8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13

OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): November 28, 2005

CLEARSTORY SYSTEMS, INC.

(Exact Name of Registrant as Specified in Charter)

Delaware	1-12966	06-1302773
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

One Research Drive, Suite 200B, Westborough, MA	01581
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (508) 870-4000

Same

(Former Name or Former Address, if Changed Since Last Report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

Item 3.02. Unregistered Sales of Equity Securities.

On November 28, 2005, ClearStory Systems, Inc. (the “Company”) and Silicon Valley Bank (“SVB”) entered into an amendment (the “Amendment”) to the Loan and Security Agreement (the “Loan Agreement”), dated as of August 25, 2005, to increase the Company’s maximum borrowing amount under the line of credit to $2 million. Prior to the Amendment, the Company’s line of credit with SVB permitted maximum borrowings of $1.5 million. In addition to the increase in the maximum borrowing amount, the Company and SVB also removed the financial covenants from the Loan Agreement and amended the Compliance Certificate.

The amounts borrowed by the Company under the line of credit may be repaid and reborrowed until the line of credit matures in August 2007, at which time all amounts borrowed are due and payable. The Company also has the option, at any time upon thirty (30) days’ prior written notice to SVB, to terminate the Loan Agreement by paying to SVB, in cash, all amounts borrowed under the line of credit, without premium or penalty. Upon the occurrence and continuation of certain events of default, the Loan Agreement provides for acceleration of payment of all amounts borrowed under the line of credit. Pursuant to the Loan Agreement, the Company granted SVB a security interest in all of the Company’s assets in order to secure the payment and performance of its obligations to SVB under the Loan Agreement. The proceeds of the line of credit will be used by the Company to meet short term liquidity needs and for general business purposes.

The Company’s obligations that arise in connection with the Loan Agreement and the Amendment are guaranteed by SCP Private Equity Partners II, L.P. (“SCP”). In consideration for SCP’s guaranty of the Company’s obligations relating to the Amendment, the Company issued a Series C Convertible Preferred Stock Purchase Warrant (the “Warrant”) to SCP to purchase 77,336 shares of the Company’s Series C Convertible Preferred Stock, par value $.01 per share (the “Series C Preferred”), at a purchase price per share of $1.9396. The number of shares of Series C Preferred issuable upon exercise of the Warrant and the purchase price per share are subject to adjustment as set forth in the Warrant. The Warrant may be exercised in full or in part at any time by SCP until the Warrant expires in November 2015. If not earlier exercised, the Warrant will be deemed to have been exercised immediately prior to expiration. The issuance of the Warrant (the “Issuance”) was not an underwritten offering and, therefore, no underwriting discounts or commissions were paid in connection with the Issuance. The Issuance was made pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.

SCP may be considered an affiliate of the Company. The holders of shares of Series C Preferred issuable upon exercise of the Warrant have certain voting rights.

Item 9.01.   Financial Statements and Exhibits.

(d) Exhibits.

10.1 First Loan Modification Agreement, dated as of November 28, 2005, by and between ClearStory Systems, Inc. and Silicon Valley Bank.

10.2 Series C Convertible Preferred Stock Purchase Warrant, dated as of November 28, 2005, issued by ClearStory Systems, Inc. to SCP Private Equity Partners II, L.P.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: December 2, 2005 CLEARSTORY SYSTEMS, INC. By: /s/ Stephen A. Read
        Stephen A. Read
        Vice President and Chief Financial Officer

EX-10.1

Exhibit 10.1

FIRST LOAN MODIFICATION AGREEMENT

This First Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of November 28, 2005, by and between SILICON VALLEY BANK, a California-chartered bank, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462 (“Bank”) and CLEARSTORY SYSTEMS, INC., a Delaware corporation with its chief executive office located at One Research Drive, Suite 200B, Westborough, Massachusetts 01581(“Borrower”).

1.            DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of August 25, 2005, evidenced by, among other documents, a certain Loan and Security Agreement dated as of August 25, 2005, between Borrower and Bank (as amended, the “Loan Agreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

2.            DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any other collateral security granted to Bank, the “Security Documents”).

Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

3.            DESCRIPTION OF CHANGE IN TERMS.

A. Modifications to Loan Agreement.

1. The Loan Agreement shall be amended by deleting subsection (a) appearing in Section 6.7 entitled "Financial Covenants" in its entirety and inserting in lieu thereof the following:

"(a) Intentionally Deleted."

2. The Loan Agreement shall be amended by deleting the following definition appearing in Section 13.1 thereof:

"Revolving Line" is an Advance or Advances of up to $1,500,000.00."

and inserting in lieu thereof the following:

"Revolving Line" is an Advance or Advances of up to $2,000,000.00."

3. The Compliance Certificate appearing as Exhibit C to the Loan Agreement is hereby replaced with the Compliance Certificate attached as Exhibit A hereto.

B. Waivers.

1. Bank hereby waives Borrower’s existing defaults under the Loan Agreement by virtue of Borrower’s failure to comply with the Net Revenue covenant set forth in Section 6.7(a) for the six (6) month period ending September 30, 2005. Bank’s waiver of Borrower’s compliance of said affirmative covenant shall apply only to the foregoing specific period.

4.            FEES. Borrower shall pay to Bank a modification fee equal to Two Thousand Five Hundred Dollars ($2,500.00), which fee shall be due on the date hereof and shall be deemed fully earned as of the date hereof.

Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

5.            RATIFICATION OF PERFECTION CERTIFICATE. Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of August 25, 2005, between Borrower and Bank, and acknowledges, confirms and agrees the disclosures and information Borrower provided to Bank in the Perfection Certificate has not changed, as of the date hereof.

6.            CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

7.            RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

8.            NO DEFENSES OF BORROWER. Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses, claims, or counterclaims against Bank with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Bank, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Bank from any liability thereunder.

9.            CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank’s agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing. No maker will be released by virtue of this Loan Modification Agreement.

10.          COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank.

[The remainder of this page is intentionally left blank]

               This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

BORROWER:	BANK:
CLEARSTORY SYSTEMS, INC.	SILICON VALLEY BANK
By: /S/ Stephen A. Read	By: /S/ Bradley B. Holt
Name: Stephen A. Read	Name: Bradley B. Holt
Title: VP, CFO	Title: Relationship Manager

The undersigned, SCP Private Equity Partners II, L.P., ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Unlimited Guaranty dated August 25, 2005 (the “Guaranty”) and acknowledges, confirms and agrees that the Guaranty shall remain in full force and effect and shall in no way be limited by the execution of this Loan Modification Agreement, or any other documents, instruments and/or agreements executed and/or delivered in connection herewith. In addition, the undersigned hereby consents to the Loan Modification Agreement in all respects.

SCP PRIVATE EQUITY PARTNERS II, L.P.

By:  SCP Private Equity II General Partners,

        L.P., its general partner

By:  SCP Private Equity II, LLC, its manager

By:/S/ Thomas G. Rebar

Name: Thomas G. Rebar

Title: General Manager

EXHIBIT A

COMPLIANCE CERTIFICATE

TO:	SILICON VALLEY BANK
FROM:	CLEARSTORY SYSTEMS, INC.

The undersigned authorized officer of CLEARSTORY SYSTEMS, INC. certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”), (i) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below and (ii) there are no Events of Default, and all representations and warranties in the Agreement are true and correct in all material respects on this date; provided however, that those representations and warranties expressly referring to another date shall be true and correct in all material respects only as of such date. Attached are the required documents supporting the certification. The Officer certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.

Please indicate compliance status by circling Yes/No under “Complies” column.
Reporting Covenant	Required	Complies
Interim financial statements for Borrower with A/R Agings (by invoice date)	Monthly within 30 days	Yes No
Annual financial statements (CPA Audited) for Borrower	FYE within 120 days	Yes No
Annual Balance Sheet and Income Statement	Within 30 days of Board approval	Yes No
10 Q, 10 K and 8-K	Within 5 days after filing with SEC	Yes No
Compliance Certificate	Quarterly within 30 days	Yes No

Financial Covenant	Required	Actual	Complies
Maintain at all times (tested quarterly):
Minimum Callable Capital (Guarantor)	3x outstanding Obligations	_____:1.0	Yes No

Comments Regarding Exceptions: See Attached. Sincerely, _____________________________ SIGNATURE _____________________________ TITLE _____________________________ DATE BANK USE ONLY Received by: _____________________ AUTHORIZED SIGNER Date:     _________________________ Verified: ________________________ AUTHORIZED SIGNER Date:     _________________________ Compliance Status:            Yes No

EX-10.2

Exhibit 10.2

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

Right to Purchase

77,336 Shares

of Series C Convertible Preferred

Stock of ClearStory Systems, Inc.

November 28, 2005

No. C-2

CLEARSTORY SYSTEMS, INC.

SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE WARRANT

ClearStory Systems, Inc., a Delaware corporation (the “Company”), hereby certifies that, for value received, SCP Private Equity Partners II, L.P. (the “Holder”), or its successors or registered assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 p.m., Boston time, on the Expiration Date (as hereinafter defined), 77,336 fully paid and nonassessable shares of Series C Convertible Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”), of the Company, at a purchase price per share of $1.9396 (the “Purchase Price”). The number of such shares of Series C Preferred Stock and the Purchase Price are subject to adjustment as provided in this Warrant.

1.Certain Definitions. As used herein the following terms have the following respective meanings:

(a)The term “Change of Control” means (i)  any reorganization, consolidation, merger or similar transaction or series of related transactions (each, a “combination transaction”) in which the Company is a constituent corporation or is a party if, as a result of such combination transaction, the voting securities of the Company that are outstanding immediately prior to the consummation of such combination transaction (otherthan any such securities that are held by an Acquiring Stockholder (as defined below)) do not represent, or are not converted into, securities of the surviving corporation of such combination transaction (or such surviving corporation’s parent corporation if the surviving corporation is owned by the parent corporation) that, immediately after the consummation of such combination transaction, together possess at least a majority of the total voting power of all securities of such surviving corporation (or its parent corporation, if applicable) that are outstanding immediately after the consummation of such combination transaction; or (ii) a sale of all or substantially all of the assets of the Company. For purposes of this definition, an “Acquiring Stockholder” means a stockholder or stockholders of the Company that (A) merges or combines with the Company in

Series C Convertible Preferred Stock Purchase Warrant – Page 2

such combination transaction or (B) owns or controls a majority of another corporation that merges or combines with the Company in such combination transaction.

(b)The term “Expiration Date” means (i) November 28, 2015 or (ii) immediately prior to the consummation of a Change of Control.

2.Exercise of Warrant.

(a)This Warrant may be exercised in full or in part at any time or from time to time until the Expiration Date by the holder hereof by surrender of this Warrant and the exercise notice annexed hereto (duly executed) by such holder, to the Company at its principal office, accompanied by payment, in cash or by check payable to the order of the Company in the amount obtained by multiplying (a) the number of shares of Series C Preferred Stock designated by the holder in the notice of exercise by (b) the Purchase Price then in effect (or by net exercise in accordance with the provisions of Section 3 below). On any partial exercise, the Company at its expense will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof or as such holder (upon payment by such holder of any applicable transfer taxes and subject to applicable securities laws) may request, providing in the aggregate on the face or faces thereof for the number of shares of Series C Preferred Stock for which such Warrant or Warrants may still be exercised.

(b)Automatic Exercise Prior to Expiration. If not earlier exercised, this Warrant shall be deemed to have been exercised on a net basis pursuant to Section 3(a) below immediately prior to the expiration hereof, and upon such deemed exercise, and without any further act or deed of the Holder or any other person or entity, the Company shall issue to the Holder the number of fully paid and non-assessable shares of Series C Preferred Stock to which such Holder would be entitled hereunder.

3.Net Exercise.

(a)In lieu of exercising this Warrant pursuant to Section 2, the Holder may elect to receive, without the payment by the Holder of any additional consideration, shares of Series C Preferred Stock equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the Company, with the exercise notice annexed hereto duly executed (and by indicating thereon that the Holder is exercising this Warrant pursuant to the net exercise provisions of this Section 3), at the office of the Company. Thereupon, the Company shall issue to the Holder such number of fully paid and nonassessable shares of Series C Preferred Stock as is computed using the following formula:

X = Y (A-B)

A

where X = the number of shares to be issued to the Holder pursuant to this Section 3.

Y = the number of shares covered by this Warrant in respect of which the net issue election is made pursuant to this Section 3.

Series C Convertible Preferred Stock Purchase Warrant – Page 3

A = the Fair Market Value (as hereinafter defined) of one share of Series C Preferred Stock, as at the time the net issue election is made pursuant to this Section 3.

B = the Purchase Price in effect under this Warrant at the time the net issue election is made pursuant to this Section 3.

The Board shall promptly respond in writing to an inquiry by the Holder as to the Fair Market Value of one share of Series C Preferred Stock.

(b)The “Fair Market Value” of a share of Series C Preferred Stock as of a particular date (the “Determination Date”) shall mean the fair market value of such share as determined in good faith by the Board of Directors upon review of all relevant factors; provided, however, that, if the Determination Date is the date of a liquidation, dissolution or winding up of the Company (including a Change of Control), then the “Fair Market Value” of a share of Series C Preferred Stock shall mean the aggregate of all amounts paid, payable (or otherwise distributed or distributable) to the holders of the Series C Preferred Stock pursuant to the Company’s Certificate of Incorporation, as amended to date (the “Charter”) upon such liquidation, dissolution or winding up (assuming, for this purpose, that: (i) this Warrant was exercised immediately prior to, and the underlying shares of Series C Preferred Stock issued thereon were issued and outstanding as of, such liquidation, dissolution or winding up; and (ii) the exercise price payable in respect of such deemed exercise of this Warrant is included in the assets available for distribution to the holders of the Company’s capital stock under the Charter in connection with such liquidation, dissolution or winding up).

4.Delivery of Stock Certificates, etc., on Exercise.  As soon as practicable after the exercise of this Warrant, and in any event within 10 business days thereafter, the Company at its expense (including the payment by it of any applicable issue or stamp taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes and subject to applicable securities laws) may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Series C Preferred Stock to which such holder shall be entitled on such exercise, in such denominations as may be requested by such holder, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then current Fair Market Value (as determined in Section 3(b) above) of one full share of Series C Preferred Stock, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to Section 2 or 3 hereof, or otherwise.

5.Covenants as to Series C Preferred Stock and Common Stock.  The Company covenants and agrees that all shares of Series C Preferred Stock which may be issued upon the exercise of this Warrant, and all shares of Common Stock, $.10 par value per share (the “Common Stock”), of the Company, which may be issued upon the conversion of the Series C Preferred Stock, will, upon issuance, be validly issued, fully paid and non-assessable and free

Series C Convertible Preferred Stock Purchase Warrant – Page 4

from all taxes, liens and charges with respect to the issue thereof. Without limiting the generality of the foregoing, the Company covenants that it will from time to time take all such actions as may be required to assure that the stated or par value per share of Series C Preferred Stock is at all times equal to or less than the then effective Purchase Price per share of Series C Preferred Stock issuable upon exercise of this Warrant. The Company further covenants and agrees that the Company will at all times have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Series C Preferred Stock to provide for the exercise of this Warrant and shares of Common Stock to provide for the conversion of the Series C Preferred Stock. If and so long as the Series C Preferred Stock issuable upon the exercise of this Warrant or the Common Stock issuable upon conversion of the Series C Preferred Stock is listed on any national securities exchange, the Company will, if permitted by the rules of such exchange, list and keep listed on such exchange, upon official notice of issuance, all such shares of capital stock that are so listed.

6.No Stockholder Rights.  This Warrant shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company.

7.Restrictions on Transfer; Registration Rights.  The holder of this Warrant by acceptance hereof agrees that the transfer of this Warrant, the shares of Series C Preferred Stock issuable upon the exercise of all or any portion of this Warrant and the shares of Common Stock issuable upon conversion of such shares of Series C Preferred Stock are subject to the provisions of the Charter, including, without limitation, the rights, privileges and preferences of the Series C Preferred Stock set forth in the Certificate of Designation for the Series C Preferred Stock contained in the Charter. This Warrant, and the shares of Series C Preferred Stock issuable upon exercise of all or any portion of this Warrant and the shares of Common Stock issuable upon conversion of such shares of Series C Preferred Stock shall be entitled to all rights and benefits accorded thereto in the Charter, and the applicable provisions of the Charter are hereby incorporated herein by reference. Without limiting the generality of the foregoing, the shares of Series C Preferred Stock issuable upon exercise of this Warrant (and, as applicable, any securities issuable upon conversion of such shares), shall be entitled to the same registration rights applicable to the “Registrable Securities” in that certain Amended and Restated Registration Rights Agreement, dated as of September 2, 2003, by and among the Company, the Holder, Selway Partners, LLC, Selway Management, Inc. and CIP Capital L.P.

8.Transfer of Warrant.  Subject to applicable securities laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the agency or office of the Company referred to in Section 2, by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant properly endorsed. Subject to applicable securities laws, each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed, in blank, shall be deemed negotiable, and, when so endorsed the holder hereof may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purposes and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company, any notice to the contrary

Series C Convertible Preferred Stock Purchase Warrant – Page 5

notwithstanding; but until each transfer on such books, the Company may treat the registered holder hereof as the owner hereof for all purposes.

9. Adjustment of Number of Shares; Purchase Price; Nature of Securities Issuable Upon Exercise of Warrants.

(a)Purchase Price; Adjustment of Number of Shares. The Purchase Price set forth above and the number of shares purchasable hereunder shall be subject to adjustment from time to time as hereinafter provided.

(i)Reclassification, etc. If the Company, at any time while this Warrant, or any portion thereof, remains outstanding and unexpired, shall, by the reclassification or exchange of securities or otherwise, change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification, exchange, or other change and the Purchase Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 9.

(ii)Stock Splits, Stock Dividends and Reverse Stock Splits. In case at any time the Company shall split or subdivide the outstanding shares of Series C Preferred Stock into a greater number of shares, or shall declare and pay any stock dividend with respect to its outstanding stock that has the effect of increasing the number of outstanding shares of Series C Preferred Stock, the Purchase Price in effect immediately prior to such subdivision or stock dividend shall be proportionately reduced and the number of shares of Series C Preferred Stock purchasable pursuant to this Warrant immediately prior to such subdivision or stock dividend shall be proportionately increased, and conversely, in case at any time the Company shall combine its outstanding shares of Series C Preferred Stock into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall be proportionately increased and the number of shares of Series C Preferred Stock purchasable upon the exercise of this Warrant immediately prior to such combination shall be proportionately reduced.

(iii)Adjustments for Dividends in Stock or Other Securities of Property. If while this Warrant, or any portion hereof, remains outstanding and unexpired the holders of shares of Series C Preferred Stock shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Company by way of dividend, then and in each case, this Warrant shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Warrant, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property of the Company that such holder would hold on the date of such exercise had it been the holder of record of the security receivable upon exercise of this Warrant on the date hereof and had thereafter, during the period from the date

Series C Convertible Preferred Stock Purchase Warrant – Page 6

hereof to and including the date of such exercise, retained such shares and/or all other additional stock available by it as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 9.

(b)Timing of Purchase Price Adjustment. No adjustment of the Purchase Price shall be made unless such adjustment would require an increase or decrease of at least $0.0001 in such price; provided that any adjustments which by reason of this Section 9(b) are not required to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment(s) so carried forward, shall require an increase or decrease of at least $0.0001 in the Purchase Price then in effect hereunder.

10.Certificate of Adjustment.  Whenever the Purchase Price (or the number of shares of Series C Preferred Stock issuable on the exercise of this Warrant) is adjusted, as herein provided, the Company shall promptly deliver to the Holder a certificate of the Company’s chief financial officer setting forth the Purchase Price (and the number of shares of Series C Preferred Stock issuable on the exercise of this Warrant) after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

11.Notices of Record Date, Etc.  In the event of:

(a)any taking by the Company of a record of the holders of the Series C Preferred Stock or Common Stock for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase, sell or otherwise acquire or dispose of any shares of stock of any class or any other securities or property, or to receive any other right;

(b)any reclassification of the capital stock of the Company, capital reorganization of the Company, or Change of Control; or

(c) any voluntary or involuntary dissolution, liquidation or winding up of the Company;

then in each such event the Company will provide or cause to be provided to the Holder a written notice thereof. Such notice shall be provided at least ten (10) calendar days prior to the date specified in such notice on which any such action is to be taken.

12.Exchange of Warrant.  This Warrant is exchangeable upon the surrender hereof by the holders hereof at the office or agency of the Company designated in Section 2 hereof, for new Warrants of like tenor representing in the aggregate the rights to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder, each of such new Warrants to represent the right to subscribe for and purchase such number of shares as shall be designated by said holder or holders hereof at the time of such surrender.

Series C Convertible Preferred Stock Purchase Warrant – Page 7

13.Lost, Stolen, Mutilated or Destroyed Warrant.  If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may in its reasonable discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute a contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.

14.Notice Prior to Public Offering.  The Company shall give each Holder at least thirty (30) days prior written notice of the effectiveness of any registration statement filed with the Securities and Exchange Commission under the 1933 Act covering any shares of capital stock of the Company.

15.No Impairment.  The Company will not, by amendment of its Charter or through any reclassification, capital reorganization, consolidation, merger, sale or conveyance of assets, dissolution, liquidation, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance of performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder.

16.Miscellaneous.  This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts as applied to agreements entered into among Massachusetts residents to be performed entirely within the Commonwealth of Massachusetts, without regard to principles of conflicts of law. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. This Warrant is being executed as an instrument under seal. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

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Series C Convertible Preferred Stock Purchase Warrant – Page 8

IN WITNESS WHEREOF, the undersigned have executed this Series C Convertible Preferred Stock Purchase Warrant as a sealed instrument as of the day and year first above written.

Dated: November 28, 2005 CLEARSTORY SYSTEMS, INC. By: /S/ Henry F. Nelson Name: Henry F. Nelson Title: President, CEO

ACCEPTED AND AGREED TO BY:

By:

SCP PRIVATE EQUITY PARTNERS II, L.P

General Partner

By:	____________________
	Name:
	Title:

NOTICE OF EXERCISE

(To be signed only on exercise of Warrant)

TO: CLEARSTORY SYSTEMS, INC.

The undersigned hereby irrevocably elects to [check applicable subsection]:

________ (a)	Purchase _________________ shares of Series C Preferred Stock of ClearStory Systems, Inc. pursuant to the terms of Section 2 of the attached Warrant. Payment of the Purchase Price per share required under Section 2 of such Warrant accompanies this notice.
OR
________ (b)	Exercise the attached Warrant for [all of the shares] [________ of the shares] [cross out inapplicable phrase] purchasable under the Warrant pursuant to the net exercise provisions of Section 3 of such Warrant.

Dated: ________________________ _______________________________

(Signature must conform to name

of holder as specified on the

face of the Warrant)

_______________________________

_______________________________

(Address)

_______________________________

FORM OF ASSIGNMENT

(To be signed only on transfer of Warrant)

For value received, the undersigned hereby sells, assigns, and transfers unto ___________________________________ the right represented by the within Warrant to purchase ____________ shares of Series C Convertible Preferred Stock of ClearStory Systems, Inc. to which the within Warrant relates, and appoints _________________________ as its Attorney to transfer such right on the books of ClearStory Systems, Inc. with full power of substitution in the premises.

Dated: _________________________ _______________________________

(Signature must conform to name

of holder as specified on the

face of the Warrant)

_______________________________

_______________________________

Signed in the presence of:

_____________________________