company is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material
Adverse Effect.  Without limiting the
foregoing, the Company is not in breach of, or default under, the documents
evidencing the Senior Debt, and will not be in breach of, or default under, the
documents evidencing the Senior Debt as a result of the consummation by the
Company of the transactions contemplated by this Agreement and the Notes,
including the issuance and payment of such Notes.  The Company reasonably believes, as of the
date of this Agreement and as of the date of issuance of any Note contemplated
by this Agreement, that the Company is able to, and will, pay in full on the
Maturity Date the principal sum of any Note, together with interest on the
unpaid principal amount thereof, and that such payment will not cause or result
in a breach or default under any 

 

 

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documents
evidencing the Senior Debt or any other agreement, indenture or instrument to
which the Company is a party.

 

(c)           Except as specifically contemplated
by this Agreement and as required under the Securities Act and any applicable
state securities laws or any listing agreement with any securities exchange or
automated quotation system, the Company is not required to obtain any consent,
authorization or order of (other than those obtained on or prior to the date
hereof), or make any filing or registration with, any court or governmental
agency or any regulatory or self regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the Notes in
each case in accordance with the terms hereof or thereof, or to issue and sell
the Notes in accordance with the terms hereof.

 

3.5           SEC DOCUMENTS.  Since the closing date of the Company’s
initial public offering, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act (all of the
foregoing filed prior to the date hereof being referred to herein as the “SEC Documents”).  As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act or the Securities Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, other than SEC Documents that have been
amended as of the date hereof.

 

3.6           NO BROKER FEES.  The Company has not engaged any brokers,
finders, or agents, and the Company has not incurred, and neither the Company
nor any Lender will incur, directly or indirectly, as a result of any action
taken by the Company, any liability for brokerage or finders’ fees or agents’
commissions or any similar charges in connection with this Agreement.

 

ARTICLE IV

COVENANTS

 

4.1           USE OF PROCEEDS.  The Company will use the proceeds from the
sale of the Notes for general corporate purposes, which may include the
repayment of debt to institutional lenders.

 

4.2           EXPENSES.  Except as otherwise set forth in this
Section, each party will pay its own fees and expenses, as well as the fees and
expenses of its own advisors and consultants, in connection with the
transactions contemplated by this Agreement. 
Upon the execution of this Agreement, the Company will pay the
reasonable out-of-pocket expenses incurred by the Lenders in connection with
the transactions herein contemplated, including without limitation, the fees
and out-of-pocket expenses of any legal counsel to the Lenders in connection
with the transactions herein contemplated, up to an aggregate amount of $10,000
for all such counsel.  The Company will
also pay all fees and expenses incurred by the Lenders with respect to any
amendments or waivers requested by the Company (whether or not the same become
effective) under or in respect of this Agreement.

 

4.3         FINANCIAL INFORMATION.  In the event the Company is no longer subject
to the reporting requirements of the Exchange Act, the Company will deliver to
the Lenders within 45 days after the end of each fiscal quarter other than the
Company’s fourth fiscal quarter and 90 days after the end of the Company’s
fiscal year, the financial statements of the Company, prepared in accordance
with United States generally accepted accounting principles (subject to the
absence of footnotes and normal year-end adjustments for quarterly financial
statements), consistently applied, and audited by the Company’s independent
public accountants in the case of year-end financial statements.

 

5

 

4.4           CORPORATE EXISTENCE.  The Company will maintain its corporate
existence in good standing.  The Company
will conduct its business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business, including,
without limitation, all applicable local, state and federal environmental laws
and regulations, except where the failure to comply with such laws, rules and
regulations would not have a Material Adverse Effect.

 

4.5           AFFILIATE TRANSACTIONS.  Without the approval of the audit committee
of the Company’s board of directors, the Company will not enter into or commit
directly or indirectly to any arrangement or transaction (i) in which the
Company purchases, rents or leases property or assets from, or sells,
transfers, or disposes of any material properties or assets (regardless of
whether in the ordinary course of business or not) to any Affiliate or (ii) in
which the Company loans any money or other property to any Affiliate.

 

ARTICLE V

CONDITIONS TO THE LENDER’S OBLIGATION TO PURCHASE

 

The
obligation of each Lender hereunder to purchase the Notes from the Company is
subject to the satisfaction, on or before each Closing, of each of the
following conditions.  These conditions
are for each Lender’s respective benefit and may be waived by any Lender at any
time in its sole discretion:

 

5.1           The Company will have delivered to
the Lender the duly executed Notes in the amounts specified.

 

5.2           The representations and warranties of
the Company must be true and correct in all material respects as of the Closing
as though made at that time (except for representations and warranties that
speak as of a specific date, which representations and warranties must be true
and correct as of such date) and the Company must have performed and complied
in all material respects with the covenants and conditions required by this
Agreement to be performed or complied with by the Company at or prior to the
Closing.

 

5.3           No litigation, statute, rule,
regulation, executive order, decree, ruling or injunction will have been
enacted, entered, promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the consummation
of any of the transactions contemplated by this Agreement.

 

5.4           There shall exist at the time of
Closing no condition or event which would constitute an Event of Default (as
hereinafter defined) or which, after notice or lapse of time or both, would
constitute an Event of Default.

 

5.5           Each other Lender shall have
purchased a Note in a principal amount reflecting such Lender’s ratable
obligation under the applicable Term Loan request delivered by the Company in
accordance with SECTION 1.3.

 

5.6           The Lenders shall have received an
opinion from Faegre & Benson LLP, counsel to the Company, in the form
attached hereto as Exhibit B.

 

ARTICLE VI

DEFAULT

 

                6.1           EVENTS OF DEFAULT.  Each of the following events shall be an
event of default (an “Event of Default”)
for purposes of this Agreement:

 

                                (a)           if default shall be made in the
punctual payment of interest on the Notes, and such default shall have
continued for a period of ten days after written notice thereof to the Company
by the holder of any of the Notes; or

 

 

6

 

                                (b)           if default shall be made in the
punctual payment of any installment of the principal of the Notes and such
default shall have continued for a period of five days after written notice
thereof to the Company by the holder of any of the Notes; or

 

                                (c)           if a trustee or receiver is appointed
for the Company or for substantially all of the Company’s assets and the order
of such appointment is not discharged, vacated or stayed within 60 days after
such appointment; or

 

                                (d)           if any judgment, writ or warrant of
attachment or of any similar process in an amount in excess of $10,000,000
shall be entered or filed against the Company or against any of the property or
assets of the Company and remains unpaid, unvacated, unbonded or unstayed for a
period of 60 days; or

 

                                (e)           if an order for relief shall be
entered in any Federal bankruptcy proceeding in which the Company is the
debtor; or if bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings, or other proceedings for relief under any bankruptcy
or similar law or laws for the relief of debtors, are instituted by or against
the Company and, if instituted against the Company, are consented to or, if
contested by the Company, are not dismissed by the adverse parties or by an order,
decree or judgment within 60 days after such institution; or

 

                                (f)            if the Company shall default in any
material respect in the due and punctual performance of any covenant or
agreement in the Senior Debt and such default shall continue for more than the
period of notice and/or grace, if any, therein specified and shall have thereby
caused the acceleration of all amounts due under the Senior Debt, which
acceleration shall not have been cured or waived; or

 

                                (g)           if default shall be made in the due
and punctual performance or observance of any other term contained in this
Agreement or the Notes, and such default shall have continued for a period of
30 days after the earlier of the Company’s knowledge thereof or written notice
thereof to the Company by the holder of any Note.

 

                6.2           REMEDIES UPON EVENTS OF
DEFAULT.  For so long as any
Note remains outstanding, upon the occurrence of an Event of Default as herein
defined, and so long as such Event of Default continues unremedied, then, each
holder of any Notes shall be entitled by notice to declare the principal
of and any accrued interest on the Notes, to be immediately due and payable,
and thereupon the Notes, including both principal and interest shall become
immediately due and payable; provided, however, that when any Event of Default
described in SECTION 6.1(e) has occurred, the Notes shall immediately
become due and payable without presentment, demand or notice of any kind.  In addition, from and after receipt of
written notice to the Company from the holder of a Note following the
occurrence of an Event of Default, and during the continuation thereof, the
rate per annum at which interest shall accrue on the unpaid principal balance
of the holder’s Note shall increase by 2%.

 

                6.3           NOTICE OF DEFAULTS.  When, to its knowledge, any Event of Default
has occurred or exists, the Company agrees to give written notice within ten
Business Days of such Event of Default to the holders of all outstanding
Notes.  If the holder of any Notes shall
give any notice or take any other actions in respect of a claimed Event of
Default, the Company will forthwith give written notice thereof to all other
holders of Notes at the time outstanding, describing such notice or action and
the nature of the claimed Event of Default.

 

                6.4           SUITS FOR ENFORCEMENT.  In case any one or more Events of Default
shall have occurred and be continuing, any holder of the Notes may proceed to
protect and enforce its rights under this Article by suit in equity or
action at law.  It is agreed that in the
event of such action such holders of Notes shall be entitled to receive all
reasonable fees, costs and expenses incurred, including without 

 

 

7

 

limitation
such reasonable fees and expenses of attorneys (whether or not litigation is
commenced) and reasonable fees, costs and expenses of appeals.

 

                6.5           REMEDIES CUMULATIVE.  No right, power or remedy conferred upon any
holder of Notes shall be exclusive, and each such right, power or remedy shall
be cumulative and in addition to every other right, power or remedy, whether
conferred hereby or by any such security or now or hereafter available at law
or in equity or by statute or otherwise.

 

                6.6           REMEDIES NOT WAIVED.  No course of dealing between the Company and
any Lender or the holder of any Notes, and no delay in exercising any right,
power or remedy conferred hereby or by any such security or now or hereafter
existing at law or in equity or by statute or otherwise, shall operate as a
waiver of or otherwise prejudice any such right, power or remedy; provided,
however, that this SECTION 6.6 shall not be construed or applied so as to
negate the provisions and intent of any statute that is otherwise applicable.

 

ARTICLE VII

INDEMNIFICATION

 

7.1           INDEMNIFICATION BY COMPANY.  In consideration of each Lender’s execution
and delivery of this Agreement and its acquisition of the Notes hereunder, and
in addition to all of the Company’s other obligations under this Agreement and
the Notes, the Company will defend, protect, indemnify and hold harmless each
Lender and each other holder of the Notes and all of their shareholders,
officers, directors, employees, advisors and direct or indirect investors and
any of the foregoing person’s agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Indemnitees”)
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (regardless of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Indemnified Liabilities”),
incurred or suffered by an Indemnitee as a result of, or arising out of, or
relating to (a) any breach of any representation or warranty made by the
Company herein or in any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation
of the Company contained herein or in any other certificate, instrument or
document contemplated hereby or thereby, or (c) any cause of action, suit
or claim brought or made against such Indemnitee and arising out of or
resulting from the execution, delivery, performance, breach or enforcement of
this Agreement or the Notes by the Company. 
To the extent that the foregoing undertaking by the Company is
unenforceable for any reason, the Company will make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law.

 

7.2           INDEMNIFICATION BY LENDERS.  Each Lender, severally and not jointly, will
defend, protect, indemnify and hold harmless the Company all of its
shareholders, officers, directors, employees and direct or indirect investors
and any of the foregoing person’s agents or other representatives (including,
without limitation, those retained in connection with the transactions contemplated
by this Agreement) (collectively, the “Company Indemnitees”)
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (regardless of whether any such Company Indemnitee is a party to the
action for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Indemnified Company
Liabilities”) incurred by a Company Indemnitee solely as a result of,
or arising solely out of, or relating solely to (a) any breach of any
representation or warranty made by such Lender herein or in any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Lender contained herein
or in any other certificate, instrument or document contemplated hereby or
thereby, or (c) the failure of an Lender to comply with 

 

 

8

 

the
requirements of the Securities Act or any state securities laws, which failure
is not caused by the negligence or willful misconduct of the Company.

 

ARTICLE VIII

DEFINITIONS

 

·      “Affiliate” has the meaning set
forth in Rule 405 promulgated under the Securities Act.

 

·      “Business Day” means any day
except a Saturday, Sunday or other day on which either the New York Stock
Exchange is closed, or on which commercial banks in New York or Minnesota are
authorized by law to close.

 

·      “Change in Control” means (a) the date that any person or group
(excluding the Erickson Family, David C. Pratt, Gratco, LLC, the David
C. Pratt Irrevocable Grantor Retained Annuity Trust, dated 12/1/92 and their Affiliates) becomes the beneficial
owner of 40% or more of the equity securities of the Company entitled to vote
for directors or (b) the last date of any period of 12 consecutive months
where a majority of the Company’s board of directors ceases to be composed of
individuals who were members of the Company’s board of directors on the first
day of such period or whose election was approved by such continuing majority
of directors (in all cases, excluding any director whose election occurs as a
result of an actual or threatened solicitation of proxies or consents).

 

·      “Closing” means the closing of the
purchase and sale of the Note(s) under this Agreement.

 

·      “Company” means Gander Mountain
Company, a Minnesota corporation.

 

·      “Erickson Family” means the
descendants of Arthur T. and Elsie P. Erickson and Alfred W. and Rose E.
Erickson, or trusts established primarily for the benefit of such descendants
and/or their spouses or relatives.

 

·      “Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, or any similar successor statute.

 

·      “Indemnified Liabilities” has the
meaning set forth in ARTICLE VII.

 

·      “Indemnitees” has the meaning set
forth in ARTICLE VII.

 

·      “Lenders” means the lenders whose
names are set forth on the signature pages of this Agreement, and their
permitted transferees.

 

·      “Material Adverse Effect” means a
material adverse effect on (a) the assets, liabilities, business,
properties, financial condition or results of operations of the Company, or (b) the
ability of the Company to perform its obligations under this Agreement.

 

·      “Nasdaq” means the Nasdaq Global
Select Market, the Nasdaq Global Market or the Nasdaq Capital Market, or their
successors.

 

·      “Notes” means the Promissory Notes
issuable pursuant to this Agreement, in the form attached hereto as Exhibit A,
and all promissory notes of the Company issued in exchange or substitution
therefor.

 

·      “Regulation D” means Regulation D
as promulgated by the SEC under the Securities Act.

 

·      “Rule 144” and “Rule 144(k)” mean Rule 144 and Rule 144(k),
respectively, promulgated under the Securities Act, or any successor rule.

 

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

 

 

9

 

·      “SEC Documents” has the meaning
set forth in SECTION 3.5.

 

·      “Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute.

 

·      “Senior Debt” means the Company’s
indebtedness under that certain Fourth Amended and Restated Loan and Security
Agreement, dated December 6, 2007, among Gander Mountain Company, Bank of
America, N.A., as agent, Bank of America Securities, LLC, as the lead arranger,
Wells Fargo Foothill, Inc., as the syndication agent, The CIT
Group/Business Credit, Inc., as collateral agent, General Electric Capital
Corporation, as documentation agent, and the lenders named therein, as may be
amended from time to time.

 

·      “Term Loans” has the meaning set
forth in SECTION 1.1.

 

ARTICLE IX

GOVERNING LAW; MISCELLANEOUS

 

9.1           GOVERNING LAW;
JURISDICTION.  This Agreement
will be governed by and interpreted in accordance with the laws of the State of
Minnesota without regard to the principles of conflict of laws.  The parties hereto hereby submit to the
exclusive jurisdiction of the United States federal and state courts located in
the State of Minnesota with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby. 
The parties also agree that any disputes arising under this Agreement
will be exclusively venued in the United States federal and state courts
located in the State of Minnesota, except for actions or proceedings regarding
the enforcement of awards or judgments.

 

9.2           COUNTERPARTS; SIGNATURES
BY FACSIMILE.  This Agreement
may be executed in two or more counterparts, all of which are considered one
and the same agreement and will become effective when counterparts have been
signed by each party and delivered to the other parties.  This Agreement, once executed by a party, may
be delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.

 

9.3           HEADINGS.  The headings of this Agreement are for
convenience of reference only, are not part of this Agreement and do not affect
its interpretation.

 

9.4           SEVERABILITY.  If any provision of this Agreement is invalid
or unenforceable under any applicable statute or rule of law, then such
provision will be deemed modified in order to conform with such statute or rule of
law.  Any provision hereof that may prove
invalid or unenforceable under any law will not affect the validity or
enforceability of any other provision hereof.

 

9.5           ENTIRE AGREEMENT.  This Agreement and the Notes constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof.  There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein.  This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.

 

                9.6           CONSENTS; WAIVERS AND
AMENDMENTS.  Except as
otherwise specifically provided herein, in each case in which approval of the
Lenders is required by the terms of this Agreement, such requirement shall be
satisfied only upon receipt of the written consent of the holders of a majority
of the outstanding principal amount of the Notes, which consent shall bind the
holders of all of the outstanding Notes; provided, however, that no change or
modification to the maturity date, interest rate or payment dates shall be
effective as to a holder of Notes without the prior written consent of such
holder.

 

 

10

 

                9.7           CHANGES, WAIVERS, ETC.  Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.

 

9.8           NOTICES.  Any notices required or permitted to be given
under the terms of this Agreement must be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and will be effective
five days after being placed in the mail, if mailed by regular U.S. mail, or
upon receipt, if delivered personally, by courier (including a recognized
overnight delivery service) or by facsimile, in each case addressed to a
party.  The addresses for such
communications are:

 

	
  If to the Company:

  	
   

  	
  Gander Mountain Company

  
	
   

  	
   

  	
  180 East Fifth Street, Suite 1300

  
	
   

  	
   

  	
  Saint Paul, Minnesota 55107

  
	
   

  	
   

  	
  Attn: Chief Financial Officer

  
	
   

  	
   

  	
  Facsimile:
  (651) 325-2001

  
	
   

  	
   

  	
   

  
	
  and

  	
   

  	
  180 East Fifth Street, Suite 1300

  
	
   

  	
   

  	
  Saint Paul, Minnesota 55107

  
	
   

  	
   

  	
  Attn: General Counsel

  
	
   

  	
   

  	
  Facsimile:
  (651) 325-2001

  
	
   

  	
   

  	
   

  
	
  with
  a copy to:

  	
   

  	
  Faegre &
  Benson LLP

  
	
   

  	
   

  	
  2200
  Wells Fargo Center

  
	
   

  	
   

  	
  90
  South Seventh Street

  
	
   

  	
   

  	
  Minneapolis,
  Minnesota 55402-3901

  
	
   

  	
   

  	
  Attn:
  W. Morgan Burns

  
	
   

  	
   

  	
  Facsimile:
  (612) 766-1600

  

 

If
to an Lender:  To the address set forth
immediately below such Lender’s name on the signature pages hereto.

 

Each
party will provide written notice to the other parties of any change in its
address.

 

9.9           SUCCESSORS AND ASSIGNS.  This Agreement is binding upon and inures to
the benefit of the parties and their successors and assigns.  The Company will not assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
Lenders, and no Lender may assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Company, except that any
Lender may assign this Agreement to an affiliate over which it maintains
majority control.  This provision does
not limit the Lender’s right to transfer the Notes pursuant to the terms of
this Agreement or to assign the Lender’s rights hereunder to any such
transferee pursuant to the terms of this Agreement.

 

9.10         THIRD PARTY BENEFICIARIES.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.

 

9.11         SURVIVAL.  All representations and warranties contained
herein shall survive the execution and delivery of this Agreement, any
investigation at any time made by the Lenders or on their behalf, and the sale
and purchase of the Notes and payment therefor. 
All statements contained in any certificate, instrument or other writing
delivered by or on behalf of the Company pursuant hereto or in connection with
or contemplation of the transactions herein contemplated shall constitute
representations and warranties by the Company hereunder.

 

9.12         PUBLICITY.  The Company and each Lender have the right to
review, a reasonable period of time before issuance thereof, any press
releases, or relevant portions of any SEC or Nasdaq filings or any other public
statements, with respect to the transactions contemplated hereby.  However, the Company may make any press
release or SEC or Nasdaq filings with respect to such transactions as 

 

 

11

 

are
required by applicable law and regulations (including Financial Industry
Regulatory Authority requirements) without the prior approval of the Lenders
(although the Company will make reasonable efforts to consult with the Lenders
in connection with any such press release prior to its release and filing).

 

9.13         FURTHER ASSURANCES.  Each party will do and perform, or cause to
be done and performed, all such further acts and things, and will execute and
deliver all other agreements, certificates, instruments and documents, as
another party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

9.14         NO STRICT CONSTRUCTION.  The language used in this Agreement is deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

 

9.15         EQUITABLE RELIEF.  Each party recognizes that, if it fails to
perform or discharge any of its obligations under this Agreement, any remedy at
law may prove to be inadequate relief to the other parties.  Each of the parties therefore agrees that the
other parties are entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.

 

9.16         INDEPENDENT NATURE OF
LENDERS’ OBLIGATIONS AND RIGHTS. 
The obligations of each Lender under either its Notes or this Agreement
are several and not joint with the obligations of any other Lender, and no
Lender shall be responsible in any way for the performance of the obligations
of any other Lender under a Note or this Agreement.  Nothing contained herein or in any Note or
this Agreement, and no action taken by any Lender pursuant thereto, shall be
deemed to constitute the Lenders as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Lenders
are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by this Agreement.  Each Lender shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement, and it shall not be necessary for any
other Lender to be joined as an additional party in any proceeding for such
purpose.  Each Lender has been
represented by its own separate legal counsel in their review and negotiation
of their Notes or this Agreement.  The
Company has elected to provide all Lenders with the same terms for the
convenience of the Company and not because it was required or requested to do
so by the Lenders.

 

9.17         TRUSTS AND OTHER ENTITY
LENDERS.  To the extent any
holder of Notes is a trust or other entity, the trustee or officers, directors,
employees, partners, members or other control persons of such trust or entity
shall be bound by the terms of this Agreement as it relates to the Notes held
by such trust or other entity.  Each
Lender agrees that it will cause such persons to execute and deliver to the
Company an acknowledgement of the obligations set forth in this Section to
the extent reasonably requested by the Company.

 

[Reminder of Page Left Blank Intentionally —
Signature Pages Follow]

 

 

12

 

IN
WITNESS WHEREOF, the undersigned Lenders and the Company have caused this
Agreement to be duly executed as of the date first above written.

 

	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GANDER
  MOUNTAIN COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Robert
  J. Vold

  
	
   

  	
   

  	
   

  	
  Senior
  Vice President and Chief Financial Officer

  

 

 

 

	
   

  	
   

  	
  LENDERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GRATCO
  LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  David
  C. Pratt

  
	
   

  	
   

  	
   

  	
  Manager

  

 

ADDRESS:

 

GRATCO LLC

7701 Forsyth Boulevard, Suite 1125

St.
Louis, Missouri 63105

 

(any
notice hereunder to this Lender shall also include a copy to):

 

Mark R. Gale, Esq.

7701 Forsyth Boulevard, Suite 1125

St.
Louis, Missouri 63105

 

	
   

  	
   

  	
  HOLIDAY
  COMPANIES

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Ronald
  A. Erickson

  
	
   

  	
   

  	
   

  	
  Chief
  Executive Officer

  

 

ADDRESS:

 

Holiday
Companies

4567
American Boulevard West

Minneapolis,
Minnesota 55437

Attention:
President

 

(any
notice hereunder to this Lender shall also include a copy to):

 

Holiday
Companies

4567
American Boulevard West

Minneapolis,
Minnesota 55437

Attention:
Legal Department

 

 

 

 

SCHEDULE I

TO TERM LOAN AGREEMENT

 

	
  MAXIMUM PRINCIPAL AMOUNT:

  	
   

  	
   

  	
   

  	
  $10,000,000.00

  	
   

  

                

 

	
  Lender

  	
   

  	
  Portion of Maximum Principal Amount

  	
   

  	
  Pro Rata Percentage

  	
   

  
	
  GRATCO LLC

  	
   

  	
  $

  	
  5,000,000.00

  	
   

  	
  50.0

  	
  %

  
	
  Holiday Companies

  	
   

  	
  $

  	
  5,000,000.00

  	
   

  	
  50.0

  	
  %

  
	
  Total

  	
   

  	
  $

  	
  10,000,000.00

  	
   

  	
  100.0

  	
  %

  

 

 

I-1

 

EXHIBIT A

TO TERM LOAN AGREEMENT

 

FORM OF PROMISSORY NOTE

 

THIS PROMISSORY NOTE HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES (COLLECTIVELY, THE “ACTS”).  THE PROMISSORY NOTE MAY NOT BE SOLD,
DISTRIBUTED, OFFERED, PLEDGED, ENCUMBERED, ASSIGNED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF THE FOLLOWING: (1) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE PROMISSORY NOTE UNDER THE ACTS COVERING THE TRANSACTION, (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACTS, OR (3) THE COMPANY
OTHERWISE SATISFIES ITSELF THAT REGISTRATION IS NOT REQUIRED UNDER THE ACTS.

 

GANDER MOUNTAIN COMPANY

 

PROMISSORY
NOTE

 

	
  Due: December 31,  2008

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  $[            ]

  	
   

  	
  Original Issue
  Date: [           ]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Promissory Note
  No.: [        ]

  

 

For value received, the
undersigned, Gander Mountain Company, a Minnesota corporation (the “Company”), hereby promises to pay to the order of [                      ]
(the “Lender”), at the Company’s principal
office in the City of Saint Paul, Minnesota, the principal sum of $[                  ],
plus all accrued and unpaid interest thereon, in lawful money of the United States
on December 31, 2008 (the “Maturity Date”),
together with interest on the unpaid principal amount thereof, as more fully
provided below.

 

                The interest rate per annum for this Promissory Note
(the “Note”) will initially be as set forth on
SCHEDULE I.  The amount of interest for
each day this Note is outstanding (the “Daily Interest Amount”)
will be calculated by dividing the interest rate in effect for that day by 360
and multiplying the result by the principal amount of this Note.  The amount of interest to be paid on this
Note for each Interest Period (as defined below) will be calculated by adding
the Daily Interest Amounts for each day in the Interest Period.

 

                Interest on this security will be paid on each October 31
and April 30, commencing on the first of such dates following issuance of
this security, and at maturity.  Each of
these dates on which interest will be paid is referred to as an “Interest Payment Date.” 
If an Interest Payment Date would
fall on a day that is not a Business Day, such Interest Payment Date will be
postponed to the following day that is a Business Day.

 

                On each Interest Payment Date, the Company will pay
interest for the period commencing on the next day immediately following the
most recent Interest Payment Date and ending on the then-current Interest
Payment Date.  This period is referred to
as an “Interest Period.”  The first Interest Period will begin on and
include the date of issuance of this security and, subject to the immediately
preceding paragraph, will end on and include the first Interest Payment Date.

 

                All percentages resulting from any of the above
calculations will be rounded, if necessary, to the nearest one hundred-thousandth
of a percentage point, with five one-millionths of a percentage point rounded upwards
(e.g., 4.876545% (or .04876545) being rounded to 4.87655% (or .0487655)) and
all dollar amounts used in or resulting from such calculations will be rounded
to the nearest cent (with one-half cent being rounded upwards).

 

                The interest rate on this Note will in no event be
higher than the maximum rate permitted by Minnesota law as the same may be
modified by United States law of general application.

 

                All calculations of the Company, in the absence of
manifest error, shall be conclusive for all purposes.

 

A-1

 

                Any amounts to be paid on this Note will be payable
by the Company in cash, by check or by wire transfer to the holder of this Note
to such account as the holder may request.

 

                This Note has been issued under the terms and
provisions of a Term Loan Agreement (the “Loan  Agreement”), dated as of June 9, 2008, among the
Company and the Lenders named on the signature pages thereto, as may be
amended from time to time.  Capitalized
terms used but not defined in this Note shall have the meanings ascribed to
them in the Loan Agreement.

 

                Upon the occurrence of any one or more of the Events
of Default specified in Article VI of the Loan Agreement, all amounts then
remaining unpaid on this Note, including any accrued but unpaid interest, may
be declared to be or shall become immediately due and payable as provided in
the Loan Agreement.  In addition, from
and after receipt of written notice to the Company from the holder following
the occurrence of an Event of Default, and during the continuation thereof, the
rate per annum at which interest shall accrue on the unpaid principal balance
hereof shall increase by 2%.

 

                This Note is subject to the following additional
provisions, terms and conditions:

 

                1.             CHANGE IN CONTROL.  In
the event of a Change in Control, the holder hereof shall have the option (the “Change in Control Option”) to (a) have this Note
assumed by the surviving entity or (b) require that this Note be redeemed
by the Company in whole (but not in part) at 100% of the outstanding unpaid
principal amount, plus all unpaid interest accrued thereon to the effective
date of the Change in Control.  The
Company shall give the holder of this Note written notice of such impending
transaction not later than 20 days prior to the shareholders’ meeting of the
Company called to approve such transaction, or 20 days prior to the closing of
such transaction, whichever is earlier. 
The notice shall give the proposed effective date of the transaction
(the “Effective Date”) and shall describe the
material terms and conditions of the transaction.  Any election to exercise the Change in
Control Option shall be made by the holder hereof giving written notice thereof
to the Company at least five days before the Effective Date (if no such notice
is given, the Company shall be entitled to elect one of these options).  Upon receipt of such notice, the Company
shall, on the Effective Date, take the action selected or applicable under this
Section.

 

                2.             RESALE RESTRICTIONS. 
The holder of this Note covenants and agrees that it is subject to the
resale restrictions set forth in Section 2.8 of the Loan Agreement.

 

3.             PREPAYMENT.  The Company may prepay this Note, upon
providing the holder five calendar days written notice prior to the date of
prepayment, in whole or in part at any time without penalty; provided, that any
such prepayment will be applied first to interest accrued and unpaid on the
principal amount being repaid and second, if the amount of prepayment exceeds
the amount of all such accrued and unpaid interest, to the repayment of the
unpaid principal amount.

 

4.             WAIVER OF
PRESENTMENT.  Presentment or other demand for payment, notice
of dishonor and protest are expressly waived.

 

5.             MISCELLANEOUS.

 

                                (a)           NOTICES.  Any notice, request or other communication
required or permitted hereunder will be given in accordance with the Loan
Agreement.

 

                                (b)           NO RIGHTS AS SHAREHOLDERS.  This Note will not entitle any holder hereof
to any of the rights of a shareholder of the Company.

 

                                (c)           GOVERNING LAW; JURISDICTION.  This Agreement will be governed by and
interpreted in accordance with the laws of the State of Minnesota without
regard to the principles of conflict of laws. 
The parties hereto hereby submit to the exclusive jurisdiction of the
United States federal and state courts located in the State of Minnesota with
respect to any dispute arising under this Note. 
The parties also agree that any disputes arising under this Note will be
exclusively venued in the United States federal and state courts located in the
State of Minnesota, except for actions or proceedings regarding the enforcement
of awards or judgments.

 

                (d)           HEADINGS.  The headings of this Note are for convenience
of reference only, are not part of this Note and do not affect its
interpretation.

 

                (e)           SUITS
FOR ENFORCEMENT.  In case any one or more
Events of Default shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights under this Note by suit in 

 

 

A-2

 

equity or action at
law.  It is agreed that in the event of
such action the holder of the Note shall be entitled to receive all reasonable
fees, costs and expenses incurred, including without limitation such reasonable
fees and expenses of attorneys (whether or not litigation is commenced) and
reasonable fees, costs and expenses of appeals.

 

[Reminder of Page Left Blank Intentionally — Signature Page Follows]

 

 

A-3

 

IN WITNESS WHEREOF, the
undersigned has caused this Note to be duly executed as of the issue date.  Receipt of this Note constitutes the Lender’s
acceptance of the terms hereof.

 

 

	
   

  	
   

  	
  GANDER MOUNTAIN COMPANY

  
	
   

  	
   

  	
  a Minnesota corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Robert J. Vold

  
	
   

  	
   

  	
   

  	
  Senior Vice President and Chief
  Financial Officer

  

 

 

A-4

 

SCHEDULE I

TO PROMISSORY NOTE

 

INTEREST
RATE SCHEDULE

 

	
  Period

  	
   

  	
  Interest Rate (per annum)

  
	
  June 9, 2008
  through August 2, 2008

  	
   

  	
  5.16%

  
	
  August 3, 2008
  through November 1, 2008

  	
   

  	
  1 year LIBOR as of
  August 2, 2008, plus 1.0%

  
	
  November 2, 2008
  through December 31, 2008

  	
   

  	
  1 year LIBOR as of
  November 1, 2008, plus 1.0%

  
	
  After December 31,
  2008

  	
   

  	
  1 year LIBOR as of the
  last day of the most recently completed fiscal quarter of the Company, plus
  1.0%

  

 

 

A-5

 

EXHIBIT B

TO TERM LOAN AGREEMENT

 

FORM OF LEGAL OPINION

 

1.             The Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the State of Minnesota.

 

2.             The Company has corporate power and
authority to enter into and perform its obligations under the Agreement.

 

3.             The Agreement and the Notes have
been duly authorized, executed and delivered by, and are valid and binding
agreements of, the Company, enforceable in accordance with their terms, except
as rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors’ rights
generally or by general equitable principles.

 

4.             No consent, approval, authorization
or other order of, or registration or filing with, any court or other
governmental authority or agency, is required for the Company’s execution,
delivery and performance of the Agreement and consummation of the transactions
contemplated thereby, except as required under the Securities Act of 1933 and
the Securities Exchange Act of 1934 and applicable state securities or blue sky
laws.

 

5.             The execution and delivery of the
Agreement and the Notes by the Company and the performance by the Company of
its obligations thereunder (other than performance by the Company of its
obligations under the indemnification sections of the Agreement, as to which no
opinion is rendered) (i) will not result in any violation of the
provisions of the charter or bylaws of the Company; (ii) will not
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to the documents evidencing the Senior Debt; or (iii) to
our knowledge, will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company.

 

 

B-1Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase
Agreement (this “Agreement”) is dated as of June 16, 2008 between
Answers Corporation, a Delaware corporation (the “Company”), and
Redpoint Omega, LP and Redpoint Omega Associates, LLC (each a “Purchaser”
and, collectively, the “Purchasers”).

 

WHEREAS, subject to the terms
and conditions set forth in this Agreement and pursuant to Section 4(2) of
Securities Act and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as
more fully described in this Agreement;

 

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

 

ARTICLE
I.

 

DEFINITIONS

 

1.1           Definitions.  In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise defined
herein have the meanings given to such terms in the Certificate of Designation
(as defined herein), and (b) the following terms have the meanings
indicated in this Section 1.1:

 

“Action”
shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any
Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144 under the Securities
Act.  With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary basis by
the same investment manager as such Purchaser will be deemed to be an Affiliate
of such Purchaser.

 

“Board of Directors”
means the Company’s board of directors, as constituted from time to time.

 

“Certificate of Designation”
means the Certificate of Amendment to the Company’s Amended and Restated
Certificate of Incorporation, as amended, filed by the Company with the
Secretary of State of the State of Delaware on or before the Closing Date, in
the form of Exhibit A attached hereto.

 

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

 

“Closing Date” means the
Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to (i) the
Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or waived.

 

“Commission”
means the Securities and Exchange Commission.

 

1

 

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

 

“Common Stock Equivalents”
means any securities of the Company or the Subsidiaries which would entitle the
holder thereof to acquire at any time Common Stock, including, without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exercisable or exchangeable
for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Common Stock Purchase
Warrants” means warrants, in the form of Exhibit C attached
hereto, issued with the Series A Convertible Preferred Stock.

 

“Company Counsel” means
Sichenzia Ross Friedman Ference LLP with offices located at 61 Broadway, New
York, New York 10006.

 

“Company Intellectual
Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

 

“Conversion Price” shall
have the meaning ascribed to such term in the Certificate of Designation.

 

“Disclosure
Schedules” shall have the meaning ascribed to such term in Section 3.1.

 

“Effective Date” means
the date that the initial Registration Statement filed by the Company pursuant
to the Registration Rights Agreement is first declared effective by the
Commission.

 

“Exchange Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

 

“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indemnification
Agreement” means the Indemnification Agreement in the form of Exhibit E
attached hereto.

 

“knowledge” means, with
respect to any person, the actual or constructive knowledge of such person and,
in the case of a corporation or other entity, the actual or constructive
knowledge of its executive officers and directors.

 

“Legend Removal Date”
shall have the meaning ascribed to such term in Section 4.1(c).

 

“Liens” means a lien,
charge, with respect to any asset, any mortgage, lien, pledge, charge, security
interest, or encumbrance of any kind in respect of such asset, whether or not
filed, recorded or otherwise perfected under applicable law (including
conditional sale or other retention agreement, any lease in the nature thereof,
any option or other agreement to sell or give a security interest in and any
filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).

 

2

 

“Material Adverse Effect”
shall have the meaning assigned to such term in Section 3.1(b).

 

“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(n).

 

 “Person” means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or
an agency or sub-division thereof) or other entity of any kind.

 

“Preferred Stock” means the Series A
Preferred Stock.

 

“Purchaser Party” shall have the
meaning ascribed to such term in Section 4.9.

 

“Purchaser Representative” shall have
the meaning ascribed to such term in Section 2.3(b)(vi).

 

“Registration Rights Agreement” means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers, in the
form of Exhibit B attached hereto.

 

“Registration Statement”
means a registration statement meeting the requirements set forth in the
Registration Rights Agreement, including without limitation, covering the
resale of the Underlying Shares by the Purchasers as provided for in the
Registration Rights Agreement.

 

“Required Approvals”
shall have the meaning ascribed to such term in Section 3.1(e).

 

“Required Minimum”
means, as of any date, the maximum aggregate number of shares of Common Stock
then issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and Preferred Stock, ignoring any conversion or
exercise limits set forth therein, and assuming that the Conversion Price is at
all times on and after the date of determination 75% of the then Conversion
Price on the Trading Day immediately prior to the date of determination.

 

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

 

“SEC
Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities”
means the Preferred Stock, the Warrants and the Underlying Shares.

 

“Securities
Act” means the Securities Act of 1933, as amended.

 

“Short Sales” shall include all “short sales” as defined in Rule 200
of Regulation SHO under the Exchange Act (but shall not be deemed to include
the location and/or reservation of borrowable shares of Common Stock).

 

“Series A
Preferred Stock” means Series A Convertible Preferred Stock.

 

3

 

“Stated
Value” means $100 per share of Preferred Stock, subject to increase
as set forth in Section 2(b) of the Certificate of Designation.

 

 “Subscription Amount” means, as to a
Purchaser, the aggregate amount to be paid for Preferred Stock and Warrants
purchased hereunder as specified below such Purchaser’s name on the signature page of
this Agreement and next to the heading “Subscription Amount”, in United States
Dollars and in immediately available funds.

 

“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a).

 

“Trading
Affiliate” shall have the meaning assigned to such term in Section 3.2(f).

 

“Trading Day” means a
day on which the Common Stock is traded on a Trading Market.

 

“Trading Market” means
the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the Nasdaq Capital Market, the
Nasdaq Global Market or the New York Stock Exchange.

 

“Transaction Documents”
means this Agreement, the Certificate of Designation, the Warrants, the
Registration Rights Agreement, and any other documents or agreements executed
in connection with the transactions contemplated hereunder.

 

“Underlying Shares”
means the Warrant Shares and the shares of Common Stock issued and issuable
upon conversion of the Preferred Stock in accordance with the terms of the
Certificate of Designation.

 

“Warrants”
means the Common Stock Purchase Warrants.

 

“Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.

 

ARTICLE
II.

 

PURCHASE
AND SALE

 

2.1           Closing.  On the Closing Date, upon the terms and subject
to the conditions set forth herein, the Company will issue and sell, and the
Purchasers will purchase, severally and not jointly, Series A Preferred
Stock with an aggregate Stated Value equal to $6,000,000 and the Common Stock
Purchase Warrants.  The aggregate number
of shares of Preferred Stock issued hereunder shall be 60,000 shares.  Each Purchaser shall deliver to the Company
via wire transfer immediately available funds pursuant to wire instructions
sent by the Company to each Purchaser on or prior to the Closing Date, an
amount equal to the Subscription Amount. 
Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of the Company’s Counsel at 61 Broadway,
32nd Floor, New York, NY 10006, or such other location as the
parties shall mutually agree.

 

4

 

2.2                                 Deliveries. 

 

(a)           On or prior to the Closing Date, the Company shall
deliver or cause to be delivered to each Purchaser the following:

 

(i)            this Agreement duly executed
by the Company;

 

(ii)           a legal opinion of Company
Counsel, substantially in the form of Exhibit D attached hereto;

 

(iii)          an aggregate of 60,000
shares of Preferred Stock registered in the names of the Purchasers;

 

(iv)          a Common Stock Purchase
Warrant, substantially in the form of Exhibit C attached hereto,
registered in the name of such Purchaser to purchase up to a number of shares
of Common Stock equal to 50% of the number of share of Common Stock issuable
upon conversion of the Series A Preferred Stock attributable to such
Purchaser, with an exercise price equal to 110% of the applicable Conversion
Price of such Series A Preferred Stock subject to adjustment as set forth
therein;

 

(v)           a certificate, dated the
Closing Date, duly executed by an officer of the Company to the effect that the
conditions specified in Sections 2.3(b)(i) and 2.3(b)(ii) have been
satisfied;

 

(vi)          the Registration Rights
Agreement duly executed by the Company; and.

 

(vii)         the Indemnification
Agreement in favor of the Purchaser Representative duly executed by the
Company.

 

(b)           On the Closing Date, each
Purchaser shall deliver or cause to be delivered to the Company the following:

 

(i)            this Agreement duly executed
by such Purchaser;

 

(ii)           the Subscription Amount via
wire transfer of immediately available funds pursuant to the wire instructions
delivered to such Purchaser by the Company on or prior to the Closing Date; and

 

(iii)          the Registration Rights
Agreement duly executed by such Purchaser.

 

2.3                                 Closing
Conditions.

 

(a)   The obligations of the
Company hereunder in connection with the Closing are subject to the following
conditions being met, any or all of which may be waived by the Company:

 

(i)            the accuracy in all material
respects on the Closing Date of the representations and warranties of the
Purchasers contained herein;

 

(ii)           all obligations, covenants
and agreements of the Purchasers required to be performed at or prior to the
Closing Date shall have been performed; and

 

5

 

(iii)          the delivery by the
Purchasers of the items set forth in Section 2.2(b) of this
Agreement.

 

(b)   The obligations of each
Purchaser hereunder in connection with the Closing are subject to the following
conditions being met, any or all of which may be waived by such Purchaser in
writing:

 

(i)            the accuracy in all material
respects on the Closing Date of the representations and warranties of the
Company contained herein;

 

(ii)           all obligations, covenants
and agreements of the Company required to be performed at or prior to the
Closing Date shall have been performed;

 

(iii)          the delivery by the Company
to such Purchaser of the items set forth in Section 2.2(a) of this
Agreement;

 

(iv)          there shall have been no
Material Adverse Effect with respect to the Company since the date hereof;

 

(v)           the Certificate of
Designation shall have been duly filed by the Company with the Secretary of
State of the State of Delaware in accordance with the General Corporation Law
of the State of Delaware, and each Purchaser shall have received evidence of
such filing in form and substance reasonably satisfactory to each Purchaser.

 

(vi)          the Company shall have
caused Allen Beasley (the “Purchaser Representative”) to have been
elected or appointed to the Board of Directors effective as of the
Closing.  Subject to being deemed
eligible to serve on the Compensation Committee of the Board of Directors
pursuant to the committee charter and applicable listing standards and
securities law requirements, the Company shall have caused the Purchaser
Representative to have been appointed as a member of the Compensation Committee
of the Board of Directors, and such appointment shall be in full force and
effect.

 

(vii)         the Company and Redpoint
Omega, L.P. shall each have entered into a management rights letter in the form
of Exhibit F hereto;

 

(viii)        promptly following the date
hereof and prior to the time that the Purchaser Representative is appointed to
the Board of Directors, the Company shall have executed the Indemnification
Agreement with the Purchaser Representative.

 

(ix)           As of the Closing, the
execution, delivery and performance of the Transaction Documents by the Company
will not violate or result in a breach of the Company’s anti-takeover measures
and provisions; and

 

(x)            from the date hereof to the
Closing Date, trading in the Common Stock shall not have been suspended by the
Commission or the Company’s principal Trading Market (except for any suspension
of trading of limited duration agreed to by the Company, which suspension shall
be terminated prior to the Closing), and, at any time prior to the Closing
Date, trading in securities generally as reported by Bloomberg Financial
Markets shall not have been 

 

6

 

suspended or limited, or
minimum prices shall not have been established on securities whose trades are
reported by such service, or on any Trading Market, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity of such magnitude in
its effect on, or any material adverse change in, the financial markets which,
in each case, makes it impracticable or inadvisable to purchase the Preferred
Stock and the Warrants at the Closing.

 

ARTICLE
III.

 

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations
and Warranties of the Company. 
Except as set forth under the corresponding section of the disclosure
schedules delivered to each Purchaser concurrently herewith (the “Disclosure
Schedules”), which Disclosure Schedules shall be deemed a part hereof, the
Company hereby makes the representations and warranties set forth below to each
Purchaser.

 

(a) Subsidiaries.  All of the direct and indirect Subsidiaries
of the Company are set forth on Schedule 3.1(a).  The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and
clear of any Liens, and all the issued and outstanding shares of capital stock
of each Subsidiary are validly issued and are fully paid, non-assessable and
free of preemptive and similar rights to subscribe for or purchase securities.

 

(b) Organization and
Qualification.  Except as described in
Schedule 3.1(b), the Company and each of the Subsidiaries, is an entity duly
incorporated or otherwise organized, validly existing and in good standing
(unless such Subsidiary is indicated to be “inactive” on Schedule 3.1(a) attached
hereto and which Subsidiaries have no material assets) under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite corporate power and authority to own and use its properties and
assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in
violation or default of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents.  Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in (i) a
material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company’s ability to perform in any material respect on a
timely basis its obligations under any Transaction Document (any of (i), (ii) or
(iii), a “Material Adverse Effect”) and no Proceeding has been instituted in
any such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.

 

(c) Authorization;
Enforcement.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the 

 

7

 

consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company and no further action is
required by the Company, its board of directors or its stockholders in
connection therewith other than in connection with the Required Approvals.  Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies.

 

(d) No Conflicts.  The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the other transactions contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of, any agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other agreement or understanding to
which the Company or any Subsidiary is a party or by which any property or
asset of the Company or any Subsidiary is bound or affected, or (iii) subject
to the Required Approvals and assuming the accuracy of the representations and
warranties in Section 3.2, conflict with or result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as
could not have a Material Adverse Effect.

 

(e) Filings, Consents and
Approvals.  The Company is not required
to obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to Section 4.6, (ii) the
filing with the Commission of the Registration Statement and any other filings
required pursuant to the Registration Rights Agreement, (iii) the notice
and/or application(s) to each applicable Trading Market for the issuance
and sale of the Preferred Stock and Warrants and the listing of the Underlying
Shares for trading thereon in the time and manner required thereby and (iv) the
filing of a Form D with the Commission and such filings as are required to
be made under applicable state securities laws (collectively, the “Required
Approvals”).

 

(f) Issuance of the
Securities.  The Securities are duly
authorized and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company.  The Underlying Shares and Warrant Shares,
when issued in accordance with the terms of the applicable Transaction Documents,
will be validly issued, fully paid and nonassessable, free and clear of all 

 

8

 

Liens imposed by the
Company.  The Company has reserved from
its duly authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Required Minimum on the
date hereof.   The Company has not, and
to the knowledge of the Company, no Affiliate of the Company has sold, offered for
sale or solicited offers to buy or otherwise negotiated in respect of any
security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities
to the Purchasers, or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market

 

(g) Capitalization.  Schedule 3.1(g) sets forth the number of
authorized and outstanding shares of the Company’s capital stock and
outstanding Common Stock Equivalents. 
Except as described in Schedule 3.1(g), the Company has not issued any
capital stock since its most recently filed periodic report under the Exchange
Act, other than pursuant to the exercise of employee stock options under the
Company’s stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company’s employee stock purchase plan and pursuant
to the conversion or exercise of Common Stock Equivalents outstanding as of the
date of the most recently filed periodic report under the Exchange Act.  No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents.  Except as a result of the purchase and sale
of the Securities and except as described in the SEC Reports, there are no
outstanding options, warrants, script rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under such securities. All of the outstanding shares of capital stock of
the Company are validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. 
No further approval or authorization of any stockholder, the Board of
Directors or others is required for the issuance and sale of the
Securities.  There are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company’s stockholders.

 

(h) SEC Reports; Financial
Statements.  The Company has complied
with requirements to file all reports, schedules, forms, statements and other
documents required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the Company
was required by law to file such material) (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports”) on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension.  As of their respective dates (or if amended
or superseded, as of the date of such amendment or superseded filing), the SEC
Reports 

 

9

 

complied in all material
respects with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed (or if amended or superseded, as of the
date of such amendment or superseded filing), contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.  The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of rules and regulations of the
Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”), except as
may be otherwise specified in such financial statements or the notes thereto
and except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.  No other
information provided by or on behalf of the Company to the Purchasers which is
not included in the SEC Reports contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.  The Company has not provided to the Purchasers
any material non-public information or other information which, according to
applicable law, rule or regulation, was required to have been disclosed
publicly by the Company but which has not been so disclosed, other than with
respect to the transactions contemplated by this Agreement.

 

(i) Material Changes.  Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports (i) there has been no event, occurrence or
development that could have a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (iii) the Company has
not materially altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued
any equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. 
Except for the issuance of the Securities contemplated by this Agreement
or as set forth on Schedule 3.1(i), no event, liability or development has
occurred or exists with respect to the Company or its Subsidiaries or their
respective business, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable federal securities
laws at the time this representation is made that has not been publicly disclosed.

 

(j) Litigation.  There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or

 

10

 

foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii) could
have a Material Adverse Effect.  Neither
the Company nor any Subsidiary, nor any director or executive officer thereof,
is or has been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty.  There has not been, and
to the knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or executive officer of the Company. 
The Commission has not issued any stop order or other order suspending
the effectiveness of any outstanding registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.

 

(k) Employee Benefit Plans;
Employee Matters.  The consummation of
the transactions contemplated by this Agreement will not (i) entitle any
current or former employee or other service provider of the Company to
severance benefits or any other payment, compensation or benefit (including
forgiveness of indebtedness), except as expressly provided by this Agreement,
or (ii) accelerate the time of payment or vesting, or increase the amount
of compensation or benefit due any such employee or service provider, alone or
in conjunction with any other possible event (including termination of
employment).  Except as disclosed on
Schedule 3.1(k) or as disclosed in the SEC Reports, the Company does not
have any employment agreements, or any other similar agreements that contain
any severance or termination pay liabilities or obligations, that are not filed
as exhibits to the SEC Documents.  The
Company and its Subsidiaries is in compliance in all material respects with all
U.S. federal, state, local and foreign laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and
is not engaged in any unfair labor practice. 
To the Company’s knowledge, no employees of the Company are in violation
of any term of any material employment contract, patent disclosure agreement,
noncompetition agreement, or any restrictive covenant to a former employer
relating to the right of any such employee to be employed by the Company
because of the nature of the business conducted or presently proposed to be
conducted by the Company or to the use of trade secrets or proprietary
information of others. No key employee of the Company has given written notice
to the Company, and the Company is not otherwise aware, that any such key
employee intends to terminate his or her employment with the Company.

 

(l) Labor Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect.  None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company, and neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement.  No executive officer or key employee is, or,
to the knowledge of the Company, is expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information and inventions agreement or non-competition agreement,
or any other contract or agreement or any restrictive covenant, and the
continued employment of such executive officer or key employee does not subject
the Company or any of its subsidiaries to any liability with respect to any of
the foregoing matters.

 

(m) Compliance.  Except as described on Schedule 3.1(m),
neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been 

 

11

 

waived that, with notice or
lapse of time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a claim that
it is in default under or that it is in violation of, any indenture, loan or
credit agreement or any other material agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any order
of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state and local
laws applicable to its business, employees, wages and all such laws that affect
the environment, except in each case as could not have a Material Adverse Effect.

 

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

 

(o) Title to Assets.  The Company and the Subsidiaries have good
and marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and marketable
title in all personal property owned by them that is material to the business
of the Company and the Subsidiaries, in each case free and clear of all Liens,
except as disclosed on Schedule 3.1(o). 
Any real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases of
which the Company and the Subsidiaries are in compliance.

 

(p) Intellectual Property.  Except as disclosed on Schedule 3.1(p), the
Company and the Subsidiaries solely own, or have sufficient rights to use and
otherwise exercise, exploit and license all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses, domain names, and  similar rights necessary or material for use
in connection with their respective businesses, as currently conducted
(collectively, the “Company Intellectual Property Rights”).  There are no outstanding options, licenses,
agreements, claims, encumbrances or shared ownership of interests of any kind
relating to the Company Intellectual Property Rights, nor is the Company bound
by or a party to any options, licenses or agreements of any kind with respect
to the patents, trademarks, service marks, trade names, domain names,
copyrights, trade secrets, licenses, information, proprietary rights and/or
processes of any other person or entity, except, in either case, for standard
generally commercially available end-user, object code, internal-use software
license agreements.  Except as disclosed
on Schedule 3.1(p), neither the Company nor any Subsidiary has received a
written notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person, and neither
Company nor any Subsidiary has any specific basis to believe any such notice
may be forthcoming.    Except as
disclosed on Schedule 3.1(o), and to the knowledge of the Company solely with
respect to patents and patent applications, all such Company Intellectual
Property Rights are enforceable and there is no existing infringement by
another Person of any of the Company Intellectual Property Rights.  The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties. 
Each present and former employee and officer of the Company has executed
a proprietary information and inventions agreement, and each consultant to the
Company has 

 

12

 

executed a Consulting
Agreement either in the forms provided to Purchaser’s counsel or a
substantially similar form.  The Company
is not aware that any of its present and former employees, officers or
consultants are in violation thereof, and the Company will use its commercially
reasonable efforts to prevent any such violation.  All persons who have had access to a Company
trade secrets or confidential information have signed a customary non-disclosure
and non-use agreement not containing a “residuals” clause or similar
provision.  To the extent the Company
uses any “open source” or “copyleft” software or is a party to “open” or “public
source” or similar licenses (including, but not limited to, the GNU General
Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public
License (MPL), and the Common Development and Distribution License (CDDL)), the
Company is not required to make any public disclosure or to make available any
source code or other Company Intellectual Property Right either used,
developed, or modified by Company.

 

(q) Insurance.  The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including, but not limited
to, directors and officers insurance coverage. 
To the best knowledge of the Company, such insurance contracts and policies
are accurate and complete.  Neither the
Company nor any Subsidiary has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business.  The Company has
provided to Purchaser’s counsel a copy of the Company’s directors and officers
insurance policy and a copy of the binder for the D&O excess policy.

 

(r) Transactions With Affiliates
and Employees.  None of the executive
officers or directors of the Company and, to the knowledge of the Company, none
of the employees of the Company is presently a party to any transaction with
the Company or any Subsidiary (other than for services as employees, executive
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
executive officer, director or such employee or, to the knowledge of the
Company, any entity in which any executive officer, director, or any such
employee has a substantial interest or is an executive officer, director,
trustee or partner other than (i) for payment of salary or consulting fees
for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) for other employee benefits, including stock
option agreements under any stock option plan of the Company.

 

(s) Sarbanes-Oxley.  The Company is in material compliance with all
provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), and any
and all applicable rules and regulations promulgated by the Commission
thereunder, which are applicable to it as of the Closing Date.  The Company and its Subsidiaries maintain a system
of internal controls, including, but not limited to, disclosure controls and
procedures, internal controls over accounting matters and financial reporting
(collectively, “Internal Controls”) that comply with the Securities Act,
the Exchange Act, Sarbanes-Oxley, and the rules and regulations of the
Nasdaq Global Market.  The Internal
Controls are overseen by the Audit Committee of the Board of Directors in
accordance with the rules and regulations of the Nasdaq Global
Market.  Except as disclosed in the SEC
Reports or as set forth on Schedule 3.1(s), the Company has not publicly
disclosed or reported to the Audit Committee or the Board of Directors, a
significant deficiency, material weakness, change in Internal 

 

13

 

Controls, any violation of,
or failure to comply with, applicable securities laws, or any matter which, if
determined adversely, would have a Material Adverse Effect.

 

(t) Certain Fees.  Except as disclosed on Schedule 3.1(t), no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. 
Such Purchaser shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.

 

(u) Private Placement.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the Securities
by the Company to the Purchasers as contemplated hereby.  The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading
Market.

 

(v) Investment Company. The
Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as
amended.  The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.

 

(w) Registration Rights.  Other than the Purchasers, except as
described in Schedule 3.1(w), no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the Company.  The granting and performance of the
registration rights under the Transaction Documents will not violate or
conflict with, or result in a breach of any provision of, or constitute a
default under, any agreement, indenture or instrument to which the Company is a
party.

 

(x) Listing and Maintenance
Requirements.  The Company has not, in
the 12 months preceding the date hereof, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect that
the Company is not in compliance with the listing or maintenance requirements
of such Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.

 

(y) Application of Takeover
Protections.  The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill (including
any distribution under a rights agreement) or other similar anti-takeover
provision under the Company’s Certificate of Incorporation (or similar charter
documents) or the laws of its state of incorporation that is or could become
applicable to such Purchaser as a result of such Purchaser and the Company
fulfilling their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company’s issuance
of the Securities and such Purchaser’s ownership of the Securities.

 

(z) Disclosure.  The Company understands and confirms that
such Purchaser will rely on the foregoing representations and covenants in
effecting transactions in securities of the 

 

14

 

Company.  All disclosure provided to such Purchaser
regarding the Company, its business and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, furnished by or on behalf
of the Company with respect to the representations and warranties made herein are
true and correct with respect to such representations and warranties and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.

 

(aa)         No Integrated Offering.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in Section 3.2, neither the Company, nor any of its affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the Securities
Act or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of any Trading Market on which
any of the securities of the Company are listed or designated.

 

(bb)         Tax Status. Except for
matters that would not, individually or in the aggregate, have a Material
Adverse Effect or except as disclosed on Schedule 3.1(bb), the Company and each
Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes owed thereunder, and
the Company has no knowledge of a tax deficiency or other tax liability which
has been asserted or threatened against the Company or any Subsidiary or upon
any of their properties or assets.  The
Company and each Subsidiary has complied in all material respects with all
applicable legal requirements relating to the payment and withholding of taxes
and, within the time and in the manner prescribed by law, has withheld from
wages, fees and other payments and paid over to the proper governmental or
regulatory authorities all amounts required.

 

(cc)         No General Solicitation.
Neither the Company nor any person acting on behalf of the Company has offered
or sold any of the Securities by any form of general solicitation or general
advertising.  The Company has offered the
Securities for sale only to the Purchasers.

 

(dd)         Foreign Corrupt
Practices.  Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any direct or indirect
unlawful payment to foreign or domestic government officials or employees or to
any foreign or domestic political parties or campaigns from corporate funds, (iii) failed
to disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is  in violation of law, (iv) violated, or
is in violation of, in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (v) made or received any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to or from any domestic or foreign government official or employee.

 

(ee)         Acknowledgment Regarding
Purchaser’s Purchase of Securities.  The
Company acknowledges and agrees that such Purchaser is acting solely in the
capacity of an arm’s 

 

15

 

length purchaser with
respect to the Transaction Documents and the transactions contemplated
hereby.  The Company further acknowledges
that such Purchaser is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Purchaser’s
purchase of the Securities.  The Company
further represents to such Purchaser that the Company’s decision to enter into
this Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

 

(ff)           Acknowledgement Regarding
Purchaser’s Trading Activity.  Anything
in this Agreement or elsewhere herein to the contrary notwithstanding (except
for Section 4.12 hereof), it is understood and agreed by the Company (i) that
such Purchaser has not been asked to agree, nor has such Purchaser agreed, to
desist from purchasing or selling, long and/or short, securities of the
Company, or “derivative” securities based on securities issued by the Company
or to hold the Securities for any specified term; (ii) that past or future
open market or other transactions by such Purchaser, including, without
limitation, Short Sales or “derivative” transactions, before or after the
closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities; (iii) that
such Purchaser, and counter parties in “derivative” transactions to which such
Purchaser is a party, directly or indirectly, presently may have a “short”
position in the Common Stock, and (iv) that such Purchaser shall not be
deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction. 
The Company further understands and acknowledges that (a) such Purchaser
may engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Underlying Shares deliverable with respect to Securities
are being determined and (b) such hedging activities (if any) could reduce
the value of the existing stockholders’ equity interests in the Company at and
after the time that the hedging activities are being conducted.  The
Company acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.

 

(gg)         Manipulation of Price. 
The Company has not, and to its knowledge no one acting on its behalf has, (i) taken,
nor will take, directly or indirectly, any action designed to cause or to
result in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii) sold,
bid for, purchased, or, paid any compensation for soliciting purchases of, any
of the Securities (other than for the placement agent’s placement of the
Securities), or (iii) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company.

 

(hh)         Form S-3
Eligibility.  The Company is eligible to
register the resale of its Common Stock issuable to the Purchasers upon the
conversion or exercise of the Securities, as applicable, pursuant to Form S-3
promulgated under the Securities Act.

 

(ii)           Books and Records.  The minute books of the Company for the
Company’s fiscal years 2006, 2007 and year-to-date 2008 contain accurate and
complete records of all meetings held of, and corporate action taken by, the
stockholders, the Board of Directors and committees of the Board of Directors
during such period, and no meeting of any such stockholders, the Board of
Directors or such committees has been held for which minutes have not been
prepared and are not contained in such minute books.

 

16

 

(jj)           Contracts.

 

(i)            All agreements, contracts
and commitments required to be filed by the Company under the Exchange Act or
the Securities Act have been filed in a timely manner with the Commission.

 

(ii)           The Company is not
restricted by agreement from carrying on its business anywhere in the world.

 

3.2           Representations
and Warranties of the Purchasers. 
Each Purchaser hereby, for itself, severally and not jointly, represents
and warrants as of the date hereof and as of the Closing Date to the Company as
follows:

 

(a)   Organization;
Authority.  Such Purchaser is an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution, delivery and performance
by such Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate or similar action on the part of
such Purchaser.  Each Transaction
Document to which it is a party has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof and
thereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

 

(b)   Own Account.  Such Purchaser understands that (i) the
Securities are “restricted securities” and that the offer and sale of the
Securities have not been registered under the Securities Act or any applicable
state securities law and (ii) the Securities must be held indefinitely
unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from such registration. 
Such Purchaser is acquiring the Securities as principal for its own
account and not with a view to or for distributing or reselling such Securities
or any part thereof in violation of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of the
Securities Act or any
applicable state securities law and has no direct or
indirect arrangement or understanding with any other Persons regarding the
distribution of such Securities (this representation and warranty not limiting
such Purchaser’s right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws) in violation of the Securities Act or any applicable state securities law.  Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.

 

(c)   Purchaser Status.  At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises any Warrants or converts any Preferred Stock it will be either: (i) an
“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act or (ii) a “qualified institutional
buyer” as defined in Rule 144A(a) under the Securities Act.  Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.

 

17

 

(d)   Experience of Such
Purchaser.  Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has
so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment. 
Such Purchaser understands that nothing in the Agreement or any other
materials presented to the Purchaser in connection with the purchase and sale
of the Securities constitutes legal, tax or investment advice. Such Purchaser
acknowledges that it must rely on legal, tax and investment advisors of its own
choosing in connection with its purchase of the Securities.

 

(e)   General Solicitation.  Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.

 

(f)    Certain Trading Activities.
 Other than with respect to the transactions contemplated herein, since
the earlier to occur of (1) the time that such Purchaser was first
contacted by the Company or any other Person regarding this investment in the
Company and (2) the tenth (10th) day prior to the date of this Agreement,
neither such Purchaser nor any Affiliate of such Purchaser which (x) had
knowledge of the transactions contemplated hereby, (y) has or shares
discretion relating to such Purchaser’s investments or trading or information
concerning such Purchaser’s investments, including in respect of the
Securities, and (z) is subject to such Purchaser’s review or input
concerning such Affiliate’s investments or trading (collectively, “Trading
Affiliates”) has directly or indirectly, nor has any Person acting on behalf of
or pursuant to any understanding with such Purchaser or Trading Affiliate,
effected or agreed to effect any transactions in the securities of the Company
(including, without limitation, any Short Sales involving the Company’s
securities).  Notwithstanding the foregoing, no Purchaser makes any
representation, warranty or covenant hereby that it will not engage in Short
Sales in the securities of the Company after the time that the transactions
contemplated by this Agreement are first publicly announced.

 

(g)   Independent
Investigation.  Such Purchaser, in
acquiring the Securities, has relied solely upon an independent investigation
made by such Purchaser and his or her representatives, if any.  Prior to the date hereof, such Purchaser has
been given the opportunity to ask questions of, and receive answers from,
representatives of the Company regarding the Company’s management, finances,
and business.  Such Purchaser also has
received and carefully reviewed the SEC Reports and is knowledgeable about the
affairs of the Company.  Neither such
inquiries nor any other diligence investigation conducted by such Purchaser or
any of its advisors or representatives shall modify, amend or effect such
Purchaser’s right to rely upon the Company’s representations and warranties and
covenants contained herein or in the Transaction Documents.

 

(h)   No Government Recommendation
or Approval.  Such Purchaser understands
that no United States federal or state agency, or similar agency of any other
country, has reviewed, approved, passed upon, or made any recommendation or
endorsement of the Company or the purchase of the Securities.

 

(i)    No Intent to Effect a Change
of Control. Such Purchaser has no present intent to effect a “change of control”
of the Company as such term is understood under the rules promulgated 

 

18

 

pursuant to Section 13(d) of
the Exchange Act.

 

The Company acknowledges and agrees that such
Purchaser does not make or has not made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in this Section 3.2.

 

ARTICLE
IV.

 

OTHER AGREEMENTS OF THE PARTIES

 

4.1                                 Transfer
Restrictions.

 

(a)   The Securities may only be
disposed of in compliance with state and federal securities laws.  In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor
thereof to provide to the Company an opinion of counsel, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act.  As a condition
of transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.

 

(b)   Each Purchaser agrees to the
imprinting, so long as is required by this Section 4.1(b), of a legend on
any of the Securities in the following form:

 

NEITHER THESE SECURITIES NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. 
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.

 

The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under
the Securities Act and who agrees to be bound by the provisions of this
Agreement and the Registration Rights Agreement and, if required under the
terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured 

 

19

 

parties.  Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection
therewith.  Further, no notice shall be
required of such pledge.  At the
appropriate Purchaser’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act
or other applicable provision of the Securities Act to appropriately amend the
list of selling stockholders thereunder.

 

(c)   Certificates evidencing the
Underlying Shares shall not contain any legend (including, without limitation,
the legend set forth in Section 4.1(b) hereof): (i) while a
registration statement (including, without limitation, the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible
for sale under Rule 144(b)(1), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including, without
limitation, judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion
to the Company’s transfer agent promptly after the Effective Date if required
by the Company’s transfer agent to effect the removal of the legend
hereunder.  If all or any portion of
Preferred Stock or Warrant is converted or exercised (as applicable) at a time
when there is an effective registration statement (including, without
limitation, the Registration Statement) to cover the resale of the Underlying
Shares, or if such Underlying Shares may be sold under Rule 144(b)(1) or
if such legend is not otherwise required under applicable requirements of the
Securities Act (including, without limitation, judicial interpretations
thereof) then such Underlying Shares shall be issued free of all legends.  The Company agrees that following the
Effective Date or at such time as such legend is no longer required under this Section 4.1(c),
it will, no later than three Trading Days following the delivery by a Purchaser
to the Company or the Company’s transfer agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend (such third
Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to
such Purchaser a certificate representing such shares that is free from all
restrictive and other legends.  The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section.  Certificates for
Securities subject to legend removal hereunder shall be transmitted by the
transfer agent of the Company to the Purchaser by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company System.

 

(d)   Each Purchaser agrees that
the removal of the restrictive legend from certificates representing Securities
as set forth in this Section 4.1 is predicated upon the Company’s reliance
that such Purchaser will sell any Securities pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom.

 

(e)   Notwithstanding anything
herein to the contrary, no registration statement or opinion of counsel shall
be necessary for a transfer (i) by a Purchaser that is a partnership to a
partner (limited or general) of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or the transfer by gift, will 

 

20

 

or intestate succession of
any partner to his or her spouse or to the siblings, lineal descendants or
ancestors of such partner or his or her spouse, 
(ii) by a Purchaser that is a limited liability company to a member
of such limited liability company or a retired member of such limited liability
company who retires after the date hereof, or to the estate of any such member
or retired member or the transfer by gift, will or intestate succession of any
member to his or her spouse or to the siblings, lineal descendants or ancestors
of such member or his or her spouse or (iii) by a Purchaser to an
affiliate of such Purchaser, if the prospective transferee agrees in all such
instances in writing to be subject to the terms hereof to the same extent as if
he or she were an original Investor hereunder.

 

4.2           Acknowledgment
of Dilution.  The Company
acknowledges that the issuance of the Securities may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions.  The Company
further acknowledges that its obligations under the Transaction Documents,
including without limitation its obligation to issue the Underlying Shares
pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless
of the effect of any such dilution or any claim the Company may have against
any Purchaser and regardless of the dilutive effect that such issuance may have
on the ownership of the other stockholders of the Company.

 

4.3           Furnishing
of Information.  As long as the
Purchasers beneficially own any of the Securities, the Company covenants to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. 
As long as the Purchasers beneficially own any of the Securities, if the
Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to each Purchaser and make publicly available in accordance
with Rule 144(c) such information as is required for such Purchaser
to sell the Securities under Rule 144. 
The Company further covenants that it will take such further action as
any holder of Securities may reasonably request, all to the extent required
from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

 

4.4           Integration.  Neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf shall sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in Section 2 of the Securities Act) that would be integrated
with the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Purchasers or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market.

 

4.5           Conversion
and Exercise Procedures.  The form of
Notice of Exercise included in the Warrants and the form of Notice of
Conversion included in the Certificate of Designation  set forth the totality of the procedures required of a
Purchaser in order to exercise the Warrants or convert the Preferred
Stock.  No additional legal opinion or
other information or instructions shall be required of such Purchaser to
exercise their Warrants or convert their Preferred Stock.  The Company shall honor exercises of the
Warrants and conversions of the Preferred Stock and shall deliver Underlying
Shares in accordance with the terms, conditions and time periods set forth in
the Transaction Documents.

 

4.6           Securities Laws Disclosure; Publicity.  The Company shall, by 5:30 p.m. Eastern
time on the fourth Trading Day following the Closing Date, file a Current
Report on Form 8-K, 

 

21

 

reasonably acceptable to the Purchasers
disclosing the material terms of the transactions contemplated hereby, and
shall attach the Transaction Documents thereto. 
The Company and the Purchasers shall consult with each other in issuing
any other press releases with respect to the transactions contemplated hereby,
and neither the Company nor any Purchaser shall issue any such press release
without the prior consent of the Company, with respect to any press release of
such Purchaser, or without the prior consent of the Purchasers with respect to
any press release of the Company, which consent shall not unreasonably be
withheld, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. 
Notwithstanding the foregoing, the Company shall not publicly disclose
the name of any Purchaser or any of its affiliates, or include the name of any
Purchaser or any of its affiliates in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except (i) as required by federal securities law in connection
with the registration statement contemplated by the Registration Rights
Agreement and (ii) to the extent such disclosure is required by law or
Trading Market regulations, in which case the Company shall provide such
Purchaser with prior notice of such disclosure permitted under subclause (i) or
(ii).

 

4.7           Stockholder
Rights Plan.  No claim will be made
or enforced by the Company or, to the knowledge of the Company, any other
Person, that any Purchaser is an “Acquiring Person” under any stockholder
rights plan or similar plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and such Purchaser.
The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.

 

4.8           Use
of Proceeds.  Except as set forth on Schedule
4.8 attached hereto, the Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company’s debt (other than payment of trade
payables in the ordinary course of the Company’s business and prior practices),
to redeem any Common Stock or Common Stock Equivalents or to settle any
outstanding litigation.

 

4.9           Indemnification of Purchasers.   Subject to the provisions of this Section 4.9,
the Company will indemnify and hold each Purchaser and its directors, officers,
stockholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a “Purchaser
Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser
Party, by any third party with respect to any of the transactions contemplated
by the Transaction Documents (unless such action is based upon a breach of such
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or 

 

22

 

understandings such Purchaser may have with
any such stockholder or any violations by such Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). 
If any action shall be brought against any Purchaser Party in respect of
which indemnity may be sought pursuant to this Agreement, such Purchaser Party
shall promptly notify the Company in writing, and the Company shall have the
right to assume the defense thereof with counsel of its own choosing.  Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof
has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable
opinion of such separate counsel, a material conflict on any material issue
between the position of the Company and the position of such Purchaser
Party.  The Company will not be liable to
any Purchaser Party under this Agreement (i) for any settlement by a
Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (ii) to the extent, but
only to the extent that a loss, claim, damage or liability is attributable to
any Purchaser Party’s breach of any of the representations, warranties,
covenants or agreements made by the Purchasers in this Agreement or in the
other Transaction Documents.

 

4.10                           Reservation
and Listing of Securities.

 

(a)   The Company shall maintain a
reserve from its duly authorized shares of Common Stock for issuance pursuant
to the Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.

 

(b)   If, on any date, the number
of authorized but unissued (and otherwise unreserved) shares of Common Stock is
less than the Required Minimum on such date, then the Board of Directors shall
use commercially reasonable efforts to amend the Company’s certificate of
incorporation to increase the number of authorized but unissued shares of Common
Stock to at least the Required Minimum at such time, as soon as possible and in
any event not later than the 75th day after such date.

 

(c)   The Company shall, if
applicable: (i) in the time and manner required by the Trading Market,
prepare and file with such Trading Market an additional shares listing
application covering a number of shares of Common Stock at least equal to the
Required Minimum on the date of such application, (ii) take all steps
necessary to cause such shares of Common Stock to be approved for listing on
the Trading Market as soon as possible thereafter, (iii) provide to each
Purchaser evidence of such listing, and (iv) maintain the listing of such
Common Stock on any date at least equal to the Required Minimum on such date on
such Trading Market or another Trading Market.

 

4.11         Short
Sales and Confidentiality After The Date Hereof.  Each Purchaser covenants that neither it nor
any affiliates acting on its behalf or pursuant to any understanding with it
will execute any Short Sales during the period from the date hereof until the earlier of such time as (i) after the
transactions contemplated by this Agreement are first publicly announced or (ii) this
Agreement is terminated in full. 
Each Purchaser covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as
described in Section 4.6, such Purchaser will maintain the confidentiality
of all disclosures made to it in connection with this 

 

23

 

transaction
(including the existence and terms of this transaction).  Each Purchaser understands and
acknowledges  that the Commission
currently takes the position that coverage of short sales of shares of the
Common Stock “against the box” prior to effectiveness of a resale registration
statement with securities included in such registration statement would be a
violation of Section 5 of the Securities Act, as set forth in Item 65, Section 5
under Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
Division of Corporation Finance. 
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s assets, the covenant set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement.

 

4.12         Form D: Blue Sky Filings.  The Company
agrees to timely file a Form D with respect to the Securities as required
under Regulation D and to provide a copy thereof, promptly upon request of any
Purchaser.  The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to qualify the
Securities for, sale to the Purchasers at the Closing under applicable
securities or “Blue Sky” laws of the states of the United States, and shall
provide evidence of such actions promptly upon request of any Purchaser.  The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or “Blue Sky” laws of the states of the United States
following the Closing Date.

 

ARTICLE
V.

 

MISCELLANEOUS

 

5.1           Termination. 
This Agreement may be terminated by a Purchaser, as to such Purchaser’s
obligations hereunder by written notice to the Company, if the Closing has not
been consummated on or before July 6, 2008; provided, however,
that no such termination will affect the right of any party to sue for any
breach by the other party (or parties).

 

5.2           Fees
and Expenses.  Except as expressly
set forth herein and in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement.  The Company shall reimburse,
at the Closing, the reasonable fees for the Purchasers’ legal counsel, fees to
other advisors retained by the Purchasers to represent them in the transactions
contemplated by this Agreement and the Transaction Documents, as well as the
Purchasers’ due diligence expenses, in an aggregate amount not to exceed
$100,000.  If the Closing is not
effected, the Company shall reimburse the legal fees and other expenses of the
Purchasers in an amount not to exceed $30,000.  The Company shall pay
all transfer agent fees, stamp taxes and other taxes and duties levied in
connection with the delivery of any Securities to the Purchasers.

 

5.3           Entire
Agreement.  The Transaction Documents
and any other written agreement between the Company and the Purchasers dated of
even date herewith, together with the exhibits and schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to 

 

24

 

such matters,
which the parties acknowledge have been merged into such documents, exhibits
and schedules.

 

5.4           Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the
next Trading Day after delivery, if such notice or communication is delivered
via confirmed registered mail,  (b) the
2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (c) upon actual
receipt by the party to whom such notice is required to be given.  The address for such notices and
communications shall be as set forth on the signature pages attached
hereto (unless later updated in writing by the parties hereto to the other
parties) and if to the Company, with a copy to:

 

Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP

155 Constitution Drive

Menlo Park, CA 94025

Attention: Scott C. Dettmer, Bennett L. Yee

Fax: (650) 321-2800

 

5.5           Amendments;
Waivers.  No provision of this
Agreement may be waived, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Company and the
Purchasers or, in the case of a waiver, by the party against whom enforcement
of any such waiver is sought.  No waiver
of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.

 

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

 

5.7           Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns.  The Company may not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Purchasers.  Any
Purchaser may assign any or all of its rights under this Agreement to any
Person to whom such Purchaser assigns or transfers any Securities, provided
such transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the “Purchaser”.

 

5.8           No
Third-Party Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, except as otherwise
set forth in Section 4.9.

 

5.9           Governing
Law.  All questions concerning the
construction, validity, enforcement and interpretation of the Transaction
Documents shall be governed by and construed and enforced 

 

25

 

in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. 
Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, stockholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. 
Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. 
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  The parties hereby waive all rights
to a trial by jury.  If either party
shall commence an action or proceeding to enforce any provisions of the
Transaction Documents, then the prevailing party in such action or proceeding
shall be reimbursed by the other party for its reasonable attorneys’ fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

 

5.10         Survival.  The representations, warranties, covenants
and other agreements contained herein shall survive the Closing and the
delivery, exercise and/or conversion of the Securities, as applicable for the
applicable statue of limitations.

 

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

 

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

 

5.13         Replacement
of Securities.  If any certificate or
instrument evidencing any Securities is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity, if requested. 
The 

 

26

 

applicants for
a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such replacement
Securities.

 

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

 

5.15         Liquidated
Damages.  The Company’s obligations
to pay any partial liquidated damages or other amounts owing under the
Transaction Documents is a continuing obligation of the Company and shall not
terminate until all unpaid partial liquidated damages and other amounts have
been paid notwithstanding the fact that the instrument or security pursuant to
which such partial liquidated damages or other amounts are due and payable
shall have been canceled.

 

5.16         Construction.
The parties agree that each of them and/or their respective counsel has
reviewed and had an opportunity to revise the Transaction Documents and,
therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

 

5.17         Aggregation
of Stock.  All  Securities held or acquired by affiliated Persons
or Persons under common management or control shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement
and the Transaction Documents.

 

(Signature Pages Follow)

 

27

 

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

 

	
  ANSWERS
  CORPORATION

  	
   

  	
  Address for
  Notice:

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   /s/ Robert S.
  Rosenschein

  	
   

  
	
   

  	
  Name:

  	
  Robert S.
  Rosenschein

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  	
   

  
	
   

  	
   

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

  	
   

  

 

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR PURCHASERS
FOLLOW]

 

28

 

[PURCHASER SIGNATURE PAGES TO
SECURITIES PURCHASE AGREEMENT]

 

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

 

 

	
  Redpoint
  Omega, L.P., by its General Partner

  	
   

  	
   

  
	
  Redpoint
  Omega, LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Redpoint
  Omega Associates, LLC, as nominee

  	
   

  
	
  By: 

  	
  /s/ W. Allen
  Beasley

  	
   

  	
   

  
	
   

  	
  Name: W.
  Allen Beasley

  	
   

  
	
   

  	
  Title:   Managing
  Director

  	
   

  
	
   

  	
   

  	
   

  
	
  Address for
  Notice of Purchaser:

  	
   

  
	
  3000 Sand
  Hill Road, 2-290

  	
   

  	
   

  
	
  Menlo Park,
  CA 94025

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address for
  Delivery of Securities for Purchaser (if not same as above):

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Redpoint
  Omega, L.P.

  	
   

  	
   

  	
   

  
	
  Subscription
  Amount:

  	
   

  
	
   

  	
  Series A
  Preferred Stock:

  	
   

  
	
   

  	
  Warrant
  Shares:

  	
   

  
	
  EIN Number:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Redpoint
  Omega Associates, LLC

  	
   

  	
   

  
	
  Subscription
  Amount:

  	
   

  
	
   

  	
  Series A
  Preferred Stock:

  	
   

  
	
   

  	
  Warrant
  Shares:

  	
   

  
	
  EIN Number:

  	
   

  
										

 

29

 

EXHIBIT
A

 

[Certificate
of Designation of Series A Convertible Preferred Stock]

 

30

 

EXHIBIT
B

 

[Registration
Rights Agreement]

 

31

 

EXHIBIT
C

 

[Form of
Common Stock Purchase Warrant]

 

32

 

EXHIBIT
D

 

[Form of
Opinion of Company Counsel]

 

33

 

EXHIBIT
E

 

[Form of
Indemnification Agreement]

 

34

 

EXHIBIT
F

 

[Management
Rights Letter]

 

35

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