Document:

c582788_ex10-18.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing

 

 

SECURITIES AMENDMENT AND PURCHASE AGREEMENT

DATED AS OF DECEMBER 23, 2008 

by and among 

HC INNOVATIONS, INC. 

and 

THE NOTEHOLDERS IDENTIFIED HEREIN 

 

 

TABLE OF CONTENTS 

				
	 	 	 	
Page
	 
	
ARTICLE I DEFINITIONS	
1
	 
	
ARTICLE II AUTHORIZATION OF AMENDED NOTES AND NEW WARRANTS;	 
	 	 	
CLOSING	
9
	
                    2.1	 	
Authorization of the Amended Notes and New Warrants	
9
	
                    2.2	 	
Amendment and Restatement of Existing Notes	
9
	
                    2.3	 	
Issuance of Additional Notes	
10
	
                    2.4	 	
Issuance of New Warrants	
10
	
                    2.5	 	
Replacement of Existing Notes and Cancellation of Existing Warrants	
10
	
                    2.6	 	
Noteholder Obligations Are Several, Not Joint	
10
	
                    2.7	 	
Closing	
11
	
                    2.8	 	
Fees	
11
	 
	
ARTICLE III MATURITY AND PREPAYMENT OF NEW NOTES	
11
	
                    3.1	 	
Maturity of Amended Notes	
11
	
                    3.2	 	
Optional Prepayment of Amended Notes	
12
	
                    3.3	 	
No Repurchase, Etc. of Amended Notes	
12
	
                    3.4	 	
Note Conversion, New Warrants not Affected by Repayment	
12
	 
	
ARTICLE IV CONVERSION OF NEW NOTES	
13
	
                    4.1	 	
Conversion at the Option of the Securities Holder	
13
	
                    4.2	 	
Conversion Procedure	
13
	
                    4.3	 	
Taxes on Conversion	
14
	
                    4.4	 	
Company to Reserve Stock; Related Covenants	
14
	
                    4.5	 	
Adjustment of Conversion Price	
15
	 
	
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY	
18
	
                    5.1	 	
Corporate Existence and Power	
18
	
                    5.2	 	
Subsidiaries and Affiliates	
18
	
                    5.3	 	
Authorization	
19
	
                    5.4	 	
Due Execution and Delivery; Binding Obligations	
19
	
                    5.5	 	
Issuance of Amended Notes, New Warrants and Common Stock	
19
	
                    5.6	 	
Collateral	
19
	
                    5.7	 	
No Conflict or Violation	
20
	
                    5.8	 	
Consents and Approvals	
20
	
                    5.9	 	
Capitalization	
21
	
                    5.10	 	
SEC Reports	
21
	
                    5.11	 	
Financial Statements	
22
	
                    5.12	 	
Financial Projections	
22
	
                    5.13	 	
Internal Controls and Procedures	
22
	
                    5.14	 	
Independent Accountants	
23
	
                    5.15	 	
Securities Act Registration, Etc	
23
	
                    5.16	 	
Compliance with Laws	
24

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                    5.17	 	
Assets	
24
	
                    5.18	 	
Taxes	
24
	
                    5.19	 	
Insurance	
24
	
                    5.20	 	
Litigation; Orders	
25
	
                    5.21	 	
Material Contracts	
25
	
                    5.22	 	
Franchises, Licenses, Permits	
25
	
                    5.23	 	
Arrangement Fees, Etc	
25
	
                    5.24	 	
Supplier and Customer Relationships	
25
	 
	
ARTICLE VI INVESTMENT REPRESENTATIONS OF EACH NOTEHOLDER	
26
	
                    6.1	 	
Investment Representations	
26
	
                    6.2	 	
Restricted Securities	
27
	
                    6.3	 	
Trading Restriction	
27
	 
	
ARTICLE VII CONDITIONS PRECEDENT TO NOTEHOLDERS' OBLIGATIONS	
28
	
                    7.1	 	
Conditions Precedent to Effectiveness	
28
	
                    7.2	 	
Conditions Precedent to the Closing	
29
	 
	
ARTICLE VIII COVENANTS	
30
	
                    8.1	 	
Reporting	
30
	
                    8.2	 	
Books and Records; Inspection Rights	
32
	
                    8.3	 	
Use of Proceeds	
32
	
                    8.4	 	
Compliance with Law	
33
	
                    8.5	 	
Insurance	
33
	
                    8.6	 	
Maintenance of Properties	
33
	
                    8.7	 	
Payment of Taxes and Claims	
33
	
                    8.8	 	
Corporate Existence	
34
	
                    8.9	 	
Further Assurances	
34
	
                    8.10	 	
Guaranty and Grant of Security by Subsidiaries	
34
	
                    8.11	 	
Additional Amounts	
35
	
                    8.12	 	
Limitations on Indebtedness	
36
	
                    8.13	 	
Limitation on Liens	
36
	
                    8.14	 	
Issuances of Stock; Restricted Payments	
36
	
                    8.15	 	
Merger, Consolidation	
37
	
                    8.16	 	
Sales of Assets	
37
	
                    8.17	 	
Nature of Business	
38
	
                    8.18	 	
Transactions with Affiliates	
38
	
                    8.19	 	
Board of Directors and Management	
38
	
                    8.20	 	
Management and Consulting Arrangements; Finders' Fees Etc	
38
	
                    8.21	 	
Qualifying Transaction	
39
	 
	
ARTICLE IX DEFAULT; REMEDIES	
39
	
                    9.1	 	
Events of Default	
39
	
                    9.2	 	
Acceleration	
41
	
                    9.3	 	
Other Remedies	
41
	
                    9.4	 	
Rescission	
41
	
                    9.5	 	
No Waivers or Election of Remedies, Expenses, Etc	
42

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ARTICLE X TRANSFERS OF SECURITIES	
42
	
                    10.1	 	
Restrictions on Transfer	
42
	
                    10.2	 	
Restrictive Legends; Exchanges; Lost, Stolen or Mutilated Notes and	 
	 	 	
Warrants	
42
	
                    10.3	 	
Notice of Transfer	
42
	
                    10.4	 	
Limitations on Disposition By Noteholders	
44
	 
	
ARTICLE XI MISCELLANEOUS	
44
	
                    11.1	 	
Survival of Agreement	
44
	
                    11.2	 	
Entire Agreement	
44
	
                    11.3	 	
Successors and Assigns	
44
	
                    11.4	 	
Counterparts	
45
	
                    11.5	 	
Notices	
45
	
                    11.6	 	
Governing Law	
45
	
                    11.7	 	
Amendments and Waivers	
46
	
                    11.8	 	
Incorporation of Schedules and Exhibits	
46
	
                    11.9	 	
Interpretation; Construction	
46
	
                    11.10	 	
No Duty	
47
	
                    11.11	 	
Liability of Noteholders	
47
	
                    11.12	 	
Independence of Agreements, Covenants and Representations and	 
	 	 	
Warranties	
47
	
                    11.13	 	
Cumulative Remedies	
48
	
                    11.14	 	
Severability	
48

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List of Annexes, Exhibits and Schedules:

		
	
Annex I	
Noteholders
	
Annex II	
Principal Amounts of Amended Notes and Amount of New Warrants
	
Exhibit A	
Form of Amended Note
	
Exhibit B	
Form of New Warrant
	
Exhibit C	
Form of Guarantee and Amended and Restated Security Agreement
	
Exhibit D	
Form of Registration Rights Agreement
	
Exhibit E	
Form of Opinion of Gersten Savage LLP
	
Schedule A	
Prior Transaction Documents
	
Schedule B	
Subordinated Notes
	
Schedule 5.2	
Subsidiaries and Affiliates
	
Schedule 5.9(a)	
Capitalization, Etc.
	
Schedule 5.9(b)	
Indebtedness
	
Schedule 5.12	
Projections
	
Schedule C	
Markman Group Transaction Documents
	
Schedule 5.21	
Material Contracts
	
Schedule 7.1	
Subordination Provisions
	
Schedule 7.1(e)	
Insurance Certificate
	
Schedule 7.2(a)	
Notice of Closing
	
Schedule 8.14(b)	
Stock Issuance Obligations as of 11/26/2008
	
Schedule 8.14(c)	
Rights of First Refusal Provisions
	
Schedule D	
Existing Liens
	
Schedule E	
Post-Closing Items and Deliverables

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SECURITIES AMENDMENT AND PURCHASE AGREEMENT

     THIS SECURITIES AMENDMENT AND PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of
December 23, 2008 by and among HC INNOVATIONS, INC., a Delaware corporation (the “Company”), and the parties identified
on Annex I hereto (each, a “Noteholder” and, collectively, the “Noteholders”). 

RECITALS

     WHEREAS, the Company previously has issued to the Noteholders certain secured convertible promissory notes in the aggregate principal amount of $7,139,955 plus
interest, pursuant to various subscription agreements (the “Existing Notes“, as further defined in ARTICLE I);

     WHEREAS, the Company and the Noteholders propose to amend and restate the Existing Notes, on the terms and conditions set forth in this Agreement, as Senior Secured
Convertible Notes, in order to, among other things, extend the maturity of the Existing Notes; 

     WHEREAS, the Company proposes to sell and issue to one or more of the Noteholders further Senior Secured Convertible Notes, which will rank pari passu and be part of the same series with the Senior Secured Convertible Notes referenced in the immediately prior recital (together with the Senior Secured Convertible Notes referred to in the
immediately prior recital, the “Amended Notes”), in order to provide funds for the repayment of certain existing bank indebtedness of the Company and to settle all amounts owed
under a consulting agreement with James J. Bigl, as described further in this Agreement; 

     WHEREAS, the Company and the Noteholders desire that the Amended Notes be secured by substantially all of the assets of the Company and its Subsidiaries; 

     WHEREAS, the Company has previously issued to the Noteholders certain warrants to purchase common stock of the Company (the “Existing
Warrants”, as further defined in ARTICLE I); and 

     WHEREAS, the Company and the Noteholders propose to exchange, on the terms and conditions set forth in this Agreement, the Existing Warrants for new warrants (the
“New Warrants”). 

     NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows: 

ARTICLE I 

DEFINITIONS

     In addition to the capitalized terms defined elsewhere in this Agreement, the following capitalized terms shall have the following respective meanings when used in this Agreement. 

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     “Action” shall have the meaning set forth in Section 5.20. 

     “Additional Amounts” shall have the meaning set forth in Section 8.11.

     “Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly, through one or more
intermediaries, controls, is under common control with, or is controlled by, such specified Person. As used in this definition, the term “control” means the possession, direct or
indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor or otherwise. 

     “Agreement” or “this Agreement” shall have the meaning set
forth in Section 11.9 and in the caption to this Securities Amendment and Purchase Agreement. 

     “Amended Notes” shall have the meaning ascribed to such term in the recitals to this Agreement. 

     “Ansley” shall have the meaning set forth in Section 5.23(b). 

     “Assets” has the meaning set forth in Section 5.17. 

     “Authorized Share Allocation” has the meaning set forth in Section 4.4(a).

     “Authorized Share Failure” has the meaning set forth in Section 4.4(b). 

     “Bank Debt Amount” shall mean Two Hundred Thousand Nine Hundred and Thirty Two U.S. Dollars and Eighty Two Cents ($200,932.82),
being the total amount of principal, interest, and other amounts that are outstanding under the Existing Credit Agreement. 

     “Bigl Letter Agreement” shall mean the letter agreement, dated as of December 23, 2008, by and between the Company and James J.
Bigl, regarding the settlement and termination of a consulting agreement between the Company and James J. Bigl. 

     “Brahma Finance” shall mean Brahma Finance (BVI) Limited, a company incorporated in the British Virgin Islands. 

     “Business Day” means any day, other than a Saturday, Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close. 

     “Closing” shall mean the closing of the transactions contemplated by this Agreement.

     “Closing Date” shall mean the date of the amendment and restatement of the Existing Notes as the Amended Notes, the issuance of
certain additional Amended Notes in accordance with this Agreement, and the issuance of the New Warrants, as shall be stated in the Notice of Closing. 

-2-

     “Code” means the Internal Revenue Code of 1986, as amended, or any successor federal statute, and the rules and regulations
promulgated thereunder, all as the same may from time to time be in effect. 

     “Collateral” shall have the meaning ascribed to such term in the Guarantee and Amended and Restated Security Agreement. 

     “Collateral Agent” has the meaning ascribed to such term in the Guarantee and Amended and Restated Security Agreement. 

     “Common Stock” means the common stock of the Company, $0.001 par value.

     “Company” shall have the meaning ascribed to such term in the caption to this Agreement. 

     “Company Bylaws” shall have the meaning ascribed to such term in Section 5.1.

     “Company Certificate of Incorporation” shall have the meaning ascribed to such term in Section
5.1. 

      “Contract” means any loan or credit agreement, note, bond, mortgage, indenture, lease, sublease, purchase order or other contract,
agreement, commitment, instrument or license. 

     “Conversion Amount” shall have the meaning set forth in Section 4.1.

     “Conversion Date” shall have the meaning set forth in Section 4.2. 

     “Conversion Notice” shall have the meaning set forth in Section 4.2. 

     “Conversion Price” shall have the meaning set forth in Section 4.1. 

     “Default” means any event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both,
become an Event of Default. 

     “Distribution” means, in respect of any Person, (i) the payment or making of any dividend or other distribution of property or
assets in respect of equity interests (or any options or warrants for such equity interests) of such Person, other than distributions in equity interests (or any options or warrants for equity interests) of the same class or (ii) the redemption or
other acquisition of any equity interests (or any options or warrants for equity interests) of such Person. 

     “Effective Date” shall mean the date, not later than December 23, 2008, on which each of the conditions precedent set forth in
Section 7.1 is satisfied or duly waived. 

     “Entities” means the Company and its Subsidiaries. 

     “Event of Default” shall have the meaning ascribed to such term in Section 9.1.

-3-

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and
regulations promulgated thereunder, all as the same may from time to time be in effect. 

     “Existing Credit Agreement” shall mean, collectively: (i) that certain credit agreement between the Company and Citibank N.A., as
lender; and (ii) that certain credit agreement between the Company and People’s United Bank, as lender. 

     “Exercise Price” means the price per share of the Company’s common stock to be paid by the Noteholders upon exercise of the
New Warrants. 

     “Existing Notes” shall mean those promissory notes issued to the Noteholders pursuant to the Prior Transaction Documents.

     “Existing Warrants” shall mean those warrants issued to the Noteholders pursuant to the Prior Transaction Documents. 

     “Fair Market Value” means the value that would be paid by a willing buyer to unaffiliated willing seller in a transaction not
involving distress or necessity of either party, determined in good faith by the Board of Directors of the Company. 

     “Financial Statements” shall have the meaning set forth in Section 5.11.

     “Fundamental Documents” means the documents by which any Person (other than an individual) establishes its legal existence or which
govern its internal affairs. For example, the “Fundamental Documents” of a corporation would be its articles of incorporation/certificate of incorporation and code of
regulations/bylaws. 

     “GAAP” shall mean generally accepted accounting principles in the United States of America and statements and interpretations (if
applicable) issued by the Financial Accounting Standards Board, or any successor body, as in effect from time to time, unless otherwise stated. 

     “Governmental Entity” means any foreign, federal, state, municipal or other government, governmental department, commission, board,
bureau, agency or instrumentality, or any court, tribunal or arbitrator. 

     “Guarantee and Amended
and Restated Security Agreement” means the guaranty of the Subsidiary
Guarantors in the form of Guarantee  and Amended and Restated Security Agreement
attached hereto as Exhibit C, as amended, supplemented or otherwise
modified from time to time subsequent to the Closing Date. 

     “Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money; (b) all obligations
of such Person evidenced by bonds, debentures, notes or similar instruments; (c) all obligations of such Person under conditional sale or other title retention agreements relating to property or assets acquired by such Person; (d) all obligations of
such Person in respect of the deferred purchase price of property or assets or services; (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any
Lien on property or assets

-4-

owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed; (f) all guarantees by such Person of Indebtedness of others; (g) all capital leases of such Person (as within the meaning of
GAAP); (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guarantee; and (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances.
Indebtedness of any person shall not include current accounts payable incurred in the ordinary course of business of such Person.  The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which
such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is
not liable therefor. 

     “Law” means any foreign, federal, state or local constitution, law, statute, treaty, rule, directive, regulation, requirement,
ordinance and any similar provision having the force or effect of law or any Order. 

     “Letter of Interest” means that certain letter of interest that was submitted to the Company on November 11, 2008 and provided to
the Noteholders. 

     “Lien” means any security interest, pledge, lien, bailment (in the nature of a pledge or for purposes of security), mortgage,
security agreement, deed of trust, grant of a power to confess judgment, conditional sale or title retention agreement (including any lease in the nature thereof), claim, charge, escrow, encumbrance, easement, reservation, restriction, cloud,
preemptive right, right of first refusal or first offer, option, commitment or other similar agreement, arrangement, contract, commitment, understanding or obligation, whether written or oral and whether or not relating in any way to credit or the
borrowing of money. 

     “Losses” shall mean each and all of the following items: any loss (including, without limitation, diminutions in value and losses
of earnings), liabilities, demands, claims, actions, causes of action, costs, damages (actual, punitive or consequential), deficiencies, Taxes (including any Taxes imposed with respect to indemnity payments), charges, judgments, penalties, fines or
expenses, whether or not arising out of any claims by or on behalf of the Company or any third party, including interest, penalties, reasonable attorneys' fees and expenses and all amounts paid in investigation, defense or settlement of any of the
foregoing. 

     “Markman Group Noteholders” means, together, the holders of the Markman Group Notes, respectively. 

     “Markman Group Transaction” means one or more binding agreements pursuant to which each of the Markman Group Noteholders closes a
transaction with the Company extending the maturity of the Markman Group Notes on substantially similar terms as provided in the Transaction Documents or on terms otherwise satisfactory to the Required Noteholders. 

     “Markman Group Notes” means those certain secured convertible promissory notes, in the aggregate principal amount of $310,000
plus interest, made by the Company pursuant to the transaction documents listed on Schedule C, as the same may be amended from time to time. 

-5-

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

     “Material Contracts” means any and all contracts or agreements to which the Company or any Subsidiary is a party and which fall
under the term “material contract” as such term is defined in Item 601(b)(10) of Regulation SK of the SEC, and any and all amendments, modifications, supplements, renewals or restatements thereof. 

     “New Maturity Date” means either: (a) the earlier of (x) May 31, 2009 or (y) the closing date of a Qualifying Transaction; (b) in
the event no Markman Group Transaction closes by the earliest maturity date currently in effect of any of the Markman Group Notes, then the New Maturity Date shall mean the same date as such earliest maturity date of any of the Markman Group Notes;
or (c) in the event no Qualifying Transaction closes by May 31, 2009, then the New Maturity Date shall mean May 30, 2010, subject to the terms and conditions of this Agreement. 

     “New Warrants” shall have the meaning set forth in the recitals to this Agreement. 

     “New Warrants Capital Increase” shall have the meaning set forth in Section 8.14(a).

     “Note” or “Notes” means the Existing Notes and/or the Amended
Notes, as the context requires. 

     “Noteholder” and “Noteholders” shall each have the meaning
ascribed to such terms in the caption to this Agreement. 

     “Notice of Closing” shall have the meaning set forth in Section 7.2(a).

     “Order” means any judgment, writ, decree, declaration, injunction, order, stipulation, compliance agreement or settlement agreement
issued or imposed by, or entered into with, a Governmental Entity or arbitrator. 

     “PCAOB” shall have the meaning set forth in Section 5.11.

     “Permit” shall mean any permit, license, authorization, registration, franchise, approval, consent, certificate, variance, waiver,
variance or clearance and similar rights obtained, or required to be obtained, from Governmental Entities. 

     “Permitted Liens” means (i) Liens for Taxes not yet due and payable, (ii) workers or unemployment compensation Liens arising in the
ordinary course of business of the Company or its Subsidiaries, consistent with past practice, (iii) mechanic’s, materialman’s, supplier’s, vendor’s or similar Liens arising in the ordinary course of business of the Company and its Subsidiaries,
consistent with past practice, securing amounts that are not delinquent; (iv) zoning or deed restrictions, public utility easements, rights of way, minor title irregularities and similar matters relating to any real property of the Company or its
Subsidiaries, in all such cases having no effect which is materially adverse as a practical matter on the ownership or use of any such real estate in question, as such property is used in the ordinary course of business of by the Company
and

-6-

its Subsidiaries; (v) any Lien granted to the Collateral Agent created or reaffirmed pursuant to the Guarantee and Amended and Restated Security Agreement for the benefit of one or more of the Noteholders; and (vi) any existing
Lien fully disclosed on Schedule D. 

     “Permitted Management Stock Options” means options to purchase shares of Common Stock granted to employees of the Company and its
subsidiaries pursuant to a duly adopted employee stock option plan, the grant of which is approved by the Company’s Board of Directors upon recommendation of a duly appointed outside compensation committee. 

     “Person” shall be construed as broadly as possible and shall include an individual, a corporation, a company, an association, a
joint stock company, a partnership (including a limited liability partnership), a limited liability company, a joint venture, a trust or an unincorporated organization and a Governmental Entity. 

     “Prepayment Notice” has the meaning set forth in Section 3.2(a). 

     “Prior Transaction Documents” shall mean the documents listed on Schedule A.

     “Proceeding” shall mean any action, suit, proceeding, complaint, charge, hearing, inquiry or investigation before or by a
Governmental Entity. 

     “Projections” shall have the meaning set forth in Section 5.12.

     “Qualifying Transaction” shall mean a binding agreement for the sale of all or substantially all of the Company’s assets or capital
stock or a merger, consolidation, reorganization or other combination of the Company which results in the transfer of more than 90% of the voting securities of the Company; provided that such transaction shall provide for the mandatory repayment in
full, at closing, of principal, interest, and all other amounts outstanding in respect of, the Amended Notes. The Company currently expects that a Qualifying Transaction will result from either (x) the transaction contemplated by the Letter of
Interest or (y) a transaction with a third party who makes an offer which the Board of Directors of the Company has a fiduciary duty to consider. 

     “Registration Rights
Agreement” shall mean the Registration Rights Agreement in the form
attached hereto as Exhibit D,
as amended, supplemented or otherwise modified from time to time subsequent to
the Closing Date. 

     “Required Noteholders” shall mean at any time holders of the Amended Notes representing at least 66-2/3% in principal amount of the
Amended Notes at the time outstanding (exclusive of any Amended Notes then owned by the Company of any of its Subsidiaries). 

     “Required Reserve Amount” has the meaning set forth in Section 4.4(a).

     “Restricted Payment” means any Distribution (whether in cash, security or other property or assets) with respect to any equity
interest of the Company or any payment (whether in cash, securities or other property or assets), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any
such

-7-

equity interest of the Company or any option, warrant or other right to acquire any such equity interest of the Company. 

     “Rule 144” shall mean Rule 144 promulgated under the Securities Act, or any successor rule thereto, all as the same may from time
to time be in effect. 

     “Securities” has the meaning ascribed to the term “security”
in Section 2(a)(1) of the Securities Act. 

     “Securities Act” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations
promulgated thereunder, all as the same may from time to time be in effect. 

     “Securities Holder” means each Noteholder (or its successors or permitted assigns) which holds Amended Notes or New Warrants.

     “Security Document” means any and all of the security agreements, pledge agreements and/or collateral assignments among the
Collateral Agent and the Company and the Subsidiary Guarantors which secure the obligations of the Company and/or the Subsidiary Guarantors under the Transaction Documents, whether in existence on the date hereof or hereafter entered into, in each
case as supplemented, amended, modified, renewed and replaced. 

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

     “SEC Reports” shall have the meaning set forth in Section 5.10. 

     “Share Delivery Due Date” shall have the meaning set forth in Section 4.2.

     “Subordinated Notes” means the notes, copies of which are attached hereto as Schedule
B. 

     “Subsidiary” means with respect to any Person, any other Person of which at least fifty percent (50%) of the shares of stock or
other interests entitled to vote in the election of the members of the board of directors of such other Person or comparable Persons performing similar functions at such other Person (excluding shares or other interests entitled to vote only upon
the failure to pay dividends thereon or other contingencies) are at the time owned or controlled, directly or indirectly through one or more Subsidiaries, by such Person. Unless the context otherwise requires, the term “Subsidiary” means a Subsidiary of the Company. 

     “Subsidiary Guarantors” means those Subsidiaries of the Company that will execute the Guarantee and Amended and Restated Security
Agreement. 

     “Taxes” means, with respect to any Person, (i) all income taxes (including any tax on or based upon net income, gross income,
income as specially defined, earnings, profits or selected items of income, earnings or profits) and all gross receipts, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property or windfall profits taxes, alternative or add-on minimum taxes, customs duties, levies, imposts, and other taxes, fees, assessments or charges of any kind whatsoever,

-8-

together with all interest and penalties, additions to tax and other additional amounts, in each case imposed by any taxing authority (domestic or foreign) on such Person (if any) and (ii) any liability for the payment of any
amount of the type described in clause (i) above as a result of (A) being a “transferee” (within the meaning of Section 6901 of the Code or any other applicable Law) of another
Person, (B) being a member of an affiliated, combined or consolidated group or (C) a contractual arrangement or otherwise. 

     “Taxing Authority” shall have the meaning set forth in Section 8.11(c).

     “Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment thereof. 

     “Transaction Documents” shall mean this Agreement, the Amended Notes, the New Warrants, the Guarantee and Amended and Restated
Security Agreement, the Registration Rights Agreement and any other document or instrument executed and delivered by the Company in connection with the Amended Notes, the New Warrants or this Agreement. 

ARTICLE II

AUTHORIZATION OF AMENDED NOTES AND NEW WARRANTS; CLOSING 

2.1   Authorization of the Amended Notes and New Warrants 

     The Company has authorized,
upon the terms and conditions set forth in this Agreement: (i) the amendment
and restatement of the Existing Notes as Amended Notes, in the form of Exhibit
A, in the respective principal amounts set forth beside each Noteholder’s
name on Annex II; (ii) the issuance and sale of additional notes,
which shall also be Amended Notes and which shall have the same substantive terms
as the other Amended Notes, to all of the Noteholders pro rata based upon
the unpaid principal amount of  their Amended Notes, in the aggregate amount
set forth on Annex II (which is equal to the Bank Debt Amount), and the
use of the proceeds from such sale for the repayment of all of the  Indebtedness
incurred under the Existing Credit Agreement; (iii) the issuance and sale of
an additional note, which shall also be an Amended Note and which shall have
the same substantive terms as the other Amended Notes, to the James J. Bigl
Revocable Trust, in the aggregate amount set forth on Annex II, pursuant
to the Bigl Letter Agreement; and (iv) the issuance and sale of the New Warrants,
in the form of Exhibit
B, in the respective amounts set forth beside each Noteholder’s
name on Annex II and which together provide
rights to purchase an aggregate of 25,817,057 shares of Common Stock of the Company
at $0.30 per share. 

2.2   Amendment and Restatement of Existing Notes 

     At the Closing, subject to the terms and conditions of this Agreement, the Company and the Noteholders will amend and restate, each of the Existing Notes, in the form of Exhibit A, in the respective amounts set forth beside each Noteholder’s name on Annex II, as Amended Notes, dated the Closing Date, and duly
executed by the Company and registered in the name of the applicable Noteholder or its nominee.  The principal amount of each Existing Note that is

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amended and restated as an Amended Note shall be 100% of the principal amount of such Existing Note immediately prior to the Closing, plus accrued interest through the Closing Date. 

2.3   Issuance of Additional Notes

     At the Closing, subject to the terms and conditions of this Agreement, the Company will issue and sell additional notes, which shall also be Amended Notes and which shall have the same substantive
terms as the other Amended Notes, to: 

     (a) the Noteholders, pro rata based upon the unpaid principal amount of their
Amended Notes, in the specific amounts and in the aggregate amount set forth on Annex II (which is equal to the Bank Debt Amount), against the wiring of funds by the Noteholders pursuant to
Section 8.3. The wiring of such funds will constitute the entire proceeds received by the Company from the issuance and sale of such additional Amended Notes to the Noteholders; and to

     (b) James J. Bigl, in the aggregate amount set forth on Annex II, pursuant to
the Bigl Letter Agreement. 

2.4   Issuance of New Warrants

     At the Closing, subject to the
terms and conditions of this Agreement, the Company will issue, New Warrants,
in the form of Exhibit
B, in the respective amounts set
forth beside each Noteholder’s name on Annex
II, dated the Closing Date, and duly executed by
the Company and  registered in the name of the applicable Noteholder or its nominee.
In the event that a Qualifying Transaction is not consummated by May 31, 2009
or the Company has not prepaid the Amended Notes in full pursuant to Section
3.2 by May 31, 2009, then the New Warrants shall
be immediately exercisable for a period of five years from May 31, 2009, at a
price of $0.30 per share. 

2.5   Replacement of Existing Notes and Cancellation of Existing Warrants 

     At the Closing, each Noteholder
shall deliver for replacement the Existing Notes and the Existing Warrants in
the amounts specified opposite each such Noteholder’s name under the columns
titled
“Outstanding Principal” and “Outstanding Number of Warrants”,
respectively, on Annex II.  The
Company will execute and deliver to each of  the Noteholders the Amended Notes
and the New Warrants in the amounts specified opposite such Noteholder’s
name under the column titled “Amended Notes” and “New Warrants”,
respectively, on Annex II.  Upon such delivery
of the Amended Notes, the Existing Notes shall thereby be amended and restated
as the Amended Notes, and upon such delivery of the New Warrants, the Existing
Warrants  will be canceled. Interest which has accrued on the Existing Notes
but which is unpaid through the Closing Date shall be added to the principal
amount of the Existing Notes for purposes of determining the principal amount
of Amended Notes to be  issued to each respective Noteholder. 

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2.6   Noteholder Obligations Are Several, Not Joint 

     The obligations of the Noteholders hereunder are several and not joint obligations, and no Noteholder shall have any obligation to perform the obligations of any other Noteholder under this Agreement,
and no Noteholder shall have any liability to any Person for the performance or nonperformance by any other Noteholder of its obligations under this Agreement. 

2.7   Closing

     The Closing hereunder shall occur at the offices of Thompson Hine LLP, 335 Madison Avenue, New York, New York 10017, or at such other place as shall be mutually agreed to between the Noteholders and
the Company, and shall occur at 10:00 AM New York time on December 23, 2008 or on such other Business Day prior to December 23, 2008 as may be agreed upon between the Noteholders and the Company. 

2.8   Fees

     The Company shall pay to the Noteholders or their respective
designees the following fees:

     (a) The Company shall pay all of the Noteholders' reasonable legal and professional costs incurred in connection with the transactions
contemplated hereby, which, if the Closing occurs on or before December 19, 2008, will not exceed an aggregate of $75,000, plus all of Noteholders' reasonable travel and subsistence costs in connection with the transactions contemplated hereby.
All such costs shall be paid on the earlier to occur of the Closing and December 19, 2008. Any legal and professional costs incurred after December 19, 2008 shall be payable on demand and shall not be subject to the foregoing limitations.

     (b) In the event that a Qualifying Transaction is not consummated by May 31, 2009 or if the Company has not prepaid the Amended Notes in
full pursuant to Section 3.2 by May 31, 2009, the Company shall thereafter pay to the Noteholders a monthly fee of $10,000. Such fee shall be paid to an agent appointed by the
Noteholders and shall be distributed to the Noteholders pro rata based upon the unpaid principal amount of their Amended Notes. Such monthly fee will be payable on the last Business Day of
each month, with the initial payment payable on June 30, 2009. 

ARTICLE III

MATURITY AND PREPAYMENT OF NEW NOTES

3.1   Maturity of Amended Notes

     The Amended Notes shall mature and be repayable in full on the New Maturity Date. If the Company consummates a Qualifying Transaction on or prior to May 31, 2009, the Amended Notes shall be repaid out
of the proceeds of the Qualified Transaction.  With respect to each Amended Note, no late fees or penalties will be assessed on the Company for the period from the

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Closing to the New Maturity Date solely by reason of the non-payment of the Existing Notes on the original maturity date thereof. 

3.2   Optional Prepayment of Amended Notes 

     (a) The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Amended
Notes, in an amount of not less than 10% of the aggregate principal amount of the Amended Notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid, together with interest accrued thereon to the date of
such prepayment. The Company will give each holder of Amended Notes written notice (a “Prepayment Notice”) of each optional prepayment under this Section 3.2 not less than five Business Days prior to the date fixed for such prepayment. Each such notice shall specify the date fixed for prepayment, the aggregate principal amount of the Amended Notes to
be prepaid on such date, the principal amount of each Amended Note held by such holder to be prepaid (determined in accordance with subsection (b)), and the interest to be paid on the prepayment date with respect to such principal amount being
prepaid. 

     (b) In the case of each partial prepayment of the Amended Notes pursuant to this Section
3.2, the principal amount of the Notes to be prepaid shall be allocated pro rata among all of the holders of Amended Notes at the time outstanding in accordance
with the unpaid principal amount thereof. 

     (c) In the case of each prepayment of Amended Notes pursuant to this Section 3.2, the principal amount of each Amended Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date.  From and after such date,
unless the Company shall fail to pay such principal amount when so due and payable, together with the interest, as aforesaid, interest on such principal amount shall cease to accrue. Any Amended Note paid or prepaid in full shall be surrendered to
the Company and cancelled and shall not be reissued, and no Amended Note shall be issued in lieu of any prepaid principal amount of any Amended Note. 

3.3   No Repurchase, Etc. of Amended Notes 

     The Company will not and will not permit any Subsidiary or Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any part or portion of the outstanding Amended Notes,
except upon the repayment at the New Maturity Date or upon prepayment in accordance with Section 3.2. 

3.4   Note Conversion, New Warrants not Affected by Repayment 

     (a) If the New Warrants become exercisable pursuant to the terms thereof, the New Warrants and any shares of Common Stock issued or
required to be issued pursuant to exercise thereof, shall not be affected by any payment or repayment of the Amended Notes and shall remain outstanding and exercisable in accordance with the terms of such New Warrants. 

     (b) If the Amended Notes become convertible pursuant to Section 4.1, any
Common Stock issued or required to be issued pursuant to any Conversion Notice transmitted to the Company prior to payment or repayment of the Amended Notes shall not be affected by any such 

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payment or repayment and shall remain issuable in accordance with the terms of ARTICLE IV hereof.

ARTICLE IV

CONVERSION OF NEW NOTES

4.1   Conversion at the Option of the Securities Holder 

     Subject to the further provisions of this ARTICLE IV, in the event that by May 31, 2009 both (i) a Qualified Transaction has not been
consummated and (ii) the Company has not prepaid the Amended Notes in full pursuant to Section 3.2, at any time or times thereafter, a Noteholder may convert the outstanding principal amount
and any accrued and unpaid interest (the “Conversion Amount”) of any Amended Notes (or any portion thereof) into such number (rounded to the nearest whole number) of validly
issued, fully paid and nonassessable shares of Common Stock at an initial conversion price per share equal to $0.20 (as such conversion price may be adjusted from time to time pursuant hereto, the “Conversion
Price”). The provisions of this Agreement that apply to the conversion of all of an Amended Note shall also apply to the conversion of a portion of an Amended Note. A Noteholder is not entitled to any rights of a
holder of Common Stock until such Noteholder has converted its Amended Notes to Common Stock in compliance with the procedures set forth in this ARTICLE IV, and only to the extent such
Amended Notes are deemed to have been converted into Common Stock pursuant to this ARTICLE IV. 

4.2   Conversion Procedure 

     (a)    Procedure 

     To convert an Amended Note (or portion thereof) into shares of Common Stock, a Noteholder must (i) complete and manually sign the conversion notice on the back of the Amended Note (the
“Conversion Notice”) and transmit by facsimile (or otherwise deliver) such Conversion Notice to the Company, (ii) surrender the Amended Note to be converted to the Company or its
designee (or deliver an indemnification undertaking with respect to such Amended Note in the case of its loss, theft or destruction), (iii) furnish appropriate endorsements and transfer documents if required by the Company, and (iv) pay any transfer
or similar tax payable by the Noteholder pursuant to Section 4.3, if required, and provide evidence of such payment to the Company.  Each conversion shall be deemed to have been effected as
to any Amended Note (or portion thereof) on the date on which the requirements set forth in this Section 4.2 have been satisfied as to any such Amended Note (or portion thereof) (the
“Conversion Date”). As soon as practicable after the Conversion Date, but in no event later than five Business Days following such Conversion Date (the “Share Delivery Due Date”) the Company shall execute and deliver, to the address specified in the Conversion Notice, a certificate, registered in the name of the converting Noteholder or its designee,
for the number of whole shares of Common Stock to which such Noteholder shall be entitled. 

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     (b)   Date Shares Held

     The Person or Persons entitled to receive Common Stock upon conversion of the Amended Notes as set forth in this Agreement shall be treated for all purposes as the holder or holders of such Common
Stock, as of the close of business on the applicable Conversion Date; provided, however, that no surrender of an Amended Note on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the Person or
Persons entitled to receive the shares of Common Stock upon such conversion as the holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the Person or Persons entitled to receive such
shares of Common Stock as the holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; provided
further that such conversion shall be at the Conversion Price in effect on the applicable Conversion Date as if the stock transfer books of the Company had not been closed. 

     (c)   Remaining Principal Amount

     Upon surrender of an Amended Note that is converted in part, the Company shall execute and deliver to the Noteholder a replacement Amended Note equal in principal amount to the unconverted portion of
the Amended Note surrendered. Upon conversion in full of an Amended Note, such Amended Note shall be terminated. 

4.3   Taxes on Conversion

     If a Noteholder converts an Amended Note, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon such conversion.  However, the
Noteholder shall pay any such tax which is due because the Noteholder requests the securities to be issued in a name other than the Noteholder’s name. 

4.4   Company to Reserve Stock; Related Covenants 

     (a)   Reservation of Shares 

     So long as any Amended Notes are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Amended Notes, the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the outstanding Amended Notes (without regard to any limitations on conversions) (the
“Required Reserve Amount”). The initial number of shares of Common Stock reserved for conversions of the Amended Notes
and each increase in the number of shares so reserved shall be allocated pro rata among the Noteholders based on the unpaid principal amount of the Amended Notes held by each Noteholder on the Closing Date or the date of increase in the number of
reserved shares, as the case may be (the “Authorized Share Allocation”). In the event that a Noteholder shall sell or otherwise transfer any of such Noteholder’s interests in any
Amended Notes, each transferee shall be allocated a pro rata portion of such Noteholder’s Authorized Share Allocation. 

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     (b)   Insufficient Authorized Shares

     If at any time while any of the Amended Notes remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve
for issuance upon conversion of the Amended Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company
shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the outstanding Amended Notes. Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than 60 days after the occurrence of such Authorized Share Failure, the Company shall call a meeting
of its shareholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each shareholder with a proxy statement and shall use its best efforts to solicit its
shareholders' approval of such increase in authorized shares of Common Stock and to cause its Board of Directors to recommend to the shareholders that they approve such proposal. 

     (c)   Validity

     All shares of Common Stock delivered upon conversion of the Amended Notes shall be newly issued shares, shall be duly authorized, validly issued, fully paid and nonassessable and shall be free from
preemptive rights and free of any lien or adverse claim with respect to the issue thereof. 

     (d)   Compliance with Applicable Laws; Additional Listing Application

     The Company will comply with all federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Amended Notes, if any, and if the shares of Common
Stock are listed on a United States national securities exchange or other trading market, if permitted by the rules of such exchange or market, will list or cause to have quoted such shares of  Common Stock on each national securities exchange or
other trading market on which the Common Stock is then listed or quoted, if any. 

4.5   Adjustment of Conversion Price 

     The Conversion Price shall be adjusted from time to time by the Company as follows: 

     (a)   Dividends; Distributions; Subdivisions; Combinations 

     In case the Company shall (i) pay a dividend on its Common Stock in shares of Common Stock, (ii) make a distribution on its Common Stock in shares of Common Stock, (iii) subdivide its outstanding
Common Stock into a greater number of shares, or (iv) combine its outstanding Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior thereto shall be adjusted so that the holder of any Amended Note thereafter
surrendered for conversion shall be entitled to receive that number of shares of Common Stock which it would have owned had such Amended Note been converted immediately prior to the happening of such event. An adjustment made pursuant to this
paragraph shall become effective immediately after 

-15-

the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of subdivision or combination. If any dividend or distribution of the type described in this
paragraph is declared but not so paid or made, or the outstanding shares of Common Stock are not subdivided or combined, as the case may be, the Conversion Price shall be immediately readjusted, effective as of the date the Board of Directors
determines not to pay such dividend or distribution, or split or combine the outstanding shares of Common Stock, as the case may be, to the Conversion Price that would then be in effect if such dividend, distribution, share split or share
combination had not been declared. 

     (b)   Issuances Below Issue Date Closing Price; Issuances Below Conversion Price

     If, during the period commencing on November 26, 2008 and ending on May 31, 2011, the Company shall issue or sell, or is deemed to have issued or sold, Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock for a consideration per share of Common Stock: 

          (i) at a price per share (or having a conversion, exercise or exchange price per share) less than the initial Conversion Price (subject to
adjustment for stock splits, combinations, dividends and other customary adjustments), or 

          (ii) at a price per share (or having a conversion, exercise or exchange price per share) less than the then current Conversion Price (subject
to adjustment for stock splits, combinations, dividends and other customary adjustments), 

     then the Conversion Price then in effect shall be adjusted to a price equal to the quotient obtained by dividing: 

	 	 (x)	an amount equal to the sum of (a) the
        total number of shares of Common Stock outstanding immediately prior
        to such issuance or sale or deemed issuance or sale (assuming conversion
        into Common Stock at the then effective conversion rate for the applicable
        series) multiplied by the Conversion Price in effect immediately prior
        to such issuance plus (b)
        the aggregate consideration received by the Company upon such issuance
    or sale or deemed issuance or sale, by
	 	 	 
	 	(y)	the total number of shares of Common Stock
        outstanding immediately prior to such issuance or sale or deemed issuance
        or sale (assuming conversion into Common Stock at the then effective
        Conversion Price for the applicable series) plus the
        number of shares of Common Stock actually sold or issued (or deemed to
        be sold or issued) in the transaction which resulted in the adjustment
    pursuant to this Section 4.5(b). 

     (c)   Change in Exercise/Conversion Price or Rate of Conversion 

     If the purchase price provided for in any equity-linked securities, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any equity linked securities, or
the rate at which any equity-linked securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Conversion Price in 

-16-

effect at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such equity-linked securities provided for such changed purchase price, additional consideration or
changed conversion, exchange or exercise rate, as the case may be, at the time initially granted, issued or sold. For purposes of this paragraph, if the terms of any equity-linked security that was outstanding as of the date of the Closing are
changed in the manner described in the immediately preceding sentence, then such equity-linked security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such
change. 

     (d)   Limitations & Interpretations 

          (i) For purposes of this Section 4.5, if the consideration relating to the issuance
or payable upon conversion, exercise or exchange of a security into or for Common Stock consists in whole or in part of property other than cash, the portion of the non-cash consideration shall be computed as the Fair Market Value of such property,
as determined in good faith by the Board of Directors of the Company. 

          (ii) For the avoidance of doubt, any adjustment to be made pursuant to this Section 4.5 shall be made on a weighted average rather than a “full-ratchet” basis to give effect to the size and price of the capital stock issued that gives or is to give rise to the anti-dilution protection intended by this
Section 4.5. 

          (iii) Any adjustment required by this Section 4.5 shall be made successively
whenever any Common Stock, securities convertible into or exercisable or exchangeable for Common Stock or other equity-linked security is issued, and shall become effective immediately after the applicable record date. If at the end of the period
during which any such securities convertible into or exercisable or exchangeable for Common Stock or other equity-linked security is exercisable not all such securities shall have been exercised, the adjusted Conversion Price shall be immediately
readjusted to what it would have been based upon the number of additional shares of Common Stock actually issued (or the number of shares of Common Stock issuable upon conversion or exercise of convertible securities or warrants actually issued).

          (iv) Except as provided in the previous sentence, if the application of this Section 4.5 shall result in an increase in the Conversion Price, no adjustment shall be made for such issuances of Common Stock, securities convertible into or exercisable or exchangeable for Common Stock or other equity or equity-linked
securities. 

          (v) No adjustment shall be made pursuant to this Section 4.5 in connection with
issuances or sales by the Company of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock that constitute grants of Permitted Management Stock Options permitted by Section
8.14(b)(iii) or Section 8.14(c)(i). 

     (e)   Distributions of Capital Stock, Indebtedness or Other Non-Cash Assets 

     In the event that the Company distributes to all or substantially all holders of its Common Stock any cash, shares of capital stock of the Company (other than Common Stock), evidences of indebtedness
or other assets (including securities of any Person other than the Company but 

-17-

excluding dividends or distributions referred to in subsection (a) of this Section 4.5), or shall distribute to all or substantially all holders of its Common Stock rights
or warrants to subscribe for or purchase any of its securities (excluding (i) the New Warrants, and (ii) those rights and warrants referred to in subsection (b) of this Section 4.5), then in
each such case provision shall be made so that the Noteholders shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of cash, securities, evidences of indebtedness, rights,
warrants and other assets that the Noteholders would have received had their Amended Notes been converted into Common Stock on the record date for such event and had thereafter, during the period from such record date to and including the applicable
Conversion Date, retained such cash, securities, evidences of indebtedness, rights, warrants and other assets receivable by them as aforesaid. 

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company hereby represents and warrants to each Noteholder on the Effective Date and on the date of issuance of Amended Notes as follows: 

5.1   Corporate Existence and Power

     Each of the Entities has been duly incorporated or organized, as the case may be, is validly existing as a corporation, partnership or limited liability company, as applicable, and is in good standing
under the laws of the jurisdiction of its incorporation or organization and has all requisite corporate power and authority to own or lease and operate its properties and to conduct its business as it is presently conducted and as proposed to be
conducted. Each of the Entities is duly qualified as a foreign corporation, partnership or limited liability company, as applicable, to transact business and is in good standing in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property, the conduct of its business or otherwise, except where the failure to be so qualified and in good standing would not, individually or in the aggregate, result in a Material Adverse Effect.
The Company has made available to, and, to the extent requested, delivered to, the Noteholders true, correct and complete copies of (i) the Certificate of Incorporation of the Company, together with all amendments and any other modifications thereto
(the “Company Certificate of Incorporation”), and (ii) the Bylaws of the Company, together with all amendments and any other modifications thereto (the “Company Bylaws”). The Company is not in violation or breach of any of the terms, conditions or provisions of the Company Certificate of Incorporation or the Company Bylaws. Each of the Subsidiaries of
the Company has made available to, and, to the extent requested, delivered to, the Noteholders true, correct and complete copies of its Fundamental Documents, together with all amendments and any other modifications thereto. None of the Subsidiaries
of the Company is in violation or breach of any of the terms, conditions or provisions of its respective Fundamental Documents. 

5.2   Subsidiaries and Affiliates

     Except as set forth on Schedule
5.2,
the Company has no Subsidiaries or Affiliates and does not own, directly
or indirectly, and is not under common

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ownership with, any other corporation, association or business entity.  All of the issued and outstanding capital stock or other equity or ownership interests of each Subsidiary of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and, except as contemplated by the Transaction Documents, are owned by the Company, directly or through Subsidiaries, free and clear of any Lien or adverse claim. 

5.3   Authorization

     Each of the Entities has the requisite corporate power and authority to execute and deliver the Transaction Documents to which it is a party and to perform its obligations under such Transaction
Documents. The execution and delivery by each of the Entities of the Transaction Documents to which it is a party and the performance by each such entity of its obligations under such Transaction Documents have been duly authorized by all necessary
corporate or other organizational action on its or their part and no other proceedings on its or their part are necessary to authorize the execution and delivery of such Transaction Documents or its or their performance of its or their obligations
under such Transaction Documents. 

5.4   Due Execution and Delivery; Binding Obligations 

     Each Transaction Document to which one or more of the Entities is a party has been duly executed and delivered by an authorized representative of each such entity, and each such Transaction Document
constitutes the legal, valid and binding obligation of the respective Entities, enforceable against each of them in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or conveyance or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 

5.5   Issuance of Amended Notes, New Warrants and Common Stock 

     The Company has all necessary power and authority to issue the Amended Notes, the New Warrants and, subject to Section 8.14, the Common Stock
into which the Amended Notes and New Warrants are convertible or exercisable. The Amended Notes, the New Warrants and, subject as aforesaid, the Common Stock into which the Amended Notes and New Warrants are convertible or exercisable have been duly
authorized and, subject as aforesaid, the shares of such Common Stock have been reserved for issuance by all necessary corporate action by the Company. The New Warrants and the Common Stock into which the Amended Notes and New Warrants are
convertible or exercisable, when so issued in accordance with the Company’s Articles of Incorporation and Bylaws and delivered upon such conversion or exercise in accordance with the terms of the Amended Notes and the New Warrants, as the case may
be, will be duly authorized and validly issued, fully paid and nonassessable and free and clear of all Liens. 

5.6   Collateral

     As of the Closing Date, (a) the right, title and interest of the Company and each of its Subsidiaries, as applicable, in the collateral pledged pursuant to the Guarantee and Amended and Restated
Security Agreement (the “Collateral”) will be free and clear of all Liens except for the Lien granted in favor of the Collateral Agent under the Guarantee and Amended and
Restated

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Security Agreement and Permitted Liens, and no financing statements in respect of the Collateral will be on file in favor of any person other than the Collateral Agent; (b) the Guarantee and Amended and Restated Security Agreement
creates valid security interests in, and Liens on, the Collateral covered thereby securing the obligations of the Company and each of its Subsidiaries to the Collateral Agent, (c) the representations and warranties of the Company and each of its
Subsidiaries in the Guarantee and Amended and Restated Security Agreement will be true and correct (if such representations and warranties are not qualified with respect to materiality, in which case such representations will be true and correct in
all respects) in all material respects; (d) upon the filing and recording of financing statements in the appropriate jurisdictions, the Lien securing the obligations of the Company and each of its Subsidiaries to the Collateral Agent will have been
duly perfected as to the Collateral as to which perfection may be accomplished pursuant to the applicable Uniform Commercial Code or other applicable law in such jurisdictions; and (e) the Lien of the Guarantee and Amended and Restated Security
Agreement shall be prior to any other Lien on any of the Collateral, other than Permitted Liens. 

5.7   No Conflict or Violation

     The execution and delivery by each Entity of each Transaction Document to which it is a party, and the performance by each Entity of its obligations under each such Transaction Document, will not
result in any conflict with, or result in a violation or breach of any of the terms, conditions or provisions of, or constitute (with or without due notice, lapse of time or both) a default under, or give rise to a right of termination, cancellation
or acceleration of any obligation under, or result in the creation of any Lien (other than a Permitted Lien and any Lien granted under the Guarantee and Amended and Restated Security Agreement) upon any of the properties or assets of any Entity
under, (a) the respective Fundamental Documents of the Entities, (b) any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other agreement or instrument to which any Entity is a party or by which it or any of them
may be bound, or to which any of the property or assets of any Entity is subject; or (c) any Law, Order or Permit applicable to any one or more of the Entities or to which any of their respective properties or assets is subject, except, in the case
of clauses (b) and (c) above, such conflicts, violations, breaches, defaults, rights or Liens (excluding any of the foregoing arising under, or in connection with, the Securities Act), which would not, either individually or in the aggregate, result
in a Material Adverse Effect or affect the enforceability of the Transaction Documents. 

5.8   Consents and Approvals

     The execution and delivery by the Entities of each Transaction Document to which they are a party, and the performance by the Entities of their obligations under each such Transaction Document, do not
and will not require any consent, approval, license, permit, order or authorization of, or any registration, notification, declaration or filing with, any Person (including, without limitation, any Governmental Entity), except for (a) such as have
been obtained or made and are in full force and effect, (b) the filing of any notice with respect to a Closing with a Governmental Entity which may be required subsequent to the Closing under the Securities Act, any state securities laws or the
rules and regulations promulgated thereunder (and which, if required, will be filed on a timely basis as may be so required), and (c) any such consents or approvals of, or filings with, any Persons who are not Governmental Entities, the

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failure of which to be obtained would not result, either individually or in the aggregate, in a Material Adverse Effect or affect the enforceability of the Transaction Documents. 

5.9   Capitalization 

     (a) As of the Effective Date, the authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, of which
39,385,363 shares are issued and outstanding, and no shares are held by the Company as treasury shares. All outstanding shares of Common Stock are duly authorized, validly issued, fully paid and nonassessable.  No shares of capital stock of the
Company are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. As of the date of this Agreement, except to the extent
described in Schedule 5.9(a), (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company, or arrangements by which the Company is or may become bound to issue
additional shares of capital stock, (ii) there are no outstanding debt securities, notes, credit agreements, credit facilities, or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries, and
(iii) there are no securities or instruments containing anti-dilution or similar provisions that would be triggered by the issuance of the Amended Notes or the New Warrants or the conversion or exercise thereof. Except as may be described in any
documents which have been publicly filed by any of the Company’s stockholders, to the Company’s knowledge, there are no agreements between the Company’s stockholders with respect to the voting or transfer of the Company’s capital stock or with
respect to any other aspect of the Company’s affairs. 

     (b) Schedule 5.9(b) consists of a complete and accurate schedule of the secured and unsecured
Indebtedness of the Entities as of the Closing Date.  Except as set forth on Schedule 5.9(b), none of the Entities has, directly or indirectly, as of the Closing Date, created, incurred,
permitted to exist, assumed, guaranteed or otherwise become, directly or indirectly, liable with respect to any Indebtedness. 

     (c) The Company believes that (i) the financing herein contemplated is adequate to meet the concerns previously expressed by HIP and
other key customers of the Company as to the adequacy of working capital available to the Company to fully support the Company’s current service offerings in support of these health maintenance organizations. 

5.10   SEC Reports 

     Since October 24, 2007, 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
Securities Act and the Exchange Act (all of the foregoing filed after October 24, 2007 and prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein,
being hereinafter referred to herein as the “SEC Reports”), or has timely filed for 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, the SEC Reports complied in all material respects with the requirements of 

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the Securities Act or the Exchange Act, as applicable, and the applicable rules and regulations of the SEC promulgated thereunder.  The SEC Reports do not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Since October 24, 2007 there has not occurred any event, change, circumstance or effect that could
reasonably be expected to have a Material Adverse Effect that has not been set forth in the SEC Reports. 

5.11   Financial Statements

     As of their respective dates, the financial statements of the Company and its Subsidiaries included in the SEC Reports (the “Financial Statements”) complied as to form in all material respects with applicable accounting requirements and the applicable published rules and regulations of the SEC with respect thereto.  The financial statements included in the SEC Reports were
prepared in conformity with GAAP applied on a consistent basis and fairly present, in all material respects, the financial position, on a consolidated basis, of the Company and its Subsidiaries as at the respective dates thereof and the results of
operations and cash flows, on a consolidated basis, of the Company and its Subsidiaries for each of the periods then ended. Neither the Company nor any of its Subsidiaries has any contingent liability or liability for taxes, long term lease or
unusual forward or long term commitment that is not reflected in the financial statements included in the SEC Reports or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition
(financial or otherwise) or prospects of the Company and any of its Subsidiaries taken as a whole. To the knowledge of the Company, no Person who has been suspended or barred from being associated with a registered public accounting firm, or who has
failed to comply with any sanction pursuant to Rule 5300 promulgated by the Public Company Accounting Oversight Board (the “PCAOB”), has participated in or otherwise aided the
preparation of, or audited, the financial statements, supporting schedules or other financial data included in the SEC Reports. 

5.12   Financial Projections

     The Projections of the Company and its Subsidiaries for the period of Fiscal Year 2008 through and including Fiscal Year 2010 set forth on Schedule 5.12 (the “Projections”) are based on good faith estimates and assumptions made by the management of the Company and its Subsidiaries; provided, the Projections are not to
be viewed as facts and that actual results during the period or periods covered by the Projections may differ from such Projections and that the differences may be material; provided further, as of the Effective Date, management of the Company and
its Subsidiaries reasonably believed that the Projections were reasonable and attainable. 

5.13   Internal Controls and Procedures 

     (a) Except as disclosed in the Company’s Form 10-KSB for the fiscal year ended December 31, 2007 and filed with the SEC, the Company and
its Subsidiaries have established and maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act).  Such disclosure controls and procedures:  (i) are designed to ensure that material information
relating to the Company and its Subsidiaries is made known the Company’s 

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Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the periods in which the Company’s reports and filings under the Exchange Act are being prepared, (ii) have been evaluated
for effectiveness as of the end of the most recent annual period reported to the SEC, and (iii) are effective to perform the functions for which they were established. 

     (b) Except as disclosed in the SEC Reports, the Board of Directors of the Company has established procedures that provide a reasonable
basis for them to make proper judgments as to the financial position and prospects of the Company and its Subsidiaries and, except as so disclosed, the Company and its Subsidiaries maintain an effective system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) access to assets is permitted only in accordance with management’s general or specific
authorizations, and (iii) all material information relating to the Company and its Subsidiaries is made known to the officer of the Company responsible for financial and accounting matters relating to the Company and its Subsidiaries. 

5.14   Independent Accountants

     Carlin, Charron & Rosen, LLP, who have audited or reviewed the financial statements (which term as used in this Agreement includes the related notes and schedules thereto) included or incorporated
by reference in the SEC Reports, are (a) independent public or certified public accountants as required by the Exchange Act, (b) in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of
Regulation S-X of the Exchange Act and (c) a registered public accounting firm as defined by the PCAOB whose registration has not been suspended or revoked and who has not requested such registration to be withdrawn. 

5.15   Securities Act Registration, Etc. 

     (a) Assuming that the representations and warranties of the Noteholders contained herein are true, it is not necessary in connection
with the offer, sale and delivery of the Amended Notes and the New Warrants in the manner contemplated by this Agreement to register the Amended Notes or the New Warrants under the Securities Act or under applicable state laws regulating the
issuance or sale of securities. 

     (b) The Company has not made, has no intention of making, and will not make, an offer or sale of any securities of the same or similar
class or series as any of the Amended Notes or the New Warrants or any security convertible into Shares of Common Stock, within a period of six months before and after the date of this Agreement and the Closing of the transactions contemplated by
the Transaction Documents. As used in this paragraph, the terms “offer” and “sale” have the meanings specified in Section 2(a)(3) of the Securities Act. 

     (c) None of the Company, its Subsidiaries, any of their Affiliates or any person acting on 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 require registration of the issuance of any of the Amended Notes or the New Warrants under the Securities Act, whether through
integration with prior offerings or otherwise. None of the Company, its Subsidiaries, any of their 

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Affiliates or any person acting on their behalf will take any action or steps referred to in the preceding sentence that would require registration of the issuance of any of the Amended Notes or the New Warrants under the
Securities Act or cause the offering of the Amended Notes or the New Warrants to be integrated with other offerings for purposes of the Securities Act. 

5.16   Compliance with Laws

     Each of the Entities has complied with, and the operations of each of the Entities have been conducted in accordance with, all Laws, Orders and Permits applicable to them, except where failure to
comply or to conduct operations in such a manner would not, individually or in the aggregate, result in a Material Adverse Effect.  None of the Entities is in violation of or default under, nor has any event occurred which, with the lapse of time or
the giving of notice or both, could result in the violation of or default under, the terms of any Order or Permit, except where such violation or default would not, individually or in the aggregate, result in a Material Adverse Effect. 

5.17   Assets

     Each of the Entities, as the case may be, is the owner of and has good, sufficient and legal title to all of the assets (tangible or intangible) used in such Entity’s respective businesses as
presently conducted and proposed to be conducted (the “Assets”), free and clear of all Liens, except for Permitted Liens. There is no outstanding commitment, call, option or
agreement to sell any of the Assets. The tangible Assets which are necessary to the business of each of the Entities are in good condition and repair, ordinary wear and tear excepted, and the Entities enjoy peaceful and undisturbed possession of all
of the Assets. 

5.18   Taxes

     All Tax returns and reports of the Entities required to be filed by them have been prepared in accordance with law, have been timely filed, and all Taxes, assessments, fees and other governmental
charges upon the Entities and upon their respective properties, assets, income and franchises which are shown as due and payable thereon, or have been assessed, have been paid, except for those claims or charges which are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted. No taxing authority has given notice of an assertion, or is threatening to assert, against any Entity any deficiency or claim for additional Taxes or interest thereon or
penalties in connection therewith. 

5.19   Insurance

     The Entities each maintain insurance in amounts and against such perils as are generally and prudently maintained in comparable businesses. All of such policies of insurance are and will be in full
force and effect. All premiums, retention amounts and other expenses relating to such policies up to and including the Closing Date have been paid, and none of the Entities has received notice of cancellation of any such policy. There are no
circumstances existing which would enable any insurer to avoid liability under any of the policies of insurance referred to above presently in effect. 

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5.20   Litigation; Orders

     Except as disclosed in the SEC Reports, 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 of the Company or any of their respective properties or assets before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market,
stock exchange or trading facility (collectively, an “Action”) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or that
adversely affects the legality, validity or enforceability of the Transaction Documents. 

5.21   Material Contracts

     Schedule 5.21 contains a true, correct and complete list of all the Material Contracts in effect on the Effective Date, and except as described thereon, all such
Material Contracts are in full force and effect.  Neither the Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Material
Contracts, and no condition exists which, with the giving of notice or the lapse of time or both, could constitute such a default, except where the consequences, direct or indirect, of such default or defaults, or condition or conditions, if any,
could not reasonably be expected to have a Material Adverse Effect. 

5.22   Franchises, Licenses, Permits

     Each of the Entities owns or possesses all governmental franchises, licenses, permits, and other authorizations which are necessary for it to conduct the business as presently conducted
(“Licenses”). None of the Entities is in default or has received any notice of any claim of default; with respect to any such License, or any notice of any other claim or
proceeding or threatened proceeding relating to any such License or claimed lack of any necessary License. 

5.23   Arrangement Fees, Etc. 

     (a) Other than the fees provided for in this Agreement, none of the Entities or any officer, director or agent of the Entities has
incurred, on behalf of any of the Entities, any liability to any broker, finder or agent for any broker’s or finder’s fee or commission with respect to either any of the transactions contemplated by this Agreement or any other transaction involving
the sale of any Entity’s assets or capital stock, any merger, consolidation, reorganization or other combination involving the Company, or any fund raising transaction. 

     (b) The engagement letter, dated October 25, 2007, by and between the Company and Ansley Securities LLC (“Ansley”), a Georgia limited liability company and a wholly owned subsidiary of The Ansley Group, LLC, has been terminated as of June 30, 2008 (executed August 1, 2008). 

5.24   Supplier and Customer Relationships 

     The relationship of the Entities with each major customer and supplier of such Entity is good, and none of the Entities has any knowledge of an intent to terminate any such relationship 

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by any such customer or supplier or any other matter relating to any such customer or supplier which could have a Material Adverse Effect. 

ARTICLE VI

INVESTMENT REPRESENTATIONS OF EACH NOTEHOLDER

     Each Noteholder severally (as to itself only and not with respect to any other Noteholder) represents and warrants to the Company as follows, solely for establishing that the offer, sale and issuance
of the Amended Notes and New Warrants being acquired by such Noteholder pursuant to this Agreement are exempt from the registration requirements of the Securities Act and the comparable provisions of state securities laws and not in any way to
mitigate the responsibility or liability of the Company for any breach of the representations and warranties made by the Company in this Agreement, on which such Noteholder is relying in full in connection with its, his or her decision to invest in
the Company: 

6.1   Investment Representations 

     (a) Such Noteholder is acquiring the Amended Notes and New Warrants to be acquired by it, him or her under this Agreement for its, his
or her own account, for investment and not with a view to the distribution thereof in violation of the Securities Act or applicable state securities laws. 

     (b) Such Noteholder understands that the Amended Notes and New Warrants to be issued to such Noteholder will not be registered under the
Securities Act in reliance upon the exemption from registration provided by Section 4(2) of the Act and Regulation D or applicable state securities laws by reason of their issuance by the Company in transactions exempt from the registration
requirements of applicable state securities laws. 

     (c) Such Noteholder has had the opportunity to ask questions of the Company’s officers and directors about the terms and conditions of
this Agreement, including, without limitation, the terms and conditions of the Amended Notes and New Warrants that will be provided to such Noteholder pursuant to this Agreement, as well as the business, properties, prospects and financial condition
of the Company and its Subsidiaries, and understands that its, his or her investment in the Amended Notes being invested in by it, him or her pursuant to this Agreement, are speculative investments which involve a high degree of risk of loss of the
entire investment therein; and has such knowledge and experience in financial and business matters that it, he or she is capable of evaluating the risks and merits of its, his or her investment in such notes; provided, however, that nothing herein
shall be construed to derogate or otherwise limit the representations, warranties and covenants of the Company contained in the Transaction Documents to which the Company is a party, or such Noteholder’s reliance thereon. 

     (d) Such Noteholder is one of the following: (i) an individual with net worth (or joint net worth together with his or her spouse) in
excess of $1,000,000 (which net worth includes the value of home, furnishings and automobiles); (ii) an individual with individual income (exclusive of any income attributable to his or her spouse) in excess of $200,000 in each of

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calendar years 2006 and 2007 and expects an individual income in excess of $200,000 for calendar year 2008, or has had, together with his or her spouse, joint income in excess of $300,000 in each of the calendar years 2006
and 2007 and expects a joint income in excess of $300,000 for calendar year 2008; or otherwise qualifies as an “accredited investor” as defined for purposes of Regulation D, which has been adopted by the SEC under the Securities Act.

6.2   Restricted Securities 

     (a) Such Noteholder understands and agrees that the Amended Notes and the New Warrants will constitute “restricted securities”
under the Securities Laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that, consequently, the Notes may not be resold without first being registered under the Securities Laws, except in
certain limited circumstances.  Specifically, such Noteholder is familiar with SEC Rule 144 and understands, and agrees to comply with, the resale limitations imposed thereby and by the Securities Laws generally. 

     (b) Each Noteholder understands and agrees that the certificates issued to such Noteholder representing the Amended Notes and the New
Warrants will bear the following legend: 

“These securities have not been registered under the Securities Act of 1933 (the “Act”) or under any state securities laws and have been issued and sold in
reliance upon an exemption from registration under the Act. These securities may not be sold, offered for sale, pledged, hypothecated or otherwise transferred in the absence of an effective registration statement under the Act or an opinion of
counsel, satisfactory to the issuer of these securities, to the effect that such a registration statement is unnecessary in respect of a particular sale, offer, pledge, hypothecation or other transfer.” 

The foregoing legend will be removed from a certificate at the request of such Noteholder (or the request of any person to whom any such Noteholder has transferred shares in conformity with this Agreement) in connection with the
proposed transfer of Amended Notes or New Warrants only upon either the effectiveness of such a registration statement or receipt by the Company of an opinion of counsel, reasonably satisfactory to the Company, to the effect that registration under
the Act is unnecessary in respect of the proposed transfer, in reliance upon SEC Rule 144 under the Act, and that such legend is not required by law to appear on the certificate. 

6.3   Trading Restriction 

     Each Noteholder hereby acknowledges that it is aware that the reports referenced in Section 8.1(a) may contain material non-public
information and that the United States securities laws prohibit any person who has received material, non-public information related to the Company from purchasing or selling securities of or related to the Company. 

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ARTICLE VII

CONDITIONS PRECEDENT TO NOTEHOLDERS' OBLIGATIONS

7.1   Conditions Precedent to Effectiveness

     This Agreement shall become effective on the date on which each of the following conditions precedent is satisfied or duly waived by the Required Noteholders: 

     (a)   The Noteholders or their counsel shall have received counterparts of each of the Transaction Documents originally executed and
delivered by the Company and each of its Subsidiaries. 

     (b)   The Noteholders or their counsel shall have received (i) the Fundamental Documents of each Entity, certified as of a recent date by
an appropriate governmental official, each dated the Effective Date or a recent date prior thereto; (ii) signature and incumbency certificates of the officers of each Person executing the Transaction Documents on behalf of the Entities; (iii)
resolutions of the Board of Directors or similar governing body of each Entity approving and authorizing the execution, delivery and performance of the Transaction Documents to which it is a party or by which it or its assets may be bound as of the
Effective Date, certified as of the Effective Date by its secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) a good standing certificate from the applicable governmental authority of each
Entity’s jurisdiction of incorporation, organization or formation, each dated a recent date prior to the Effective Date; and (v) such other organizational and similar documents as the Noteholders may reasonably request. 

     (c)   Each Entity shall have obtained all governmental authorizations and all consents of other Persons, in each case that are necessary
or advisable in connection with the transactions to be effectuated by the Transaction Documents, and each of the foregoing shall be in full force and effect and in form and substance satisfactory to the Noteholders. 

     (d)   The Noteholders or their counsel shall have received evidence satisfactory to the Noteholders of the compliance by the Entities with
the Guarantee and Amended and Restated Security Agreement (including, without limitation, their obligations to authorize, execute (if applicable) and deliver UCC financing statements, originals of securities, instruments and chattel paper and any
agreements governing deposit and/or securities accounts as provided therein). 

     (e)   The Noteholders or their counsel shall have received a certificate from the Company’s insurance broker substantially in the form of
Schedule 7.1(e) or other evidence satisfactory to them that all insurance required to be maintained pursuant to Section 8.5 is in
full force and effect, together with endorsements naming the Collateral Agent, for the benefit of Noteholders, as additional insured and loss payee thereunder to the extent required under Section 8.5. 

     (f)   The Noteholders or their counsel shall have received evidence satisfactory to the Noteholders that the Existing Credit Agreement has
been repaid and discharged and the credit line provided thereby has been canceled, and that all Liens securing the Existing Credit Agreement have been released, including the filing of appropriate UCC-3 termination statements

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or other termination documents as applicable; provided that, to the extent necessary, any such UCC-3 termination statements or other termination documents may be filed promptly after the Closing and in any event within thirty (30)
days after the Closing. 

     (g)   The Noteholders or their counsel shall have received evidence satisfactory to the Noteholders that the exceptions to good standing
that are set forth on Schedule 1 to Exhibit E hereto have all been resolved; provided that, to the extent necessary, any such resolution and the appropriate evidence of such resolution may
be provided to the Noteholders promptly after the Closing and in any event within thirty (30) days after the Closing.

     (h)   The
Subordinated Notes shall have been amended to include subordination provisions
either substantially in the form of
Schedule 7.1 or as otherwise agreed to by the Noteholders, and
shall be otherwise satisfactory to the Noteholders.

     (i)   The Company shall have paid the fees and expenses specified in Section 2.8(a) for the Noteholders in connection with the transactions contemplated by this Agreement. 

     (j)   Each Noteholder or their counsel shall have received an opinion of Gersten Savage LLP, special counsel to the Company, dated the
Effective Date, addressed to each Noteholder, substantially in the form of Exhibit E hereto and addressing such additional matters as the Noteholders shall reasonably request. 

7.2   Conditions Precedent to the Closing

     The obligations of each Noteholder to consummate the transactions contemplated by the Transaction Documents are subject to the satisfaction or waiver by the Required Noteholders on the Closing Date of
each of the following conditions precedent: 

     (a)   The Noteholders or their counsel shall have received a notice of closing (the “Notice of
Closing”) in the form of Schedule 7.2(a) at least five Business Days prior to the Closing, or such shorter period as the Company and the Required
Noteholders shall agree. 

     (b)   The Company shall have duly issued and delivered to such Noteholder or their counsel, in accordance with ARTICLE II, the Amended Notes and New Warrants to be delivered to such Noteholder at the Closing. 

     (c)   Each of the Transaction Documents shall be in full force and effect and no term or condition thereof shall have been amended, waived
or otherwise modified without the prior written consent of the Required Noteholders. 

     (d)   The representations and warranties of the Company set forth in ARTICLE V
shall be true and correct as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing (except where any such representation and warranty speaks by its terms as of a different date, in
which case it shall be true and correct as of such date), and such Noteholder shall have received a certificate signed on behalf of the Company by an officer of the Company to such effect. 

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     (e)   The Company shall have performed all obligations required to be performed by it at or prior to the Closing under the Transaction
Documents to which it is a party, and such Noteholder shall have received a certificate signed on behalf of the Company by an officer of the Company to such effect. 

     (f)   No Default or Event of Default shall have occurred and be continuing. 

     (g)   There is not any litigation or proceeding pending or threatened which seeks to restrain or invalidate the transactions contemplated
by this Agreement. 

     (h)   The Company shall have delivered, or caused to be delivered, to the Noteholders or their counsel, all such other documents and
agreements reasonably requested by the Noteholders in connection with the consummation of the transactions contemplated by this Agreement. 

ARTICLE VIII 

COVENANTS 

The Company covenants that so long as any of the Amended Notes or New Warrants are outstanding: 

8.1   Reporting 

     (a)   Monthly Reports.  Within 15 days after the end of each calendar month, the Company will deliver to
each of the Noteholders a complete copy of the most recent monthly management financial statements and report produced for the Board of Directors and management of the Company. 

     (b)   Quarterly Statements. Within 45 days after the end of each quarterly fiscal period in each fiscal
year of the Company (other than the last quarterly fiscal period of each such fiscal year), the Company shall deliver to each of the Noteholders: 

          (i)   a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and 

          (ii)   consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such quarter
and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by the Company’s Chief Financial Officer as fairly presenting, in all material respects, the financial position of the companies being
reported on and their results of operations and cash flows, subject to changes resulting from normal, recurring year-end adjustments, provided that delivery within the time period specified above of copies of the Company’s Quarterly Report on

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Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 8.1(b); 

     (c)   Annual Statements.  Within 90 days after the end of each fiscal year of the Company, the Company
shall deliver to each of the Noteholders: 

          (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and 

          (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows prepared in conformity
with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the
circumstances, provided that the delivery within the time period specified above of the Company’s Annual Report on Form 10-K for such fiscal year (together with the Company’s annual report to shareholders, if any, prepared pursuant to Rule 14a-3
under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 8.1(c); 

     (d)   SEC and Other Reports. Promptly upon their becoming available, the Company shall deliver to each
Securities Holder one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, (ii) each regular or periodic report, each registration statement, and each
prospectus and all amendments thereto filed by the Company or any Subsidiary with the SEC containing information of a financial nature and (iii) all press releases and other statements made available generally by the Company or any Subsidiary to the
public. 

     (e)   Notice of Default or Event of Default.  Promptly, and in any event within two Business Days after
the Company becomes aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed Default or Event of Default, the Company shall deliver to each Securities Holder a
written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto. 

     (f)   Notices from Governmental Entities.  Promptly, and in any event within two Business Days of receipt
thereof, the Company shall deliver to each Securities Holder copies of any notice to the Company or any Subsidiary from any federal or state Governmental Entity relating to any order, ruling, statute or other law or regulation that could reasonably
be expected to have a Material Adverse Effect. 

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     (g)   Material Adverse Changes.  The Company shall notify each Securities Holder promptly and in any
event within two Business Days of the occurrence thereof, of any event, change, circumstance or effect that could reasonably be expected to have a Material Adverse Effect. 

     (h)   Business Combinations; Financing.  Except for matters related to the Letter of Interest, the
Company shall notify each Securities Holder as soon as is reasonably possible of all material discussions, presentations and approaches to or from any party with whom the Company engages from time to time, which contact could reasonably be expected
to lead to any offer of financing or business combination of any kind.  The Company shall share all relevant information with the Securities Holders regarding the Company’s efforts to sell its business and/or raise new capital. During the period
from the Closing to May 31, 2009, the Company shall provide to the Noteholders a weekly report, in form and substance reasonably satisfactory to the Noteholders, regarding the status of the Company’s efforts to enter into and consummate a Qualifying
Transaction. 

     (i)   Requested Information. With reasonable promptness, the Company shall furnish to each Securities
Holder such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder
and under the other Transaction Documents as from time to time may be reasonably requested by any such Securities Holder. 

8.2   Books and Records; Inspection Rights

     The Company will, and will cause its Subsidiaries to, maintain proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its
business and activities, all in accordance with good business and accounting practices, and to accurately reflect the financial condition of the Entities in the financial statements provided to each Securities Holder pursuant to Section 8.1. The Company will, and will cause its Subsidiaries and Affiliates to, permit any representatives designated by the Securities Holders, upon reasonable prior notice, to visit and inspect its
properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. The Noteholders
(and/or their nominated representatives) shall have full and unrestricted access to all key management personnel and all management accounts and business information relating to the management and operations of the business of the Company.

8.3   Use of Proceeds

     The proceeds from the issuance and sale of Amended Notes pursuant to Section 2.3(a) shall be used by the Company solely for repayment of the
principal amount of, interest on, and other amounts owing in respect of the Existing Credit Agreement. The Company shall provide detailed wire instructions to the Noteholders at least three (3) Business Days prior to the Closing, for the Noteholders
or their designee to pay the Bank Debt Amount directly to Citibank, N.A. and People’s United Bank in order to repay all amounts owing under the Existing Credit Agreement. 

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8.4   Compliance with Law

     The Company will, and will cause each of its Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, and will obtain and maintain in
effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure
that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. 

8.5   Insurance

     The Company will, and will cause each of its Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such
casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated. 

8.6   Maintenance of Properties

     The Company will, and will cause each of its Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than
ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section 8.6 shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. 

8.7   Payment of Taxes and Claims

     The Company will, and will cause each of its Subsidiaries to, file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such
returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become
delinquent, and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary not permitted by Section 8.13,
provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate
proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the non-filing or nonpayment, as the case may be, of all such taxes and
assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. 

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8.8   Corporate Existence

     Subject to Section 8.15, the Company will at all times preserve and keep in full force and effect its corporate existence, and will at all
times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a wholly-owned Subsidiary of the Company) and all rights and franchises of the Company and its Subsidiaries
unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. 

8.9   Further Assurances 

     (a) So long as any Transaction Documents shall remain in effect, the Company will, and will cause each Subsidiary of the Company to,
execute and deliver such additional documents (including amendments to the Security Documents) as the holders of the Amended Notes shall reasonably request so that there shall continue to be a Collateral Agent under the Security Documents and to
insure that the Lien of the Security Documents shall continue to be in full force and effect. 

     (b) So long as any Transaction Documents shall remain in effect, the Company also agrees at its own expense to cause or use its best
efforts to cause the Guarantee and Amended and Restated Security Agreement and all supplements and amendments thereto and all financing and continuation statements and similar notices required by applicable law at all times to be kept, recorded and
filed in such manner and in such places to maintain the effectiveness of any original or supplemental filings under the Uniform Commercial Code or comparable law in any relevant jurisdiction to maintain, in full force and effect, the Lien and
security interest granted by the Company and its Subsidiaries to the holders of the Notes or the Collateral Agent for the benefit of the holders of the Notes pursuant to the Guarantee and Amended and Restated Security Agreement. 

     (c) The Company and its Subsidiaries will execute any and all further documents, agreements and instruments, and take all such further
actions that may be required under any applicable Law, or which the Required Noteholders may reasonably request, to effectuate the transactions contemplated by the Transaction Documents, all at the expense of the Company. 

8.10   Guaranty and Grant of Security by Subsidiaries 

     If after the Effective Date any Person becomes a Subsidiary, the Company shall cause such Person to become a Guarantor and a Grantor under the Guarantee and Amended and Restated Security Agreement, by
executing a joinder agreement in respect of the Guarantee and the Security Agreement.  The Company shall cause such Person to take all such actions and execute and deliver, or cause to be executed and delivered, all such documents, instruments,
agreements, and certificates as are necessary or desirable to comply with the Guarantee and Amended and Restated Security Agreement (including, without limitation, its obligations to authorize, execute (if applicable) and deliver UCC financing
statements, originals of securities, instruments and chattel paper and any agreements governing deposit and/or securities accounts as provided therein). 

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8.11   Additional Amounts 

     (a)   All payments made by the Entities to the Noteholders or Securities Holders pursuant to the Transaction Documents will be made free
and clear of and without withholding or deduction for or on account of any present or future Taxes imposed or levied by or on behalf of the United States or any political subdivision or taxing authority thereof or therein (“US Taxes”), unless the Entity is required to withhold or deduct any amount for or on account of US Taxes by law or by the interpretation or
administration thereof.  If any Entity is required to withhold or deduct any amount for or on account of US Taxes from any payment made hereunder, such Entity will pay such additional amounts (“Additional
Amounts”) as may be necessary so that the net amount received by the Securities Holder (including Additional Amounts) after such withholding or deduction will not be less than the amount the Securities Holder would
have received if such US Taxes had not been withheld or deducted; provided, however, that no such Additional Amounts will be payable with respect to a payment made hereunder with respect to any US Taxes which would not have been imposed, payable or
due: 

          (i)   but for the fact that the Securities Holder is or was a domiciliary, national or resident of, or engages or engaged in business, maintains
or maintained a permanent establishment or is or was physically present in the United States, or otherwise has some present or former connection with the United States other than the mere holding or enforcement of the Transaction Documents or the
receipt of principal or interest in respect thereof; 

          (ii)   but for the failure of the Securities Holder to comply with a request by the Entity to satisfy any certification, identification or other
reporting requirements which the Securities Holder is legally entitled to satisfy, whether imposed by statute, treaty, regulation, administrative practice or otherwise, concerning the nationality, residence or connection with the United States of
the Securities Holder. 

     (b)   The obligation of the Entities to pay Additional Amounts in respect of US Taxes shall not apply with respect to (i) any estate,
inheritance, gift, sales, transfer, personal property or any similar Tax or (ii) any Tax which is payable otherwise than by deduction or withholding from payments made under or with respect to the Transaction Documents. 

     (c)   The Entities, as applicable, will: 

          (i)   make any required withholding or deduction; 

          (ii)   remit the full amount deducted or withheld to the relevant authority (the “Taxing
Authority”) in accordance with applicable law; 

          (iii)   obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing
such taxes; and 

     (iv)   promptly send such certified copies of tax receipts to the Securities Holder.  The Entities will attach to each certified copy a
certificate stating that the amount of withholding tax evidenced by the certified copy was paid in connection with payments in respect of the Transaction Documents. 

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8.12   Limitations on Indebtedness

     The Company shall not, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, permit to exist, assume or guaranty, or otherwise become or remain directly or indirectly
liable with respect to, any Indebtedness, except: 

     (a) the Amended Notes; and 

     (b) any
Subordinated Notes that are subject and subordinate to the Amended Notes on the
terms set forth in Schedule 7.1. 

8.13   Limitation on Liens 

     The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise), any Lien on or
with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or
profits therefrom, or assign or otherwise convey any right to receive income or profits, except for Liens contemplated by the Guarantee and Amended and Restated Security Agreement and Permitted Liens. 

8.14   Issuances of Stock; Restricted Payments 

     (a)   The Company will, not later than March 1,  2009, call a meeting of its shareholders for the approval of an increase in the number of
authorized shares of Common Stock sufficient to permit the Company to reserve at least the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all New Warrants outstanding (the “New Warrants Capital Increase”). The Company will cause such meeting of shareholders to take place by no later than May 31, 2009, and shall take all further action necessary to effect such increase in
the Company’s authorized Common Stock. Without limiting the generality of the foregoing sentence, in connection with such meeting, the Company shall provide each shareholder with a proxy statement and shall use its best efforts to solicit its
shareholders' approval of such increase in authorized shares of Common Stock and to cause its Board of Directors to recommend to the shareholders that they approve such proposal. 

     (b)   During the period prior to the later of (x) effectiveness of the New Warrants Capital Increase and (y) May 31, 2009, the Company
will not, and will not permit any Subsidiary to, issue or sell Common Stock or securities convertible into or exercisable or exchangeable for Common Stock, except for (i) issuances and sales contemplated by the Transaction Documents; (ii) issuances
and sales pursuant to obligations to which the Company or any Subsidiary were subject as of November 26, 2008, all of which are set forth on Schedule 8.14(b); and (iii) grants of Permitted
Management Stock Options to employees of the Company and its Subsidiaries pursuant to HC Innovations, Inc. 2008 Incentive Compensation Plan in respect of up to 5,523,073 shares of Common Stock. 

     (c)   During the period after the later of (x) effectiveness of the New Warrants Capital Increase and (y) May 31, 2009, the Company will
abide by the same restrictions as stated in 

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Section 8.14(b) except that (i) the Company may make grants of Permitted Management Stock Options to employees of the Company and its Subsidiaries in respect of a number of shares of Common Stock
which, when aggregated with any Permitted Management Stock Options granted pursuant to subsection (b)(iii) above, shall not exceed eighteen percent (18%) of the issued and outstanding Common Stock from time to time, and (ii) the Company may issue
Common Stock to Persons other than employees of the Company and its Subsidiaries, subject to rights of first refusal in substantially the form set forth on Schedule 8.14(c). 

     (d) Notwithstanding anything to the contrary in Sections 8.14(b) and
(c), the Company may enter into a transaction to issue or sell Common Stock or securities convertible into or exercisable or exchangeable for Common Stock, the proceeds of which are used to
pay in full upon the consummation of such transaction all principal, interest and other amounts outstanding in respect of the Amended Notes. 

     (e) The Company will make no Restricted Payments.

8.15   Merger, Consolidation

     Except in connection with a Qualifying Transaction, the Company will not, and will not permit any Subsidiary to, consolidate with or be a party to a merger with any other Person; provided, however,
that: 

     (a)    any Subsidiary may merge or consolidate with or into the Company, so long as the Company shall be the surviving entity; 

     (b)    any Subsidiary may merge or consolidate with or into any other Subsidiary; and 

     (c)    the Company may consolidate or merge with any other Person if (i) either (a) the Company shall be the surviving entity, or (b) if
the surviving entity is other than the Company, (A) such entity expressly assumes, by written agreement satisfactory in scope and form to the Required Holders, all obligations of the Company under the Transaction Documents to which the Company is a
party, and (B) such entity shall cause to be delivered to each Securities Holder an opinion of independent counsel to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply
with the provisions of this Section 8.15 and otherwise satisfactory in scope and form to the Required Holders, and (ii) at the time of such consolidation or merger and after giving effect
thereto, no Default or Event of Default shall have occurred and be continuing. 

8.16   Sales of Assets 

     Except in connection with a Qualifying Transaction, the Company will not, and will not permit any Subsidiary to, sell, lease or otherwise dispose of any of the assets of the Company or its
Subsidiaries; provided, however, that the Company or any Subsidiary may in any calendar year sell, lease or otherwise dispose of assets having an aggregate Fair Market Value not in excess of $50,000 if (i) such assets are sold in the ordinary
course of business of the Company and its Subsidiaries, (ii) such assets are sold for an amount equal or greater than the Fair Market Value of such assets, and (iii) at such time and after giving effect thereto, no Default or Event of Default shall
have occurred and be continuing. 

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8.17   Nature of Business

     Neither the Company nor any Subsidiary will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and
its Subsidiaries would be substantially changed from the general nature of the business engaged in by the Company and its Subsidiaries on the date of this Agreement. 

8.18   Transactions with Affiliates

     The Company will not, and will not permit any Subsidiary to, enter into, directly or indirectly any transaction (including without limitation the purchase, lease, sale or exchange of properties of any
kind or the rendering of any service) with any Affiliate (other than the Company or another Subsidiary), except upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm’s-length
transaction with a Person not an Affiliate. 

8.19   Board of Directors and Management 

     (a)   The Required Noteholders shall have the right to nominate up to two (2) directors to the Company’s Board of Directors out of a
maximum of five (5) directors, at any time on or after the earlier of (i) May 31, 2009 or (ii) the termination of the Letter of Interest.  In furtherance of the foregoing, the Company shall, and shall use its best efforts to cause its shareholders
to, vote all shares of capital stock of the Company to, (i) fix and maintain the number of members of the Board of Directors at a maximum of five, and (ii) if nominated, elect such directors to the Company’s Board of Directors. 

     (b)   The Company shall not initiate any changes in the chief executive officer, chief financial officer, president or chief operations
officer (or equivalent functions) of the Company without first obtaining the Required Noteholders' approval of any such change. If a vacancy in the office of chief financial officer occurs, the Company shall not appoint a new chief financial officer
of the Company without first obtaining the Required Noteholders' approval of such appointment. 

     (c)   The Company shall not replace any member of the Board of Directors; provided, however, that the Company shall be permitted to fill
any vacancies in the three board seats that are not held by, or set aside for, the Noteholders or their nominees. 

8.20   Management and Consulting Arrangements; Finders' Fees Etc. 

     (a)   The Company shall cause each of the other Entities not to, enter into, modify, assume or otherwise become liable in respect of, any
management agreements, consulting agreements or other similar arrangements without the Required Noteholders' consent; provided, however, that the foregoing restriction shall not apply in regard to the entry by any Entity into such arrangements which
are in the ordinary course of such Entity’s business. 

     (b)   Except as referenced in this Agreement, the Company shall not, and shall cause its Subsidiaries not to, enter into, modify, assume
or otherwise become liable in respect of, any 

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arrangements regarding payment of retainers, expenses or fees of any kind payable to any investment bankers, brokers, finders or other similar Persons, except on a success fee basis only. 

     (c)   The Company shall amend the engagement letter with Ansley, dated August 1, 2008, such that any future placement fee (as defined
therein) shall be based solely on new monies from sources outside of the Noteholders and their affiliated entities and/or the existing investors. 

8.21   Qualifying Transaction

     The Company shall use its best efforts to enter into a Qualifying Transaction with the Person (or Persons) party to the Letter of Interest and to consummate such Qualifying Transaction on or before
May 31, 2009. 

ARTICLE IX

DEFAULT; REMEDIES

9.1   Events of Default

     An “Event of Default“ shall exist if any of the following conditions or events shall occur and be continuing: 

     (a)   the Company defaults in the payment of any principal on any Amended Note when the same becomes due and payable, whether at maturity
or at a date fixed for prepayment or by declaration or otherwise; or 

     (b)   the Company defaults in the payment of any interest on, or other amount payable in respect of, any Amended Note for more than five
(5) Business Days after the same becomes due and payable; or 

     (c)   the Company defaults in the performance of or compliance with any term contained herein or in any other Transaction Document (other
than those referred to in paragraphs (a) and (b) of this Section 9.1); or 

     (d)   (i) a default shall occur in the observance or performance of any covenant or agreement contained in the Guarantee and Amended and
Restated Security Agreement by any Subsidiary Guarantor and such default shall continue beyond the period of grace, if any, allowed with respect thereto, or (ii) the Guarantee and Amended and Restated Security Agreement shall cease to be in full
force and effect for any reason whatsoever, including, without limitation, a determination by any governmental body or court that such agreement is invalid, void or unenforceable against any Subsidiary Guarantor or (iii) any Subsidiary Guarantor
shall contest or deny the validity or enforceability of any of its obligations under the Guarantee and Amended and Restated Security Agreement; or 

     (e)   (i) a default shall occur in the observance or performance of any covenant or agreement contained in any Security Document and such
default shall continue beyond the period of grace, if any, allowed with respect thereto, or (ii) any Security Document creating or

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granting a Lien on any Collateral shall cease to be in full force and effect, or (iii) the Company or any Subsidiary Guarantor shall deny or disaffirm the validity of any such Lien; or 

     (f)   any representation or warranty made in writing by or on behalf of the Company or any Subsidiary Guarantor or by any officer of the
Company or any Subsidiary Guarantor in any Transaction Document or in any writing furnished in connection therewith proves to have been false or incorrect in any material respect on the date as of which made; or 

     (g)   any of the following occur: (i) the Company or any Subsidiary is in default (as principal or as guarantor or other surety) in the
payment of any principal of, interest on, or other amount payable in respect of, any Indebtedness other than the Amended Notes (individually or in the aggregate) that is outstanding in an aggregate principal amount of at least $250,000 beyond
any period of grace provided with respect thereto, or (ii) the Company or any Subsidiary is in default in the performance of or compliance with any term of any instrument, mortgage, indenture or other agreement relating to any Indebtedness other
than the Amended Notes (individually or in the aggregate) in an aggregate principal amount of at least $250,000 or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared,
due and payable or is capable of being declared due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the
passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests), the Company or any Subsidiary has become obligated to purchase or repay Indebtedness other than the Amended Notes before its regular
maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $250,000; or

     (h)   the Company or any Subsidiary (i) admits in writing its inability generally to pay its debts as they become due, (ii) files, or
consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium
or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any
substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or 

     (i)   a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any of its
Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or
any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Subsidiaries, or any such petition
shall be filed against the Company or any of its Subsidiaries and such petition shall not be dismissed within sixty (60) days; or 

     (j)   a final judgment or judgments at any one time outstanding for the payment of money aggregating at least $250,000 are rendered
against one or more of the Company and its

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Subsidiaries and which judgments are not, within sixty (60) days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; or 

     (k)   the Company shall fail to deliver the items listed on Schedule E within
thirty (30) days after the Closing Date. 

9.2   Acceleration 

     (a)   If an Event of Default with respect to the Company described in paragraph (h) or (i) of Section
9.1 has occurred, all the Amended Notes then outstanding shall automatically become immediately due and payable. 

     (b)   If any other Event of Default has occurred and is continuing, the Required Noteholders may at any time by notice to the Company,
declare all the Amended Notes then outstanding to be immediately due and payable. 

     (c)   Upon any Amended Note becoming due and payable under this Section 9.2,
whether automatically or by declaration, such Amended Note will forthwith mature and the entire unpaid principal amount of such Amended Note, plus (i) all accrued and unpaid interest thereon (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. 

9.3   Other Remedies 

     If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Amended Notes have become or have been declared immediately due and payable under Section 9.2, the Required Holders at the time outstanding may proceed to protect and enforce the rights of the holders of Amended Notes by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any Amended Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law
or otherwise. 

9.4   Rescission 

     At any time after any Amended Notes have been declared due and payable pursuant to clause (b) of Section 9.2, the Required Holders, by
written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Amended Notes, all principal, if any, of any Existing Notes or Amended Notes that is due and
payable and is unpaid other than by reason of such declaration, and all interest on such overdue principal, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Amended Notes, (b) all Events of Default and
Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to any
Amended Notes. No rescission and annulment under this Section 9.4 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 

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9.5   No Waivers or Election of Remedies, Expenses, Etc. 

     No course of dealing and no delay on the part of any holder of any Amended Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s rights,
powers or remedies. No right, power or remedy conferred by this Agreement or by any Amended Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in
equity, by statute or otherwise. Without limiting the obligations of the Company regarding transaction expenses, the Company will pay to the holder of each Amended Note on demand such further amount as shall be sufficient to cover all costs and
expenses of such holder incurred in any enforcement or collection under this ARTICLE IX, including, without limitation, the reasonable attorneys' fees, expenses and disbursements of the
holders. 

ARTICLE X

TRANSFERS OF SECURITIES

10.1   Restrictions on Transfer

The Amended Notes and New Warrants shall not be transferable except upon the conditions specified in this ARTICLE X, which conditions are intended to ensure compliance
with the provisions of the Securities Act in respect of the transfer thereof. 

10.2   Restrictive Legends; Exchanges; Lost, Stolen or Mutilated Notes and Warrants 

Each certificate evidencing the Amended Notes and the New Warrants shall (unless otherwise permitted by the provisions of this ARTICLE X) be stamped or otherwise imprinted
with a legend in substantially the following form: 

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR UNDER ANY STATE SECURITIES LAWS AND HAVE BEEN
ISSUED AND SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE ACT. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER OF THESE SECURITIES, TO THE EFFECT THAT SUCH A REGISTRATION STATEMENT IS UNNECESSARY IN RESPECT OF A PARTICULAR SALE, OFFER, PLEDGE, HYPOTHECATION OR OTHER TRANSFER.” 

10.3   Notice of Transfer 

     (a) The holder of any Amended Notes and/or New Warrants, by acceptance thereof agrees, prior to any transfer of such Amended Notes
and/or New Warrants, to give written notice to the Company of such holder’s intention to effect such transfer and to comply in all other respects with the provisions of this Section 10.3.
Each such notice shall describe the manner and 

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circumstances of the proposed transfer and shall be accompanied, if reasonably requested by the Company, by the written opinion, addressed to the Company, of counsel for the holder of such Amended Notes or New Warrants, as to
whether in the opinion of such counsel (which opinion and counsel shall be reasonably satisfactory to the Company and which counsel may be the in-house counsel of such holder) such proposed transfer involves a transaction requiring registration of
such Amended Notes or New Warrants under the Securities Act; provided, however, that (i) in the case of a holder of Amended Notes and/or New Warrants which is a partnership or a limited liability company, no such opinion of counsel shall be
necessary for a transfer by such holder of Amended Notes and/or New Warrants to a partner or member of such holder of Amended Notes and/or New Warrants, or a retired partner or member of such holder who retires after the date hereof, or the estate
of any such partner or member or retired partner or member, if in each case the transferee agrees in writing to be subject to the terms of this Section 10.3 to the same extent as if such
transferee were originally a signatory to this Agreement, (ii) in the case of a holder of Amended Notes and/or New Warrants which is a corporation or a limited liability company, no such opinion of counsel shall be necessary for a transfer by such
holder of Amended Notes and/or New Warrants to an Affiliate, officer, director, member or manager of such entity, (iii) in the case of a holder of Amended Notes and/or New Warrants which is a grantor trust, no such opinion of counsel shall be
necessary for a transfer by such holder of Amended Notes and/or New Warrants to a beneficiary of such grantor trust, (iv) in the case of a holder of Amended Notes and/or New Warrants which is an individual, no such opinion of counsel shall be
necessary for a transfer by such individual to a grantor trust established by such individual, and (v) no such opinion shall be required in connection with a transfer pursuant to Rule 144, provided, that the Company, if reasonably requested by it,
shall be provided with customary written representations relating to such transaction. 

     (b)   If in the opinion of such counsel (if such opinion is required hereunder) the proposed transfer of Amended Notes and/or New Warrants
may be effected without registration under the Securities Act, the holder of such Amended Notes and/or New Warrants shall thereupon be entitled to transfer such Amended Notes and/or New Warrants in accordance with the terms of the notice delivered
by it to the Company. 

     (c)   Each certificate or other instrument evidencing the securities issued upon the transfer of any Amended Notes and/or New Warrants
(and each certificate or other instrument evidencing any untransferred balance of such securities) shall bear the legend set forth in Section 10.2 unless (i) in the opinion of such counsel
registration of future transfers is not required by the applicable provisions of the Securities Act or (ii) the Company shall have waived the requirement of such legends; provided, however, that such legend shall not be required on any certificate
or other instrument evidencing the securities issued upon such transfer in the event such transfer shall be made in compliance with the requirements of Rule 144. 

     (d)   Upon surrender by any Noteholder to the Company of any certificate representing Amended Notes or New Warrants, the Company at its
expense will, within three Business Days, issue in exchange therefor, and deliver to the Noteholder, a new certificate or certificates representing such notes, in such denominations as may be requested by such Noteholder. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any certificate representing any Amended Notes or New Warrants purchased or acquired by any Noteholder hereunder, and in case of any such loss, theft, destruction, upon
delivery of any

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indemnity agreement satisfactory to the Company, or in any case of any such mutilation, upon surrender and cancellation of such certificate, the Company at its expense will, within three Business Days, issue and deliver to the
Noteholder a new certificate for such Amended Notes or New Warrants of like tenor, in lieu of such lost, stolen or mutilated certificate. 

10.4   Limitations on Disposition By Noteholders 

     Without in any way limiting the representations and warranties set forth in ARTICLE VI, each Noteholder further agrees not to make any
disposition of all or any portion of the Amended Notes and/or New Warrants unless and until the transferee thereof has agreed in writing for the benefit of the Company and the Noteholders to become a party to, and be bound by and obligated to comply
with, the terms and provisions this Agreement and the other Transaction Documents. 

ARTICLE XI 

MISCELLANEOUS

11.1   Survival of Agreement

     All agreements and covenants contained herein or made in writing by or on behalf of the Company in connection with the transactions contemplated hereby shall survive the execution and delivery of this
Agreement and the Transaction Documents indefinitely until either (i) all amounts due under all of the Amended Notes are paid in full or (ii) each of the Amended Notes is converted in full into Common Stock pursuant to ARTICLE IV. 

11.2   Entire Agreement

     This Agreement, the other Transaction Documents and the other writings referred to herein or therein or delivered pursuant hereto or thereto which form a part hereof or thereof constitute the entire
agreement among the parties with respect to the subject matter hereof and thereof and supersede any prior or contemporaneous understandings, agreements or representations by or among such parties, written or oral, that may have related in any way to
the subject matter hereof or thereof, including, without limitation, any letter of intent or term sheet dated as of or prior to the date hereof, between the Company and one or more of the Noteholders (or their Affiliates). 

11.3   Successors and Assigns

     Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party, and all covenants and agreements by
or on behalf of the Company or the Noteholders which are contained in this Agreement or in any of the other Transaction Document shall bind and inure to the benefit of their respective heirs, successors, and permitted assigns except that the Company
shall not assign its rights or obligations hereunder without the consent of the Required Noteholders. 

-44-

11.4   Counterparts

     This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one
agreement.  Counterparts transmitted by facsimile may be treated as an original instrument and relied upon for all purposes as such. 

11.5   Notices

     Any notices, demands, consents or other communications that are given or made hereunder shall be in writing and shall be given or made to any party hereto by physical delivery, U.S. mail (registered
or certified mail, postage prepaid, return receipt requested) or overnight courier or by transmission by facsimile to such party at its, his or her address (or facsimile number) set forth below, or such other address (or facsimile number) as shall
have been specified by like notice by such party: 

     (a) if to the Company, to 10 Progressive Drive, Suite 200, Shelton, CT 06484, Attention: David Chess, M.D., with a copy to Gersten
Savage LLP, 600 Lexington Avenue, 9th Floor, New York, New York 10022-6018, Attention: Jay M. Kaplowitz, Esq. 

     (b) if to a Noteholder, to its address (or facsimile number) set forth on Annex I.

     Each such notice, demand, consent or other communication shall be effective upon receipt in the case of physical delivery or overnight courier, upon confirmation of receipt by or on behalf of the
addressee in the case of transmission by facsimile if received prior to 5:00 p.m., New York time, and, if received after 5:00 p.m., New York time, on the next Business Day immediately after the date of such receipt, and five Business Days after
deposit in the U.S. mails in the case of mailing.  Any notice of default under this Agreement or under any of the Transaction Documents by any Noteholder shall be deemed to be a Notice of default from all Noteholders hereunder. 

11.6   Governing Law

     All questions concerning the construction, interpretation and validity of this Agreement shall be governed by and construed and enforced in accordance with the law of the State of New York, without
giving effect to any choice or conflict of law provision or rule that would cause the application of the law of any jurisdiction other than the State of New York. The Company and its Subsidiaries hereby submit to the non-exclusive jurisdiction of
the United States District Court for the Southern District of New York and of any New York State court sitting in the Borough of Manhattan in New York City for purposes of all legal proceedings arising out of or relating to the Transaction Documents
or the transactions contemplated thereby. The Company irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim
that any such proceeding brought in such court has been brought in an inconvenient forum. 

-45-

11.7   Amendments and Waivers 

     (a) No failure or delay of the Noteholders in exercising any power or right in this Agreement or in any other Transaction Document shall
operate as a waiver hereof or thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise of any other right or
power. No waiver of any provision of this Agreement or any other Transaction Document or consent to any departure by the Company therefrom shall in any event be effective unless the same shall be authorized as provided for in Section 11.7(b), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other circumstances. 

     (b) No provision of this Agreement or of any other Transaction Document may be waived, amended or modified except pursuant to a written
agreement entered into by the Company and the Required Noteholders; provided that no such amendment, waiver or modification shall (i) reduce the principal amount of any Note or reduce the rate of interest thereon, or reduce any other amounts payable
hereunder; (ii) postpone the scheduled date of payment of the principal amount of any Note, or any interest thereon, or any other amounts payable hereunder, or reduce the amount of, waive or excuse any such payment; (iii) change any of the
provisions of this Section 11.7 or the definition of “Required Noteholders“ or any other provision hereof specifying the
number or percentage of Noteholders required to waive, amend or modify any rights hereunder or under any other Transaction Document or make any determination or grant any consent hereunder; or (iv) increase the obligations of any Noteholder or
otherwise disproportionately adversely affect any rights of any Noteholder under this Agreement, in each of the foregoing situations, without the prior written consent of each Noteholder affected thereby. 

11.8   Incorporation of Schedules and Exhibits 

     The Schedules, Annexes and Exhibits identified in this Agreement are incorporated herein by reference and made a part hereof. 

11.9   Interpretation; Construction

     The term “Agreement” or “this Agreement“ means this Securities
Amendment and Purchase Agreement, together with all schedules and exhibits hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof. Accounting terms used but not otherwise defined
herein shall have the meanings given to them under GAAP.  The use in this Agreement of the term “including” means “including, without limitation.” The words “herein,” “hereof,” “hereunder” and other
words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from time to time be amended, modified, supplemented or restated, and not to any particular section, subsection, paragraph,
subparagraph or clause contained in this Agreement.  All references to sections, schedules and exhibits mean the sections of this Agreement and the Schedules and Exhibits attached to this Agreement, except where otherwise stated. The title of and
the section and paragraph headings in this Agreement are for convenience of reference only and shall not

-46-

govern or affect the interpretation of any of the terms or provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require or
permit. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates.
The language used in this Agreement has been chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party. All references to payment amounts herein are United States dollar amounts and
all payments hereunder shall be made in United States dollars.  Unless expressly provided otherwise, the measure of a period of one month or year for purposes of this Agreement shall be that date of the following month or year corresponding to the
starting date, provided that if no corresponding date exists, the measure shall be that date of the following month or year corresponding to the next day following the starting date.  For example, one month following February 18 is March 18, and one
month following March 31 is May 1. 

11.10   No Duty

     All attorneys, accountants, appraisers, and other professional Persons and consultants retained by the Noteholders shall have the right to act exclusively in the interest of the Noteholders and shall
have no duty of disclosure, duty of loyalty, duty of care or other duty or obligation of any type or nature whatsoever to the Company, its directors, officers, employees, agents, stockholders or Affiliates or any other Person. 

11.11   Liability of Noteholders 

     (a)   Each Noteholder acknowledges that it is not relying upon any person, firm, or corporation, other than the Company, and its officers,
employees and directors in making its investment or decision to invest in the Company. 

     (b)   Each Noteholder agrees that no Noteholder nor the respective controlling persons, officers, directors, partners, agents, or
employees of any Noteholder shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with this Agreement. 

     (c)   The obligations of the Noteholders hereunder are several and not joint obligations, and no Noteholder shall have any obligation to
perform the obligations of any other Noteholder under this Agreement, and no Noteholder shall have any liability to any Person for the performance or nonperformance by any other Noteholder of its obligations under this Agreement. 

11.12   Independence of Agreements, Covenants and Representations and Warranties 

     All agreements and covenants hereunder shall be given independent effect so that if a certain action or condition constitutes a default under a certain agreement or covenant, the fact that such action
or condition is permitted by another agreement or covenant shall not affect the occurrence of such default, unless expressly permitted under an exception to such initial agreement or covenant. In addition, all representations and warranties
hereunder shall be given independent effect so that if a particular representation or warranty proves to be incorrect or is 

-47-

breached, the fact that another representation or warranty concerning the same or similar subject matter is correct or is not breached will not affect the incorrectness of or a breach of a representation and warranty hereunder.

11.13   Cumulative Remedies

     Each party hereto shall have and retain all rights and remedies existing in its favor at law or in equity, including, without limitation, any actions for specific performance and/or injunctive or
other equitable relief (including, without limitation, the remedy of rescission) to enforce or prevent any violations of the provisions of this Agreement. Without limiting the generality of the foregoing, the Company hereby agrees that in the event
the Company fails to convey any Notes to a Noteholder in accordance with the provisions of this Agreement, such Noteholders' remedy at law may be inadequate.  In such event, such Noteholder shall have the right, in addition to all other rights and
remedies it may have, to specific performance of the obligations of the Company to convey Notes to it. 

11.14   Severability

     It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. 

[signature page follows]

-48-GUARANTEE AND AMENDED AND
 RESTATED SECURITY AGREEMENT

made by

HC INNOVATIONS, INC.

and its Subsidiaries

in favor of

the Noteholders Identified Herein

and

Pacific Aerie Holding LLC

as Agent

Dated as of December 23, 2008

TABLE OF CONTENTS

	
 

	
 

	
 

	
ARTICLE 1 DEFINED TERMS

	
 

	
4

	
1.1

	
Definitions

	
4

	
1.2

	
Other Definitional Provisions

	
8

	
ARTICLE 2 GUARANTEE

	
9

	
2.1

	
Guarantee

	
9

	
2.2

	
Right of Contribution

	
9

	
2.3

	
No Subrogation

	
10

	
2.4

	
Amendments, Etc. With Respect to the
 Obligations

	
10

	
2.5

	
Guarantee Absolute and Unconditional

	
10

	
2.6

	
Reinstatement

	
11

	
2.7

	
Payments

	
11

	
ARTICLE 3 GRANT OF SECURITY INTEREST

	
12

	
3.1

	
Grant of Security Interest

	
12

	
3.2

	
Perfection: Authorization to File Financing
 Statements

	
12

	
ARTICLE 4 PLEDGE OF SECURITIES

	
13

	
4.1

	
Pledge

	
13

	
4.2

	
Delivery of the Pledged Collateral

	
14

	
4.3

	
Representations, Warranties and Covenants

	
14

	
4.4

	
Certification of Limited Liability Company
 and Limited Partnership Interests

	
15

	
4.5

	
Registration in Nominee Name; Denominations

	
16

	
4.6

	
Voting Rights; Dividends and Interest

	
16

	
ARTICLE 5 REPRESENTATIONS AND WARRANTIES

	
18

	
5.1

	
Representations in Securities Amendment and
 Purchase Agreement

	
18 

	
5.2

	
Title; No Other Liens

	
18

	
5.3

	
Perfected First Priority Liens

	
19

	
5.4

	
Chief Executive Office; Inventory and
 Equipment

	
19

	
5.5

	
Farm Products

	
19

	
5.6

	
Accounts

	
20

	
ARTICLE 6 COVENANTS

	
20

	
6.1

	
Covenants in Securities Amendment and
 Purchase Agreement

	
20

	
6.2

	
Other Actions

	
20

	
6.3

	
Covenants Regarding Patent, Trademark and
 Copyright Collateral

	
22

	
6.4

	
Payment of Obligations

	
24

	
6.5

	
Maintenance of Perfected Security Interest;
 Further Documentation

	
24

	
6.6

	
Changes in Locations, Name, etc.

	
24

	
6.7

	
Notices

	
25

	
6.8

	
Accounts

	
25

	
6.9

	
Maintenance of Inventory and Equipment

	
25

	
6.10

	
Additional Shares

	
26

	
ARTICLE 7 REMEDIAL PROVISIONS

	
26

	
7.1

	
Certain Matters Relating to Accounts

	
26

	
7.2

	
Communications with Obligors; Grantors
 Remain Liable

	
26

	
7.3

	
Proceeds to be Turned Over To Collateral
 Agent

	
27

	
7.4

	
Application of Proceeds

	
27

	
7.5

	
New York UCC and Other Remedies

	
28

i

	
 

	
 

	
 

	
7.6

	
Waiver; Deficiency

	
28

	
ARTICLE 8 THE COLLATERAL AGENT

	
29

	
8.1

	
Collateral Agent’s Appointment by
 Noteholders, Etc.

	
29

	
8.2

	
Delegation of Duties

	
29

	
8.3

	
Exculpatory Provisions

	
29

	
8.4

	
Reliance by Collateral Agent

	
29

	
8.5

	
Notice of Default

	
30

	
8.6

	
Non-Reliance on Collateral Agent and Other
 Noteholders

	
30

	
8.7

	
Indemnification

	
31

	
8.8

	
Collateral Agent In Its Individual Capacity

	
31

	
8.9

	
Successor Agent

	
31

	
8.10

	
Collateral Agent’s Appointment by Grantors
 as Attorney-in-Fact, Etc.

	
32

	
8.11

	
Duty of Collateral Agent

	
33

	
8.12

	
Execution of Financing Statements

	
34

	
8.13

	
Authority of Collateral Agent

	
34

	
ARTICLE 9 MISCELLANEOUS

	
34

	
9.1

	
Amendments in Writing

	
34

	
9.2

	
Notices

	
35

	
9.3

	
No Waiver by Course of Conduct; Cumulative
 Remedies

	
35

	
9.4

	
Enforcement Expenses; Indemnification

	
35

	
9.5

	
Successors and Assigns

	
36

	
9.6

	
Set-Off

	
36

	
9.7

	
Counterparts

	
36

	
9.8

	
Severability

	
36

	
9.9

	
Section Headings

	
37

	
9.10

	
Integration

	
37

	
9.11

	
GOVERNING LAW

	
37

	
9.12

	
Submission To Jurisdiction; Waivers

	
37

	
9.13

	
Acknowledgements

	
37

	
9.14

	
WAIVER OF JURY TRIAL

	
38

	
9.15

	
Additional Guarantors; Additional Grantors

	
38

	
9.16

	
Releases

	
38

	
 

	
 

	
SCHEDULES AND ANNEXES

	
 

	
ANNEX 1

	
Grantor
 Assumption Agreement

	
SCHEDULE
 1(i)

	
Copyrights

	
SCHEDULE
 1(r)

	
License

	
SCHEDULE
 1(w)

	
Patents

	
SCHEDULE
 1(ff)

	
Trademarks

	
SCHEDULE 4.1

	
Pledged
 Securities 

	
SCHEDULE 5.4

	
Chief
 Executive Office and Places of Business

	
SCHEDULE 6.2

	
Account
 Control Agreement

	
SCHEDULE
 9.15

	
Assumption
 Agreement

ii

GUARANTEE AND AMENDED
AND RESTATED SECURITY AGREEMENT

               GUARANTEE
AND AMENDED AND RESTATED SECURITY AGREEMENT, dated as of December 23, 2008,
among HC Innovations, Inc., a Delaware corporation (the “Company”), each
of the Subsidiaries of the Company identified herein (the Company, such
Subsidiaries and any other entity that may become a party hereto pursuant to Section
9.15, together, the “Grantors”), the holders of the Amended Notes
identified on Annex 1 hereto and those individuals and entities who may
become holders of such Amended Notes from time to time (the “Noteholders”),
and Pacific Aerie Holding LLC, as Collateral Agent (in such capacity, the “Collateral
Agent”) (the Noteholders, such individuals and entities and the Collateral
Agent, together, the “Secured Parties”).

W I T N E S S E T H:

               WHEREAS,
the Company previously has issued to the Noteholders certain secured
convertible promissory notes in the aggregate principal amount of $7,139,955
plus interest, pursuant to various subscription agreements (the “Existing
Notes”);

               WHEREAS,
the obligations of the Company under the Existing Notes were guaranteed by the
Company’s Subsidiaries and Affiliates pursuant to various guarantee agreements
entered into substantially contemporaneously with the issuance of the Existing
Notes (the “Existing Guarantee Agreements”);

               WHEREAS,
the Existing Notes were secured by certain collateral granted by the Company,
its Subsidiaries and Affiliates pursuant to various security agreements entered
into substantially contemporaneously with the issuance of the Existing Notes
(the “Existing Security Agreements”);

               WHEREAS,
the Company and the Noteholders have entered into that certain Securities
Amendment and Purchase Agreement dated as of December 23, 2008 (as amended,
supplemented or otherwise modified from time to time, the “Securities
Amendment and Purchase Agreement”), pursuant to which the Noteholders have
agreed, among other matters, to amend and restate their Existing Notes as
Amended Notes and to purchase from the Company additional notes which are also
Amended Notes upon the terms and subject to the conditions set forth therein;

               WHEREAS,
it is the intention of the parties hereto that the guarantees, security
interests and other benefits provided by, the Existing Guarantee Agreements and
the Existing Security Agreements shall continue for the benefit of the Secured
Parties hereto, and that further guarantees, security interests and other
benefits shall be provided to the Secured Parties, all upon terms and subject
to the conditions set forth herein;

               WHEREAS,
the proceeds of the sale of the additional Amended Notes under the Securities
Amendment and Purchase Agreement will be used by the Grantors solely for
repayment of the principal amount of, interest on, and other amounts owing in
respect of, the Existing Credit Agreement;

3

               WHEREAS,
the Grantors are members of an affiliated group of companies engaged in related
businesses, and each Grantor will derive substantial direct and indirect benefit
from the transactions contemplated by the Securities Amendment and Purchase
Agreement; and

               WHEREAS,
it is a condition precedent to the obligation of the Noteholders to consummate
the transactions contemplated by the Securities Amendment and Purchase Agreement
that the Grantors shall have executed and delivered this Agreement for the
ratable benefit of the Secured Parties.

               NOW,
THEREFORE, in consideration of the premises and to induce the Noteholders to
enter into the Securities Amendment and Purchase Agreement and to induce the
Noteholders to consummate the transactions contemplated thereby, each Grantor
hereby agrees, for the ratable benefit of the Secured Parties, as follows:

ARTICLE
1

DEFINED TERMS

          1.1
Definitions

          The
following terms shall have the following meanings:

               (a) “Accounts”
means,
collectively, and in each instance however and wherever arising all accounts
receivable and other rights to payment arising out of the sale or lease of
goods and services, whether or not such right is evidenced by an Instrument or
Chattel Paper, and whether or not earned by performance, including, without
limitation, all “accounts” as such term is defined in the New York UCC and all
other obligations of any kind at any time due or owing to Grantors

               (b) “Agreement”
means this
Guarantee and Amended and Restated Security Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.

               (c) “Collateral”
has the meaning
set forth in Section 3.1 hereof.

               (d) “Collateral
Account” means any
collateral account established by the Collateral Agent as provided in Section
7.1.

               (e) “Collateral
Agent” shall have
the meaning set forth in the preamble to this Agreement.

               (f) “Collateral
Party” means the
pledgor, mortgagor or grantor of a security interest for the benefit of the
Collateral Agent and the Noteholders under any Security Document.

               (g) “Company”
has the meaning set
forth in the preamble to this Agreement.

               (h) “Company
Obligations” means,
collectively, the unpaid principal of and interest on the Amended Notes and all
other obligations and liabilities of the Company to the Collateral Agent or any
Secured Party, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, 

4

the Securities
Amendment and Purchase Agreement, this Agreement, the other Transaction
Documents, or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, premium,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to the
Collateral Agent or to the Secured Parties that are required to be paid by the
Company pursuant to the terms of any of the foregoing agreements).

               (i) “Copyright
License” means any
written agreement, now or hereafter in effect. granting any right to any third
party under any copyright now or hereafter owned by any Grantor or that such
Grantor otherwise has the right to license, or granting any right to any
Grantor under any copyright now or hereafter owned by any third party, and all
rights of such Grantor under any such agreement.

               (j) “Copyrights”
means all of the
following now owned or hereafter acquired by any Grantor: (i) all copyright
rights in any work subject to the copyright laws of the United States or any
other country, whether as author, assignee, transferee or otherwise, and (ii)
all registrations and applications for registration of any such copyright in
the United States or any other country. including registrations, recordings, supplemental
registrations and pending applications for registration in the United States
Copyright Office, including those listed on Schedule 1.1(i).

               (k) “Documents”
means,
collectively, the Pledged Securities, all chattel paper, all instruments, all
investment property and all documents and all payments thereunder and
instruments and other property from time to time delivered in respect thereof
or in exchange therefor, and all bills of lading, warehouse receipts and other
documents of title and other documents, including, without limitation, all
“chattel paper”, “instruments”, “investment property” and documents”, as such
terms are defined in the New York UCC, in each instance whether now owned or
hereafter acquired by such Grantor.

               (l) “Equipment”
means all
machinery and equipment, all manufacturing, distribution, selling, data
processing and office equipment, all furniture, furnishings, appliances, tools,
tooling, molds, dies, vehicles, vessels, aircraft and all other goods of every
type and description, in each instance whether now owned or hereafter acquired
by any Grantor and wherever located, including without limitation all
“equipment”, as such term is defined in the New York UCC; provided that
equipment shall not include “fixtures” as defined in Section 9-313 of the New
York UCC.

               (m) “Existing
Financing Statements”
means collectively, each UCC-1 financing statement naming each individual
Noteholder as the secured party and the Company as debtor filed in connection
with the Existing Security Agreements.

               (n) “Existing
Guarantee Agreements”
has the meaning set forth in the recitals to this Agreement.

               (o) “Existing
Security Agreements”
has the meaning set forth in the recitals to this Agreement.

               (p) “Financing Statement” means, as the context may require, (i) the
Existing Financing Statements; (ii) any and all UCC-3 financing statements
amending the Existing

5

Financing
Statements and (iii) any and all UCC-1 financing statements naming the Grantors
and the Secured Parties as secured party. 

          (q) “Fully
Satisfied” means, with respect to the Obligations as of any date, that, on
or before such date, (i) the principal of and interest accrued to such date on
such Obligations shall have been paid in full in cash, (ii) all fees, expenses
and other amounts then due and payable which constituted Obligations shall have
been paid in full in cash, and (iii) the New Warrants shall have expired or
irrevocably been terminated; provided, however, that, on such date, none of the
Collateral Agent or the Secured Parties shall have made any claims in respect
of Obligations against the Company or any Guarantor under any provision of any
of the Transaction Documents that has not been cash collateralized by an amount
sufficient in the reasonable judgment of the Collateral Agent and such Secured
Party to secure such claim.

          (r)
 “General Intangibles” means, collectively, and
in each instance however and wherever arising: (i) all rights, interests,
choses in action, causes of action, claims and all other intangible property of
any Grantor of every kind and nature, in each instance whether now owned or
hereafter acquired by any Grantor, including, without limitation, all corporate
and other business records; (ii) all loans, royalties, and other obligations
receivable; (iii) all Trademarks, inventions, designs, patents, patent
applications, (including any applications for the foregoing and whether or not
registered) and the goodwill of any Grantor’s business connected with and
symbolized by the same; (iv) trade secrets, computer programs, software,
printouts and other computer materials, goodwill, registrations, U.S. registered
copyrights, licenses relating to trademarks and U.S. registered copyrights,
franchises, customer lists, credit files, correspondence and advertising
materials; (v) all customer and supplier contracts, firm sale orders, rights
under license and franchise agreements, and other contracts and contract
rights; (vi) all interests in partnerships, joint ventures and other entities;
(vii) all tax refunds and tax refund claims; (viii) all right, title and
interest under leases, subleases, licenses and concessions and other agreements
relating to real or personal property; (ix) all payments due or made to any
Grantor in connection with any requisition, confiscation, condemnation, seizure
or forfeiture of any property by any person or governmental authority; (x) all deposit
accounts (general or special) with any bank or other financial institution;
(xi) all credits with and other claims against carriers and shippers; (xii) all
rights to indemnification; (xiii) all reversionary interests in pension and
profit sharing plans and reversionary, beneficial and residual interest in
trusts; (xiv) all proceeds of insurance of which any Grantor is a beneficiary;
(xv) all letters of credit, guaranties, liens, security interests and other
security held by or granted to any Grantor; and (xvi) all other intangible
property, whether or not similar to the foregoing, including, without
limitation, all “general intangibles,” as such term is defined in the New York
UCC.

          (s) “Grantors”
has the meaning set forth in the preamble to this Agreement.

          (t)
 “Guarantor” means each of the Company’s
Subsidiaries.

          (u)
 “Guarantor Obligations” means, with respect to
any Guarantor, the collective reference to (i) the Company Obligations and (ii)
all obligations and liabilities of such Guarantor which may arise under or in
connection with this Agreement or any other Transaction Document to which such
Guarantor is a party, in each case whether on account of guarantee obligations,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to the
Collateral Agent or to the Secured Parties 

6

that are
required to be paid by such Guarantor pursuant to the terms of this Agreement
or any other Transaction Document).

          (v)
 “Instrument” means a negotiable instrument or
any other writing that evidences a right to the payment of a monetary
obligation, is not itself a security agreement or lease, and is of a type that
in the ordinary course of business is transferred by delivery with any
necessary indorsement or assignment, including, without limitation, all
“instruments” as such term is defined in the New York UCC. 

          (w)
 “Inventory” means, collectively, and in each
instance, however and wherever arising, all inventory, finished goods, raw
materials, work in process and other goods, including, without limitation, all
“inventory” as such term is defined in the New York UCC.

          (x)
 “License” means any Patent License, Trademark
License, Copyright License or other license or sublicense agreement to which
any Grantor is a party, including those listed on Schedule 1.1(r).

          (y)
 “New York UCC” means the Uniform Commercial
Code as from time to time in effect in the State of New York.

          (z)
 “Obligations” mean (i) in the case of the
Company, the Company Obligations, and (ii) in the case of each Guarantor, its
Guarantor Obligations.

          (aa)
 “Other Property” means, collectively, all
property or interests in property now owned or hereafter acquired by any
Grantor which now may be owned or hereafter may come into the possession,
custody or control of the Collateral Agent, any of the Secured Parties or any
agent or Affiliate of any of them in any way or for any purpose (whether for
safekeeping, deposit, custody, pledge, transmission, collection or otherwise);
and all rights and interests of any Grantor, now existing or hereafter arising
and however and wherever arising, in respect of any and all (i) notes, drafts,
letters of credit, bank accounts, stocks, bonds, and debt and equity
securities, whether or not certificated, and warrants, options, puts and calls
and other rights to acquire or otherwise relating to the same; (ii) money;
(iii) proceeds of loans; and (iv) insurance proceeds and books and records
relating to any of the Collateral. 

          (bb)
 “Patent License” means any written agreement,
now or hereafter in effect, granting to any third party any right to make, use
or sell any invention on which a patent, now or hereafter owned by any Grantor
or that any Grantor otherwise has the right to license, is in existence, or
granting to any Grantor any right to make, use or sell any invention on which a
patent, now or hereafter owned by any third party, is in existence, and all rights
of any Grantor under any such agreement. 

          (cc)
 “Patents” means all of the following now owned
or hereafter acquired by any Grantor: (i) all letters patent of the United
States or the equivalent thereof in any other country, all registrations and
recordings thereof, and all applications for letters patent of the United
States or the equivalent thereof in any other country, including registrations,
recordings and pending applications in the United States Patent and Trademark
Office or any similar offices in any other country, including those listed on Schedule
1(w), and (ii) all reissues, continuations, divisions,
continuations-in-past, renewals or extensions thereof. and the inventions
disclosed or claimed therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein. 

7

          (dd)
 “Pledged Collateral” has the meaning set forth
in Section 4.1(f) hereof. 

          (ee)
 “Pledged Debt” has the meaning set forth in
Section 4.1(b) hereof. 

          (ff)
 “Pledged Securities” has the meaning set forth
in Section 4.1(a) hereof. 

          (gg)
 “Noteholders” has the meaning set forth in the
preamble to this Agreement. 

          (hh)
 “Securities Amendment and Purchase Agreement”
has the meaning set forth in the recitals to this Agreement. 

          (ii)
 “Secured Parties” has the meaning set forth in
the preamble to this Agreement. 

          (jj)
 “Securities Act”: means the Securities Act of
1933, as amended. 

          (kk)
 “Trademark License” means any written agreement,
now or hereafter in effect, granting to any third party any right to use any
trademark now or hereafter owned by any Grantor or that any Grantor otherwise
has the right to license, or granting to any Grantor any right to use any
trademark now or hereafter owned by any third party, and all rights of any
Grantor under any such agreement.

          (ll)
 “Trademarks” means all of the following now
owned or existing or hereafter adopted or acquired by any Grantor: (i) all
trademarks, service marks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, trade dress, logos,
other source or business identifiers, designs and general intangibles of like
nature, all registrations and recordings thereof, and all registration and
recording applications filed in connections therewith, including without
limitation registrations and registration applications in the United States
Patent and Trademark Office or any similar offices in any state of the United
States or any other country or any political subdivision thereof, and all
extensions or renewals thereof, including without limitation those listed in
Schedule 1.1(ff), (ii) all goodwill associated therewith or symbolized thereby
and (iii) all other assets, rights and interests that uniquely reflect or
embody such goodwill.  

     1.2 Other
Definitional Provisions. 

          (a)
 Unless otherwise defined herein, terms defined in the
Securities Amendment and Purchase Agreement and used herein shall have the
meanings given to them in the Securities Amendment and Purchase Agreement, and
the following terms which are defined in the New York UCC in effect on the date
hereof are used herein as so defined: Chattel Paper, Equity Interests,
Instruments and Proceeds.

          (b)
 The words “hereof,” “herein”, “hereto” and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Section and Schedule references are to this Agreement unless otherwise
specified.

          (c)
 The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms. 

8

ARTICLE 2

GUARANTEE

     2.1 Guarantee

          (a)
 Each of the Guarantors hereby, jointly and severally,
unconditionally and irrevocably, guarantees to the Collateral Agent, for the
ratable benefit of the Secured Parties and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and performance
by the Company when due (whether at the stated maturity, by acceleration or
otherwise) of the Company Obligations.

          (b)
 Each of the Guarantors further agrees that its
guarantee hereunder constitutes a guarantee of payment when due and not of
collection, and waives any right to require that any resort be had by the
Collateral Agent or any other Secured Party to any security held for the
payment of the Obligations or to any balance of any deposit account or credit
on the books of the Collateral Agent or any other Secured Party in favor of the
Company or any other Person. 

          (c) Anything herein or in any other
Transaction Document to the contrary notwithstanding, the maximum liability of
each Guarantor hereunder and under the other Transaction Documents shall in no
event exceed the amount which can be guaranteed by such Guarantor under
applicable federal and state laws relating to the insolvency of debtors (after
giving effect to the right of contribution established in Section 2.2).

          (d)
 Each Guarantor agrees that the Company Obligations may
at any time and from time to time exceed the amount of the liability of such
Guarantor hereunder without impairing the guarantee contained in this ARTICLE
2 or affecting the rights and remedies of the Collateral Agent or any
Secured Party hereunder.

          (e)
 The guarantee contained in this ARTICLE 2 shall
remain in full force and effect until all the Guarantor Obligations shall have
been Fully Satisfied.

          (f)
 No payment made by the Company, any of the Guarantors,
any other guarantor or any other Person or received or collected by the
Collateral Agent or any Secured Party from the Company, any of the Guarantors,
any other guarantor or any other Person by virtue of any action or proceeding
or any set-off or appropriation or application at any time or from time to time
in reduction of or in payment of the Company Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment (other than any payment
made by such Guarantor in respect of the Company Obligations or any payment
received or collected from such Guarantor in respect of the Company
Obligations), remain liable for the Company Obligations up to the maximum
liability of such Guarantor hereunder until the Company Obligations are paid in
full. 

     2.2 Right of
Contribution 

     Each
Guarantor hereby agrees that to the extent that a Guarantor shall have paid
more than its proportionate share of any payment made hereunder, such Guarantor
shall be entitled to seek and receive contribution from and against any other
Guarantor hereunder which has not paid its proportionate share of such payment.
Each Guarantor’s right of contribution shall be subject to the terms and
conditions of Section 2.3. The provisions of this Section 2.2
shall in no respect 

9

limit the
obligations and liabilities of any Guarantor to the Collateral Agent and the
Secured Parties, and each Guarantor shall remain liable to the Collateral Agent
and the Secured Parties for the full amount guaranteed by such Guarantor
hereunder. 

     2.3 No
Subrogation 

     Notwithstanding
any payment made by any Guarantor hereunder or any set-off or application of
funds of any Guarantor by the Collateral Agent or any Secured Party, no
Guarantor shall be entitled to be subrogated to any of the rights of the
Collateral Agent or any Secured Party against the Company or any other
Guarantor or any collateral security or guarantee or right of offset held by
the Collateral Agent or any Secured Party for the payment of the Company
Obligations, nor shall any Guarantor seek or be entitled to seek any
contribution or reimbursement from the Company or any other Guarantor in
respect of payments made by such Guarantor hereunder, until all amounts owing
to the Collateral Agent and the Secured Parties on account of the Obligations
are Fully Satisfied. If any amount shall be paid to any Guarantor on account of
such subrogation rights at any time when all of the Obligations shall not have
been Fully Satisfied, such amount shall be held by such Guarantor in trust for
the Collateral Agent and the Secured Parties, segregated from other funds of
such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned
over to the Collateral Agent in the exact form received by such Guarantor (duly
indorsed by such Guarantor to the Collateral Agent, if required), to be applied
against the Obligations, whether matured or unmatured, in such order as the Collateral
Agent may determine. 

     2.4 Amendments,
Etc. With Respect to the Obligations 

     Each
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Obligations made
by the Collateral Agent or any Secured Party may be rescinded by the Collateral
Agent or such Secured Party and any of the Obligations continued, and the
Obligations, or the liability of any other Person upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with
respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, extended, accelerated, compromised, waived,
surrendered or released by the Collateral Agent or any Secured Party, and the
Securities Amendment and Purchase Agreement and the other Transaction Documents
and any other documents executed and delivered in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the
Collateral Agent (or the Required Noteholders or all Secured Parties, as the
case may be) may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by the Collateral Agent or any
Secured Party for the payment of the Obligations may be sold, exchanged,
waived, surrendered or released. Neither the Collateral Agent nor any Secured
Party shall have any obligation to protect, secure, perfect or insure any Lien
at any time held by it as security for the Obligations or for the guarantee
contained in this ARTICLE 2 or any property subject thereto. 

     2.5 Guarantee
Absolute and Unconditional 

     Each
Guarantor waives any and all notice of the creation, renewal, extension or
accrual of any of the Obligations and notice of or proof of reliance by the
Collateral Agent or any Secured Party upon the guarantee contained in this ARTICLE
2 or acceptance of the guarantee contained 

10

in this ARTICLE
2; the Obligations, and any of them, shall conclusively be deemed to have
been created, contracted or incurred, or renewed, extended, amended or waived,
in reliance upon the guarantee contained in this ARTICLE 2; and all
dealings between the Company and any of the Guarantors, on the one hand, and
the Collateral Agent and the Secured Parties, on the other hand, likewise shall
be conclusively presumed to have been had or consummated in reliance upon the
guarantee contained in this ARTICLE 2. Each Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Company or any of the Guarantors with respect to the Obligations.
Each Guarantor understands and agrees that the guarantee contained in this ARTICLE
2 shall be construed as a continuing, absolute and unconditional guarantee
of payment without regard to (a) the validity or enforceability of the
Securities Amendment and Purchase Agreement or any other Transaction Document,
any of the Obligations or any other collateral security therefor or guarantee
or right of offset with respect thereto at any time or from time to time held
by the Collateral Agent or any Secured Party, (b) any defense, set-off or
counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by the Company or any other Person against
the Collateral Agent or any Secured Party, or (c) any other circumstance
whatsoever (with or without notice to or knowledge of the Company or such Guarantor)
which constitutes, or might be construed to constitute, an equitable or legal
discharge of the Company for the Company Obligations, or of such Guarantor
under the guarantee contained in this ARTICLE 2, in bankruptcy or in any
other instance. When making any demand hereunder or otherwise pursuing its
rights and remedies hereunder against any Guarantor, the Collateral Agent or
any Secured Party may, but shall be under no obligation to, make a similar
demand on or otherwise pursue such rights and remedies as it may have against
the Company, any other Guarantor or any other Person or against any collateral
security or guarantee for the Obligations or any right of offset with respect
thereto, and any failure by the Collateral Agent or any Secured Party to make
any such demand, to pursue such other rights or remedies or to collect any
payments from the Company, any other Guarantor or any other Person or to
realize upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of the Company, any other Guarantor or any
other Person or any such collateral security, guarantee or right of offset,
shall not relieve any Guarantor of any obligation or liability hereunder, and
shall not impair or affect the rights and remedies, whether express, implied or
available as a matter of law, of the Collateral Agent or any Secured Party
against any Guarantor. For the purposes hereof “demand” shall include the
commencement and continuance of any legal proceedings. 

     2.6 Reinstatement

     The
guarantee contained in this ARTICLE 2 shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the Company Obligations is rescinded or must otherwise be restored or
returned by the Collateral Agent or any Secured Party upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company or any
Guarantor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Company or any
Guarantor or any substantial part of its property, or otherwise, all as though
such payments had not been made. 

     2.7 Payments

     Each
Guarantor hereby guarantees that payments hereunder will be paid to the Collateral
Agent without set-off or counterclaim in United States Dollars at the office of
the Collateral 

11

Agent located
at 8813 S. Blue Jay Circle, Salt Lake City, Utah 84121, Attention: Kenneth D.
Lame. 

ARTICLE 3

GRANT OF SECURITY INTEREST

     3.1 Grant of
Security Interest

     Each
Grantor hereby assigns and transfers to the Collateral Agent, and hereby grants
to the Collateral Agent, for the ratable benefit of the Secured Parties, a
first priority security interest (the “Security Interest”) in all of the
following property now owned or at any time hereafter acquired by such Grantor
or in which such Grantor now has or at any time in the future may acquire any
right, title or interest, in each instance, with all accessions and additions
thereto, substitutions therefor, and replacements, proceeds and products
thereof (collectively, the “Collateral”), as collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of such Grantor’s Obligations:

          (a)
 all Accounts;

          (b)
 all Equipment;

          (c)
 all General Intangibles;

          (d)
 all Pledged Collateral;

          (e) all Inventory;

          (f) all Documents; and

          (g)
 all Other Property.

     Each
Grantor hereby reaffirms the grant of security interests made pursuant to the
Existing Security Agreements. 

     3.2 Perfection:
Authorization to File Financing Statements 

     Each
Grantor hereby irrevocably authorizes the Collateral Agent at any time and from
time to time to file in any filing office in any Uniform Commercial Code
jurisdiction any initial financing statements and/or “in lieu of” financing
statements and/or amendments of any financing statements filed at any time and
from time to time that (a) indicate the Collateral (i) as all assets of each
Grantor or words of similar effect, regardless of whether any particular asset
comprised in the Collateral falls within the scope of Article 9 of the Uniform
Commercial Code of the State or such jurisdiction, or (ii) as being of an equal
or lesser scope or with greater detail, and (b) provide any other information
required by Part 5 of Article 9 of the Uniform Commercial Code of the State or
such other jurisdiction for the sufficiency or filing office acceptance of any
financing statement or amendment, including (i) whether such Grantor is an
organization, the type of organization and any organizational identification
number issued to such Grantor and, (ii) in the case of a financing statement filed
as a fixture filing or indicating Collateral as as-extracted collateral or
timber to be cut, a sufficient description of real property to which the
Collateral relates. Each Grantor agrees to furnish any such information to the
Collateral Agent promptly 

12

upon request.
Each Grantor also ratifies its authorization for the Collateral Agent to file
in any relevant jurisdiction any initial financing statements or amendments
thereto if filed prior to the date hereof. The Collateral Agent is further
authorized to file with the United States Patent and Trademark Office or United
States Copyright Office (or any successor office or any similar office in any
other country) such documents as may be necessary or advisable for the purpose
of perfecting, confirming, continuing, enforcing or protecting the Security
Interest granted by each Grantor, without the signature of any Grantor, and
naming any Grantor or the Grantors as debtors and the Collateral Agent as
secured party. The Security Interest is granted as security only and shall not
subject the Collateral Agent or any other Secured Party to or in any way alter
or modify, any obligation or liability of any Grantor with respect to or
arising out of the Collateral. Without limiting the foregoing, the Collateral Agent
will file the Financing Statements. 

     3.3 Ranking 

     Notwithstanding
the date, manner or order of grant, attachment or perfection of any Secured
Party and notwithstanding any provision of the UCC, or any other applicable
law, including, without limitation, the laws of the State of New York, the
Collateral Agent and the Secured Parties hereby agree that, as among
themselves, any and all security interests created by the Existing Security
Agreements and the security interests granted by Section 3.1 and Section 4.1 of
this Agreement, will rank pari passu
one with the other. 

ARTICLE 4

PLEDGE OF SECURITIES

     4.1 Pledge

     As
security for the payment or performance, as the
case may be, in full of the Obligations, each Grantor hereby assigns and pledges
to the Collateral Agent, its
successors and assigns, for the ratable benefit of the Secured Parties, and hereby grants to the
Collateral Agent, its successors and assigns,
for the ratable benefit of the Secured Parties, a security interest in, all of
such Grantor’s right, title and
interest in, to and under

          (a)
 the shares of capital stock and other Equity Interests owned by it and listed on
Schedule 4.1 and any other Equity Interests obtained in the future by such Grantor and the certificates
representing all such Equity Interests
(the “Pledged Securities”); provided that the Pledged Securities shall
not include more than 65% of the
issued and outstanding voting Equity Interests of any Foreign Subsidiary,

          (b)
 (i) the debt securities listed opposite the name of
such Grantor on Schedule 4.1, (ii) any debt securities in the future issued to such Grantor and (iii) the
promissory notes and any other instruments evidencing such debt securities (the
“Pledged Debt “),

          (c)
 all other property that may be delivered to and held by the Collateral Agent pursuant
to the terms of this Section 4.1,

13

          (d)
 subject to Section 4.6, all payments of
principal or interest, dividends, cash, instruments
and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for
or upon the conversion of, and all other Proceeds
received in respect of, the securities referred to in clauses (a) and (b)
above,

          (e)
 subject to Section 4.6, all rights and
privileges of such Grantor with respect to the securities and other property referred to in clauses (a), (b), (c)
and (d) above, and

          (f)
 all Proceeds
of any of the foregoing (the items referred to in clauses (a) through (f) above
being collectively referred to as the “Pledged Collateral”).

          TO
HAVE AND TO HOLD the Pledged Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto,
unto the Collateral Agent, its successors and assigns, for the ratable benefit
of the Secured Parties, forever; subject, however, to the terms, covenants and
conditions hereinafter set forth. 

     4.2 Delivery of
the Pledged Collateral 

          (a)
 Each Grantor agrees promptly to deliver or cause to be
delivered to the Collateral Agent any and all Pledged Collateral. 

          (b)
 Each Grantor will cause any Indebtedness for borrowed
money owed to such Grantor by any Person to be evidenced by a duly executed
promissory note that is pledged and delivered to the Collateral Agent pursuant
to the terms hereof. 

          (c)
 Upon delivery to the Collateral Agent, (i) any Pledged
Securities shall be accompanied by stock powers duly executed in blank or other
instruments of transfer satisfactory to the Collateral Agent and by such other
instruments and documents as the Collateral Agent may reasonably request and
(ii) all other property comprising part of the Pledged Collateral shall be
accompanied by proper instruments of assignment duly executed by the applicable
Grantor and such other instruments or documents as the Collateral Agent may
reasonably request. Each delivery of Pledged Collateral shall be accompanied by
a schedule describing the securities, which schedule shall be attached hereto as
Schedule 4.1 and made a part hereof; provided that failure to attach any
such schedule hereto shall not affect the validity of such pledge of such
Pledged Collateral. Each schedule so delivered shall supplement any prior
schedules so delivered. 

     4.3 Representations,
Warranties and Covenants 

     The
Grantors jointly and severally represent, warrant and covenant to and with the
Collateral Agent, for the benefit of the Secured Parties, that: 

          (a)
Schedule 4.1 correctly sets forth the percentage
of the issued and outstanding units of each class of the Equity Interests of
the issuer thereof represented by the Pledged Securities and includes all
Equity Interests, debt securities and promissory notes legally or beneficially
owned by Grantor; 

14

          (b)
 the Pledged Securities and Pledged Debt have been duly
and validly authorized and issued by the issuers thereof and (i) in the case of
Pledged Securities, are fully paid and nonassessable and (ii) in the case of
Pledged Debt are legal, valid and binding obligations of the issuers thereof; 

          (c)
 except for the security interests granted hereunder,
each of the Grantors (i) is and will continue to be the direct owner,
beneficially and of record, of the Pledged Collateral indicated on Schedule
4.1 as owned by such Grantor, (ii) holds the same free and clear of all
Liens, other than Liens created by this Agreement or Permitted Liens, (iii)
will make no assignment, pledge, hypothecation or transfer of, or create or
permit to exist any security interest in or other Lien on, the Pledged
Collateral, other than Liens created by this Agreement or Permitted Liens and
(iv) will defend its title or interest thereto or therein against any and all
Liens (other than the Lien created by this Agreement and Permitted Liens),
however, arising, of all Persons whomsoever; 

          (d)
 except for restrictions and limitations imposed by the
Transaction Documents or securities laws generally, the Pledged Collateral is
and will continue to be freely transferable and assignable, and none of the
Pledged Collateral is or will be subject to any option, right of first refusal,
shareholders agreement, charter or bylaw provisions or contractual restriction
of any nature that might prohibit, impair, delay or otherwise affect the pledge
of such Pledged Collateral hereunder, the sale or disposition thereof pursuant
hereto or the exercise by the Collateral Agent of rights and remedies
hereunder; 

          (e)
 each of the Grantors has the power and authority to
pledge the Pledged Collateral pledged by it hereunder in the manner hereby done
or contemplated; 

          (f)
 no consent or approval of any Governmental Authority,
any securities exchange or any other Person was or is necessary to the validity
of the pledge effected hereby (other than such as have been obtained and are in
full force and effect); 

          (g)
 by virtue of the execution and delivery by the
Grantors of this Agreement, when any Pledged Collateral is delivered to the
Collateral Agent in accordance with this Agreement, the Collateral Agent will
obtain a legal, valid and perfected lien upon and security interest in such
Pledged Collateral as security for the payment and performance of the
Obligations; and 

          (h)
 the pledge effected hereby is effective to vest in the
Collateral Agent, for the benefit of the Secured Parties, the rights of the
Collateral Agent in the Pledged Collateral as set forth herein. 

     4.4
Certification of Limited Liability Company and Limited Partnership Interests

     Each
interest in any limited liability company or limited partnership controlled by
any Grantor and pledged hereunder shall be represented by a certificate, shall
be a “security” within the meaning of Article 8 of the New York UCC and shall
be governed by Article 8 of the New York UCC. 

15

     4.5 Registration in Nominee Name; Denominations 

     The
Collateral Agent, on behalf of the Secured Parties, shall have the right (in
its sole and absolute discretion) to hold the Pledged Collateral in its own
name as pledgee, the name of its nominee (as pledgee or as sub-agent) or the
name of the applicable Grantor, indorsed or assigned in blank or in favor of
the Collateral Agent. Each Grantor will promptly give to the Collateral Agent
copies of any notices or other communications received by it with respect to
Pledged Collateral registered in the name of such Grantor. The Collateral Agent
shall at all times have the right to exchange the certificates representing
Pledged Collateral for certificates of smaller or larger denominations for any
purpose consistent with this Agreement. 

     4.6 Voting Rights; Dividends and Interest 

          (a) Unless and until an Event of Default
shall have occurred and be continuing and the Collateral Agent shall have
notified the Grantors that their rights under this Section 4.6 are being
suspended: 

	
 

	
 

	
 

	
          (i) Each Grantor shall be entitled to
 exercise any and all voting and/or other consensual rights and powers inuring
 to an owner of Pledged Collateral or any part thereof for any purpose
 consistent with the terms of this Agreement, the Securities Amendment and
 Purchase Agreement and the other Transaction Documents; provided that such
 rights and powers shall not be exercised in any manner that could materially
 and adversely affect the rights inuring to a holder of any Pledged Collateral
 or the rights and remedies of any of the Collateral Agent or the other
 Secured Parties under this Agreement or the Securities Amendment and Purchase
 Agreement or any other Transaction Document or the ability of the Secured
 Parties to exercise the same. 

	
 

	
 

	
 

	
          (ii) The Collateral Agent shall execute
 and deliver to each Grantor, or cause to be executed and delivered to such
 Grantor, all such proxies, powers of attorney and other instruments as such
 Grantor may reasonably request for the purpose of enabling such Grantor to
 exercise the voting and/or consensual rights and powers it is entitled to
 exercise pursuant to subparagraph (i) above. 

	
 

	
 

	
 

	
          (iii) Each Grantor shall be entitled to
 receive and retain any and all dividends, interest, principal and other
 distributions paid on or distributed in respect of the Pledged Collateral to
 the extent and only to the extent that such dividends, interest, principal
 and other distributions are permitted by, and otherwise paid or distributed
 in accordance with, the terms and conditions of the Securities Amendment and
 Purchase Agreement, the other Transaction Documents and applicable laws;
 provided that any noncash dividends, interest, principal or other
 distributions that would constitute Pledged Securities or Pledged Debt,
 whether resulting from a subdivision, combination or reclassification of the
 outstanding Equity Interests of the issuer of any Pledged Collateral or
 received in exchange for Pledged Collateral or any part thereof, or in
 redemption thereof, or as a result of any merger, consolidation. acquisition
 or other exchange of assets to which such issuer may be a party or otherwise,
 shall be and become part of the Pledged Collateral, 

16

	
 

	
 

	
 

	
and, if
 received by any Grantor, shall not be commingled by such Grantor with any of
 its other funds or property but shall be held separate and apart therefrom,
 shall be held in trust for the benefit of the Collateral Agent and shall be
 forthwith delivered to the Collateral Agent in the same form as so received
 (with any necessary indorsement). 

          (b) Upon the occurrence and during the
continuance of an Event of Default, after the Collateral Agent shall have
notified the Grantors of the suspension of their rights under paragraph
(a)(iii) of this Section 4.6, then all rights of any Grantor to
dividends, interest. principal or other distributions that such Grantor is
authorized to receive pursuant to paragraph (a)(iii) of this Section 4.6
shall cease, and all such rights shall thereupon become vested in the
Collateral Agent, which shall have the sole and exclusive right and authority
to receive and retain such dividends, interest, principal or other
distributions. All dividends, interest, principal or other distributions
received by any Grantor contrary to the provisions of this Section 4.6
shall be held in trust for the benefit of the Collateral Agent, shall be
segregated from other property or funds of such Grantor and shall be forthwith
delivered to the Collateral Agent upon demand in the same form as so received
(with any necessary indorsement). Any and all money and other property paid
over to or received by the Collateral Agent pursuant to the provisions of this
paragraph (b) shall be retained by the Collateral Agent in an account to be
established by the Collateral Agent upon receipt of such money or other
property and shall be applied in accordance with the provisions of Section
7.4. After all Events of Default have been cured or waived and the Company
has delivered to the Collateral Agent a certificate to that effect, the
Collateral Agent shall promptly repay to each Grantor (without interest) all
dividends, interest, principal or other distributions that such Grantor would
otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of
this Section 4.6 and that remain in such account. 

          (c) Upon the occurrence and during the
continuance of an Event of Default, after the Collateral Agent shall have
notified the Grantors of the suspension of their rights under paragraph (a)(i)
of this Section 4.6, then all rights of any Grantor to exercise the
voting and consensual rights and powers it is entitled to exercise pursuant to
paragraph (a)(i) of this Section 4.6, and the obligations of the
Collateral Agent under paragraph (a)(ii) of this Section 4.6. shall
cease, and all such rights shall thereupon become vested in the Collateral
Agent, which shall have the sole and exclusive right and authority to exercise
such voting and consensual rights and powers; provided, however, that, unless
otherwise directed by the Required Noteholders, the Collateral Agent shall have
the right from time to time following and during the continuance of an Event of
Default to permit the Grantors to exercise such rights. 

          (d) Any notice given by the Collateral
Agent to the Grantors suspending their rights under paragraph (a) of this Section
4.6 (i) may be given to one or more of the Grantors at the same or
different times and (ii) may suspend the rights of the Grantors under paragraph
(a)(i) or paragraph (a)(iii) in part without suspending all such rights (as
specified by the Collateral Agent in its sole and absolute discretion) and
without waiving or otherwise affecting the Collateral Agent’s rights to give
additional notices from time to time suspending other rights so long as an
Event of Default has occurred and is continuing. 

17

ARTICLE 5

REPRESENTATIONS AND WARRANTIES

          To
induce the Collateral Agent and the Noteholders to enter into the Securities
Amendment and Purchase Agreement and to induce the Noteholders to make their
respective purchases and exchanges of or for the Amended Notes and New Warrants
from the Company thereunder, the Company and each Guarantor hereby represents
and warrants to the Collateral Agent and each Secured Party that: 

     5.1 Representations in Securities Amendment and
Purchase Agreement 

     In
the case of each Guarantor, the representations and warranties of the Company
set forth in the Securities Amendment and Purchase Agreement as they relate to
such Guarantor or to the Transaction Documents to which such Guarantor is a
party, each of which is hereby incorporated herein by reference, are true and
correct, and the Collateral Agent and each Secured Party shall be entitled to
rely on each of them as if they were fully set forth herein, provided that each
reference in each such representation and warranty to the Company’s knowledge
shall, for the purposes of this Section 5.1, be deemed to be a reference
to such Guarantor’s knowledge. 

     5.2 Title; No Other Liens 

          (a) No financing statement or other public
notice with respect to all or any part of the Collateral is on file or of
record in any public office, except (i) those created by the Existing Credit
Agreement, which liens shall be extinguished within 30 days after the Closing
and (ii) such as have been filed in favor of the Collateral Agent, for the
ratable benefit of the Secured Parties, pursuant to this Agreement or as are
permitted by the Securities Amendment and Purchase Agreement. 

          (b) Each Grantor is the legal and
beneficial owner of the Collateral free and clear of all liens, security
interests or other encumbrances, except as expressly permitted by the
Securities Amendment and Purchase Agreement. 

          (c) For the past five years, each Grantor
has conducted business only under its own corporate name and not under any
trade name or other name. 

          (d) Each Grantor has exclusive possession
and control of the Inventory (other than raw materials and work in process) and
Equipment, except for (i) Inventory and Equipment in the possession and control
of such Grantor’s lessees and licensees under written lease and license
agreements entered into in the ordinary course of business and consistent with
past practice and (ii) Inventory and Equipment in transit with common or other
carriers. 

          (e) The Pledged Securities have been duly
authorized and validly issued and are fully paid and non-assessable. The
Pledged Debt of each Grantor’s Subsidiaries (if any), and, to the best of each
Grantor’s knowledge, all other Pledged Debt, has been duly authorized, issued
and delivered, and is the legal, valid, binding and enforceable obligation of
the issuers thereof. 

          (f) The Pledged Securities indicated on Schedule
4.1 hereto constitute all of the shares held by each Grantor of the
respective issuers thereof and constitute 100% of all of the shares of stock of
the respective issuers who are Subsidiaries of such Grantor. 

18

          (g) Other than filings with the United
States Patent and Trademark Office, filings and registrations with the United
States Copyright Office and filings under the Uniform Commercial Code in effect
in each relevant jurisdiction, no authorization, approval or other action by,
and no notice to or filing with, any federal, state or local governmental
authority in the United States that have not already been taken or made and
which are in full force and effect, is required (i) for the pledge by each
Grantor of the Pledged Collateral or for the grant by each Grantor of the
security interest in the Collateral granted hereby or for the execution,
delivery or performance of this Agreement by such Grantor, (ii) for the
exercise by the Collateral Agent of the voting or other rights provided in this
Agreement with respect to the Pledged Collateral or the remedies in respect of
the Pledged Collateral pursuant to this Agreement (except as may be required in
connection with the disposition thereof by laws affecting the offering and sale
of securities generally), or (iii) for the exercise by the Collateral Agent of
any of its other rights or remedies hereunder. 

     5.3 Perfected First Priority Liens 

     In
the case of each Grantor, the security interests granted pursuant to this
Agreement (a) upon completion of the filings and other actions specified in Section
6.2 (which, in the case of all filings and other documents referred to in Section
6.2, have been delivered to the Collateral Agent in completed and duly
executed form) will constitute valid perfected security interests in all of the
Collateral in favor of the Collateral Agent, for the ratable benefit of the
Secured Parties, as collateral security for such Grantor’s Obligations,
enforceable in accordance with the terms hereof against all creditors of such
Grantor and any Persons purporting to purchase any Collateral from such Grantor
(except as to the ability of the Collateral Agent, for the ratable benefit of
the Secured Parties, to have the U.S. federal government make payments directly
to the Collateral Agent, for the ratable benefit of the Secured Parties, in
respect of Accounts arising under contracts with the U.S. federal government as
to which no filing has been or will be made under the Federal Assignment of
Claims Act) and (b) are prior to all other Liens on the Collateral in existence
on the date hereof, except for such liens created by the Existing Credit
Agreement, which liens shall be extinguished within 30 days after the Closing. 

     5.4 Chief Executive Office; Inventory and Equipment 

     On
the date hereof, each Grantor’s jurisdiction of organization, the location of
such Grantor’s chief executive office and principal place of business are
specified on Schedule 5.4. As of the date of this Agreement, the
locations listed on Schedule 5.4 to this Agreement constitute all
locations at which its Inventory (other than raw materials and work in process)
or Equipment is located, except for (a) Inventory or Equipment temporarily in
transit from one location listed on Schedule 5.4 to another location
listed on Schedule 5.4 or (b) Inventory or Equipment in transit with
common or other carriers to a location listed on Schedule 5.4. 

     5.5 Farm Products 

     None
of the Collateral constitutes, or is the Proceeds of, Farm Products. 

19

     5.6 Accounts 

          (a) In the case of each Grantor, no amount
payable to such Grantor under or in connection with any Account is evidenced by
any Instrument or Chattel Paper which has not been delivered to the Collateral
Agent. 

          (b) In the case of each Grantor, the
amounts represented by such Grantor to the Secured Parties from time to time as
owing to such Grantor in respect of the Accounts will at such times be
accurate. 

ARTICLE 6

COVENANTS

          Each
Grantor covenants and agrees with the Collateral Agent and the Secured Parties
that, from and after the date of this Agreement until the Obligations shall
have been Fully Satisfied: 

     6.1 Covenants in Securities Amendment and Purchase
Agreement 

     Each
Grantor shall take, or shall refrain from taking, as the case may be, each
action that is necessary to be taken or not taken, as the case may be, so that
no Default or Event of Default is caused by the failure to take such action or
to refrain from taking such action by such Grantor or any of its Subsidiaries. 

     6.2 Other Actions 

     In
order to further insure the attachment, perfection and priority of, and the
ability of the Collateral Agent to enforce, the Security Interest, each Grantor
agrees, in each case at such Grantor’s own expense, to take the following
actions with respect to the following Collateral: 

          (a) Instruments. If any Grantor
shall at any time hold or acquire any Instruments, such Grantor shall forthwith
indorse, assign and deliver the same to the Collateral Agent, accompanied by
such instruments of transfer or assignment duly executed in blank as the
Collateral Agent may from time to time reasonably request. 

          (b) Deposit Accounts. For each
deposit account that any Grantor at any time opens or maintains, such Grantor
and the Collateral Agent shall either (i) cause the depositary bank to agree to
comply with instructions from the Collateral Agent to such depositary bank
directing the disposition of funds from time to time credited to such deposit
account, without further consent of such Grantor or any other Person, pursuant
to a duly executed and completed Account Control Agreement substantially in the
form of Schedule 6.2 or in such other form proposed by such depository
bank as shall be acceptable to the Collateral Agent, it being understood that
the Collateral Agent shall issue such instructions to such depositary banks
only in connection with the exercise of remedies following the occurrence of an
Event of Default, or (ii) arrange for the Collateral Agent to become the
customer of the depositary bank with respect to the deposit account, with the
Grantor being permitted, only with the consent of the Collateral Agent, to
exercise rights to withdraw funds from such deposit account. The provisions of
this paragraph shall not apply to (A) any deposit account for which any
Grantor, the depositary bank and the 

20

Collateral
Agent have entered into a cash collateral agreement specially negotiated among
such Grantor, the depositary bank and the Collateral Agent for the specific
purpose set forth therein and (B) deposit accounts for which the Collateral
Agent is the depositary. 

          (c) Investment Property. Except to
the extent otherwise provided in ARTICLE 4, if any Grantor shall at any time
hold or acquire any certificated securities, such Grantor shall forthwith
indorse, assign and deliver the same to the Collateral Agent, accompanied by
such instruments of transfer or assignment duly executed in blank as the
Collateral Agent may from time to time specify. If any securities now or
hereafter acquired by any Grantor are uncertificated and are issued to such
Grantor or its nominee directly by the issuer thereof, such Grantor shall
immediately notify the Collateral Agent thereof and, at the Collateral Agent’s
request and option, pursuant to an agreement in form and substance reasonably
satisfactory to the Collateral Agent, either (i) cause the issuer to agree to
comply with instructions from the Collateral Agent as to such securities, without
further consent of any Grantor or such nominee, or (ii) arrange for the
Collateral Agent to become the registered owner of the securities. If any
securities, whether certificated or uncertificated, or other investment
property now or hereafter acquired by any Grantor are held by such Grantor or
its nominee through a securities intermediary or commodity intermediary, such
Grantor shall immediately notify the Collateral Agent thereof and, at the
Collateral Agent’s request and option, pursuant to an agreement in form and
substance reasonably satisfactory to the Collateral Agent, either (i) cause
such securities intermediary or (as the case may be) commodity intermediary to
agree to comply with entitlement orders or other instructions from the
Collateral Agent to such securities intermediary as to such security
entitlements, or (as the case may be) to apply any value distributed on account
of any commodity contract as directed by the Collateral Agent to such commodity
intermediary, in each case without further consent of any Grantor or such
nominee, or (ii) in the case of Financial Assets or other Investment Property
held through a securities intermediary, arrange for the Collateral Agent to
become the entitlement holder with respect to such investment property, with
the Grantor being permitted, only with the consent of the Collateral Agent, to
exercise rights to withdraw or otherwise deal with such investment property.
The Collateral Agent agrees with each of the Grantors that the Collateral Agent
shall not give any such entitlement orders or instructions or directions to any
such issuer, securities intermediary or commodity intermediary, and shall not
withhold its consent to the exercise of any withdrawal or dealing rights by any
Grantor, unless an Event of Default has occurred and is continuing, or, after
giving effect to any such investment and withdrawal rights would occur. The
provisions of this paragraph shall not apply to any financial assets credited
to a securities account for which the Collateral Agent is the securities
intermediary.  

          (d) Electronic Chattel Paper and
Transferable Records. If any Grantor at any time holds or acquires an
interest in any electronic chattel paper or any “transferable record,” as that
term is defined in Section 201 of the Federal Electronic Signatures in Global
and National Commerce Act, or in Section 16 of the Uniform Electronic
Transactions Act as in effect in any relevant jurisdiction, such Grantor shall
promptly notify the Collateral Agent thereof and, at the request of the
Collateral Agent, shall take such action as the Collateral Agent may reasonably
request to vest in the Collateral Agent control under New York UCC Section
9-105 of such electronic chattel paper or control under Section 201 of the
Federal Electronic Signatures in Global and National Commerce Act or, as the
case may be, Section 16 of the Uniform Electronic Transactions Act, as so in
effect in such jurisdiction, of such transferable record. The Collateral 

21

Agent agrees
with such Grantor that the Collateral Agent will arrange. pursuant to
procedures reasonably satisfactory to the Collateral Agent and so long as such
procedures will not result in the Collateral Agent’s loss of control. for the
Grantor to make alterations to the electronic chattel paper or transferable
record permitted under UCC Section 9-105 or, as the case may be, Section 201 of
the Federal Electronic Signatures in Global and National Commerce Act or
Section 16 of the Uniform Electronic Transactions Act for a party in control to
allow without loss of control, unless an Event of Default has occurred and is
continuing or would occur after taking into account any action by such Grantor
with respect to such electronic chattel paper or transferable record. 

          (e) Letter-of-Credit Rights. If any
Grantor is at any time a beneficiary under a letter of credit now or hereafter
issued in favor of such Grantor, such Grantor shall promptly notify the
Collateral Agent thereof and, at the request and option of the Collateral
Agent, such Grantor shall, pursuant to an agreement in form and substance
reasonably satisfactory to the Collateral Agent, either (i) arrange for the
issuer and any confirmer of such letter of credit to consent to an assignment
to the Collateral Agent of the proceeds of any drawing under the letter of
credit or (ii) arrange for the Collateral Agent to become the transferee
beneficiary of the letter of credit, with the Collateral Agent agreeing, in
each case, that the proceeds of any drawing under the letter of credit are to
be paid to the applicable Grantor unless an Event of Default has occurred or is
continuing. 

          (f) Commercial Tort Claims. If any
Grantor shall at any time hold or acquire a commercial tort claim in an amount
reasonably estimated to exceed $100,000, such Grantor shall promptly notify the
Collateral Agent thereof in a writing signed by such Grantor including a
summary description of such claim and grant to the Collateral Agent in such
writing a security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance
reasonably satisfactory to the Collateral Agent. 

          (g) Leasehold Deposits. If any
Grantor shall at any time hold or acquire any leasehold deposits, such Grantor
shall promptly notify the Collateral Agent thereof, and shall authorize the
Collateral Agent to file a UCC-9 financing statement in the county where the
leasehold is located and in the state of organization of such Grantor. 

     6.3 Covenants Regarding Patent, Trademark and
Copyright Collateral. 

          (a) Each Grantor agrees that it will not do
any act or omit to do any act (and will exercise commercially reasonable
efforts to prevent its licensees from doing any act or omitting to do any act)
whereby any Patent that is material to the conduct of such Grantor’s business
may become invalidated or dedicated to the public, and agrees that it shall
continue to mark any products covered by a Patent with the relevant patent
number as necessary and sufficient to establish and preserve its maximum rights
under applicable patent laws. 

          (b) Each Grantor (either itself or through
its licensees or its sublicensees) will, for each Trademark material to the
conduct of such Grantor’s business, (i) maintain such Trademark in full force
free from any claim of abandonment or invalidity for non-use, (ii) maintain the
quality of products and services offered under such Trademark, (iii) display
such Trademark with notice of Federal or foreign registration to the extent
necessary and sufficient to establish and 

22

preserve its
maximum rights under applicable law and (iv) not knowingly use or knowingly
permit the use of such Trademark in violation of any third party rights. 

          (c) Each Grantor (either itself or through
its licensees or sublicensees) will, for each work covered by a material
Copyright, continue to publish, reproduce, display, adopt and distribute the
work with appropriate copyright notice as necessary and sufficient to establish
and preserve its maximum rights under applicable copyright laws. 

          (d) Each Grantor shall notify the
Collateral Agent promptly if it knows or has reason to know that any Patent,
Trademark or Copyright material to the conduct of its business may become
abandoned, lost or dedicated to the public, or of any materially adverse
determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, United States Copyright Office or any court or similar office
of any country) regarding such Grantor’s ownership of any Patent, Trademark or
Copyright, its right to register the same, or its right to keep and maintain
the same. 

          (e) In no event shall any Grantor, either
itself or through any agent, employee, licensee or designee, file an
application for any Patent, Trademark or Copyright (or for the registration of
any Trademark or Copyright) with the United States Patent and Trademark Office,
United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, unless it promptly informs the Collateral Agent, and, upon
request of the Collateral Agent, executes and delivers any and all agreements,
instruments, documents and papers as the Collateral Agent may reasonably
request to evidence the Collateral Agent’s security interest in such Patent,
Trademark or Copyright, and each Grantor hereby appoints the Collateral Agent as
its attorney-in-fact to execute and file such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed; such
power, being coupled with an interest, is irrevocable. 

          (f) Each Grantor will take all necessary
steps that are consistent with the practice in any proceeding before the United
States Patent and Trademark Office, United States Copyright Office or any
office or agency in any political subdivision of the United States or in any
other country or any political subdivision thereof, to maintain and pursue each
material application relating to the Patents, Trademarks and/or Copyrights (and
to obtain the relevant grant or registration) and to maintain each issued
Patent and each registration of the Trademarks and Copyrights that is material
to the conduct of any Grantor’s business, including timely filings of
applications for renewal, affidavits of use, affidavits of incontestability and
payment of maintenance fees, and, if consistent with good business judgment, to
initiate opposition, interference and cancellation proceedings against third
parties. 

          (g) In the event that any Grantor has
reason to believe that any Collateral consisting of a Patent. Trademark or
Copyright material to the conduct of any Grantor’s business has been or is
about to be infringed, misappropriated or diluted by a third party, such
Grantor promptly shall notify the Collateral Agent and shall, if consistent
with good business judgment. promptly sue for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and take such other actions as are appropriate
under the circumstances to protect such Collateral. 

23

          (h) Upon and during the continuance of an
Event of Default, each Grantor shall use its best efforts to obtain all
requisite consents or approvals by the licensor of each Copyright License,
Patent License or Trademark License to effect the assignment of all such
Grantor’s right, title and interest thereunder to the Collateral Agent or its
designee. 

     6.4 Payment of Obligations 

     Each
Grantor will pay and discharge or otherwise satisfy at or before maturity or
before they become delinquent, as the case may be, all taxes, assessments and
governmental charges or levies imposed upon the Collateral or in respect of
income or profits therefrom, as well as all claims of any kind (including,
without limitation, claims for labor, materials and supplies) against or with
respect to the Collateral, except that no such charge need be paid if the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings, reserves in conformity with GAAP with respect thereto
have been provided on the books of such Grantor and such proceedings could not
reasonably be expected to result in the sale, forfeiture or loss of any
material portion of the Collateral or any interest therein. 

     6.5 Maintenance of Perfected Security Interest;
Further Documentation 

          (a) Each Grantor shall maintain the
security interest created by this Agreement as a perfected security interest
having first priority pursuant to
Section 5.3 and shall defend such
security interest against the claims and demands of all Persons whomsoever. 

          (b) Each Grantor will furnish to the
Collateral Agent and the Secured Parties from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Collateral Agent may
reasonably request, all in reasonable detail. 

          (c) At any time and from time to time, upon
the written request of the Collateral Agent, and at the sole expense of each
Grantor, such Grantor, will promptly and duly execute and deliver, and have recorded,
such further instruments and documents and take such further actions as the
Collateral Agent may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code (or other similar
laws) in effect in any jurisdiction with respect to the security interests
created hereby. 

     6.6 Changes in Locations, Name, etc. 

          No
Grantor will, except upon 15 days prior written notice to the Collateral Agent
and delivery to the Collateral Agent of all additional executed financing
statements and other documents reasonably requested by the Collateral Agent to
maintain the validity, perfection and priority of the security interests
provided for herein: 

          (a) change its jurisdiction of
organization, the location of its chief executive office, or the location of
its sole place of business from that referred to in Schedule 5.4 above;
or 

24

          (b) change its name, identity or corporate
structure to such an extent that any financing statement filed by the
Collateral Agent in connection with this Agreement would become misleading; or 

          (c) make any other change(s) which might
affect the perfection or priority of the Secured Parties’ Lien in the
Collateral. 

     6.7 Notices 

     In
the case of each Grantor, such Grantor will advise the Collateral Agent and the
Secured Parties promptly, in reasonable detail, of: 

          (a) any Lien (other than security interests
created hereby or Liens permitted under the Securities Amendment and Purchase
Agreement) on any of the Collateral which would adversely affect the ability of
the Collateral Agent to exercise any of its remedies hereunder; and 

          (b) of the occurrence of any other event
which could reasonably be expected to have a material adverse effect on the
aggregate value of the Collateral or on the security interests created hereby. 

     6.8 Accounts 

          (a) Each Grantor, other than in the
ordinary course of business consistent with its past practice, will not (i)
grant any extension of the time of payment of any Account, (ii) compromise or
settle any Account for less than the full amount thereof, (iii) release, wholly
or partially, any Person liable for the payment of any Account, (iv) allow any
credit or discount whatsoever on any Account or (v) amend, supplement or modify
any Account in any manner that could adversely affect the value thereof. 

     6.9 Maintenance of Inventory and Equipment 

          (a) Each Grantor hereby covenants that is
shall keep the Inventory and Equipment (other than raw materials and work in
process and Inventory sold in the ordinary course of business and Equipment
sold in accordance with the terms of the Securities Amendment and Purchase
Agreement) at the places specified on Schedule 5.4 hereof and deliver
written notice to the Collateral Agent at least 30 days prior to establishing
any other location at which it reasonably expects to maintain Inventory (other
than raw materials and work in process) or Equipment, in which jurisdiction all
action required by paragraph (b) hereof shall have been taken with respect to
all such Inventory or Equipment, as the case may be, in order to perfect the
security interest granted therein under this Agreement. 

          (b) Maintain or cause to be maintained in
good repair, working order and condition, excepting ordinary wear and tear and
damage due to casualty, all of the Inventory or Equipment, and make or cause to
be made all appropriate repairs, renewals and replacements thereof, to the
extent not obsolete and consistent with past practice of the each Grantor, as
quickly as practicable after the occurrence of any loss or damage thereto which
are necessary or desirable to such end. Each Grantor shall promptly furnish to
the Collateral Agent a statement respecting any material loss or damage as a
result of a single occurrence to any of its Inventory or Equipment which has an
aggregate fair market value exceeding $25,000. 

25

     6.10 Additional Shares 

     Each
Grantor agrees that it will (a) cause each issuer of the Pledged Securities
subject to its control not to issue any stock or other securities in addition to
or in substitution for the Pledged Securities issued by such issuer, except to
such Grantor or as otherwise permitted under the Securities Amendment and
Purchase Agreement, and (b) pledge, hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all additional shares of stock or
other securities of each issuer of the Pledged Securities. Each Grantor hereby
authorizes the Collateral Agent to modify this Agreement by amending Schedule
4.1 to include such additional shares or other securities. 

ARTICLE 7

REMEDIAL PROVISIONS 

     7.1 Certain Matters Relating to Accounts

          (a) The Collateral Agent shall have the
right to make test verifications of the Accounts in any manner and through any
medium that it reasonably considers advisable, and each Grantor shall furnish
all such assistance and information as the Collateral Agent may require in
connection with such test verifications. At any time and from time to time,
upon the Collateral Agent’s request and at the expense of the relevant Grantor,
such Grantor shall cause independent public accountants or others satisfactory
to the Collateral Agent to furnish to the Collateral Agent reports showing
reconciliations, aging and test verifications of, and trial balances for, the
Accounts. 

          (b) The Collateral Agent hereby authorizes
each Grantor to collect such Grantor’s Accounts, subject to the Collateral
Agent’s direction and control, and the Collateral Agent may curtail or
terminate said authority at any time after the occurrence and during the
continuance of an Event of Default. If required by the Collateral Agent at any
time after the occurrence and during the continuance of an Event of Default,
any payments of Accounts, when collected by any Grantor, (i) shall be forthwith
(and, in any event, within two Business Days) deposited by such Grantor in the
exact form received, duly indorsed by such Grantor to the Collateral Agent if
required, in a Collateral Account maintained under the sole dominion and
control of the Collateral Agent, subject to withdrawal by the Collateral Agent
for the account of the Secured Parties only as provided in Section 7.4,
and (ii) until so turned over, shall be held by such Grantor in trust for the
Collateral Agent and the Secured Parties, segregated from other funds of such
Grantor. Each such deposit of Proceeds of Accounts shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit. 

          (c) At the Collateral Agent’s request, each
Grantor shall deliver to the Collateral Agent all original and other documents
evidencing, and relating to, the agreements and transactions which gave rise to
the Accounts, including, without limitation, all original orders, invoices and
shipping receipts. 

     7.2 Communications with Obligors; Grantors Remain
Liable 

          (a) The Collateral Agent in its own name or
in the name of others may at any time after the occurrence and during the
continuance of an Event of Default communicate with 

26

obligors under the Accounts to
verify with them to the Collateral Agent’s satisfaction the existence, amount
and terms of any Accounts. 

          (b)
Upon the request of the Collateral Agent at any time
after the occurrence and during the continuance of an Event of Default, each
Grantor shall notify obligors on the Accounts that the Accounts have been
assigned to the Collateral Agent for the ratable benefit of the Secured Parties
and that payments in respect thereof shall be made directly to the Collateral
Agent. 

          (c)
Anything herein to the contrary notwithstanding, each
Grantor shall remain liable under each of the Accounts to observe and perform
all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise
thereto. Neither the Collateral Agent nor any Secured Party shall have any
obligation or liability under any Account (or any agreement giving rise
thereto) by reason of or arising out of this Agreement or the receipt by the
Collateral Agent or any Secured Party of any payment relating thereto, nor
shall the Collateral Agent or any Secured Party be obligated in any manner to
perform any of the obligations of any Grantor under or pursuant to any Account
(or any agreement giving rise thereto), to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by it or as
to the sufficiency of any performance by any party thereunder, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times. 

     7.3 Proceeds to
be Turned Over To Collateral Agent 

     In
addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 7.1 with respect to payments of Accounts, if an
Event of Default shall occur and be continuing, all Proceeds received by any
Grantor consisting of cash, checks and other near-cash items shall be held by
such Grantor in trust for the Collateral Agent and the Secured Parties,
segregated from other funds of such Grantor, and shall, forthwith upon receipt
by such Guarantor, be turned over to the Collateral Agent in the exact form
received by such Guarantor (duly indorsed by such Grantor to the Collateral
Agent, if required). All Proceeds received by the Collateral Agent hereunder
shall be held by the Collateral Agent in a Collateral Account maintained under
its sole dominion and control. All Proceeds while held by the Collateral Agent
in a Collateral Account (or by such Grantor in trust for the Collateral Agent
and the Secured Parties) shall continue to be held as collateral security for
all the Obligations and shall not constitute payment thereof until applied as
provided in Section 7.4. 

     7.4 Application
of Proceeds 

     If
an Event of Default shall have occurred and be continuing, at any time at the
Collateral Agent’s election, the Collateral Agent may apply all or any part of
Proceeds held in any Collateral Account in payment of the Obligations in such
order as the Collateral Agent may elect, and any part of such funds which the
Collateral Agent elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the
Collateral Agent to the Company or to whomsoever may be lawfully entitled to
receive the same. Any balance of such Proceeds remaining after the Obligations
shall have been Fully Satisfied shall be paid over to the Company or to whomsoever
may be lawfully entitled to receive the same. 

27

     7.5 New York
UCC and Other Remedies 

     If
an Event of Default shall occur and be continuing, the Collateral Agent, on
behalf of the Secured Parties, may exercise, in addition to all other rights
and remedies granted to them in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the New York UCC or any other applicable law.
Without limiting the generality of the foregoing, the Collateral Agent, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon any Grantor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker’s board or office of
the Collateral Agent or any Secured Party or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Collateral Agent or any Secured Party shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in any Grantor, which right or
equity is hereby waived and released. Each Grantor further agrees, at the
Collateral Agent’s request, to assemble the Collateral and make it available to
the Collateral Agent at places which the Collateral Agent shall reasonably select,
whether at such Grantor’s premises or elsewhere. The Collateral Agent shall
apply the net proceeds of any action taken by it pursuant to this Section
7.5, after deducting all reasonable costs and expenses of every kind
incurred in connection therewith or incidental to the care or safekeeping of
any of the Collateral or in any way relating to the Collateral or the rights of
the Collateral Agent and the Secured Parties hereunder, including, without
limitation, reasonable attorneys’ fees and disbursements, to the payment in
whole or in part of the Obligations, in such order as the Collateral Agent may
elect, and only after such application and after the payment by the Collateral
Agent of any other amount required by any provision of law, including, without
limitation, Section 9-504(1)(c) of the New York UCC, need the Collateral Agent
account for the surplus, if any, to any Grantor. To the extent permitted by
applicable law, each Grantor waives all claims, damages and demands it may
acquire against the Collateral Agent or any Secured Party arising out of the
exercise by them of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or
other disposition. 

     7.6 Waiver;
Deficiency 

     Each
Grantor waives and agrees not to assert any rights or privileges which it may
acquire under Section 9-112 of the New York UCC. Each Grantor shall remain
liable for any deficiency if the proceeds of any sale or other disposition of
the Collateral are insufficient to pay its Obligations and the fees and
disbursements of any attorneys employed by the Collateral Agent or any Secured
Party to collect such deficiency. 

28

ARTICLE 8

THE COLLATERAL AGENT

     8.1 Collateral
Agent’s Appointment by Noteholders, Etc. 

          Each
Noteholder hereby irrevocably designates and appoints Pacific Aerie Holding LLC
as the Collateral Agent of such Noteholder under this Agreement and the other
Transaction Documents, and each such Noteholder irrevocably authorizes Pacific
Aerie Holding LLC, as the Collateral Agent for such Noteholder, to take such
action on its behalf under the provisions of this Agreement and the other
Transaction Documents and to exercise such powers and perform such duties as
are expressly delegated to the Collateral Agent by the terms of this Agreement
and the other Transaction Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Collateral Agent shall not have any duties or
responsibilities except those expressly set forth herein, or any fiduciary
relationship with any Noteholder in connection with this Agreement, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Transaction Document
or otherwise exist against the Collateral Agent. 

     8.2 Delegation
of Duties 

          The
Collateral Agent may execute any of its duties under this Agreement and the
other Transaction Documents by or through agents or attorneys-in-fact and shall
be entitles to advice of counsel concerning all matters pertaining to such
duties. The Collateral Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys in-fact selected by it with reasonable
care. 

     8.3 Exculpatory
Provisions 

          Neither
the Collateral Agent nor any of its officers, directors, shareholders, partners,
employees, agents or attorneys-in-fact shall be (a) liable for any action
lawfully taken or omitted to be taken by it or such person under or in
connection with this Agreement or any other Transaction Document (except for
its or such person’s own gross negligence or willful misconduct) or (b)
responsible in any manner to any of the Noteholders for any recitals,
statements, representations or warranties made by any Grantor or any officer
thereof contained in this Agreement or any other Transaction Document or in any
certificate, report, statement or other document referred to or provided for
in, or received by the Collateral Agent under or in connection with, this
Agreement or any other Transaction Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
the Notes or any other Transaction Document or for any failure of any Grantor
to perform its obligations hereunder or thereunder. The Collateral Agent shall
not be under any obligation to any Noteholder to ascertain or to inquire as to
the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Transaction Document, or to inspect
the properties, books or records of any Grantor. 

     8.4 Reliance by
Collateral Agent 

29

          (a)
The Collateral Agent shall be entitled to rely, and
shall be fully protected in relying, upon (i) any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telex, fax
or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper person or persons and (ii) advice and statements of legal counsel
(including, without limitation, counsel to any Grantor), independent
accountants and other experts selected by the Collateral Agent. 

          (b) The Collateral Agent may deem and treat
the payee of any Amended Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Collateral Agent in accordance with Section 9.2. 

          (c) The Collateral Agent may be fully
justified in failing or refusing to take any action under this Agreement or any
other Transaction Document unless it shall first receive such advice or
concurrence of the Required Noteholders as it deems appropriate or it shall
first be indemnified to its satisfaction by the Noteholders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. In all cases the Collateral Agent shall be
fully protected in acting or in refraining from acting under this Agreement and
the Amended Notes and the other Transaction Documents in accordance with a
request of the Required Noteholders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Noteholders. 

     8.5 Notice of
Default 

          The
Collateral Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default unless the Collateral Agent has
received notice from a Noteholder or a Grantor (or a Guarantor or Collateral
Party) referring to this Agreement, describing such Default or Event of Default
and stating that such notice is a “notice of default.” In the event that the
Collateral Agent receives such a notice, the Collateral Agent shall give notice
thereof to the Noteholders. The Collateral Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Noteholders; provided, that unless and until the Collateral
Agent shall have received such directions, the Collateral Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Noteholders. 

     8.6
Non-Reliance on Collateral Agent and Other Noteholders 

          Each
Noteholder expressly acknowledges that neither the Collateral Agent nor any of
its officers, directors, shareholders, partners, employees, agents or
attorneys-in-fact has made any representations or warranties to it and that no
act by the Collateral Agent hereinafter taken, including any review of the
affairs of any Grantor, shall be deemed to constitute any representation or
warranty by the Collateral Agent to any Noteholder. Each Noteholder represents
to the Collateral Agent that it has, independently and without reliance upon
the Collateral Agent or any other Noteholder, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Grantors and made its own decision to
enter into the transactions contemplated by the Transaction Documents. Each
Noteholder also represents to the Collateral Agent that it will independently
and without reliance 

30

upon the
Collateral Agent or any other Noteholder, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Transaction Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Grantors. Except for notices, reports and other documents expressly required to
be furnished to the Noteholders by the Collateral Agent hereunder, the
Collateral Agent shall not have any duty or responsibility to provide any
Noteholder with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Grantor which may come into the possession of the
Collateral Agent or any of its officers, directors, members, partners,
employees, agents or attorneys-in-fact. 

     8.7
Indemnification 

          The
Noteholders agree to indemnify the Collateral Agent in its capacity as such (to
the extent not reimbursed by the Grantors and without limiting any obligation
of any Grantor or Guarantor to do so), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Notes or any other amounts payable hereunder) be imposed on, incurred by or
asserted against the Collateral Agent in any way relating to or arising out of
this Agreement, any of the other Transaction Documents or any documents
contemplated by or referred to herein or therein or the transactions contemplated
hereby or thereby or any action taken or omitted by the Collateral Agent under
or in connection with any of the foregoing, provided that no Noteholder shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses of
disbursements resulting solely from the Collateral Agent’s gross negligence or
willful misconduct. The agreements in this subsection shall survive the payment
of the Notes and all other amounts payable hereunder. 

     8.8 Collateral
Agent In Its Individual Capacity 

          (a)
The Collateral Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with any of the Grantors as though
the Collateral Agent were not the Collateral Agent hereunder and under the
other Transaction Documents. 

          (b) With respect to its Notes made,
renewed, amended or restated by it and any Note issued to it, the Collateral
Agent shall have the same rights and powers under this Agreement and the other
Transaction Documents as any Noteholder and may exercise the same as though it
were not the Collateral Agent, and the terms “Noteholder” and “Noteholders”
shall include the Collateral Agent in its individual capacity.

     8.9 Successor
Agent 

          (a)
The Collateral Agent may resign as Collateral Agent
upon thirty (30) days’ notice to the Noteholders. If the Collateral Agent shall
resign as Collateral Agent under this Agreement and the other Transaction Documents,
then the Required Noteholders shall appoint from among the Noteholders a
successor agent for the Noteholders, subject to approval by the Grantors, which
approval shall not be unreasonably withheld, delayed or conditioned. Any
rejection by any Grantor of a successor Collateral Agent shall specify the
reasons for such rejection. Failure 

31

of the
Grantors to approve or rejection a successor Collateral Agent within ten (10)
days following request for approval shall be deemed to constitute approval. 

          (b) Upon such appointment and approval, (i)
the successor agent shall succeed to the rights, powers and duties of the
Collateral Agent, (ii) the term “Collateral Agent” shall mean such successor
agent effective upon its appointment, and (iii) the former Collateral Agent’s
rights, powers and duties as Collateral Agent shall be terminated, without any
other or further act or deed on the part of such former Collateral Agent or any
parties to this Agreement or any Noteholders. 

          (c) After any retiring Collateral Agent’s
resignation as Collateral Agent, the provisions of this Section 8.9
shall insure to its benefit as to any actions taken or omitted to be taken by
it while it was Collateral Agent under this Agreement and the other Transaction
Documents. 

     8.10 Collateral Agent’s Appointment by
Grantors as Attorney-in-Fact, Etc. 

          (a)
Each Grantor hereby irrevocably constitutes and
appoints the Collateral Agent and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement, and, without limiting the generality of the
foregoing, each Grantor hereby gives the Collateral Agent the power and right,
on behalf of such Grantor, without notice to or assent by such Grantor, to do
any or all of the following: 

	
 

	
 

	
 

	
          (i) in
 the name of such Grantor or its own name, or otherwise, take possession of
 and indorse and collect any checks, drafts, notes, acceptances or other
 instruments for the payment of moneys due under any Account or with respect
 to any other Collateral and file any claim or take any other action or
 proceeding in any court of law or equity or otherwise deemed appropriate by
 the Collateral Agent for the purpose of collecting any and all such moneys
 due under any Account or with respect to any other Collateral whenever
 payable; 

	
 

	
 

	
 

	
          (ii) upon
 such Grantor’s failure to do so, pay or discharge taxes and Liens levied or
 placed on or threatened against the Collateral, effect any repairs or any
 insurance called for by the terms of this Agreement and pay all or any part
 of the premiums therefor and the costs thereof; 

	
 

	
 

	
 

	
          (iii) execute,
 in connection with any sale provided for in Section 7.5, any
 indorsements, assignments or other instruments of conveyance or transfer with
 respect to the Collateral; and 

	
 

	
 

	
 

	
          (iv) (A)
 direct any party liable for any payment under any of the Collateral to make
 payment of any and all moneys due or to become due thereunder directly to the
 Collateral Agent or as the Collateral Agent shall direct; (B) ask or demand
 for, collect, and receive payment of and receipt for, any and all moneys,
 claims and other amounts due or to become due at any time in respect of or
 arising out of any Collateral; (C) sign 

32

	
 

	
 

	
 

	
and indorse
 any invoices, freight or express bills, bills of lading, storage or warehouse
 receipts, drafts against debtors, assignments, verifications, notices and
 other documents in connection with any of the Collateral; (D) commence and
 prosecute any suits, actions or proceedings at law or in equity in any court
 of competent jurisdiction to collect the Collateral or any portion thereof
 and to enforce any other right in respect of any Collateral; (E) defend any
 suit, action or proceeding brought against such Guarantor with respect to any
 Collateral; (F) settle, compromise or adjust any such suit, action or
 proceeding and, in connection therewith, give such discharges or releases as
 the Collateral Agent may deem appropriate; and (G) generally, sell, transfer,
 pledge and make any agreement with respect to or otherwise deal with any of
 the Collateral as fully and completely as though the Collateral Agent were
 the absolute owner thereof for all purposes, and do, at the Collateral
 Agent’s option and such Grantor’s expense, at any time, or from time to time,
 all acts and things which the Collateral Agent deems necessary to protect,
 preserve or realize upon the Collateral and the Collateral Agent’s and the
 Secured Parties’ security interests therein and to effect the intent of this
 Agreement, all as fully and effectively as such Grantor might do. Anything in
 this Section 8.10(a) to the contrary notwithstanding, the Collateral
 Agent agrees that it will not exercise any rights under the power of attorney
 provided for in this Section 8.10(a) unless an Event of Default shall
 have occurred and be continuing. 

          (b)
If any Grantor fails to perform or comply with any of
its agreements contained herein, the Collateral Agent, at its option, but
without any obligation so to do, may perform or comply, or otherwise cause
performance or compliance, with such agreement. The Collateral Agent shall use
its best efforts to notify each Grantor if the Collateral Agent shall itself
perform or comply, or otherwise, cause performance or compliance, with any of
such Grantor’s agreements hereunder, but failure of the Collateral Agent to so
notify such Grantor should not affect the obligations of such Grantor. 

          (c) Each Grantor is authorized to assume
that, upon receipt by the Collateral Agent of any payment for the account of
the Secured Parties hereunder, the Collateral Agent will transmit such payment
to the Secured Parties in accordance with this Agreement, and no Grantor shall
be held liable for the Collateral Agent’s failure to do so. 

          (d)
The expenses of the Collateral Agent incurred in
connection with actions undertaken as provided in this Section 8.10,
together with interest thereon at a rate per annum equal to the rate per annum
at which interest would then be accruing on the Amended Notes, from the date of
payment by the Collateral Agent to the date reimbursed by the relevant Grantor,
shall be payable by such Grantor to the Collateral Agent on demand. 

          (e) Each Grantor hereby ratifies all that
said attorneys shall lawfully do or cause to be done by virtue hereof. All
powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released. 

     8.11 Duty of
Collateral Agent 

     The
Collateral Agent’s sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the New York UCC or otherwise, shall be to deal with it in the same manner
as the Collateral Agent deals with similar 

33

property for
its own account. Neither the Collateral Agent, any Secured Party nor any of
their respective officers, directors, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of any Grantor or any other Person or to
take any other action whatsoever with regard to the Collateral or any part
thereof. The powers conferred on the Collateral Agent and the Secured Parties
hereunder are solely to protect the Collateral Agent’s and the Secured Parties’
interests in the Collateral and shall not impose any duty upon the Collateral
Agent or any Secured Party to exercise any such powers. The Collateral Agent
and the Secured Parties shall be accountable only for amounts that they
actually receive as a result of the exercise of such powers, and neither they
nor any of their officers, directors, employees or agents shall be responsible
to any Grantor for any act or failure to act hereunder, except for their own
gross negligence or willful misconduct. 

     8.12 Execution
of Financing Statements 

     Pursuant
to Section 9-402 of the New York UCC and any other applicable law, each Grantor
authorizes the Collateral Agent to file or record financing statements and
other filing or recording documents or instruments with respect to the
Collateral without the signature of such Grantor in such form and in such
offices as the Collateral Agent reasonably determines appropriate to perfect
the security interests of the Collateral Agent under this Agreement. A
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement or other filing or recording document or instrument for
filing or recording in any jurisdiction. 

     8.13 Authority
of Collateral Agent 

     The
Company and each Guarantor acknowledges that the rights and responsibilities of
the Collateral Agent under this Agreement with respect to any action taken by
the Collateral Agent or the exercise or non-exercise by the Collateral Agent of
any option, voting right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Agreement shall, as between the
Collateral Agent and the Secured Parties, be governed by an agreement between
the Collateral Agent and Secured Parties, as may exist from time to time among
them, but, as between the Collateral Agent and the Company and the Guarantors,
the Collateral Agent shall be conclusively presumed to be acting as agent for
the Secured Parties with full and valid authority so to act or refrain from
acting, and neither the Company nor any Guarantor shall be under any
obligation, or entitlement, to make any inquiry respecting such authority. 

ARTICLE 9

MISCELLANEOUS 

     9.1 Amendments
in Writing

     None
of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except in accordance with Section 11.7
of the Securities Amendment and Purchase Agreement. 

34

     9.2 Notices

     All
notices, requests and demands to or upon the Collateral Agent or the Company or
any Guarantor hereunder shall be effected in the manner provided for in the
Securities Amendment and Purchase Agreement; provided that any such notice,
request or demand to or upon any Guarantor shall be addressed to such Guarantor
at its notice address set forth on Schedule 5.4. 

     9.3 No Waiver
by Course of Conduct; Cumulative Remedies 

     Neither
the Collateral Agent nor any Secured Party shall by any act (except by a
written instrument pursuant to Section 9.1), delay, indulgence, omission
or otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default. No failure to exercise, nor any
delay in exercising, on the part of the Collateral Agent or any Secured Party,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Collateral Agent or any Secured
Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Collateral Agent or such
Secured Party would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by
law. 

     9.4 Enforcement
Expenses; Indemnification 

          (a)
Each Guarantor agrees to pay or reimburse each Secured
Party and the Collateral Agent for all its costs and expenses incurred in
collecting against such Guarantor under the guarantee contained in ARTICLE 2
or otherwise enforcing or preserving any rights under this Agreement and the
other Transaction Documents to which such Guarantor is a party, including,
without limitation, the fees and disbursements of counsel to each Secured Party
and of counsel to the Collateral Agent. 

          (b) The Company and each Guarantor agrees to
pay, and to save the Collateral Agent and the Secured Parties harmless from,
any and all liabilities with respect to, or resulting from any delay in paying,
any and all stamp, excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Agreement. 

          (c) The Company and each Guarantor agrees
to pay, and to save the Collateral Agent and the Secured Parties harmless from,
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance
and administration of this Agreement to the extent the Company would be
required to do so pursuant to the Securities Amendment and Purchase Agreement. 

          (d) The agreements in this Section 9.4
shall survive repayment of the Obligations and all other amounts payable under
the Securities Amendment and Purchase Agreement and the other Transaction
Documents. 

35

     9.5 Successors
and Assigns 

     This
Agreement shall be binding upon the successors and assigns of the Company and
each Guarantor and shall inure to the benefit of the Collateral Agent and the
Secured Parties and their successors and assigns; provided, that neither the
Company nor any Guarantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the Collateral
Agent. 

     9.6 Set-Off

     The
Company and each Guarantor hereby irrevocably authorizes the Collateral Agent
and each Secured Party at any time and from time to time following the
occurrence of and during the continuation of a Default or an Event of Default,
without notice to the Company or such Guarantor or any other Guarantor, any
such notice being expressly waived by the Company and each Guarantor, to
set-off and appropriate and apply any and all deposits (general or special,
time or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Collateral Agent or such Secured Party to or for the credit or the
account of such Person, or any part thereof in such amounts as the Collateral
Agent or such Secured Party may elect, against and on account of the
obligations and liabilities of such Person to the Collateral Agent or such Secured
Party hereunder and claims of every nature and description of the Collateral
Agent or such Secured Party against such Person, in any currency, whether
arising hereunder, under the Securities Amendment and Purchase Agreement, any
other Transaction Document or otherwise, as the Collateral Agent or such
Secured Party may elect, whether or not the Collateral Agent or any Secured
Party has made any demand for payment and although such obligations,
liabilities and claims may be contingent or unmatured. The Collateral Agent and
each Secured Party shall notify such Person promptly of any such set-off and
the application made by the Collateral Agent or such Secured Party of the
proceeds thereof, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of the
Collateral Agent and each Secured Party under this Section 9.6 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Collateral Agent or such Secured Party may have. 

     9.7
Counterparts 

     This
Agreement may be executed by one or more of the parties to this Agreement on
any number of separate counterparts (including by facsimile), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. 

     9.8
Severability 

     Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. 

36

     9.9 Section Headings 

     The
Section headings used in this Agreement are for convenience of reference only
and are not to affect the construction hereof or be taken into consideration in
the interpretation hereof. 

     9.10 Integration 

     This
Agreement and the other Transaction Documents represent the agreement of the
Company, the Guarantors, the Collateral Agent and the Secured Parties with
respect to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Collateral Agent or any
Secured Party relative to subject matter hereof and thereof not expressly set
forth or referred to herein or in the other Transaction Documents. 

     9.11 GOVERNING LAW 

     THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS
RULES THEREOF. 

     9.12 Submission To Jurisdiction; Waivers 

     The
Company and each Guarantor hereby irrevocably and unconditionally: 

          (a) submits for itself and its property in
any legal action or proceeding relating to this Agreement and the other
Transaction Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
from any thereof; 

          (b) consents that any such action or
proceeding may be brought in such courts and waives any objection that it may
now or hereafter have to the venue of any such action or proceeding in any such
court or that such action or proceeding was brought in an inconvenient court
and agrees not to plead or claim the same; 

          (c) agrees that service of process in any
such action or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Company or such Guarantor, as the case may be, at its
address referred to in Schedule 5.4 or at such other address of which
the Collateral Agent shall have been notified pursuant thereto; 

          (d) agrees that nothing herein shall affect
the right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and 

          (e) waives, to the maximum extent not
prohibited by law, any right it may have to claim or recover in any legal
action or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages. 

     9.13 Acknowledgements 

     The
Company and each Guarantor hereby acknowledges that: 

37

          (a) it has been advised by counsel in the
negotiation, execution and delivery of this Agreement and the other Transaction
Documents to which it is a party; 

          (b) neither the Collateral Agent nor any
Secured Party has any fiduciary relationship with or duty to the Company or any
Guarantor arising out of or in connection with this Agreement or any of the
other Transaction Documents, and the relationship between the Company and the
Guarantors, on the one hand, and the Collateral Agent and Secured Parties, on
the other hand, in connection herewith or therewith is solely that of debtor
and creditor; and 

          (c) no joint venture is created hereby or
by the other Transaction Documents or otherwise exists by virtue of the
transactions contemplated hereby among the Secured Parties or among the Company
or the Guarantors and the Secured Parties. 

     9.14 WAIVER OF JURY TRIAL 

     THE
COMPANY AND EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, EACH OF
THE SECURED PARTIES AND THE COLLATERAL AGENT, HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN. 

     9.15 Additional Guarantors; Additional Grantors 

          Each
Subsidiary of the Company that is required to become a Grantor pursuant to the
Securities Amendment and Purchase Agreement shall become a Grantor for all
purposes of this Agreement upon execution and delivery by such Subsidiary of a
Grantor Assumption Agreement in the form of Annex 1 hereto. 

     9.16 Releases 

          (a) At such time as Obligations have been
Fully Satisfied, the Collateral shall be released from the Liens created
hereby, and this Agreement and all obligations (other than those expressly
stated to survive such termination) of the Collateral Agent, the Company and
each Guarantor hereunder shall terminate, all without delivery of any
instrument or performance of any act by any party, and all rights to the
Collateral shall revert to the Grantors. At the request and sole expense of any
Grantor following any such termination, the Collateral Agent shall deliver to
such Grantor any Collateral held by the Collateral Agent hereunder, and execute
and deliver to such Grantor such documents as such Grantor shall reasonably
request to evidence such termination. 

          (b) If any of the Collateral shall be sold,
transferred or otherwise disposed of by any Grantor in a transaction permitted
by the Securities Amendment and Purchase Agreement, then the Collateral Agent,
at the request and sole expense of such Grantor, shall execute and deliver to
such Grantor all releases or other documents reasonably necessary or desirable
for the release of the Liens created hereby on such Collateral. 

[signature
pages follow]

38

ANNEX 1

GRANTOR ASSUMPTION AGREEMENT

          GRANTOR
ASSUMPTION AGREEMENT, dated as of ________________, 20__, made by
______________________________, a ______________ corporation (the “Additional
Grantor”), in favor of [___________], as agent (in such capacity, the
“Agent”) for the purchasers of the New Notes and New Warrants (the “Purchasers”)
which are parties to that certain Securities Exchange and Purchase Agreement
dated as of December 23, 2008, by and among the Purchasers and the Company (as
amended, supplemented or otherwise modified from time to time, the “Purchase
Agreement”) and those individuals and entities who may become holders of
such New Notes and New Warrants from time to time (together with the
Purchasers, the “Secured Parties”). Capitalized terms not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement.  

W I T N E S S E T H :

          WHEREAS,
in connection with the Purchase Agreement, the Company and certain of its
Subsidiaries (other than the Additional Grantor) have entered into the
Guarantee and Collateral Agreement, dated as of ___________, 2008 (as amended,
supplemented or otherwise modified from time to time, the “Guarantee and
Collateral Agreement”) in favor of the Collateral Agent for the benefit of
the Secured Parties; 

          WHEREAS,
the Purchase Agreement requires the Additional Grantor to become a party to the
Guarantee and Collateral Agreement; and 

          WHEREAS,
the Additional Grantor has agreed to execute and deliver this Assumption
Agreement in order to become a party to the Guarantee and Collateral Agreement;

          NOW,
THEREFORE, IT IS AGREED: 

          1.
Guarantee and Collateral Agreement. By executing and delivering this
Assumption Agreement, the Additional Grantor, as provided in Section 9.15
of the Guarantee and Collateral Agreement, hereby becomes a party to the
Guarantee and Collateral Agreement as a Grantor thereunder with the same force
and effect as if originally named therein as a Grantor and, without limiting
the generality of the foregoing, hereby expressly assumes all obligations and
liabilities of a Grantor thereunder. The information set forth in Exhibit A
hereto is hereby added to the information set forth in Schedules ____________
to the Guarantee and Collateral Agreement. The Additional Grantor hereby
represents and warrants that each of the representations and warranties
contained in ARTICLE 5 of the Guarantee and Collateral Agreement is true
and correct on and as the date hereof (after giving effect to this Assumption
Agreement) as if made on and as of such date. 

          2.
GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

IN WITNESS
WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed
and delivered as of the date first above written. 

[ADDITIONAL
GRANTOR] 

	
 

	
 

	
By:

	
 

	
 

	

	
Name:

	
Title:

SCHEDULE 1 (i) 

COPYRIGHTS

There are no existing Copyrights or pending Copyrights.

SCHEDULE 1 (r)

LICENSE

There are no
existing or pending Licenses.

	
 

	
SCHEDULE 1 (w)

	
 

	

PATENTS

	
 

	
 

	
(1)

	
Method of
 generating a healthcare plan or wellness plan for a member of a group. 

	
 

	
 

	
(2)

	
Method and
 criterion for selecting patients for treatment. 

	
 

	
 

	
(3)

	
Care
 management method for managing the treatment of high risk patients. 

	
 

	
 

	
(4)

	
Care
 management method for managing the treatments of high risk mentally unstable
 patients. 

	
 

	
SCHEDULE 1(ff)

	
 

	
TRADEMARKS

	
 

	
 

	
 

	
(1)

	
MARK—SAMehr:

	
 

	
 

	
 

	
 

	
a.

	
It is
 intended that the above identified Trademark shall be used for medical
 software, namely, - MEDICAL MANAGEMENT SOFTWARE FOR MONITORING AND
 INTEGRATING DIFFERENT ASPECTS OF THE PATIENT’S CARE AND TREATMENT – in
 International Class 9 (Electrical & Scientific Apparatus).

	
 

	
 

	
 

	
(2)

	
MARK—Enhanced
 Care Initiatives Innovative/Targeted Health Solutions

	
 

	
 

	
 

	
 

	
a.

	
Medical
 coordination and assessment services to provided to patients by state
 licensed medical managers

	
 

	
 

	
 

	
(3)

	
MARK—Easy
 Care (Stylized)

	
 

	
 

	
 

	
 

	
a.

	
The Mark is
 used on advertising materials, advertising banners, billing statements,
 brochures, business cards, company e-mail accounts, company proprietary
 software, electronic and biometric devices furnished to patients, electronic
 medical records of patients, electronic presentations published for medical
 personnel, envelopes, exercise protocols for patients, giveaway promotional
 items, namely, T-shirts, pens and mugs, letterhead stationary, medical
 records for patients, notebooks, papers for medical records, prescription
 pads and treatment protocols for patients.

	
 

	
 

	
 

	
(4)

	
Enhanced
 Care Initiatives, Inc., acquired all right, title, interest and goodwill in
 and to US Application for Registration – EASY CARE – Serial Number 76612724.

	
 

	
 

	
 

	
(5)

	
Enhanced
 Care Initiatives, Inc., acquired all right, title, interest and goodwill in
 and to US Trademark Registration No. 3,075,366 – MINDFUL PATHS – Serial
 Number 76631406.

     SCHEDULE
4.1

PLEDGED SECURITIES

There are no existing Pledged Securities

	
 

	
SCHEDULE 5.4

	
 

	
CHIEF EXECUTIVE OFFICE AND PLACES OF BUSINESS

	
 

	
 

	
 

	
Alabama:

	
 

	
 

	
 

	
 

	
 •

	
Enhanced
 Care Initiatives of Alabama, Inc.

	
 

	
 

	
 

	
Connecticut:

	
 

	
 

	
 

	
 

	
 •

	
Enhance Care
 Initiatives, Inc.

	
 

	
 

	
 

	
 

	
 •

	
NP Care, LLC

	
 

	
 

	
 

	
Delaware:

	
 

	
 

	
 

	
 

	
•

	
HC
 Innovations, Inc. (PARENT COMPANY)

	
 

	
 

	
 

	
Florida:

	
 

	
 

	
 

	
 

	
•

	
NP Care, LLC

	
 

	
 

	
 

	
Illinois:

	
 

	
 

	
 

	
 

	
•

	
NP Care of Illinois,
 LLC

	
 

	
 

	
 

	
Massachusetts:

	
 

	
 

	
 

	
 

	
•

	
Enhanced
 Care Initiatives of MA, Inc.

	
 

	
 

	
 

	
 

	
•

	
NP Care of
 Massachusetts, LLC

	
 

	
 

	
 

	
New Jersey:

	
 

	
 

	
 

	
 

	
•

	
NP Care of
 New Jersey, LLC

	
 

	
 

	
 

	
New York:

	
 

	
 

	
 

	
 

	
•

	
Enhanced
 Care Initiative of New York, Inc.

	
 

	
 

	
 

	
 

	
•

	
Resident Care
 Medicine of New York, PLLC

	
 

	
 

	
 

	
Ohio:

	
 

	
 

	
 

	
 

	
•

	
NP Care of
 Ohio, LLC

	
 

	
 

	
 

	
Tennessee:

	
 

	
 

	
 

	
 

	
•

	
Enhanced
 Care Initiatives of Tennessee, Inc.

	
 

	
 

	
 

	
 

	
•

	
NP care of
 Tennessee, LLC

	
 

	
 

	
 

	
Texas:

	
 

	
 

	
 

	
 

	
•

	
Texas
 Enhanced Care Initiatives, Inc.

SCHEDULE 6.2

ACCOUNT CONTROL AGREEMENT

ACCOUNT
CONTROL AGREEMENT, dated as of _________, 20__, made by _________________, as “Secured Party,”____________________,
as “Grantor,”___________ as “Bank” in regards to Account Number ______________________.

WITNESSETH:

          WHEREAS,
in connection with the Securities Amendment and Purchase Agreement dated
______, 2008, Grantor has granted Secured Party a security interest in the
financial assets in the securities account identified above (the “Account”),
maintained by Bank for Grantor. 

          WHEREAS,
the parties are entering into this Agreement to provide for the control of the
Account as a means to perfect the security interest of Secured Party. 

          WHEREAS,
Bank has no responsibility to Secured Party in respect to the validity or
perfection of such security interest otherwise than to act in accordance with
the terms and conditions of this Agreement. 

          NOW,
therefore, it is agreed: 

          1. The Account. Bank represents and
warrants to Secured Party that Bank maintains the Account. Bank represents and
warrants that except for the claim and interest of Grantor and Secured Party,
Bank does not know of any claim to or interest in the Account or any financial
assets credited thereto. 

          2. Control by Secured Party. Bank will
comply with all written notifications it receives directing it to transfer or
redeem any financial assets in the Account (an “Entitlement Order”) (as set forth in Exhibit A attached
hereto) originated by an authorized person of the Secured Party (an “Authorized Person of Secured Party,” as set
forth in Exhibit B attached hereto) without further consent by Grantor. 

          3. Grantor’s Rights in Account. Until Bank
receives an Entitlement Order from an Authorized Person of Secured Party, Bank
may accept and comply with any Entitlement Order signed by an authorized person
of the Grantor (an “Authorized Person of
Grantor,” as set forth in Exhibit C attached hereto). If an
Authorized Person of Secured Party gives Bank an entitlement order notifying
Bank that Secured Party will exercise exclusive control over the Account, Bank
will cease complying with entitlement orders or other directions concerning the
Account originated by an Authorized Person of Grantor. All instructions
required under this Agreement will be delivered to Bank in writing, in either
original or facsimile form, executed by an Authorized Person. In its capacity
as Bank, Bank will accept all instructions and documents complying with the
above under the indemnities provided in this Agreement, and reserves the right
to refuse to accept any instructions or documents which fail, or appear to
fail, to comply. 

Further to
this procedure, Bank reserves the right to telephone an Authorized Person to
confirm the details of such instructions or documents if they are not already
on file with Bank as standing instructions. The parties agree that the above
constitutes a commercially reasonable security procedure. Entitlement orders
received after 12:00 p.m. E.S.T. will be treated as if received on the next
succeeding business day in New York. 

          4. Investments: Assets in the Account may
be invested only in investments specifically directed to the Bank in writing.
Neither Bank nor any of its affiliates assume any duty or liability for
monitoring the investment rating on any investments hereunder. 

          5. Priority of Secured Party’s Security
Interest.
Bank subordinates in favor of Secured Party any interest lien or right of
setoff it may have, now or in the future, against the Account or financial
assets in the Account (except that Bank may set off all amounts due to it in
respect of customary fees and expenses for the routine maintenance and
operation of the Account). 

          6. Statements, Confirmations and Notices of Adverse
Claims. Bank will send copies of all statements and confirmations
for the Account simultaneously to Grantor and Secured Party. Bank will use
reasonable efforts promptly to notify Secured Party and Grantor if any other
person claims that it has a property interest in the Account or any financial
asset in the Account. 

          7. Bank’s Responsibility. 

          (a)
Bank will not be liable to Secured Party for complying with entitlement orders
from an Authorized Person of Grantor that are received by Bank before Bank
receives and has a reasonable opportunity to act on an entitlement order from
an Authorized Person of Secured Party. 

          (b)
If at any time Bank is served with any judicial or administrative order,
judgment, decree, writ or other form of judicial or administrative process
which in any way affects the Account (including but not limited to orders of
attachment or garnishment or other forms of levies or injunctions or stays
relating to the transfer of the Account or any financial asset in the Account),
Bank is authorized to comply therewith in any manner it or legal counsel of its
own choosing deems appropriate; and if Bank complies with any such judicial or
administrative order, judgment, decree, writ or other form of judicial or
administrative process, Bank will not be liable to any of the parties hereto or
to any other person or entity even though such order, judgment, decree, writ or
process may be subsequently modified or vacated or otherwise determined to have
been without legal force or effect. 

          (c)
Bank will be entitled to conclusively rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity or the
service thereof. Bank may act in reliance upon any instrument or signature
believed by it to be genuine and may assume that any person purporting to give
receipt or advice to make any 

statement or
execute any document in connection with the provisions hereof has been duly
authorized to do so. 

          (d)
Bank will not be responsible in any respect for the form, execution, validity,
value or genuineness of documents or securities deposited hereunder, or for any
description therein, or for the identity, authority or rights of persons
executing or delivering or purporting to execute or deliver any such document,
security or endorsement. Bank will not be called upon to advise any party as to
the wisdom in selling or retaining or taking or refraining from any action with
respect to any securities or other property deposited hereunder. 

          (e)
This Agreement does not create any obligation of Bank except for those
expressly set forth in this Agreement. In particular, Bank need not investigate
whether Secured Party is entitled under Secured Party’s agreement with Grantor
to give an entitlement order. 

          (f)
Bank will maintain the Account and financial assets in the same manner as it
maintains accounts and assets for its custodial customers. During the term of
this Agreement, Bank will remain a securities intermediary within the meaning
of such term in Section 8- 102(a)(14) of Article 8 of the Uniform Commercial
Code of the State of New York as in effect from time to time (the “UCC”) and 31
C.F.R. 357.2. 

          8.
Indemnity 

          (a)
The duties, responsibilities and obligations of Bank will be limited to those
expressly set forth herein and no duties, responsibilities or obligations will
be inferred or implied. Bank will not be subject to, nor required to comply
with, any other agreement to which Grantor or Secured Party is a party, even
though reference thereto may be made herein, or to comply with any direction or
instruction (other than those contained herein or delivered in accordance with
this Agreement) from Grantor or an entity acting on its behalf. 

          (b)
Grantor will be liable for and will reimburse and indemnify and hold Bank
harmless from and against any and all claims, losses, actions, liabilities,
costs, damages or expenses (including reasonable attorneys’ fees and expenses)
(collectively “Losses”) arising from or in connection with its administration
of this Agreement, provided, however, that nothing contained herein will
require Bank to be indemnified for Losses caused by its own gross negligence or
own willful misconduct. 

          (c)
Bank may consult with legal counsel of its own choosing at the expense of the
Grantor and Secured Party as to any matter relating to this Agreement, and Bank
will not incur any liability in acting in good faith in accordance with any
advice from such counsel. 

          (d)
Bank will not incur any liability for not performing any act or fulfilling any
duty, obligation or responsibility hereunder by reason of any occurrence beyond
the control of Bank including, but not limited to any act or provision of any
present or future law or regulation or governmental authority, any act of God
or war or terrorism, or the unavailability of the Federal Reserve Bank wire or
facsimile or other wire or communication facility. 

          9. Termination; Survival. Secured Party may
terminate this Agreement by notice to Bank and Grantor. Upon receipt of a
notice of termination, Bank will cease accepting any entitlement order from
Grantor, and any previous entitlement order delivered by Grantor will be deemed
to be of no further force and effect. If Secured Party notifies Bank that its
security interest in the Account or all of the financial assets therein has
terminated, this Agreement will immediately terminate. Section 5, “Compensation”, Section 6, “Bank’s
Responsibility” and Section 7, “Indemnity,” will survive termination of
this Agreement. 

          10. Governing Law. Regardless of any
provision in any other agreement, for purposes of the UCC, New York shall be
deemed to be the “securities intermediary’s jurisdiction”, and this Agreement
and the Account (including all interests, duties and obligations with respect
thereto, as well as the entitlement orders related thereto) will be governed by
the laws of the State of New York. Bank and Grantor may not change the law
governing the Account without Secured Party’s express written agreement. Each
of the Grantor and Secured Party hereby submits to the personal jurisdiction
of, and each agrees that all proceedings relating hereto will be brought in,
courts located within the City and State of New York. 

          11. Entire Agreement. This Agreement is the
entire agreement and supersedes any prior agreements and contemporaneous oral
agreements, of the parties concerning its subject matter. 

          12. Amendments. No amendment of, or waiver
of a right under, this Agreement will be binding unless it is in writing and
signed by each of the parties hereto. 

          13. Severability. To the extent a provision
of this Agreement is unenforceable, this Agreement will be construed as if the
unenforceable provision were omitted. 

          14. Financial Assets. The Account and all
property (including cash) credited to the Account will be treated as financial
assets under the Article 8 of the UCC. 

          15. Successors and Assigns. A successor to
or assignee of Secured Party’s rights and obligations under the agreement
between Secured Party and Grantor will succeed to Secured Party’s rights and
obligations under this Agreement. 

          16. Notices A notice or other communication
to a party under this Agreement will be in writing (except that entitlement
orders will be given in accordance with procedures as Bank may reasonably
specify), will be sent to the party’s address set forth below or to such other
address as the party may notify the other parties and will be effective on
receipt. 

          17. Miscellaneous. 

          (a)
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT: To help the
government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record
information that identifies each person who opens an account. When an account
is opened, Bank will ask for information that will allow it to identify
relevant parties. 

          (b)
Each of Grantor and Secured Party hereby represents and warrants (a) that this
Agreement has been duly authorized, executed and delivered on its behalf and
constitutes its legal, valid and binding obligation and (b) that the execution,
delivery and performance of this Agreement by it does not and will not violate
any applicable law or regulation. 

          18. Counterparts. This Agreement may be
executed in any number of counterparts, all of which will constitute one and
the same instrument, and any party hereto may execute this Agreement by signing
and delivering one or more counterparts. 

	
 

	
 

	
SIGNATURES

	
 

	
 

	
[SECURED
 PARTY]

	
 

	
 

	
BY:

	
 

	

	
 

	
Name:

	
 

	
Title:

	
 

	
Address:

	
 

	
 

	
[GRANTOR]

	
 

	
 

	
BY:

	
 

	

	
 

	
Name:

	
 

	
Title:

	
 

	
Address:

	
 

	
 

	
[BANK]

	
 

	
 

	
BY:

	
 

	

	
 

	
Name:

	
 

	
Title:

	
 

	
Address:

FORM OF ENTITLEMENT ORDER

VIA FACSIMILE: 212-657-2762

[Depositary Bank]

Pursuant to the Account Control
Agreement dated [  ], among [specify parties], and Citibank, N.A., we hereby
instruct you of the following:

	
 

	
 

	
 

	
 

	
 

	
 

	
RECEIVE/DELIVER

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
ACCOUNT
 NUMBER:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
USD:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
VALUE DATE:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
WIRE TO:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
[                    ]

	
 

	
 

	
 

	
as [Secured
 Party][Grantor]

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
 

	
 

	
 

	
 

	
 

	

	
 

	
 

	
 

	
 

	
Name:

	
 

	
 

	
 

	
 

	
Title:

Grantor Assumption Agreement

GRANTOR ASSUMPTION AGREEMENT, dated as of December 23, 2008, made by the undersigned corporations (each the “Additional Grantor”), in favor of ___________, as agent (in such capacity,
the “Agent”) for the purchasers of the New Notes and New Warrants (the “Purchasers”) which are parties to that certain Securities Exchange and
Purchase Agreement dated as of December 23, 2008, by and among the Purchasers and the Company (as amended, supplemented or
otherwise modified from time to time, the “Purchase Agreement”) and those individuals and entities who may become holders of such New Notes and New Warrants from time to time
(together with the Purchasers, the “Secured Parties”).  Capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement. 

W I T N E S S E T H:

WHEREAS, in connection with the Purchase Agreement, the Company and certain of its Subsidiaries (other than the Additional Grantor) have entered into the Guarantee and Collateral Agreement, dated as of ___________, 2008
(as amended, supplemented or otherwise modified from time to time, the “Guarantee and Collateral Agreement”) in favor of the Collateral Agent for the benefit of the Secured Parties;

WHEREAS, the Purchase Agreement requires the Additional Grantor to become a party to the Guarantee and Collateral Agreement; and 

WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee and Collateral Agreement; 

NOW, THEREFORE, IT IS AGREED:

1. Guarantee and Collateral Agreement. By executing and delivering this Assumption Agreement, the Additional Grantor, as provided in Section
9.15 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Grantor thereunder with the same force and effect as if originally named therein as a Grantor and,
without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder. The information set forth in Exhibit A hereto is hereby
added to the information set forth in Schedules ____________ to the Guarantee and Collateral Agreement. The Additional Grantor hereby represents and warrants that each of the representations and warranties contained in ARTICLE 5 of the
Guarantee and Collateral Agreement is true and correct on and as the date hereof (after giving effect to this Assumption Agreement) as if made on and as of such date. 

2. GOVERNING LAW.  THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

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