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):June 25, 2010

Unify Corporation
(Exact name of registrant as specified in its charter)

Delaware	001-11807	94-2710559
(State or other jurisdiction of incorporation)	(Commission File No.)	(I.R.S. Employer Identification No.)

1420 Rocky Ridge Drive, Suite 380
Roseville, California 95661

(Address of principal executive offices)
 

Registrant’s telephone number, including area code:

(916) 218-4700

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):

	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.

AGREEMENT AND PLAN OF MERGER

     On June 29, 2010, Unify Corporation, a Delaware corporation (“Unify” or the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Unify Acquisition Corp., a California corporation and wholly-owned subsidiary of the Company, and Software Office Solutions, Inc., d/b/a Daegis (“Daegis”), and all of the shareholders of Daegis. Pursuant to the terms of the Merger Agreement, all of the issued and outstanding shares of common stock of Daegis have been converted into a right to receive a pro rata share of the aggregate merger consideration, which is made up of $24 million in cash, $6.2 million in convertible subordinated notes, and 2,085,714 shares of Unify common stock (the “Merger Consideration”). $1.2 million of the convertible subordinated notes are subject to set-off for indemnity claims the Company may have under the Merger Agreement post transaction for a period of 18 months after the effective time of the merger.

     The convertible subordinated notes are sixty-three month term notes, bearing 8% interest unless an event of default occurs, in which case the interest rate will increase to 13% during the continuance of the event of default, provided that the subordinated indemnity note bears interest at 3% until the eighteen month anniversary of its issuance, at which point the interest rate will increase to 8%. Subject to certain conditions, the convertible subordinated notes are convertible into approximately 1,771,428 shares of Unify common stock. The parties also entered into a Registration Rights Agreement (the “Registration Agreement”) pursuant to which the Company has agreed to register for resale the shares of its common stock issued pursuant to the Merger Agreement and issuable upon conversion of the subordinated notes.

The foregoing is a summary description of certain terms of the Merger Agreement and the Convertible Notes and it is qualified in its entirety by reference to the full text of the Merger Agreement and the form of Convertible Note, each of which are attached as Exhibit 10.1 and Exhibit 10.6, respectively, to this Current Report on Form 8-K.

The Merger Agreement has been filed to provide investors and security holders with information regarding its terms.  It is not intended to provide any other factual, business or operational information about the parties thereto.  The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of such Merger Agreement and as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon by the contracting parties, including being qualified by disclosures: (i) exchanged between the parties in connection with the execution of the Merger Agreement and (ii) contained in the disclosure schedules to the Merger Agreement.  The representations and warranties may have been made for the purpose of allocating contractual risk among the parties to the Merger Agreement instead of establishing matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Accordingly, investors and security holders should not rely on such representations and warranties as characterizations of the actual state of facts or circumstances.  Moreover, information concerning the subject matter of such representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

     The foregoing is intended only to be a summary of the Merger Agreement and is qualified in its entirety by reference to the Merger Agreement which is attached as Exhibit 10.1 hereto.

FINANCING AGREEMENT

     To finance the cash portion of the acquisition of Daegis, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Technology II, L.P. on June 29, 2010. Pursuant to the Loan Agreement, the Company was provided with debt financing consisting of a term loan in the aggregate principal amount of $24.0 million and a revolving credit facility of up to $6.0 million. The term loan bears an interest rate of the greater of (i) 10.25% and (ii) the LIBOR rate plus 8.25%, plus PIK interest of 2%, and has a term of 60 months. The revolving credit facility has an interest rate of the greater of (i) 9.25% and (ii) the LIBOR rate plus 7.25% and has a maturity date of June 29, 2015. As part of the financing, the lenders were issued a warrant to acquire 718,860 shares of Unify common stock at an exercise price of $3.30 per share, subject to certain adjustments contained in the terms of the warrant. The Company has agreed to register the shares issuable upon exercise of the warrant under the Registration Agreement. In order to secure its obligations under the Loan Agreement, the Company has granted the lender a first priority security interest in substantially all of its assets.

     The Loan Agreement requires ongoing compliance with certain affirmative and negative covenants. The affirmative covenants include, but are not limited to: (i) maintenance of existence and conduct of business; (ii) compliance with laws; (iii) use of proceeds; and (iv) books and records and inspection. The negative covenants set forth in the Loan Agreement include, but are not limited to, restrictions on the ability of the Company (and the Company’s subsidiaries): (i) with certain limited exceptions, to create, incur, assume or allow to exist indebtedness; (ii) with certain limited exceptions, to create, incur, assume or allow to exist liens on properties; (iii) with certain limited exceptions, to make certain payments, transfers of property, or investments; or (iv) with certain limited exceptions, to make additional acquisitions.

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     In addition, the Company is obligated to maintain certain minimum consolidated adjusted EBITDA levels, certain total leverage ratios, and certain fixed charge coverage ratios, all as calculated in accordance with the terms and definitions determining such ratios contained in the Loan Agreement. The Loan Agreement also contains various information and reporting requirements.

     The Loan Agreement also contains customary events of default, including without limitation events of default based on payment obligations, repudiation of guaranty obligations, material inaccuracies of representations and warranties, covenant defaults, insolvency proceedings, monetary judgments in excess of certain amounts, change in control, certain ERISA events, and defaults under certain other obligations.

     The foregoing is intended only to be a summary of the Loan Agreement and is qualified in its entirety by reference to the Loan Agreement which is filed as Exhibit 10.2 hereto.

JENSEN EMPLOYMENT AGREEMENT

     Following its acquisition of Daegis, the Company entered into an Employment Agreement with Kurt A. Jensen on June 30, 2010 (the “Employment Agreement”). Pursuant to the Employment Agreement, Mr. Jensen will join the Company as its executive vice president and chief operating officer in order to assist with the integration of Daegis and to continue to manage the legacy Daegis business and employees. The Employment Agreement has a three-year term, which may be extended year to year upon expiration. Under the Employment Agreement, Mr. Jensen is entitled to a base salary of $325,000 with a performance bonus up to 55% of base salary, subject to the discretion of the Compensation Committee of the Company, and guaranteed additional payments of $175,000 and $87,500 for the first and second years, respectively, of his employment with the Company. Mr. Jensen will also be eligible to participate in the Company’s employee benefit programs, including the Company’s stock option plans. If the Company terminates Mr. Jensen’s employment for any reason, other than cause, or if Mr. Jensen terminates his employment for good reason, Mr. Jensen shall receive his base salary, bonus, and benefits for the twelve months following termination. If Mr. Jensen terminates his employment for any reason, other than death, disability, or good reason, prior to the first anniversary of Mr. Jensen’s employment, Mr. Jensen shall pay the Company a buy-out and release fee of $500,000.

     The foregoing is intended only to be a summary of the Employment Agreement and is qualified in its entirety by reference to the Employment Agreement which is filed as Exhibit 10.7 hereto.

     A copy of the following documents with regard to the transactions described above are attached hereto as Exhibits and incorporated herein by reference.

1.	Agreement and Plan of Merger, dated June 29, 2010, by and among the Company, Unify Acquisition Corp., Daegis, and the shareholders of Daegis (without Schedules and Exhibits).
2.	Loan and Security Agreement, dated June 29, 2010, by an among the Company, the Guarantors thereto, and Hercules Technology II, L.P. (including Form of Revolving Promissory Note and Form of Term Promissory Note).
3.	Registration Rights Agreement dated June 29, 2010.
4.	Form of Warrant.
5.	Form of Subordinated Indemnity Note.
6.	Form of Subordinated Purchase Note.
7.	Employment Agreement, dated June 30, 2010, by and between the Company and Kurt A. Jensen.

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Item 2.01 Completion of Acquisition or Disposition of Assets.

Effective June 29, 2010, the merger (the “Merger”) contemplated by the Merger Agreement described in Item 1.01 above, was consummated. Pursuant to the Merger Agreement, the Company acquired (via merger with a wholly-owned subsidiary of the Company) all of the outstanding stock of Daegis from the Daegis shareholders in exchange for the Merger Consideration described above.

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

     As discussed under Item 1.01 above, on June 29, 2010 the Company entered into the Loan Agreement. The information set forth above in Item 1.01 under the caption “Jensen Employment Agreement” is incorporated herein by reference.

Item 3.02Unregistered Sale of Equity Securities.

Pursuant to the Merger Agreement described in Item 1.01 above, on June 29, 2010 the Company issued 2,085,714 shares of Unify common stock, and $6.2 million in subordinated notes convertible into shares of Unify common stock as a portion of the Merger Consideration paid in exchange for all of the outstanding shares of Daegis. Pursuant to the Loan Agreement described in Item 1.01 above, on June 29, 2010 the Company issued a warrant to acquire 718,860 shares of Unify common stock as a portion of the consideration given to the lender as an inducement to enter into the Loan Agreement.

Subject to certain conditions, the subordinated notes are convertible, at the election of the Company or the holder at any time following the twenty-first day after the Company has sent to its stockholders an Information Statement on Schedule 14C of the Exchange Act with respect to the action by written consent of the stockholders on June 25, 2010 authorizing the issuance of Unify common stock issuable upon conversion of the subordinated notes. The initial conversion price of the subordinated notes is $3.50 per share and adjusts to the twenty day volume weighted average trading price of Unify common stock for the twenty trading days ending two trading days prior to the date of the notice of conversion if conversion is elected after the first anniversary of the date of issuance.

The warrants are exercisable at the election of the holder at any time following the twenty-first day after the Company has sent to its stockholders an Information Statement on Schedule 14C of the Exchange Act with respect to the action by written consent of the stockholders on June 25, 2010 authorizing the issuance of Unify common stock issuable upon exercise of the warrant. The initial exercise price of the warrant is $3.30 per share and is subject to certain anti-dilution adjustments.

The subordinated notes, warrant and the shares underlying these instruments are exempt from registration under Section 4(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D promulgated thereunder as neither security was offered or sold to more than 35 purchasers and no form of general solicitation was used in either offer.

     The foregoing is intended only to be a summary of the subordinated notes and warrant and is qualified in its entirety by reference to those documents which are attached hereto as Exhibits 10.4, 10.5, and 10.6.

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Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On June 29, 2010, the Company announced the appointment of Kurt A. Jensen as the Company’s executive vice president and chief operating officer. Mr. Jensen was selected to be an officer of the Company in connection with the consummation of the Merger to assist with the integration of Daegis and to continue to manage the legacy Daegis business and employees.

Mr. Jensen, age 44, is the founder, president, and chief-executive officer of Daegis, which he founded in 1999. In his new role with the Company, Mr. Jensen will continue to head Daegis, which is now a wholly-owned subsidiary of the Company, and will continue to have responsibility for its operations, sales, marketing, business development, and administration.

In connection with the consummation of the Merger, on June 29, 2010, Mr. Jensen was issued a convertible subordinated note as partial consideration for his Daegis shares. The principal amount of the subordinated note is $2,588,192 and is convertible as described in Item 3.02. In addition, upon the expiration of the 18 month indemnity set-off period, Mr. Jensen may be entitled to up to an additional $621,166 in cash or Unify common stock currently held in the subordinated indemnity note.

The information set forth above in Item 1.01 under the caption “Jensen Employment Agreement” is incorporated herein by reference.

Mr. Jensen and the Company have entered into an employment agreement described above in Item 1.01 and attached hereto as Exhibit 10.7.

Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On June 25, 2010, the Company’s Board of Directors amended the Company’s Bylaws to allow the Company’s stockholders to act by written consent, which was previously prohibited by the Bylaws.

Item 5.07. Submission of Matters to a Vote of Security Holders.

On June 25, 2010, stockholders holding a majority (5,844,473) of the outstanding common stock of the Company acted by written consent to approve the issuance of the shares of Unify Common Stock issuable upon conversion of the subordinated notes and the exercise of the warrant described in this Current Report on Form 8-K.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired

     The financial statements required by this item will be filed by amendment to this Current Report on Form 8-K as soon as practicable, but not later than seventy-one (71) calendar days after the date this Current Report on Form 8-K is required to be filed.

(b) Pro Forma Financial Information

     The pro forma financial statements required by this item will be filed by amendment to this Current Report on Form 8-K as soon as practicable, but not later than seventy-one (71) calendar days after the date this Current Report on Form 8-K is required to be filed.

(c) Not applicable

(10) Exhibits

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Exhibit
Number	Description
3.1	Amendment to Bylaws adopted June 25, 2010.
10.1	Agreement and Plan of Merger, dated June 29, 2010, by and among the Company, Unify Acquisition Corp., Daegis, and the shareholders of Daegis (without Schedules and Exhibits).
10.2	Loan and Security Agreement, dated June 29, 2010, by an among the Company, the Guarantors thereto, and Hercules Technology II, L.P. (including Form of Revolving Promissory Note and Form of Term Promissory Note).
10.3	Registration Rights Agreement dated June 29, 2010.
10.4	Form of Warrant (without Schedules or Exhibits).
10.5	Form of Subordinated Indemnity Note.
10.6	Form of Subordinated Purchase Note.
10.7*	Employment Agreement, dated June 30, 2010, by and between the Company and Kurt A. Jensen.

* Management compensatory agreement
 

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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: July 1, 2010

Unify Corporation
By:	/s/ Steven D. Bonham
	Steven D. Bonham
	Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

Exhibit
Number	Description
3.1	Amendment to Bylaws adopted June 25, 2010.
10.1	Agreement and Plan of Merger, dated June 29, 2010, by and among the Company, Unify Acquisition Corp., Daegis, and the shareholders of Daegis (without Schedules and Exhibits).
10.2	Loan and Security Agreement, dated June 29, 2010, by an among the Company, the Guarantors thereto, and Hercules Technology II, L.P. (including Form of Revolving Promissory Note and Form of Term Promissory Note).
10.3	Registration Rights Agreement dated June 29, 2010.
10.4	Form of Warrant (without Schedules or Exhibits).
10.5	Form of Subordinated Indemnity Note.
10.6	Form of Subordinated Purchase Note.
10.7*	Employment Agreement, dated June 30, 2010, by and between the Company and Kurt A. Jensen.

* Management compensatory agreement

 

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EX-3.1

AMENDMENT TO
BYLAWS
OF
UNIFY CORPORATION

June 25, 2010

       I. ARTICLE II. Section 13. Stockholder Action. is deleted in its entirety and the following is substituted in lieu thereof:

“13. Intentionally Omitted.”

EX-10.1

EXECUTION VERSION

AGREEMENT AND PLAN OF MERGER

by and among

UNIFY CORPORATION,

UNIFY ACQUISITION CORP.,

STRATEGIC OFFICE SOLUTIONS, INC. (d/b/a DAEGIS)

and

with respect to Sections 8.2(a)(i), 9.13 and 9.14, the SHAREHOLDERS
listed on the Signature Pages hereto

Dated as of June 29, 2010

TABLE OF CONTENTS

		Page
ARTICLE 1 DEFINITIONS		2
1.1	Defined Terms	10
1.2	Interpretation Provisions	10
ARTICLE 2 THE MERGER		10
2.1	The Merger	10
2.2	Effective Time	11
2.3	Effect of the Merger	11
2.4	Articles of Incorporation; Bylaws	11
2.5	Directors and Officers	12
2.6	Effect on Company Stock	12
2.7	Delivery of Merger Consideration	13
2.8	No Further Ownership Rights in Shares of Company Stock	14
2.9	Lost, Stolen or Destroyed Certificates	14
2.10	Calculation of Merger Consideration	14
2.11	Section 338(h)(10) Election	17
2.12	Taking of Necessary Action; Further Action	17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF COMPANY		17
3.1	Organization of Company	18
3.2	No Subsidiaries; No Interest in Other Entities	18
3.3	Capitalization of Company	18
3.4	Unlawful Payments and Contributions	19
3.5	Authorization	19
3.6	Officers and Directors	19
3.7	Bank Accounts	20
3.8	Assets	20
3.9	Material Contracts	20
3.10	No Conflict or Violation; Consents	22
3.11	Permits	23
3.12	Financial Statements; Books and Records	23
3.13	Absence of Certain Changes or Events	24
3.14	Liabilities	26
3.15	Litigation	26
3.16	Labor Matters	26
3.17	Employee Benefit Plans	27
3.18	Transactions with Related Parties	30
3.19	Compliance with Law	30
3.20	Intellectual Property	30
3.21	Taxes	32
3.22	Insurance	34
3.23	Accounts Receivable	34
3.24	Customers and Suppliers	34
3.25	Environmental Matters	35
3.26	Brokers; Transaction Costs	35
3.27	No Other Agreements to Sell Company or the Company Assets	35
3.28	Financial Projections: Operating Plan	36
3.29	Real Property	36

		Page
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB		36
4.1	Organization of Buyer and Merger Sub	36
4.2	Authorization	36
4.3	No Conflict or Violation; Consents	37
4.4	Litigation	37
4.5	Brokers	38
4.6	Capital Structure	38
4.7	Availability of Merger Consideration	38
4.8	SEC Documents; Buyer Financial Statements	39
4.9	Merger Sub	39
4.10	Employee Benefits Matters	39
4.11	Present Compliance with Obligations and Laws	40
4.12	Absence of Certain Changes	40
4.13	Listings	40
4.14	Transactions with Affiliates	40
4.15	Intellectual Property	40
ARTICLE 5 ACTIONS BY COMPANY AND BUYER PRIOR TO THE CLOSING		41
5.1	Conduct of Company Business	41
5.2	No Mergers, Consolidations, Sale of Stock, Etc.	42
5.3	Investigation by Buyer and Company	42
5.4	Notification of Certain Matters	42
5.5	Management and Employees	43
5.6	Stockholder Meeting	43
5.7	Further Assurances	43
ARTICLE 6 CONDITIONS TO OBLIGATIONS		44
6.1	Conditions to Each Party’s Obligations	44
6.2	Conditions to the Obligations of Company	44
6.3	Condition to Buyer’s and Merger Sub’s Obligations	45
ARTICLE 7 ACTIONS BY BUYER, THE SURVIVING CORPORATION AND                       THE SHAREHOLDERS AFTER THE CLOSING		46
7.1	Books and Records; Tax Matters	46
7.2	Indemnification and Insurance	47
7.3	Approval of Issuance of Additional Buyer Common Stock	47
7.4	Release of Guaranties; Indemnification	47
ARTICLE 8 INDEMNIFICATION		48
8.1	Survival of Representations, Etc.	48
8.2	Indemnification	48
8.3	No Right of Contribution	50
8.4	Exclusive Remedy	50
8.5	Threshold; Limitations on Indemnity	50
ARTICLE 9 MISCELLANEOUS		51
9.1	Termination	51
9.2	Assignment	52
9.3	Notices	53
9.4	Choice of Law	53

		Page
9.5	Limitation	53
9.6	Arbitration	54
9.7	Entire Agreement; Amendments and Waivers	54
9.8	Counterparts	54
9.9	Invalidity	54
9.10	Publicity	54
9.11	No Third Party Beneficiaries	55
9.12	Expenses	55
9.13	Appointment of Shareholder Representative	55
9.14	Other Provisions Relating to Signing Shareholders	56

TABLE OF SCHEDULES

Schedule 3.1	Foreign Qualifications
Schedule 3.3(a)	Shareholder Information
Schedule 3.3(e)	Voting Trusts, Shareholder Agreements, Proxies or Similar Agreements
Schedule 3.6	Officers and Directors
Schedule 3.7	Bank Accounts
Schedule 3.8	Tangible Assets and Owned or Leased Properties
Schedule 3.9	Material Contracts
Schedule 3.10(a)	No Conflict or Violation; Consents
Schedule 3.10(b)	Notices to Governmental Authorities
Schedule 3.11	Permits
Schedule 3.13	Absence of Certain Changes or Events
Schedule 3.14	Liabilities
Schedule 3.15	Litigation
Schedule 3.16	Labor Matters
Schedule 3.17	Employee Benefit Plans
Schedule 3.18	Related Party Transactions
Schedule 3.19	Compliance with Law
Schedule 3.20(a)	Intellectual Property – General
Schedule 3.20(c)	Intellectual Property – Royalties and Licenses
Schedule 3.20(d)	Intellectual Property – Ownership
Schedule 3.20(e)	Intellectual Property – Absence of Claims
Schedule 3.20(f)	Intellectual Property – Protection
Schedule 3.21	Taxes
Schedule 3.22	Insurance
Schedule 3.24	Customers and Suppliers
Schedule 3.25	Environmental Matters
Schedule 3.29	Real Property
Schedule 4.15	Intellectual Property
Schedule 6.3(b)	Required Consents
Schedule 7.4	Jensen Guaranties
Schedule 9.14(b)	Accredited Investors

ANNEXES

Annex I – This Annex includes the amount and type of consideration each shareholder is receiving in the Merger, and their names and addresses for notice purposes.

Annex II – Allocation of Merger Consideration

TABLE OF EXHIBITS

Exhibit A	Intentionally Omitted
Exhibit B	Form of Registration Rights Agreement
Exhibit C	Form of Subordinated Purchase Notes
Exhibit D	Form of Subordinated Indemnity Note
Exhibit E	Form of Transmittal Letter
Exhibit F	Form of Opinion of K&L Gates, LLP
Exhibit G	Form of Opinion of Farella Braun + Martel LLP

AGREEMENTANDPLANOFMERGER

          AGREEMENT AND PLAN OF MERGER, dated as of June 29, 2010 (the “Agreement”), among Unify Corporation, a Delaware corporation (“Buyer”), Unify Acquisition Corp., a California corporation and a wholly owned subsidiary of Buyer (“Merger Sub”), Strategic Office Solutions, Inc., d/b/a Daegis, a California corporation (“Company”), and only with respect to Sections 8.2(a)(i), 9.13 and 9.14 of this Agreement, the Shareholders that are signatories to this Agreement (the “Signing Shareholders”).

WITNESSETH:

          WHEREAS, Buyer, Merger Sub and Company (Merger Sub and Company sometimes being referred to herein as the “Constituent Corporations”) are hereby adopting a plan of merger, providing for the merger of Merger Sub with and into Company, with Company continuing as the surviving corporation (the “Merger”);

          WHEREAS, the Board of Directors of Company has adopted resolutions approving this Agreement and recommending approval thereof by its shareholders;

          WHEREAS, the Board of Directors of Buyer has adopted resolutions approving this Agreement;

          WHEREAS, the Signing Shareholders, representing greater than eighty percent (80%) of the voting power of Company, have approved this Agreement and the transactions contemplated hereby;

          WHEREAS, the Board of Directors of Merger Sub has adopted resolutions approving this Agreement and recommending approval thereof by Buyer as its sole shareholder, and Buyer as Merger Sub’s sole shareholder has approved this Agreement by an action by written consent without a meeting;

          WHEREAS, the Merger will be consummated in accordance with the California Corporations Code, as amended (the “California Code”), and this Agreement and evidenced by a Certificate of Merger between Merger Sub and Company in the form required under the California Code (the “Certificate of Merger”), such Merger to be consummated as of the Effective Time (as defined herein);

          WHEREAS, pursuant to the Merger, each outstanding share of common stock of Company (“Company Stock”) shall be converted solely into the right to receive the Merger Consideration (as defined herein), issued in the amounts and form set forth on Annex I hereto; and

          WHEREAS, Buyer, Merger Sub and Company have agreed that the Merger will be treated as an asset sale under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the “Code”).

          NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby the parties hereto hereby agree as follows:

1

ARTICLE 1
DEFINITIONS

1.1 Defined Terms

As used herein, the terms below shall have the following meanings:

“Actions” has the meaning set forth in Section 3.15 hereof.

“Actual Net Cash on Hand” has the meaning set forth in Section 2.10(b)(iv) hereof.

“Actual Working Capital” has the meaning set forth in Section 2.10(b)(iv) hereof.

“Affiliate” of any Person means any Person who is controlled by, controls or is under common control with such Person.

“Agreement” has the meaning set forth in the Preamble.

“Ancillary Agreements” means the Subordinated Seller Notes and the Registration Rights Agreement.

“Annual Financial Statements” has the meaning set forth in Section 3.12(a) hereof.

“Assets” of a Person means the right, title and interest in and to such Person’s properties, assets and rights of any kind, whether tangible or intangible, real or personal, including without limitation the right, title and interest in the following:

(a) all Contracts and Contract Rights;

(b) all Fixtures and Equipment;

(c) all Inventory;

(d) all Books and Records;

(e) all Proprietary Rights;

(f) all Permits;

(g) all return and other rights under or pursuant to all warranties, representations and guarantees made by suppliers and other third parties in connection with the Assets or services furnished to such Person;

(h) all cash, accounts receivable, deposits and prepaid expenses; and

(i) all goodwill.

“Books and Records” of a Person means (a) all product, business and marketing plans, sales and promotional literature and artwork relating to such Person, (b) all books, records, lists, ledgers, financial data, files, reports, product and design manuals, plans, drawings, technical manuals and operating records of every kind (including records and lists of customers, distributors, suppliers and personnel) relating to such Person, and (c) all telephone and fax numbers of such Person, in each case whether maintained as hard copy or stored in computer memory.

2

“Business” of a Person means the business and operations of such Person.

“Buyer” has the meaning set forth in the Preamble.

“Buyer Common Stock” means the Common Stock, par value $0.001 per share, of Buyer.

“Buyer Cure Period” has the meaning set forth in Section 9.1(a)(iv) hereof.

“Buyer Material Adverse Change” means a Material Adverse Effect on, or with respect to, Buyer or Merger Sub.

“Buyer Proprietary Rights” means Proprietary Rights that are owned by or licensed to Buyer or its Subsidiaries that are material to the conduct of the Business of Buyer or such Subsidiaries.

“Buyer Stock Consideration” has the meaning set forth in Section 2.10(a).

“Buyer Terminating Breach” has the meaning set forth in Section 9.1(a)(iii) hereof.

“Buyer Transaction Expenses” means the Transaction Expenses of Buyer.

“California Code” has the meaning set forth in the Recitals.

“Certificate of Merger” has the meaning set forth in the Recitals.

“Certificates” has the meaning set forth in Section 2.7(a) hereof.

“Closing” has the meaning set forth in Section 2.1(b) hereof.

“Closing Date” has the meaning set forth in Section 2.2 hereof.

“Code” has the meaning set forth in the Recitals.

“Company” has the meaning set forth in the Preamble.

“Company Assets” means the Assets of Company.

“Company Balance Sheet” means the balance sheet of Company as of the Company Balance Sheet Date.

“Company Balance Sheet Date” means May 31, 2010.

“Company Books and Records” means the Books and Records of Company.

3

“Company Business” means the Business of Company.

“Company Cure Period” has the meaning set forth in Section 9.1(a)(iii) hereof.

“Company Financial Statements” has the meaning set forth in Section 3.12(a) hereof.

“Company Material Adverse Effect” or “Company Material Adverse Change” means a Material Adverse Effect on, or with respect to, Company.

“Company Options” has the meaning set forth in Section 3.3(b).

“Company Option Plan” means the Strategic Office Solutions, Inc. 2001 Stock Plan, as amended.

“Company Proprietary Rights” means Proprietary Rights that are owned by or licensed to Company that are material to the conduct of the Company Business.

“Company Stock” has the meaning set forth in the Recitals.

“Company Terminating Breach” has the meaning set forth in Section 9.1(a)(iv) hereof.

“Company Transaction Expenses” means the Transaction Expenses of Company.

“Consents” of a Person means any and all Permits and any and all consents, approvals or waivers from third parties that are (i) required for the consummation of the transactions contemplated by this Agreement or (ii) necessary in order that such Person can conduct its business immediately after the Effective Time in substantially the same manner as immediately before the Effective Time.

“Constituent Corporations” has the meaning set forth in the Recitals.

“Contract Rights” means all rights and obligations under the Contracts.

“Contracts” of a Person means all agreements, contracts, leases (whether for real or personal property), purchase orders, undertakings, covenants not to compete, employment agreements, confidentiality agreements, licenses, instruments, obligations and commitments to which such Person is a party or by which such Person or any of its assets are bound are affected, whether written or oral.

“Court Order” means any judgment, decision, consent decree, injunction, ruling or order of any Governmental Authority that is binding on any Person or its property under applicable law.

“DGCL” means the Delaware General Corporation Law, as amended.

“Dissenters Rights” means the rights of shareholders of Company with respect to mergers set forth in Chapter 13 of the California Code.

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“Effective Time” has the meaning set forth in Section 2.2 hereof.

“Employees” of a Person means all persons employed by such Person on a full or part-time basis as of the relevant date.

“Encumbrance” means any claim, lien, pledge, option, charge, easement, security interest, deed of trust, mortgage, right-of-way, encroachment, building or use restriction, conditional sales agreement or encumbrance of any nature whatsoever.

“Environmental Law” means any and all federal, state, local and foreign statutes, laws, regulations, ordinances or rules in existence on the Closing Date relating to the protection, remediation or restoration of the environment; environmental safety and health; the effect of the environment or Substances on human health; emissions, discharges or releases of Substances into the environment, including without limitation ambient air, surface water, groundwater or land; or otherwise relating to the Handling of Substances or the clean-up or other remediation thereof.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Escrow Agent” means U.S. Bank, N.A.

“Escrow Agreement” means the Escrow Agreement, by and among Buyer, Shareholder Representative and Escrow Agent, as escrow agent, in the form mutually agreed to by the parties thereto.

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

“Exchange Agent” has the meaning set forth in Section 2.7(a).

“Fixtures and Equipment” of a Person mean all of the furniture, fixtures, furnishings, machinery, computer hardware, and other tangible personal property owned or leased by such Person, wherever located and including any such Fixtures and Equipment in the possession of any of such Person’s respective suppliers or other vendors.

“GAAP” means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statements by such entity as may be in general use by significant segments of the U.S. accounting profession, which are applicable to the facts and circumstances on the date of determination.

“Governmental Authority” means any federal, state, municipal, provincial, local, foreign or other governmental, quasi-governmental or administrative body, instrumentality, bureau, department or agency or any court, tribunal, administrative hearing body, arbitrator, arbitration panel, commission, or other similar dispute-resolving panel or body.

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“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“Handling” means the production, use, generation, emission, storage, treatment, transportation, recycling, disposal, discharge, release, or other handling or disposition of a Substance of any kind at any time.

“Holdback Escrow” means the $1,200,000 Subordinated Indemnity Note that will be placed in escrow (pursuant to the terms of the Escrow Agreement) to offset indemnity claims in accordance with Section 8.5(b).

“Holdback Shares” means any shares of the Buyer Common Stock into which the Subordinated Indemnity Note may be converted, which such shares of Buyer Common Stock shall be used to offset indemnity claims in accordance with Section 8.5(b) and which such shares of Buyer Common Stock shall be held in escrow pursuant to the terms of the Escrow Agreement.

“Inventory” means all merchandise owned and intended for resale and all raw materials, work in process, finished goods, wrapping, supply and packaging items and similar items, whether or not located on the premises, on consignment to a third party, or in transit or storage.

“Jensen” means Kurt Jensen, an individual.

“Liability” means any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or endorsement of or by any Person of any type, whether accrued, absolute, contingent, matured, unmatured, liquidated, unliquidated, known or unknown.

“Material Adverse Effect” with respect to any Person means any effect or change which has, individually or in the aggregate, a material adverse effect on such Person’s financial condition, results of operations or business; provided that any adverse effect that results from general economic, business or industry conditions shall be disregarded in determining whether there has been a “Material Adverse Effect” on such Person.

“Material Contracts” has the meaning set forth in Section 3.9.

“Merger” has the meaning set forth in the Recitals.

“Merger Consideration” means the Preliminary Merger Consideration as adjusted pursuant to Section 2.10(b) of this Agreement.

“Merger Sub” has the meaning set forth in the Preamble.

“NCM” has the meaning set forth in Section 4.2.

“Net Cash on Hand” means the cash and cash equivalents of the Company included in the Company’s current assets less total outstanding indebtedness, excluding capital leases as of the Effective Time.

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“Operating Site” means any real property or facility owned or leased at any time by Company in connection with the operation of the Company Business.

“Ordinary Course” means in the ordinary course of business and consistent with past practice.

“PCBs” means polychlorinated biphenyls.

“Permitted Encumbrance” means (a) liens for Taxes and other governmental charges and assessments which are not yet due and payable or which are being contested in good faith, (b) liens of landlords and liens of carriers, warehousemen, mechanics and materialmen and other like liens arising in the Ordinary Course for sums not yet due and payable or which are being contested in good faith, (c) other liens or imperfections on real property which do not materially detract from the existing use of the property affected by such lien or imperfection, (d) liens shown on any title insurance policies delivered to Buyer prior to the date hereof and (e) liens reflected on the Company Balance Sheet.

“Permits” of a Person means all licenses, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any Governmental Authority necessary for the past or present conduct or operation of the Business or ownership of the Assets of such Person.

“Person” means any person or entity, whether an individual, trustee, corporation, limited liability company, general partnership, limited partnership, trust, unincorporated organization, business association, firm, joint venture or Governmental Authority.

“Pre-Closing Dividend” means a cash dividend that, subject to compliance with applicable laws, the Board of Directors of Company will be permitted to declare on Company Common Stock, to be paid immediately prior to the Effective Time.

“Preliminary Merger Consideration” has the meaning set forth in Section 2.10(a) hereof.

“Proprietary Rights” means any and all (a) U.S. and foreign patents, patent applications, patent disclosures and improvements and modifications thereto, combinations, combinations-in-part, renewals, and extensions, including without limitation petty patents and utility models and applications therefor, (b) U.S. and foreign trademarks, service marks, trade dress, logos, trade names, corporate names and assumed names, and all modifications thereto, and the goodwill associated therewith, whether based on common law or statutory rights, and registrations and applications for registration thereof, (c) U.S. and foreign copyrights and derivative works thereto, whether based on common law or statutory rights, and registrations and applications for registration thereof, (d) U.S. and foreign mask work rights and registrations and applications for registration thereof, (e) trade secrets, know-how, research and development information, financial data, and customer and supplier lists, (f) computer software, programs, code (in any form, including, without limitation, modifications, enhancements and improvements thereto), domain names, internet addresses, web sites, telephone numbers and business addresses, and (g) licenses from third parties granting any rights with respect to any of the foregoing.

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“Registration Rights Agreement” means the Registration Rights Agreement substantially in the form attached hereto as Exhibit B to be entered into on the Closing Date providing certain registration rights to shareholders of Company with respect to certain of the Merger Consideration.

“Regulations” means any laws, statutes, ordinances, regulations, rules, notice requirements, court decisions, agency guidelines, principles of law and orders of any Governmental Authority, including without limitation energy, motor vehicle safety, public utility, zoning, building and health codes, Environmental Laws, occupational safety and health and laws respecting employment practices, employee documentation, terms and conditions of employment and wages and hours.

“Related Party” means any of Company’s Affiliates, officers and directors, and any Affiliates, partner or immediate family members of such officers and directors.

“Representative” means any Affiliate, officer, director, principal, attorney, agent, employee or other legal representative of any Person.

“Resignations” has the meaning set forth in Section 2.5.

“SEC” has the meaning set forth in Section 4.7 hereof.

“SEC Documents” has the meaning set forth in Section 4.7 hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder.

“Shareholders” has the meaning set forth in Section 3.3(a) hereof.

“Shareholder Representative” has the meaning set forth in Section 9.13 of this Agreement.

“Signing Shareholders” has the meaning set forth in the Recitals.

“Subordinated Indemnity Note” means the principal amount $1,200,000 (subject to adjustment as set forth in Section 2.10(b) below) promissory note in the form of Exhibit D that is subject to set off for indemnity claims under Section 8.5, that is to be issued as part of the Merger Consideration and that is to be held by the Escrow Agent pursuant to the Escrow Agreement.

“Subordinated Purchase Notes” means the aggregate principal amount $5,000,000 promissory notes in the form of Exhibit C that are to be issued as part of the Merger Consideration.

“Subordinated Seller Notes” means the Subordinated Indemnity Note and the Subordinated Purchase Notes.

“Subsidiary” of any Person, means any corporation, partnership, limited liability company, joint venture, trust, association or other legal entity of which such Person (either alone, through or together with any other Subsidiary) (i) owns, directly or indirectly, more than 50% of the stock or other equity interests, or (ii) exercises actual control over the management of such corporation or other legal entity.

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“Substances” means any “hazardous substance,” “hazardous waste,” “pollutant,” “contaminant” or “toxic substance,” as defined by the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., or the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., and regulations promulgated thereunder, or any analogous state and local laws and regulations; petroleum and petroleum products; PCBs or asbestos.

“Surviving Corporation” has the meaning set forth in Section 2.1(a).

“Target Net Cash on Hand” means $2,000,000.

“Target Working Capital” means $4,250,000.

“Tax Return” means any report, return, document, declaration or other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes, including information returns, and any documents with respect to or accompanying requests for the extension of time in which to file any such report, return, document, declaration or other information.

“Taxes” mean any and all taxes, charges, fees, levies or other assessments, including income, gross receipts, excise, real or personal property, sales, withholding, social security, retirement, unemployment, occupation, use, service, license, net worth, payroll, franchise and transfer and recording, imposed by the Internal Revenue Service or any taxing authority (whether domestic or foreign, including any federal, state, county, local or foreign government or any subdivision or taxing agency thereof (including a U.S. possession)), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments.

“Taxpayer” shall have the meaning set forth in Section 3.21(a).

“To the knowledge” or “knowledge” of a party (or similar phrases) means to the extent of matters which are actually known by such party; provided that, with respect to Company, such terms shall mean to the extent of matters (i) which are actually known by Jensen and (ii) which an individual in Jensen’s position would reasonably be expected to discover or otherwise become aware of in the course of conducting an investigation concerning the existence of such matters.

“Transaction Expenses” means all legal, accounting, investment banking, and other fees and expenses incurred in connection with this Agreement, the Merger, and the other transactions contemplated hereby.

“Transmittal Letter” has the meaning set forth in Section 2.7(a) hereof.

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“Unaudited Financial Statements” has the meaning set forth in Section 3.12(a) hereof.

“Working Capital” means the difference (whether positive or negative) of (a) the consolidated current assets of Company (excluding cash and cash equivalents), minus (b) the consolidated current liabilities of Company, in each case, as determined in accordance with GAAP, as of the Effective Time.

1.2 Interpretation Provisions

(a) The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, schedule and exhibit references are to this Agreement unless otherwise specified. The meaning of defined terms shall be equally applicable to the singular and plural forms of the defined terms. The term “or” is disjunctive but not necessarily exclusive. The terms “include” and “including” are not limiting and mean “including without limitation.”

(b) References to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto.

(c) References to statutes shall include all regulations promulgated thereunder and references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation.

(d) The captions and headings of this Agreement are for convenience of reference only and shall not affect the construction of this Agreement.

(e) The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against either party.

(f) The annexes, schedules and exhibits to this Agreement are a material part hereof and shall be treated as if fully incorporated into the body of the Agreement.

ARTICLE 2
THE MERGER

2.1 The Merger

(a) Merger. At the Effective Time (as defined in Section 2.2 hereof), and subject to and upon the terms and conditions of this Agreement and in accordance with the California Code, Merger Sub shall be merged with and into Company, the separate corporate existence of Merger Sub shall cease, and Company shall continue as the surviving corporation and a wholly owned subsidiary of Buyer. Company, as the surviving corporation after the Merger, is hereinafter sometimes referred to as the “Surviving Corporation.”

(b) Closing. Unless this Agreement shall have been terminated pursuant to Section 9.1, and subject to the satisfaction (or, to the extent permitted, the waiver) of the conditions set forth in Article 6, the closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the Effective Time at the offices of K&L Gates LLP, 70 West Madison Street, Suite 3100, Chicago, Illinois.

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2.2 Effective Time

As soon as practicable after the satisfaction or, to the extent permitted, the waiver, of the conditions set forth in Article 6, and provided that this Agreement has not been terminated pursuant to Section 9.1, Merger Sub and Company shall prepare, execute and file with the Office of the Secretary of State of the State of California the Certificate of Merger in order to comply in all respects with the applicable requirements of the California Code and with the provisions of this Agreement. For purposes of this Agreement, the “Effective Time” of the Merger shall mean the time at which the Certificate of Merger has been duly filed with the Office of the Secretary of State of the State of California and has become effective in accordance with the California Code; and the term “Closing Date” shall mean the date on which the Effective Time occurs.

2.3 Effect of the Merger

At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of the California Code. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time the Surviving Corporation shall thereupon and thereafter possess all of the rights, privileges, powers and franchises, of a public as well as a private nature, of the Constituent Corporations, and shall become subject to all of the restrictions, disabilities and duties of each of the Constituent Corporations; and all rights, privileges, powers and franchises of each Constituent Corporation, and all property, real, personal and mixed, and all debts to each such Constituent Corporation, on whatever account, and all choses in action belonging to each such corporation, shall become vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interests shall become thereafter the property of the Surviving Corporation as they are of the Constituent Corporations; and the title to any real property vested by deed or otherwise or any other interest in real estate vested by any instrument or otherwise in either of such Constituent Corporations shall not revert or become in any way impaired by reason of the Merger; but all rights of creditors and Encumbrances upon any property of either Constituent Corporation shall therefore attach to the Surviving Corporation and shall be preserved unimpaired, and all debts, liabilities and duties of each Constituent Corporation shall attach to the Surviving Corporation and may be enforceable against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it; all of the foregoing in accordance with the applicable provisions of the California Code.

2.4 Articles of Incorporation; Bylaws

(a) Articles of Incorporation. At and after the Effective Time, the Articles of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation until thereafter duly amended in accordance with applicable law and such Articles of Incorporation, provided that the name of the Surviving Corporation shall be “Strategic Office Solutions, Inc.”

(b) Bylaws. At and after the Effective Time, the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until thereafter duly amended in accordance with applicable law, the Articles of Incorporation of the Surviving Corporation and such bylaws.

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2.5 Directors and Officers

The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and bylaws of the Surviving Corporation, and the officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified in the manner provided in the Articles of Incorporation and bylaws of the Surviving Corporation and in accordance with applicable law. Company shall use commercially reasonable efforts to cause each of its directors and corporate officers to tender his or her resignation (collectively, the “Resignations”) prior to the Effective Time, with each such resignation to be effective as of the Effective Time.

2.6 Effect on Company Stock

At the Effective Time, by virtue of the Merger and without any further action on the part of Buyer, Merger Sub, Company or the Shareholders:

(a) Company Stock. Each share of Company Stock issued and outstanding immediately prior to the Effective Time will be converted into the right to receive, in accordance with the terms hereof, the Merger Consideration payable for such share of Company Stock. When so converted, all of such shares of Company Stock will be automatically cancelled and retired and shall no longer be outstanding.

(b) Merger Sub. Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation.

(c) [Intentionally Omitted]

(d) Dissenters Rights. Shares of Company Stock that have not been voted in favor of adoption of the Merger and with respect to which dissenters rights shall have been properly demanded in accordance with the California Code shall not be converted as set forth in Section 2.6(a) above at or after the Effective Time unless and until the holder of such shares withdraws its demand for appraisal in accordance with applicable law or becomes ineligible for such appraisal, at which time such shares shall be converted as set forth in Section 2.6(a) above, without interest. Company shall give Buyer (i) notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments in respect thereof received by Company prior to the Effective Time, and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal. Without the prior written consent of Buyer, which shall not be unreasonably withheld or delayed, Company will not make any payment with respect to any demands for appraisal and will not settle or offer to settle any such demands.

(e) Cancellation of Buyer Owned Stock. All of the Company Stock that is owned by Buyer or any direct or indirect wholly-owned Subsidiary of Buyer shall automatically cease to be outstanding, shall be canceled and shall cease to exist and no Merger Consideration shall be delivered in exchange therefor.

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(f) Adjustments to Annex I. In the event of any reclassification, stock split or stock dividend with respect to Company Stock or Buyer Common Stock, any change or conversion of Company Stock or Buyer Common Stock into other securities or any other dividend or distribution with respect to Company Stock or Buyer Common Stock (or if a record date with respect to any of the foregoing should occur) prior to the Effective Time, appropriate and proportionate adjustments shall be made to the description of the Merger Consideration on Annex I.

(g) Withholding Rights. Each of the Surviving Corporation and Buyer shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Stock such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code and the rules and regulations promulgated thereunder, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Surviving Corporation or Buyer, as the case may be, and delivered to the relevant taxing authority, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Company Stock in respect of which such deduction and withholding was made by the Surviving Corporation or Buyer.

2.7 Delivery of Merger Consideration

(a) Exchange Agent. Prior to the Effective Time, Buyer will designate a Person reasonably acceptable to Company to act as exchange agent (the “Exchange Agent”) for the payment of the Merger Consideration in accordance with this Article 2. At or prior to the Effective Time, Buyer shall deliver the Preliminary Merger Consideration to the Exchange Agent to be held in trust for the benefit of the Shareholders (the “Exchange Fund”).

(b) Distribution of Transmittal Letter. As soon as practicable after the Effective Time, but in any event no later than two business days thereafter, Buyer shall, or shall cause K&L Gates, LLP to, make available to each Shareholder a letter of transmittal in substantially the form attached hereto as Exhibit E (the “Transmittal Letter”), which Transmittal Letter shall, among other things, (i) acknowledge that the shares of Buyer Common Stock are restricted securities, (ii) to the extent that such Shareholder is not a Signing Shareholder, acknowledge that such Shareholder is agreeing to the appointment, and indemnification, of the Shareholder Representative, in accordance with the terms and conditions contained in Section 9.13 of this Agreement, (iii) to the extent that such Shareholder is not a Signing Shareholder, acknowledge that such Shareholder is agreeing to the indemnification obligations contained in Section 8.2(a)(i) of this Agreement, and (iv) provide instructions for such Shareholder’s use in effecting the surrender of the certificate or certificates evidencing Company Stock (the “Certificates”) in exchange for the Merger Consideration.

(c) Delivery. At the Effective Time, each Shareholder shall be entitled to receive, upon surrender to the Exchange Agent of any Certificates for cancellation, together with a duly-executed and completed Transmittal Letter, such Shareholder’s portion of the Merger Consideration set forth opposite such Shareholder’s name on Annex I, provided that the Subordinated Indemnity Note shall be held by the Exchange Agent, rather than delivered to the Escrow Agent, until such time as the Actual Working Capital is determined in accordance with Section 2.10(b).

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(d) Cancellation of Company Stock. Upon surrender of each Certificate and delivery by Buyer of the Merger Consideration to be delivered in exchange therefor, such Certificate shall forthwith be canceled. Until so surrendered, each Certificate shall be deemed for all corporate purposes to evidence only the right to receive upon such surrender its pro rata share of the Merger Consideration in accordance with the terms and upon the conditions of this Agreement, the Transmittal Letter and the Exchange Agent Agreement.

(e) Termination of Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the Shareholders for twelve (12) months after the Effective Time shall be delivered to Buyer, upon demand, and any Shareholders who have not theretofore completed a Transmittal Letter, submitted it and their Certificates to the Exchange Agent and otherwise complied with the requirements described in this Article 2 shall thereafter look only to Buyer for, and Buyer shall remain liable for, payment of their claims for the Merger Consideration pursuant to the provisions of this Article 2.

2.8 No Further Ownership Rights in Shares of Company Stock

At the Effective Time, the stock transfer books of Company shall be closed, and there shall be no further registration of transfers of Company capital stock thereafter on the records of Company. The Merger Consideration delivered upon the surrender for exchange of shares of Company Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to the shares of Company Stock. If, after the twelve (12) month anniversary of the Effective Time, the Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and the holder thereof shall receive its pro rata share of the Merger Consideration as provided in this Article 2.

2.9 Lost, Stolen or Destroyed Certificates

In the event any Certificates shall have been lost, stolen or destroyed, the Exchange Agent, Buyer or Surviving Corporation, as applicable, shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact with appropriate indemnification, in form satisfactory to Buyer in its reasonable discretion, by the Person claiming such Certificate to be lost, stolen, or destroyed, such Certificate’s pro rata share of the Merger Consideration pursuant to this Article 2.

2.10 Calculation of Merger Consideration

(a) Payments at Closing. Buyer agrees to pay to Shareholders at the Closing the following aggregate consideration (the “Preliminary Merger Consideration”): (i) an amount in cash equal to $24,000,000; (ii) $5,000,000 in Subordinated Purchase Notes; and (iii) $7,300,000 in the form of 2,085,714 shares of Buyer Common Stock, (the “Buyer Stock Consideration”). Buyer agrees to deliver to the Escrow Agent, the Seller Indemnity Note. The Preliminary Merger Consideration shall be subject to adjustment as set forth in Section 2.10(b) below.

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(b) Determination of Actual Working Capital and Net Cash on Hand.

(i) Preliminary Statement. On the day prior to the Closing Date, Company will prepare and deliver to Buyer a statement (the “Preliminary Statement”) setting forth in reasonable detail Company’s determination and calculation of Working Capital and Net Cash on Hand. The Preliminary Statement will be prepared using the same accounting treatment and other methodology used by the Company in preparing the Company Financial Statements, and will in all respects be prepared in a manner consistent with the Company Financial Statements.

(ii) Closing Balance Sheet. Within thirty (30) days after the Closing Date, Shareholder Representative will prepare, or cause to be prepared, and deliver to Buyer a statement (the “Closing Balance Sheet”) setting forth in reasonable detail Shareholder Representative’s determination and calculation of Working Capital and Net Cash on Hand as of the Closing Date. The Closing Balance Sheet will be prepared using the same accounting treatment and other methodology used by the Company in preparing the Company Financial Statements, and will in all respects be prepared in a manner consistent with the Company Financial Statements.

(iii) Closing Statement Preparation and Review. If Buyer does not object to the calculation of Net Cash on Hand set forth in the Closing Balance Sheet within thirty-five (35) days after the Closing Date, or accepts such calculation in writing during such thirty-five (35) day period, the Closing Balance Sheet will become the final determination and calculation of the Actual Net Cash on Hand and payment will be made in accordance with Section 2.10(b)(v). If Buyer does not object to the calculation of Working Capital set forth in the Closing Balance Sheet within sixty (60) days after the Closing Date, or accepts such calculation in writing during such sixty (60) day period, the Closing Balance Sheet will become the final determination and calculation of the Actual Working Capital and payment will be made in accordance with Section 2.10(b)(v). If Buyer objects to the Closing Balance Sheet, as soon as practicable following the Closing Date, but in no event later than thirty-five (35) days thereafter with respect to Net Cash on Hand, and no later than sixty (60) days thereafter with respect to Working Capital, Buyer will notify the Shareholder Representative in writing of such objection (a “Notice of Objection”). The Notice of Objection shall contain a statement (the “Closing Statement”) setting forth in reasonable detail Buyer’s determination and calculation of the Working Capital and the Net Cash on Hand, and identifying any adjustments to the Preliminary Merger Consideration as a result of such amounts being greater or less than the Working Capital and Net Cash on Hand set forth in the Preliminary Statement. The Closing Statement shall be prepared based on the books and records of Company using the same accounting treatment and other methodologies used by Company in preparing the Preliminary Statement.

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(iv) Closing Statement Dispute Resolution. During the thirty (30) day period immediately following the Shareholder Representative’s receipt of any Notice of Objection, Buyer and the Shareholder Representative will negotiate in good faith to resolve all disputed items. If Buyer and the Shareholder Representative are unable to resolve all of such disputes within thirty (30) days of Shareholder Representative’s receipt of the Notice of Objection, the items in dispute may be referred by either such party for determination as promptly as practicable to an independent accounting firm mutually agreed upon by Buyer and the Shareholder Representative (the “Independent Accounting Firm”), which shall be jointly engaged by Buyer and the Shareholder Representative pursuant to an engagement letter in customary form which each of Buyer and the Shareholder Representative will execute. The parties will direct the Independent Accounting Firm to prescribe procedures for resolving the disputed items and to make a written determination, with respect to such disputed items only, whether and to what extent, if any, the accompanying calculations of the Working Capital and Net Cash on Hand require adjustment based on the terms and conditions of this Agreement (the “Determination”). The Determination will be based solely on presentations with respect to such disputed items by Buyer and the Shareholder Representative to the Independent Accounting Firm and not on the Independent Accounting Firm’s independent review; provided, that such presentations will be deemed to include any written reports, work papers, records, accounts or similar materials delivered to the Independent Accounting Firm by Buyer or the Shareholder Representative in connection with such presentations and any materials delivered to the Independent Accounting Firm in response to requests by the Independent Accounting Firm. In the absence of fraud or manifest error, the Determination will be conclusive and binding upon Buyer, the Shareholder Representative and the Shareholders. The parties agree that, if the Independent Accounting Firm assigns to any item a value greater than the greatest value for such item claimed by either Buyer or the Shareholder Representative (the “Upper Limit”) or less than the smallest value for such item claimed by Buyer or the Shareholder Representative (the “Lower Limit”), the Determination for such item shall be adjusted to the Upper Limit or the Lower Limit, as applicable. If the value assigned by the Independent Accounting Firm to the Working Capital and Net Cash on Hand, taken together, is less than ninety-five percent (95%) of the value assigned to such items by Shareholder Representative in the Closing Balance Sheet, then the expenses and fees of the Independent Accounting Firm shall be offset against the aggregate principal amount of the Subordinated Purchase Note, otherwise such expenses and fees will be borne by the Buyer. 

     (v)Adjustment to Merger Consideration. The Working Capital amount determined in accordance with Section 2.10(b) (the “Actual Working Capital”) and the Net Cash on Hand as determined in accordance with Section 2.10(b) (the “Actual Net Cash on Hand”) will be used to calculate any necessary post-Closing adjustments to the Preliminary Merger Consideration in order to arrive at the Merger Consideration. Any such post-Closing adjustments to the Preliminary Merger Consideration resulting from the Actual Net Cash on Hand being greater than or less than, as the case may be, the Target Net Cash on Hand shall be made on or before the later of (x) the fifth day after determination of the Actual Net Cash on Hand and (y) the date thirty-five (35) days after the Effective Time. Any such post-Closing adjustments to the Preliminary Merger Consideration resulting from the Actual Working Capital being greater than or less than, as the case may be, the Target Actual Working Capital shall be made on or before the later of (x) the fifth day after the determination of the Actual Working Capital and (y) the date one-hundred twenty (120) days after the Closing Date.

          (A) Subject to subsection (D) below, if the Actual Working Capital exceeds the Target Working Capital, Buyer will increase the aggregate cash portion of the Merger Consideration by the amount of such difference.

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          (B) If the Actual Net Cash on Hand exceeds the Target Net Cash on Hand, Buyer will increase the aggregate cash portion of the Merger Consideration by the amount of such difference. 

          (C) If the Target Working Capital exceeds the Actual Working Capital, the aggregate principal balance of the Subordinated Purchase Note shall be reduced by the amount of such difference. 

          (D) If the Target Net Cash on Hand exceeds the Actual Net Cash on Hand, Shareholders will pay to Buyer the amount of such difference in cash.

          (E) The Preliminary Merger Consideration as finally adjusted in accordance with this Section 2.10(b) will be deemed to be the Merger Consideration.

2.11Section 338(h)(10) Election

          Buyer, Merger Sub and Company agree to treat the Merger as a “qualified stock purchase” of the Company Common Stock within the meaning of section 338(d)(3) of the Code and shall make a joint election under section 338(h)10) of the Code, and comparable state and local Tax provisions, with respect to such purchase (the “Section 338(h)(10) Election”). In connection with the making of the Section 338(h)(10) Election, Buyer and Company have agreed to the allocation set forth in Annex II of the Merger Consideration among the assets of the Company that are deemed to have been acquired pursuant to section 338(h)(10) of the Code and comparable state and local Tax provisions. Buyer and Company shall exchange completed and properly executed copies of IRS Form 8023, required schedules related thereto, and comparable state and local Tax forms and schedules, all of which are to be prepared on a basis consistent with the allocation set forth in Annex II.

2.12Taking of Necessary Action; Further Action

          Each of Buyer, Merger Sub and Company will take all such reasonable lawful action as may be necessary or appropriate in order to effect the Merger in accordance with this Agreement as promptly as practicable.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY

          As an inducement of Buyer to enter into this Agreement, Company hereby makes, as of the date hereof, the following representations and warranties to Buyer, except as otherwise set forth in written disclosure schedules (the “Schedules”) delivered to Buyer. The Schedules are numbered to correspond to the various sections of this Article 3 setting forth certain exceptions to the representations and warranties contained in this Article 3 and certain other information called for by this Agreement. Unless otherwise specified, no disclosure made in any particular Schedule shall be deemed made in any other Schedule unless expressly made therein (by cross reference or otherwise) or the Schedules otherwise expressly and completely disclose the specific exception.

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3.1Organization of Company

          Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Company has full corporate power and authority to conduct its business as it is presently being conducted and to own or lease, as applicable, the Company Assets. Copies of the Articles of Incorporation, certified by the Secretary of State of California, and the bylaws of Company, certified by the Secretary of Company, have been delivered to Buyer by Company and are true, correct and complete in all material respects. Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which such qualification is necessary under applicable law as a result of the conduct of the Company Business or the ownership of its properties and where the failure to be so qualified would have a Company Material Adverse Effect. Each jurisdiction in which Company is qualified to do business as a foreign corporation is set forth in Schedule 3.1.

3.2No Subsidiaries; No Interest in Other Entities

          Company has no Subsidiaries and owns no shares of any corporation and has no other ownership or other investment interest, either of record, beneficially or equitably, in any company, association, partnership, joint venture or legal entity, except for bank, checking and money market accounts.

3.3Capitalization of Company

          (a)As of the date of this Agreement, there are 20,000,000 shares of Company Stock authorized under its Articles of Incorporation, of which 19,357,142 are issued and outstanding. Schedule 3.3(a) sets forth a complete and accurate list of the names and addresses of all holders of record, as of the date of this Agreement, of Company Stock (the “Shareholders”).

          (b)As of the date of this Agreement, there are no outstanding and unexercised options to purchase shares of Company Stock (“Company Options”).

          (c)Except as set forth in paragraphs (a) and (b) of this Section 3.3, there are issued and outstanding (i) no shares of capital stock or other voting securities of Company, (ii) no securities of Company convertible into or exchangeable for shares of capital stock or other voting securities of Company, (iii) no subscription, options, warrants, calls, commitments, preemptive rights or other rights of any kind to acquire from Company and no obligation of Company to issue or sell, any shares of capital stock or other voting securities of Company or any securities of Company convertible into or exchangeable for such capital stock or voting securities and (iv) no equity equivalents, interests in the ownership or earnings or stock appreciation, phantom stock or other similar rights of or with respect to Company. There is no liability for or obligation with respect to any dividends, distributions or similar participation interests declared or accumulated but unpaid with respect to any shares of Company capital stock.

          (d)All outstanding shares of Company Stock are, and any shares of Company Stock issuable upon exercise of any outstanding Company Option, will, upon exercise or conversion pursuant to its terms, be, validly issued, fully paid and non-assessable and not subject to any preemptive rights created by statute, Company’s Articles of Incorporation or bylaws or any Contract. Each outstanding share of Company Stock and outstanding Company Option has been, and the shares of Company Stock issuable upon exercise of any outstanding Company Option will be, issued in compliance with all federal and state corporate and securities laws.

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          (e)Except as set forth in Schedule 3.3(e), there are no outstanding obligations (contractual or otherwise) of Company to repurchase, redeem or otherwise acquire any shares of Company capital stock or any other securities of the type described in paragraph (c) of this Section 3.3. There is no restriction upon the voting or transfer of any share of Company capital stock or other voting securities of Company pursuant to Company’s Articles of Incorporation, bylaws or any Contract to which Company is a party or by which Company is bound, and, except as contemplated by this Agreement, there is no outstanding vote, plan or pending proposal for any redemption of Company Stock or other voting securities of Company or the merger or consolidation of Company with or into any other entity. Except as set forth in Schedule 3.3(e), there are no voting trusts, shareholder agreements, proxies or other agreements in effect with respect to the voting or transfer of the Company Stock.

3.4Unlawful Payments and Contributions

          To the knowledge of the Company, neither the Company, nor any of its directors, officers, employees or agents has (i) used any Company funds for any unlawful contribution, endorsement, gift, entertainment or other unlawful expense relating to political activity, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee, (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any Person or entity.

3.5Authorization

          Company has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement and has taken all corporate action required to authorize the execution, delivery and performance of this Agreement and the consummation of the Merger and the other transactions contemplated hereby. This Agreement has been duly executed and delivered by Company, assuming the due authorization, execution and delivery by Buyer and Merger Sub, and the Shareholders that are parties hereto. This Agreement is, and upon execution and delivery will be, a legal, valid and binding obligation of Company, enforceable against Company in accordance with its terms, except that enforceability may be limited by the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors.

3.6Officers and Directors

          Schedule 3.6 contains a true, correct and complete list of all corporate officers and directors of Company.

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3.7Bank Accounts

          Schedule 3.7 contains a list of all of Company’s bank accounts, safe deposit boxes and persons authorized to draw thereon or have access thereto.

3.8Assets

          Schedule 3.8 contains an accurate list of all tangible assets and properties owned or leased by Company where the value of an individual item exceeds $50,000. Except as set forth on Schedule 3.8, Company has good and marketable fee simple title or a valid leasehold or license to each of the Company Assets, and none of the Company Assets are subject to any Encumbrances other than Permitted Encumbrances. The Company Assets constitute all of the assets, rights and properties, tangible or intangible, real or personal, which are required for the operation of the Company Business as it is presently conducted. Except as set forth on Schedule 3.8, all tangible assets and properties which are part of the Company Assets are in good operating condition and repair (normal wear and tear excepted) and are usable in the Ordinary Course.

3.9Material Contracts

          (a)Disclosure. Schedule 3.9 sets forth a complete and accurate list of all of Contracts to which Company is a party as of the date of this Agreement of the following categories (collectively, the “Material Contracts”):

          (i)Contracts that are not made in the Ordinary Course, pursuant to which aggregate payments of $100,000 or more have been made since January 1, 2009;

          (ii)manufacturing or joint development agreements; 

          (iii)license agreements or royalty agreements, whether Company is the licensor or licensee thereunder (excluding licenses that are commonly available on standard commercial terms, such as software “shrink wrap” or “click through” licenses), pursuant to which aggregate payments of $25,000 or more have been made since January 1, 2009; 

          (iv)confidentiality and non-disclosure agreements (whether the Company is the beneficiary or the obligated party thereunder) not otherwise described in this Section 3.9(a); 

          (v)customer orders or sales contracts under which the customer is required by its terms to make a payment after the date hereof of $100,000 or more; 

          (vi)Contracts or commitments involving future expenditures or Liabilities, actual or potential, in excess of $100,000 after the date hereof; 

          (vii)Contracts or commitments relating to commission arrangements with others, pursuant to which aggregate payments of $100,000 or more have been made since January 1, 2009;

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          (viii)employment contracts, consulting contracts and severance agreements, including Contracts (A) to employ or terminate executive officers or other Company Employees and other contracts with present officers or directors of Company or (B) that will result in the payment by, or the creation of any Liability to pay on behalf of Company, Surviving Corporation or Buyer any severance, termination, “golden parachute,” or other similar payments to any Company Employees following termination of employment or otherwise as a result of the consummation of the transactions contemplated by this Agreement; 

          (ix)indemnification agreements, including Contracts that contain indemnification obligations, not otherwise described in this Section 3.9(a); 

          (x)promissory notes, loans, agreements, indentures, evidences of indebtedness, letters of credit, guarantees, or other instruments relating to an obligation to pay money, whether Company shall be the borrower, lender or guarantor thereunder (excluding credit provided by Company in the Ordinary Course to purchasers of its products and obligations to pay vendors in the Ordinary Course), except as disclosed in the Company Financial Statements; 

          (xi)Contracts to which Company is a party, or to Company’s knowledge any other Contracts, containing covenants limiting the freedom of Company, or any officer, director, Employee or Affiliate of Company, to engage in any line of business or compete with any Person that relates directly or indirectly to the Company Business; 

          (xii)any Contract with the federal, state or local government or any agency or department thereof, pursuant to which aggregate payments of $10,000 or more have been made since January 1, 2009; 

          (xiii)any Contract or other arrangement with a Related Party other than employment agreements and any compensatory arrangements entered into in the Ordinary Course; 

          (xiv)Contracts that contain a change of control provision granting to another party or other parties thereto the right to terminate such Contract or take other action adverse to Company upon or following the Merger or any other transaction contemplated herein (the “Consent Agreements”); 

          (xv)Contracts that purport to limit Company or, after the Effective Time, the Surviving Corporation or Buyer, from providing any service in any jurisdiction, whether under the Company name, the Buyer name, or otherwise, or grant any exclusive geographic, segment or other rights to any third party;

          (xvi)Contracts that are in the nature of offset or barter arrangements; 

          (xvii)professional services contracts, pursuant to which aggregate payments of $100,000 or more have been made since January 1, 2009;

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          (xviii)any fixed-fee professional services contracts under which Company is obligated to perform not otherwise described in this Section 3.9(a); and 

          (xix)any other Contract material to the Company Business or the Company Assets.

True, correct and complete copies of all of the Material Contracts listed on Schedule 3.9, including all amendments and supplements thereto, have been made available to Buyer or its Representatives. Company has included as part of Schedule 3.9 a brief summary of the material terms of each oral Material Contract.

          (b)Absence of Defaults. All of the Contracts listed pursuant to paragraph (a) of this Section 3.9 are valid, binding and enforceable against Company and, to the knowledge of Company, are valid, binding and enforceable against the other parties thereto, in each case, in accordance with their terms. Except as set forth on Schedule 3.9, no condition exists or event has occurred which, with notice or lapse of time or both, would constitute a default under the Material Contracts by Company or, to the knowledge of Company, any other party thereto. Company has no reason to believe that the products or services called for by any Material Contract cannot be supplied in accordance with the terms of such Material Contract, including time specifications, and has no reason to believe that any unfinished Material Contract will, upon performance by Company, result in a material loss to Company.

          (c)Product Warranty. Company has not committed any act, and, to Company’s knowledge, there has been no omission by Company, which may result in, and there has been no occurrence which may give rise to, any product Liability or Liability for breach of warranty (whether covered by insurance or not) on the part of Company, with respect to products designed, sold, repaired, maintained, delivered or installed or services rendered prior to or on the Closing Date.

3.10No Conflict or Violation; Consents

          (a)Except for the Consent Agreements and except as set forth on Schedule 3.10(a), none of the execution, delivery or performance of this Agreement, the consummation of the Merger or any other transaction contemplated hereby, nor compliance by Company with any of the provisions hereof, will (i) violate or conflict with any provision of Company’s Articles of Incorporation or bylaws, (ii) violate, conflict with, or result in a breach of or constitute a default (with or without notice or passage of time) under, or result in the termination of, or accelerate the performance required by, or result in a right to terminate, accelerate, modify or cancel under, or require a consent under, or result in the creation of any Encumbrance upon any of its assets under, any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, security interest or other arrangement to which Company is a party or by which Company is bound, (iii) violate any applicable Regulation or Court Order or (iv) impose any Encumbrance on any Company Assets (other than Permitted Encumbrances), other than, with respect to (ii), (iii) and (iv) any such violation, conflict, breach, default, termination, acceleration, modification, cancellation, consent requirement or Encumbrance that would not reasonably be expected to have a Material Adverse Effect.

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          (b)Except as set forth on Schedule 3.10(b), no notices to, declaration, filing or registration with, approvals or consents of, or assignments by, any Governmental Authority are necessary to be made or obtained by Company in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby, except (i) the filing of the Certificate of Merger with the Secretary of State of the State of California, (ii) any filing that may be required by the HSR Act, and (iii) such notices, approvals or consents which if not obtained or made would not reasonably be expected to have a Material Adverse Effect on Company or impair its ability to consummate the transactions contemplated hereby.

3.11Permits

          (a)Schedule 3.11(a) sets forth a complete list of all Permits material to the Company Business or the Company Assets, all of which are as of the date hereof, and will be as of the Closing Date, in full force and effect.

          (b)Except as set forth on Schedule 3.11(b), Company currently has all Permits required under any applicable Regulation necessary for the lawful conduct of its business as presently conducted and owns or possesses such Permits free and clear of all Encumbrances other than Permitted Encumbrances, except for such Permits the failure of which to obtain have not had and would not reasonably be expected to have a Company Material Adverse Effect. Company is not in default, nor has Company received any notice of any claim of default, with respect to any such Permit, except for such defaults that have not had and would not reasonably be expected to have a Company Material Adverse Effect.

3.12Financial Statements; Books and Records

          (a)Company has made available to Buyer (i) the audited balance sheets of Company as of each of December 31, 2009 (the “Company Annual Balance Sheet Date”) and December 31, 2008 and the related statements of income and cash flow for the 12-month periods then ended together with the notes thereon (the “Audited Financial Statements”), (ii) the reviewed but unaudited balance sheet of Company as of December 31, 2007 and the related statements of income and cash flow for the 12-month period then ended together with the notes thereon, and (iii) the unaudited balance sheet of Company as of the Company Balance Sheet Date and the related statements of income and cash flow for the five-month period then ended together with the notes thereon (the financial statements described in clauses (ii) and (iii) above, collectively, the “Unaudited Financial Statements” and together with the Audited Financial Statements, the “Company Financial Statements”). The Audited Financial Statements have been prepared in accordance with GAAP consistently applied from period to period. The Company Financial Statements present fairly, in all material respects, the financial condition of Company as of the dates stated therein and the results of operation for the periods stated therein.

          (b)Company has maintained a system of internal accounting controls sufficient to provide reasonable assurance that transactions have been executed with management's authorizations, and transactions have been recorded as necessary to permit preparation of the Company Financial Statements in accordance with GAAP.

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          (c)The Company Books and Records accurately and fairly reflect, in all material respects, the activities of Company and have been made available to Buyer for its inspection.

          (d)Company has not engaged in any monetary transaction, maintained any bank account or used any corporate funds except for such monetary transactions, bank accounts or funds which have been and are reflected, in all material respects, in the normally maintained Company Books and Records.

          (e)The stock records and minute books of Company that have been made available to Buyer reflect all minutes of meetings and resolutions of its shareholders and board of directors and all committees thereof and, to the knowledge of Company, all issuances, transfers and redemptions of Company Stock, and contain true, correct and complete copies of Company’s Articles of Incorporation and bylaws and all amendments thereto through the date hereof.

3.13Absence of Certain Changes or Events

          Except as set forth on Schedule 3.13, since the Company Balance Sheet Date there has not been any:

          (a)event or occurrence that would reasonably be expected to constitute a Company Material Adverse Change;

          (b)failure to exercise commercially reasonable efforts to preserve the Company Business intact and to preserve the continued services of its Employees and the goodwill of suppliers, customer and others having existing business relations with Company;

          (c)resignation or termination of any officer or Employee, or any material increase in the rate of compensation payable or to become payable to any officer or Employee of Company, including the making of any loan to, or the payment, grant or accrual of any bonus, incentive compensation, service award or other similar benefit to, any such Person, or the addition to, modification of, or contribution to any Employee Plan (as defined below) other than (i) contributions made to the benefitplans specified in Schedule 3.17 in accordance with the normal practices of Company or (ii) the extension of coverage under such plans to others who became eligible after the Company Balance Sheet Date;

          (d)payment, loan or advance of any amount to, or in respect of, or the sale, transfer or lease of any properties or any Company Assets to, or entering into of any Contract with, any Related Party except in the Ordinary Course and (i) directors’ fees and (ii) compensation to Employees at the rates disclosed pursuant to Section 3.16(d);

          (e)sale, assignment, license, transfer or encumbrance of any of the Company Assets tangible or intangible, singly or in the aggregate, except in the Ordinary Course;

          (f)new Contracts, or extensions, modifications, terminations or renewals thereof, except in the Ordinary Course;

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          (g)actual or to Company’s knowledge threatened termination of any material customer account or group of accounts or actual or to Company’s knowledge threatened material reduction in purchases or royalties payable by any such customer or occurrence of any event that would reasonably be expected to result in any such termination or reduction;

          (h)disposition or lapsing of any of the Company Proprietary Rights, in whole or in part, or, to Company’s knowledge, any disclosure of any material trade secret, process or know-how to any Person not an Employee or not bound by a confidentiality agreement;

          (i)material change in accounting methods or practices by Company other than as required by GAAP;

          (j)revaluation by Company of any of the material Company Assets, including writing off notes or accounts receivable other than for which adequate reserves have been established;

          (k)damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the Company Assets or the Company Business;

          (l)declaration, setting aside or payment of dividends or distributions in respect of any Company Stock (except for the Pre-Closing Dividend) or any redemption, purchase or other acquisition of any of Company's equity securities;

          (m)issuance or reservation for issuance by Company of, or commitment of it to issue or reserve for issuance, any shares of stock or other equity securities or obligations or securities convertible into or exchangeable for shares of Company Stock, other than as required with respect to the grant of options under the Company Option Plan;

(n)increase, decrease or reclassification of the Company Stock;

(o)amendment of Company’s Articles of Incorporation or bylaws;

          (p)capital expenditure or execution of any lease or any incurring of Liability therefor by Company, involving payments in excess of $100,000 in the aggregate;

(q)failure to pay any material obligation of Company when due;

          (r)cancellation of any indebtedness or waiver of any rights of substantial value to Company, except in the Ordinary Course;

          (s)indebtedness incurred by Company for borrowed money or any commitment to borrow money entered into by Company, or any loans made or agreed to be made by Company except, in each case, in the Ordinary Course;

          (t)Liability in excess of $100,000 incurred by Company except in the Ordinary Course, or any increase or material change in any assumptions underlying or methods of calculating any bad debt, contingency or other reserves;

          (u)payment, discharge or satisfaction of any Liabilities of Company other than the payment, discharge or satisfaction in the Ordinary Course of Liabilities reflected or reserved against in the Company Financial Statements or incurred in the Ordinary Course since the Company Balance Sheet Date;

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          (v)acquisition of any equity interest in any other Person; or

(w)agreement by Company to do any of the foregoing.

3.14Liabilities

          Except as set forth on Schedule 3.14, Company has no Liabilities or obligations (absolute, accrued, contingent or otherwise) except (i) Liabilities which are reflected and reserved against in the Company Financial Statements in accordance with GAAP, (ii) Liabilities incurred in the Ordinary Course since the Company Balance Sheet Date (all of which Liabilities do not exceed $100,000 in the aggregate, excluding payroll, rent expenses, and Liabilities incurred in the Ordinary Course to suppliers and service providers with whom Company had a business relationship prior to the Company Balance Sheet Date) and (iii) Liabilities arising under the Contracts (other than obligations which are required to be reflected on a balance sheet prepared in accordance with GAAP) set forth on Schedule 3.9 or which are not required to be disclosed on such Schedule and which have arisen or been incurred in the Ordinary Course.

3.15Litigation

          Except as set forth on Schedule 3.15, there is no action, order, writ, injunction, judgment or decree outstanding or claim, suit, litigation, proceeding, investigation or dispute (collectively, “Actions”) pending or, to the knowledge of Company, threatened (i) against, relating to or affecting Company or any of its officers and directors (other than Actions to which Company is not a party or which relate to or affect the document management and eDiscovery industries generally), (ii) which seek to enjoin or obtain damages in respect of the transactions contemplated hereby or by the Ancillary Agreements or (iii) which prevents, or would reasonably be expected to prevent Company from consummating the transactions contemplated hereby. None of the Actions, if adversely determined against Company, or its directors or officers, would reasonably be expected to result in a loss to Company, individually or in the aggregate, in excess of $100,000. To the knowledge of Company, there is no basis for any Action which, if adversely determined against Company, its directors or officers, would reasonably be expected to result in a loss to Company, individually or in the aggregate, in excess of $100,000. There are presently no outstanding judgments, decrees or orders of any court or any Governmental Authority against or affecting Company. There are no Court Orders with, or Encumbrances by, any Governmental Authority relating to any Environmental Laws which regulate, obligate or bind Company. Schedule 3.15 contains a complete and accurate description of all Actions to which Company is a party or Company’s corporate officers or directors other than Actions brought by Company for collection of moneys owed in the Ordinary Course.

3.16Labor Matters

          (a)Company is not a party to any collective bargaining agreement with respect to its Employees with any labor organization, group or association and, to Company’s knowledge, has not experienced any attempt by organized labor or its representatives to make Company conform to demands of organized labor relating to its Employees or to enter into a binding agreement with organized labor that would cover the Employees of Company. Except as set forth on Schedule 3.16(a), there is no unfair labor practice charge or complaint under the National Labor Relations Act against Company pending before the National Labor Relations Board or any other Governmental Authority arising out of Company’s activities, and Company does not have any knowledge of any facts or information which would reasonably be expected to give rise thereto; there is no labor strike or labor disturbance pending or, to Company’s knowledge, threatened against Company nor is any grievance currently being asserted against it; and Company has not experienced a material work stoppage or slow down. Except as set forth on Schedule 3.16(a), there are no controversies pending or, to the knowledge of Company, threatened between Company and any of its Employees, and Company is not aware of any facts which would reasonably be expected to result in any such controversy.

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          (b)Company is in material compliance with all applicable Regulations respecting employment practices, terms and conditions of employment, wages and hours, equal employment opportunity, the payment of social security and similar taxes, occupational safety and health and employee documentation. Company is not liable for any claims for past due wages or any penalties for failure to comply with any of the foregoing.

          (c)Except as set forth on Schedule 3.16(c), Company has not entered into any severance or similar arrangement in respect of any present or former Employee that will result in any obligation (absolute or contingent) of Buyer or Company to make any payment to any present or former Employee following termination of employment or upon consummation of the transactions contemplated by this Agreement.

          (d)Company has previously made available to Buyer a list of the names of all present Employees and their current salary or hourly wage rate and other compensation payable by Company.

3.17Employee Benefit Plans

          (a)Definitions. The following terms, when used in this Section 3.17, shall have the following meanings. Any of these terms may, unless the context otherwise requires, be used in the singular or the plural depending on the reference.

          (i)“Benefit Arrangement” means any employment, consulting, severance or other similar contract, arrangement or policy and each plan, arrangement (written or oral), program, agreement or commitment providing for insurance coverage (including any self-insured arrangements), workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits, life, health, disability or accident benefits (including any “voluntary employees” beneficiary association” as defined in Section 501(c)(9) of the Code providing for the same or other benefits) or for deferred compensation, profit-sharing bonuses, stock options, stock appreciation rights, stock purchases or other forms of incentive compensation or post-retirement insurance, compensation or benefits which (A) is not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is entered into, maintained, contributed to or required to be contributed to, as the case may be, by Company or any ERISA Affiliate or under which Company or any ERISA Affiliate may incur any liability, and (C) covers any employee or former employee of Company or any ERISA Affiliate (with respect to their relationship with such entities).

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          (ii)“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. 

          (iii)“Employee Plans” means all Benefit Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans. 

          (iv)“ERISA Affiliate” means any entity which is (or at any relevant time was) a member of a “controlled group of corporations” with or under “common control” with Company as defined in Section 414(b), (c), (m) or (o) of the Code. 

          (v)“Multiemployer Plan” means any “multiemployer plan,” as defined in Section 3(37) of ERISA. 

(vi)“PBGC” means the Pension Benefit Guaranty Corporation. 

          (vii)“Pension Plan” means any “employee pension benefit plan” as defined in Section 3(2) of ERISA (other than a Multiemployer Plan) (A) which Company or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, or, within the five years prior to the Closing Date, maintained, administered, contributed to or was required to contribute to, or under which Company or any ERISA Affiliate may incur any liability and (B) which covers any employee or former employee of Company or any ERISA Affiliate (with respect to their relationship with such entities). 

          (viii)Welfare Plan. “Welfare Plan” means any “employee welfare benefit plan” as defined in Section 3(1) of ERISA, (A) which Company or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, or under which Company or any ERISA Affiliate may incur any liability and (B) which covers any employee or former employee of either of Company or any ERISA Affiliate (with respect to their relationship with such entities).

          (b)Disclosure; Delivery of Copies of Relevant Documents and Other Information. Schedule 3.17 contains a complete list of Employee Plans which cover Employees of Company (with respect to their relationship with Company), including any special bonus, benefit or compensation arrangement with executives of Company that will remain in effect after the Effective Time. True, complete and correct copies of each of the following documents have been made available to Buyer by Company: (i) each Welfare Plan and Pension Plan (and, if applicable, related trust agreements) and all amendments thereto, all material written interpretations thereof and material written descriptions thereof currently in effect which have been distributed to the employees of Company and all annuity contracts or other funding instruments currently in effect, (ii) each Benefit Arrangement including material written interpretations thereof and material written descriptions thereof currently in effect which have been distributed to Company's Employees (including descriptions of the number and level of Employees covered thereby), (iii) the most recent determination letter issued by the Internal Revenue Service with respect to each Pension Plan, (iv) for the three most recent plan years, Annual Reports on Form 5500 Series required to be filed with any Governmental Authority for each Pension Plan, and (v) a description setting forth the amount of any liability of Company as of the Closing Date for payments more than 30 days past due with respect to each Welfare Plan.

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(c)Representations.

          (i)Pension Plans. No Pension Plan is subject to Title IV of ERISA or Section 412 of the Code. 

          (ii)Multiemployer Plans. Neither Company nor any ERISA Affiliate contributes to, or within the past six years has been obligated to, contribute to any Multiemployer Plan. 

          (iii)Welfare Plans. None of Company, any ERISA Affiliate or any Welfare Plan has any present or future obligation to make any payment to or with respect to any present or former employee of Company or any ERISA Affiliate pursuant to any retiree medical benefit plan, or other retiree Welfare Plan other than as may be required by COBRA or other similar state law, and no condition exists which would prevent Company from amending or terminating any such benefit plan or Welfare Plan. 

          (iv)Compliance with Law. Each Pension Plan and each related trust agreement, annuity contract or other funding instrument has received a favorable determination letter from the IRS that such Pension Plan is qualified and tax-exempt under the provisions of Sections 401(a) (or 403(a), as appropriate) and 501(a) of the Code and no facts or circumstances exist which would reasonably be expected to adversely effect such qualification in form or in operation other than violations that may be corrected under the IRS voluntary corrections programs without penalty. Each Welfare Plan which is a “group health plan,” as defined in Section 607(1) of ERISA, has been operated in material compliance with provisions of Parts 6 and 7 of Title I of ERISA and Section 4980B of the Code at all times. 

          (v)Benefit Arrangements. Each Benefit Arrangement which covers Employees of Company (with respect to their relationship with Company) has been maintained in material compliance with its terms and with the requirements prescribed by any and all Regulations which are applicable to such Benefit Arrangement, including the Code. Except as set forth in Schedule 3.17, and except as provided by law, the employment of all persons presently employed or retained by Company is terminable at will at any time and without advance notice. 

          (vi)Deductibility of Payments. There is no Contract covering any Employee of Company (with respect to their relationship with Company) that, individually or collectively, provides for the payment by Company of any amount (i) that is not deductible under Section 162(a)(1) or 404 of the Code currently or (ii) that is an “excess parachute payment” pursuant to Section 280G of the Code. 

          (vii)Fiduciary Duties and Prohibited Transactions. Neither Company nor to its knowledge any plan fiduciary of any Welfare Plan or Pension Plan which covers employees or former employees of Company, has engaged in any transaction in violation of Sections 404 or 406 of ERISA or any “prohibited transaction,” as defined in Section 4975(c)(1) of the Code, for which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code.

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          (viii)No Amendments. Neither Company nor any ERISA Affiliate has any announced plan or legally binding commitment to create any additional Employee Plans or to amend or modify any existing Employee Plan, except as may be required under applicable law.

          (ix)No Acceleration of Rights or Benefits. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in the acceleration or creation of any rights of any person to benefits under any of the Employee Plans, the acceleration of the vesting of any restricted stock, the acceleration of the accrual or vesting of any benefits under any Pension Plan or the creation of rights under any severance, parachute or change of control agreement. 

          (x)No Other Material Liability. No event has occurred in connection with which Company or any ERISA Affiliate or any Employee Plan, directly or indirectly, is currently subject to any material liability (i) under any Regulation or governmental order relating to any Employee Plans or (ii) pursuant to any obligation of Company to indemnify any Person against liability incurred under, any such Regulation or order as they relate to the Employee Plans.

3.18Transactions with Related Parties

          Except for employment agreements and other compensation arrangements, and as otherwise disclosed on Schedule 3.18, no Shareholder or Related Party (a) has borrowed from, or loaned money or other property to, Company which has not been repaid or returned, (b) has any contractual or other claims, express or implied, of any kind whatsoever against Company, (c) has any interest in any Company Asset or any property used by Company or (d) is a party, directly or indirectly, to any Contract with Company.

3.19Compliance with Law

          Except as set forth in Schedule 3.19, Company has conducted the Company Business in material compliance with all applicable Regulations and Court Orders. Company has not received any notice to the effect that, or has otherwise been advised in writing that, Company is not in material compliance with any such Regulations or Court Orders.

3.20Intellectual Property

          (a)General. Schedule 3.20(a) sets forth with respect to the Company Proprietary Rights: (i) for each patent and patent application that has been filed with the applicable patent authority in any country, as applicable, the number, normal expiration date, title and priority information for each country in which such patent has been issued, or, the application number, date of filing, title and priority information for each country, (ii) for each trademark, tradename or service mark that Company has used in commerce in connection with the marketing or promotion of its products and services, whether or not registered, the date first used, the application serial number or registration number, the class of goods covered, the nature of the goods or services, the countries in which the names or mark is used and the expiration date for each country in which a trademark has been registered, (iii) for each copyright for which registration has been sought, whether or not registered, the date of creation and first publication of the work, the number and date of registration for each country in which a copyright application has been registered, (iv) each mask work, whether or not registered, the date of first commercial exploitation and if registered, the registration number and date of registration, (v) a list of all such Proprietary Rights in the form of licenses from any third parties to Company, other than “shrink wrap”, “click through” or similar software licenses, and (vi) a list of all such Company Proprietary Rights which are licensed by Company to any third parties. True and correct copies of all applications and registrations for each of Company’s Proprietary Rights required to be listed on Schedule 3.20(a) have been made available to Buyer.

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          (b)Adequacy. The Company Proprietary Rights constitute all of the Proprietary Rights used in the conduct of the Company Business as presently conducted, including the design, manufacture and sale of all products currently under development, or in production. With regard to any Proprietary Rights based upon an assignment from any third party, such assignment(s) have been duly recorded where and as necessary to establish and maintain the Company Proprietary Rights.

          (c)Royalties and Licenses. Except as set forth in Schedule 3.20(c), Company has no obligation to compensate any Person for the use of any of the Company Proprietary Rights nor has Company granted to any Person any license, option or other rights to use in any manner any of the Company Proprietary Rights, whether requiring the payment of royalties or not.

          (d)Ownership. Except as set forth in Schedule 3.20(d), Company exclusively owns or has been granted an unexpired right to use the Company Proprietary Rights, without any Encumbrances (other than Permitted Encumbrances), and such Proprietary Rights will not cease to be existing rights of Company by reason of the execution, delivery and performance of this Agreement or the Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby; nor will this Agreement or the Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby otherwise have a Material Adverse Effect on the Proprietary Rights; and the Proprietary Rights will remain fully transferable, alienable, and licensable without restriction and without payment. Further, this Agreement, the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby will not cause any payment or royalty (i) to be created other than in the Ordinary Course; or (ii) to become accelerated. The patents and the registered trademarks and copyrights of the Company are valid and in full force and effect and are not subject to any fines, maintenance fees or Actions falling due within 90 days of the date hereof.

          (e)Absence of Claims. Except as set forth in Schedule 3.20(e), Company has not received any written notice of any (A) invalidity, challenge of the legality or ownership or unenforceability, or alleged invalidity, challenge of the legality or ownership or unenforceability with respect to any of the Company Proprietary Rights; (B) infringement, misappropriation, or alleged infringement or misappropriation of any Proprietary Rights of others due to any activity by Company; or (C) infringement, misappropriation, or alleged infringement or misappropriation of the Company Proprietary Rights. To Company’s knowledge, neither the holding or use by Company of any of the Company Proprietary Rights nor the offering or sale or other provision by Company of any services or products marketed or sold or otherwise provided by Company violates or is alleged to violate any license, sublicense or other agreement with, or infringes any common-law or statutory right of, any third party anywhere in the world. No other Person (i) has notified Company that it is claiming any ownership of or right to use any of the Company Proprietary Rights or (ii) to Company’s knowledge, is infringing upon any such Company Proprietary Rights in any way.

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          (f)Protection of Proprietary Rights. Except as set forth in Schedule 3.20(f), all of the pending applications for the Company Proprietary Rights listed on Schedule 3.20(a) have been duly filed and all registrations and issued patents that are part of the Company Proprietary Rights are in full force and effect and are not subject to any fines, maintenance fees or Actions falling due within 90 days after the date hereof. Company has taken all reasonable steps that are customary in the industry (including, entering into confidentiality and nondisclosure agreements, in connection with the Company Assets or the Company Business) to safeguard and maintain the secrecy and confidentiality of, and the proprietary rights in, the Company Proprietary Rights, except where any failure to do so would not reasonably be expected to have a Company Material Adverse Effect. Without limiting the foregoing, except as set forth in Schedule 3.20(f), all material Company Proprietary Rights that were created by consultants, independent contractors or other third parties for or on behalf of Company are subject to written agreements pursuant to which all right, title and interest therein, including without limitation the copyrights thereto, have been assigned to Company.

3.21Taxes

          (a)Filing of Tax Returns. Except as set forth on Schedule 3.21(a), Company has timely filed with the appropriate taxing authorities all Tax Returns that it was required to file under applicable laws and regulations. The Tax Returns filed are complete, correct and accurate in all respects. Except as specified in Schedule 3.21, Company is not currently the beneficiary of any extension of time within which to file Tax Returns in respect of any Taxes. Company has delivered, or made available, to Buyer complete and accurate copies of all Tax Returns of Company for the years ended December 31, 2009, 2008 and 2007. No claim has ever been made by an authority in a jurisdiction where Company does not file Tax Returns that Company is or may be subject to taxation by that jurisdiction.

          (b)Payment of Taxes. All Taxes due and owing by Company (whether or not shown on any Tax Return) have been paid. Company has not incurred a Liability for additional Taxes other than in the Ordinary Course.

          (c)Audits, Investigations or Claims. Except as set forth on Schedule 3.21(c), no deficiencies for Taxes of Company have been claimed, proposed or assessed by any taxing or other Governmental Authority. There are no current, pending or, to the knowledge of Company, threatened audits, assessments or other Actions for or relating to any Liability in respect of Taxes of Company, and there are no matters under discussion with any taxing or Governmental Authorities, or known to Company, with respect to Taxes that are likely to result in an additional Liability for Taxes by Company. Audits of federal, state and local Tax Returns by the relevant taxing authorities have been completed for the periods set forth on Schedule 3.21 and, except as set forth in such Schedule, Company has not been notified in writing that any taxing authority intends to audit a Tax Return for any other period. No extension of a statute of limitations relating to Taxes is in effect with respect to Company.

          (d)Liens. Except as set forth on Schedule 3.21(d), there are no Encumbrances for Taxes (other than for current Taxes not yet due and payable) on any of Company’s Assets or the Company Stock.

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          (e)Tax Elections. All elections with respect to Taxes affecting Company or its assets as of the date hereof are set forth on Company’s latest Tax Returns or on Schedule 3.21. Company (i) has not made a deemed dividend election under Reg. § 1.1502-32(f)(2) or a consent dividend election under Section 565 of the Code; (ii) has not consented at any time under Section 341(f)(1) of the Code to have the provisions of Section 341(f)(2) of the Code apply to any disposition of any Taxpayers’ Assets; (iii) has not agreed, or is required, to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise; (iv) has not made an election, or is required, to treat any Company Asset as owned by another Person pursuant to the provisions of Section 168(f) of the Code or as tax-exempt bond financed property or tax-exempt use property within the meaning of Section 168 of the Code; and (v) has not made any of the foregoing elections or is required to apply any of the foregoing rules under any comparable state or local Tax provision.

          (f)Prior Affiliated Groups. Company has never been a member of an affiliated group of corporations within the meaning of Section 1504 of the Code other than a group that had Company as its common parent.

          (g)Tax Sharing Agreements. There are no Tax-sharing agreements or similar arrangements (including indemnity arrangements) with respect to or involving Company, and, after the Closing Date, Company shall not be bound by any such Tax-sharing agreements or similar arrangements (entered into prior to the Closing) or have any Liability thereunder for amounts due in respect of periods prior to the Closing Date.

          (h)Partnerships. Company does not have any interest in and is not subject to any joint venture, partnership, or other arrangement or contract which is treated as a partnership for federal income tax purposes.

          (i)Successors. Company is not a successor to any other Person by way of merger, reorganization or similar transaction.

          (j)U.S. Real Property Holding Corporation. Company is not and has never been a United States real property holding corporation as defined in Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

          (k)No Withholding. The Merger is not subject to the tax withholding provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code.

          (l)Closing Agreements. Company has not executed or entered into any closing agreement under Section 7121 of the Code (or any similar provision of state, local or foreign law) or has not agreed to make any adjustment to its income or deductions pursuant to Section 481(a) of the Code (or similar provision of state, local or foreign law) in either case that could affect its Tax liability after the Closing Date to any extent.

          (m)Compliance with Withholding Taxes. Company has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owning to any employee, independent contractor, creditor, stockholder, or other third party.

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          (n)S-corporation Election. Company has been a validly electing S corporation within the meaning of Code Section 1361 and Section 1362 during its existence and Company will be an S corporation up to and including the Effective Time.

          (o) Section 338(h)(10) Election. Company shall not be liable for any Tax under Code Section 1374 in connection with the deemed sale of Company’s assets (including the assets of any qualified subchapter S subsidiary) caused by the Section 338(h)(10) Election. Company has not, in the past 7 years (A) acquired assets from another corporation in a transaction in which Company’s Tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax basis of the acquired assets (or any other property) in the hands of the transferor or (B) acquired the stock of any corporation that is a qualified subchapter S subsidiary.

3.22Insurance

          Schedule 3.22 contains a complete and accurate list of all policies or binders of insurance (showing as to each policy or binder the carrier, policy number, coverage limits, expiration dates, annual premiums and any pending claims thereunder) of which Company is the owner, insured or beneficiary. Such insurance policies are of the type and in the amounts that are customarily carried by Persons conducting businesses similar to the Company Business, and are reasonable in light of the risks associated with the Company Business. Company is not in default under any of such policies or binders, and it has not failed to give any notice or to present any claim under any such policy or binder in a due and timely fashion. There are no outstanding unpaid claims under any such policies or binders. Such policies and binders are in full force and effect.

3.23Accounts Receivable

          The accounts and notes receivable reflected in the Company Balance Sheet, and all accounts or notes receivable arising since the Company Balance Sheet Date are genuine and represent bona fide claims against debtors for sales, services performed or other charges arising on or before the date of recording thereof, and all the goods delivered and services performed which gave rise to said accounts were delivered or performed in accordance with the applicable orders, Contracts or customer requirements. All such receivables are, to the knowledge of Company, fully collectible in the Ordinary Course except to the extent of an amount not in excess of the reserve for doubtful accounts reflected on the Company Balance Sheet and additions to such reserves as reflected on the Company Books and Records. Since the date of the Company Balance Sheet, Company has not changed any principle or practice with respect to the recordation of accounts receivable or the calculation of reserves therefor, or any collection, discount or write-off policy or procedure unless required by GAAP or statutory accounting principles.

3.24Customers and Suppliers

          Schedule 3.24 sets forth (i) a complete and accurate list of the names and addresses of (i) the customers who, since January 1, 2009, have made aggregate payments of at least $250,000 to Company, showing the approximate total sales in dollars to each such customer during such period, (ii) a complete and accurate list of the names and 2009 revenue of the largest twenty-five (25) customers, by revenue, of Company, (iii) a complete and accurate list of the names and 2009 revenue of the largest twenty-five (25) matters, by revenue, of the Company, and (iv) suppliers with sales to Company greater than $100,000 during the last fiscal year and $25,000 during the last fiscal quarter, showing the approximate total purchases in dollars by Company from each such supplier during such periods. Since the Company Balance Sheet Date, there has been no Company Material Adverse Change in the business relationship of Company with any customer or supplier named on Schedule 3.24. Company has not received any written communication from any customer or supplier named on Schedule 3.24 of any intention to return, terminate or materially reduce purchases from or supplies to Company.

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3.25Environmental Matters

          Except as set forth in Schedule 3.25 and except as would not reasonably be expected to have a Company Material Adverse Effect, (i) there is and has been no Handling of Substances at, on, or from any Operating Site in material violation of any Environmental Law; (ii) there is and has been no material presence of Substances on, in or under any Operating Site regardless of how the Substance or Substances came to rest there; (iii) no underground tanks, PCBs or asbestos-containing materials are or have been located on, in or under any Operating Site; (iv) Company has not received written notice of any assertion by any Governmental Authority that it or a predecessor business or landowner may be a responsible party in connection with any Operating Site, and Company has no knowledge of any pending or threatened claims or any reasonable basis for a claim by any Person against Company under any Environmental Law; (v) no Encumbrances have been, or are, imposed on any of the Company Assets under any Environmental Law; (vi) Company has made available to Buyer copies of all environmental reports or studies of any kind relating to Company or any Operating Site; and (vii) Company has obtained all material Permits and has made all reports and notifications required under any Environmental Law, and is in material compliance with all applicable Environmental Laws. Schedule 3.25 hereto also contains a list and brief description of all filings by Company with, notices to Company from, and related reports to any Governmental Authority administering an Environmental Law, within three years prior to the date hereof, including without limitation, filings made, corrective action taken, or citations and notices of violations received by Company with respect to any Operating Site.

3.26Brokers; Transaction Costs

          Except for its Contract with St. Charles Capital, LLC, Company has not entered into any Contract with any Person which will result in the obligation of Buyer, Merger Sub or Company, to pay any finder’s fee, brokerage commission or similar payment in connection with the transactions contemplated hereby.

3.27No Other Agreements to Sell Company or the Company Assets

          Company does not have any legal obligation, absolute or contingent, to any other Person to sell a material portion of the Company Assets (other than in the Ordinary Course) or to sell any capital stock of Company (except pursuant to the conversion or exercise of outstanding securities and except pursuant to option grants to Employees of Company) or to effect any merger, consolidation or other reorganization of Company or to enter into any agreement with respect thereto, except pursuant to this Agreement.

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3.28Financial Projections: Operating Plan

          Company has made available to Buyer certain financial projections with respect to the operating plan and sales pipeline for Company. Company makes no representation or warranty regarding the accuracy of such projections or as to whether such projections will be achieved, except that Company represents and warrants that such projections were prepared in good faith and are based on assumptions believed by it to be reasonable as of the date the projections were prepared and has disclosed any material changes since their preparation to Buyer.

3.29Real Property

          Except as set forth on Schedule 3.29, neither Company nor any predecessor owns, or ever has owned, any real property. Schedule 3.29 contains a list of all real property leased by Company. Except as set forth on Schedule 3.29, all such real property leases are valid and subsisting and in full force and effect. Neither Company nor, to the knowledge of Company, any other party to such real property leases is in breach or default under such real property leases, and, to the knowledge of Company, no event has occurred or circumstance exists which, with the delivery of notice, the passage of time or both, would constitute such a breach or default or permit the termination, modification or acceleration of rent under such real property leases.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUB

          As an inducement of Company to enter into this Agreement, Buyer and Merger Sub, where applicable, hereby make the following representations and warranties to Company:

4.1Organization of Buyer and Merger Sub

          Each of Buyer and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, in the case of Buyer, and the State of California, in the case of Merger Sub, and has full corporate power and authority to conduct its Business as it is presently being conducted, and to own or lease, as applicable, its Assets. Each of Company and Merger Sub is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which such qualification is necessary under applicable law as a result of the conduct of its respective Business or the ownership of its respective properties and where the failure to be so qualified would have a Buyer Material Adverse Effect.

4.2Authorization

          The Board of Directors of Merger Sub has declared the Merger advisable and Merger Sub has the requisite corporate power and authority to approve, authorize, execute and deliver this Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. The Board of Directors of Buyer has declared the Merger and issuance of Buyer Common Stock advisable and Buyer has the requisite corporate power and authority to approve, authorize, execute and deliver this Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. This Agreement, the Ancillary Agreements and the consummation by Buyer and Merger Sub of the transactions contemplated hereby and thereby have been duly and validly authorized by the Boards of Directors of Buyer and Merger Sub and no other corporate proceedings on the part of Buyer or Merger Sub (other than any required approval of the Merger by the stockholders of Buyer in accordance with the listing requirements or other rules applicable to issuers whose securities are listed on the NASDAQ Capital Market (“NCM”)) are necessary to authorize this Agreement and the Ancillary Agreements or to consummate the transactions contemplated hereby and thereby. This Agreement has been duly and validly executed and delivered by Buyer and Merger Sub and, assuming this Agreement constitutes the valid and binding agreement of the Company and the Signing Shareholders, constitutes the valid and binding agreement of Buyer and Merger Sub, enforceable against Buyer and Merger Sub in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors’ rights and to general principles of equity.

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4.3No Conflict or Violation; Consents

          (a)None of the execution, delivery or performance of this Agreement or any Ancillary Agreement, the consummation of the Merger or any other transaction contemplated hereby or thereby, nor compliance by Buyer or Merger Sub with any of the provisions hereof or thereof, will (i) violate or conflict with any provision of Buyer’s or Merger Sub’s Certificate of Incorporation, bylaws or other governing documents, (ii) violate, conflict with, or result in a breach of or constitute a default (with or without notice or passage of time) under, or result in the termination of, or accelerate the performance required by, or result in a right to terminate, accelerate, modify or cancel under, or require a consent under, or result in the creation of any Encumbrance upon any of its assets under, any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, security interest or other arrangement to which Buyer or Merger Sub is a party or by which Buyer or Merger Sub is bound, (iii) violate any applicable Regulation or Court Order or (iv) impose any Encumbrance on any of Buyer’s or Merger Sub’s Assets.

          (b)Except for any filings that may be required on a Current Report on Form 8-K to reflect this Agreement and any other approvals and filings previously obtained or made and in full force and effect, no notices to, declaration, filing or registration with, approvals or consents of, or assignments by, any Governmental Authority are necessary to be made or obtained by Buyer or Merger Sub in connection with the execution, delivery or performance of this Agreement or any Ancillary Agreement or the consummation of the transactions contemplated hereby or thereby.

4.4Litigation

          There is no Action pending or, to the knowledge of Buyer, threatened or anticipated, against Buyer or Merger Sub which, if determined adversely, would reasonably be expected to have a Buyer Material Adverse Effect, or would prevent, or would reasonably be expected to prevent Buyer or Merger Sub from entering into and performing its obligations under this Agreement and the Ancillary Agreements. There is no unsatisfied judgment or any open injunction binding upon Buyer or Merger Sub which would reasonably be expected to have a Buyer Material Adverse Effect, or would prevent, or would reasonably be expected to prevent Buyer or Merger Sub from entering into and performing its obligations under this Agreement and the Ancillary Agreements.

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4.5Brokers

          Except for its Contract with St. Charles Capital, LLC, neither Buyer nor Merger Sub has entered into and will not enter into any Contract with any Person which will result in the obligation of Buyer, Merger Sub, Company or the Shareholders to pay any finder’s fee, brokerage commission or similar payment in connection with the transactions contemplated hereby.

4.6Capital Structure

          The authorized capital stock of Buyer consists of 40,000,000 shares of common stock, par value $0.001 per share, and 7,931,370 shares which are designated as preferred stock, par value $0.001 per share. As of the date hereof, there are (i) 10,558,613 shares of Buyer Common Stock issued and outstanding and no Buyer Common Stock held in Buyer’s treasury, (ii) 2,076,323 shares of Buyer Common Stock reserved for issuance upon exercise of outstanding stock options, (iii) 626,126 shares of Buyer Common Stock reserved for issuance upon exercise of outstanding warrants, (iv) 35,262 shares of Buyer Common Stock reserved for issuance upon debt conversion, (v) 100,000 shares of Buyer Common Stock reserved for issuance in the event certain milestones are achieved with respect to the business formerly operated by AXS-One, Inc., and (vi) no preferred stock of Buyer issued and outstanding, held in Buyer’s treasury or reserved for issuance. All of the issued and outstanding shares of Buyer Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. Other than as referenced above, Buyer does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any Buyer Common Stock or preferred shares or any other equity security of Buyer or any securities representing the right to purchase or otherwise receive any Buyer Common Stock or any other equity security of Buyer. Buyer owns 100% of the outstanding equity interests in each subsidiary of Buyer. Other than as described in the SEC Documents, there are not as of the date hereof and there will not be at the Effective Time any stockholder agreements, voting trusts or other agreements or understandings to which the Buyer is a party or to which it is bound relating to the voting of any shares of the capital stock of the Buyer. Except as described in the SEC Documents, there are no existing rights with respect to the registration of Buyer Common Stock under the Securities Act, including, but not limited to, demand rights or piggy-back registration rights.

4.7Availability of Merger Consideration

          (a)Buyer has the funds available for the cash portion of the Merger Consideration.

          (b)At the Effective Time, the Buyer Common Stock will be duly authorized, validly issued, fully paid and nonassessable, free and clear of Encumbrances. None of the issuance, sale or delivery of the Buyer Common Stock to the Shareholders is subject to any preemptive right of stockholders of Buyer or to any right of first refusal or other right in favor of any Person which has not been observed or waived.

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          (c)Buyer has obtained the requisite approval of its stockholders to issue the Buyer Common Stock issuable upon conversion of the Subordinated Seller Notes, subject to any applicable waiting periods under the Exchange Act or other securities laws.

          (d)The issuance of the Buyer Common Stock to the Shareholders at the Effective Time in accordance with this Agreement will be exempt from registration under applicable federal and state securities laws.

     4.8SEC Documents; Buyer Financial Statements

          Buyer has furnished or made available to Company true and complete copies of all reports or registration statements filed by it with the U.S. Securities and Exchange Commission (the “SEC”) since January 1, 2007, all in the form so filed (all of the foregoing being collectively referred to herein as the “SEC Documents”). As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act as the case may be, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a document subsequently filed with the SEC prior to the date of this Agreement. The consolidated financial statements of Buyer, including the notes thereto, included in the SEC Documents (the “Buyer Financial Statements”) have been prepared in accordance with GAAP consistently applied (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) and present fairly, in all material respects, the consolidated financial position of Buyer at the dates thereof and the consolidated results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Buyer has timely filed all forms, reports and documents required to be filed by it with the SEC in the last twelve months under the Exchange Act.

     4.9Merger Sub

          Merger Sub is a wholly owned subsidiary of Buyer that was formed by Buyer solely for the purpose of engaging in the Merger and the other transactions contemplated by this Agreement. As of the date of this Agreement and the Effective Time, Merger Sub has (i) has engaged in no other business activities, (ii) has conducted its operations only as contemplated by this Agreement, and (iii) has no liabilities and is not a party to any agreement other than this Agreement. Buyer, as the sole stockholder of Merger Sub, has adopted this Agreement.

     4.10Employee Benefits Matters

          Employees of Company shall be given credit under each employee benefit plan, program, policy or arrangement of Buyer in which the Employees are eligible to participate for all service with Company (to the extent service was credited by Company) for purposes of eligibility, vesting, severance and vacation entitlement.

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     4.11Present Compliance with Obligations and Laws

          Neither Buyer nor Merger Sub is: (i) in violation of its Certificate of Incorporation, Articles of Incorporation, bylaws or similar documents; (ii) in default in the performance of any obligation, agreement or condition of any debt instrument which (with or without the passage of time or the giving of notice, or both) affords to any Person the right to accelerate any indebtedness or terminate any right; (iii) in default under or breach of (with or without the passage of time or the giving of notice) any other contract to which it is a party or by which it or its assets are bound; or (iv) in violation of any Regulation or Court Order applicable to it or its assets; except where any violation, default or breach under items (ii), (iii) or (iv) would not reasonably be expected to have a Buyer Material Adverse Effect.

     4.12Absence of Certain Changes

          Except as described in the SEC Documents, since the date of the most recent Buyer Financial Statements, except with respect to the action contemplated by this Agreement, there has not been (i) any Buyer Material Adverse Effect or (ii) any damage, destruction or loss (whether or not covered by insurance) that has had or would reasonably be expected to have a Buyer Material Adverse Effect.

     4.13Listings

          Buyer’s securities are not listed, or quoted, for trading on any domestic or foreign securities exchange, other than the NCM. Buyer is in compliance in all material respects with the rules, regulations and policies of the NCM, including without limitation its corporate governance standards.

     4.14Transactions with Affiliates

          Except as set forth in the SEC Documents filed prior to the date of this Agreement, since the date of Buyer’s last proxy statement to its stockholders, no event has occurred that would be required to be reported by Buyer as a Certain Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC.

     4.15Intellectual Property

          Except as set forth in Schedule 4.15, neither Buyer nor any of its Subsidiaries has any obligation to compensate any Person for the use of any of the Buyer Proprietary Rights (excluding licenses that are commonly available on standard commercial terms, such as software “shrink wrap” or “click through” licenses) nor has Buyer or any of its Subsidiaries granted to any Person any license, option or other rights to use in any manner any of the Buyer Proprietary Rights, whether requiring the payment of royalties or not, except in the Ordinary Course.

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ARTICLE 5
ACTIONS BY COMPANY
AND BUYER PRIOR TO THE CLOSING

          Company and Buyer covenant as follows for the period from the date hereof through the Closing Date:

     5.1Conduct of Company Business

          From the date hereof through the Closing, Company shall, except for the payment of the Pre-Closing Dividend, and except as provided in Section 5.2 below and as otherwise contemplated by this Agreement, or as otherwise consented to by Buyer in writing, which consent shall not be unreasonably withheld or delayed, operate the Company in the Ordinary Course and will not take any action inconsistent with this Agreement, the Ancillary Agreements or the consummation of the Merger. Without limiting the generality of the foregoing, Company shall not, except as provided in Section 5.2 below, as specifically contemplated by this Agreement or as consented to by Buyer in writing:

          (a)except in the Ordinary Course, incur any indebtedness for borrowed money, or assume, guarantee, endorse (other than endorsements for deposit or collection in the Ordinary Course), or otherwise become responsible for obligations of any other Person;

          (b)issue or commit to issue any shares of its capital stock or any other securities or any securities convertible into shares of its capital stock or any other securities, including, without limitation, any options to acquire capital stock, other than the issuance of shares of Company Stock pursuant to the valid exercise of Company Options outstanding as of the date hereof or upon conversion or exercise of outstanding securities;

          (c)declare, pay or incur any obligation to declare or pay any dividend or other distribution on its capital stock (except for the Pre-Closing Dividend) or make or incur any obligation to make any redemption with respect to, or purchase of, any share of its capital stock;

          (d)make any change to Company’s Articles of Incorporation or bylaws;

          (e)except in the Ordinary Course, mortgage, pledge or otherwise encumber any Company Assets or sell, transfer, license or otherwise dispose of any Company Assets;

          (f)except in the Ordinary Course, cancel, release or assign any indebtedness owed to it or any claims or rights held by it;

          (g)make any material investment of a capital nature either by purchase of stock or securities, contributions to capital, property transfer or otherwise, or by the purchase of a material amount of property or assets of any other Person;

          (h)terminate any Material Contract or make any amendment to any Material Contract;

          (i)(i) enter into or modify any employment Contract, (ii) pay or agree to pay any compensation to or for any Employee, officer or director other than in the Ordinary Course, (iii) pay or agree to pay any bonus, incentive compensation, service award or other like benefit, except as required under agreements outstanding as of the date of this Agreement, copies of which have previously been made available to Buyer, (iv) grant any Company Options or (v) enter into or modify any other Employee Plan;

          (j)enter into or modify any Contract with a Related Party;

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          (k)make any change in any method of accounting or accounting practice other than changes required by GAAP;

          (l)knowingly fail to comply with all material Regulations applicable to the Company;

          (m)fail to use its commercially reasonable efforts to maintain existing relationships with suppliers and customers and others having material business dealings with Company and otherwise preserve the existing goodwill of the Company;

          (n)make or change any election in respect of Taxes, adopt or change any accounting method in respect of Taxes (other than changes required by GAAP), enter into any tax allocation agreement, tax sharing agreement, tax indemnity agreement, or closing agreement, settle or compromise any claim, notice, audit report or assessment in respect of Taxes or consent to any extension or waiver of any limitation period applicable to any claim or assessment in respect of Taxes; or

          (o)authorize, recommend, propose or announce an intention to do any of the foregoing, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing.

     5.2No Mergers, Consolidations, Sale of Stock, Etc.

          Except pursuant to this Agreement, Company shall not, and Company shall use commercially reasonable efforts to cause its Representatives not to, directly or indirectly, knowingly solicit any inquiries or proposals or initiate or enter into or continue any discussions, negotiations or agreements, whether or not initiated by Company or its Representatives, relating to (i) the sale or exchange of any Company capital stock, (ii) the merger of Company with, or the direct or indirect disposition of a significant amount of the Company Assets or the Company Business to, any Person other than Buyer or its Affiliates, or (iii) the licensing of Company Proprietary Rights to any Person other than in the Ordinary Course.

     5.3Investigation by Buyer and Company

          From the date hereof through the Closing Date, each of Buyer and Company shall, and shall cause its respective Representatives to, afford the other party and its Representatives access upon reasonable notice and at all reasonable times to Buyer and Company, as applicable, for the purpose of inspecting the same, and to the respective officers, Employees and other Representatives, properties, the Books and Records, Contracts and other Assets of Buyer and Company, as applicable, and shall furnish the other party and its Representatives, upon reasonable notice and in a timely manner, all financial, operating and other data and information (including with respect to Proprietary Rights) as the other party or its Representatives may reasonably request.

     5.4Notification of Certain Matters

          Each party shall give prompt notice to the other of (i) the occurrence, or failure to occur, of any event which occurrence or failure causes any representation or warranty of either party contained in this Agreement to be untrue or inaccurate in any material respect and (ii) any material failure of such party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that such disclosure shall not be deemed to cure any breach of a representation, warranty, covenant or agreement or to satisfy any condition.

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     5.5Management and Employees

          Company hereby covenants and agrees that it shall use its commercially reasonable efforts from the date hereof until the Closing Date to retain key Employees of Company. Company shall promptly notify Buyer in writing if any Employee of Company as of the date hereof ceases to be an Employee of Company, or if any Employee of Company as of the date hereof informs any officer of Company in writing that he or she intends to terminate his or her employment or engagement with Company.

     5.6Stockholder Meeting

          If the issuance of Buyer Common Stock pursuant to this Agreement requires the approval of the stockholders of Buyer pursuant to the rules of the NCM, Buyer shall take all action necessary in accordance with the DGCL and its certificate of incorporation and bylaws to convene a meeting of stockholders to be held as promptly as practicable after the date of this Agreement for the purposes of voting upon the issuance of Buyer Common Stock and shall use commercially reasonable efforts to obtain such approval of its stockholders. In the event that prior to the date of the stockholders’ meeting, the rules of the NCM permit Buyer to consummate the Merger without the approval of Buyer’s stockholders, Buyer shall be entitled to cancel the meeting and/or the vote on the adoption of this Agreement and the Merger.

     5.7Further Assurances

          Upon the terms and subject to the conditions contained herein, the parties agree, in each case both before and after the Closing, (i) to use all commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements, (ii) to execute any documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the transactions contemplated hereunder and thereunder, and (iii) to cooperate with each other in connection with the foregoing. Without limiting the foregoing, the parties agree to use their respective commercially reasonable efforts (A) to obtain any necessary Consents (including, without limitation, all filings required to be made under the HSR Act, if any, with respect to this Agreement and the transactions contemplated hereby) and take any steps necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable to the issuance of the Buyer Common Stock which may be issued as consideration hereunder; provided, however, that no amendment or modification shall be made to any Contract to obtain such Consent without Buyer’s consent, which consent shall not be unreasonably withheld or delayed, (B) to obtain all necessary Permits, (C) to give all notices to, and make all registrations and filings with third parties, including submissions of information requested by Governmental Authorities and (D) to fulfill all conditions to this Agreement.

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ARTICLE 6
CONDITIONS TO OBLIGATIONS

     6.1Conditions to Each Party’s Obligations

          The respective obligations of each party to effect the Merger and complete the related transactions contemplated by this Agreement are subject to the satisfaction of each of the following conditions:

          (a)Governmental Consent and Approvals. All Consents, approvals and waivers from Governmental Authorities necessary to permit consummation of the Merger and the other transactions contemplated hereby and by the Ancillary Agreements shall have been obtained, all approvals required under any Regulations to carry out the transactions contemplated by this Agreement and the Ancillary Agreements (including, without limitation, the expiration or termination of the waiting period under the HSR Act, if applicable) shall have been obtained and the parties shall have complied with all Regulations applicable to the transactions contemplated hereby and thereby.

          (b)No Court Order or Restraints. There shall not be any Regulation or Court Order that makes the Merger or any other transaction contemplated hereby and by the Ancillary Agreements illegal or otherwise prohibited or which would materially change the Merger or such other transactions contemplated hereby and by the Ancillary Agreements. No Action by any court or Governmental Authority shall have been instituted or threatened which questions the validity or legality of the Merger or the other transactions contemplated hereby and by the Ancillary Agreements and which would reasonably be expected to damage Buyer, Company, the Company Assets or the Company Business materially if the transactions contemplated hereby or thereby are consummated, including any material restriction on the right or ability of Buyer to own, operate or transfer Company after the Closing. There shall not be any Regulation or Court Order that makes the acquisition of Company contemplated hereby illegal or otherwise prohibited.

          (c)Dissenting Shareholders. No more than twenty percent (20%) of the Shareholders have indicated an intent to exercise dissenters’ rights in connection with the transactions contemplated by this Agreement in accordance with the requirements of the California Code either by (i) making a written demand for appraisal or (ii) refraining from voting for the approval of the Merger.

     6.2Conditions to the Obligations of Company

          The obligation of Company to effect the Merger and complete the transactions contemplated by this Agreement and by the Ancillary Agreements are subject to the satisfaction of the following conditions, any one or more of which may be waived in writing by Company:

          (a)Representations and Warranties. All representations and warranties of Buyer and Merger Sub contained in this Agreement that are qualified by materiality shall be true and correct at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and all of such representations and warranties that are not so qualified shall be true and correct in all material respects at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, except in both cases, to the extent that such representations and warranties are expressly made as of another specified date and, as to such representations and warranties, the same shall be true as of such specified date. Buyer and Merger Sub shall each have performed in all material respects all agreements and covenants required hereby to be performed by each of them prior to or at the Closing Date.

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          (b)Registration Rights Agreement. Buyer shall have executed and delivered to the Shareholders the Registration Rights Agreement.

          (c)Merger Consideration. At or prior to the Effective Time, Buyer shall have executed each of the Subordinated Seller Notes and delivered each of the following to the Exchange Agent for deposit in the Exchange Fund: (i) the Subordinated Purchase Notes; (ii) the cash portion of the Preliminary Merger Consideration; and (iii) the Buyer Common Stock. At or prior to the Effective Time, Buyer shall have delivered the Subordinated Indemnity Note to the Escrow Agent pursuant to the Escrow Agreement.

          (d)Legal Opinions. Company shall have received an opinion of K&L Gates, LLP, counsel to Buyer and Merger Sub, dated as of the Closing Date, substantially in the form attached hereto as Exhibit F.

          (e)Buyer Material Adverse Change. There shall have been no Buyer Material Adverse Change.

     6.3Condition to Buyer’s and Merger Sub’s Obligations

          The obligations of Buyer and Merger Sub to effect the Merger and complete the transactions contemplated by this Agreement and by the Ancillary Agreements are subject to the satisfaction of each of the following conditions, any one or more of which may be waived in writing by Buyer:

          (a)Representations and Warranties. All representations and warranties of Company contained in this Agreement that are qualified by materiality shall be true and correct at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and all of such representations and warranties that are not so qualified shall be true and correct in all material respects at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and except, in both cases, to the extent that such representations and warranties are expressly made as of another specified date and, as to such representations and warranties, the same shall be true as of such specified date. Company shall have performed in all material respects all agreements and covenants required hereby to be performed by it prior to or at the Closing Date.

          (b)Third Party Consents. All consents, approvals, and waivers from third parties required under the Contracts listed on Schedule 6.3(b) shall have been obtained.

          (c)Legal Opinion. Company shall have delivered to Buyer an opinion of Farella Braun + Martel LLP, counsel to Company, dated as of the Closing Date, which provides an opinion substantially in the form attached hereto as Exhibit G.

          (d)Resignations. Company shall have delivered to Buyer the Resignations.

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          (e)Company Material Adverse Change. There shall not have been any Company Material Adverse Change.

          (f)Evidence of Target Net Cash on Hand. Company shall have delivered to Buyer evidence reasonably satisfactory to Buyer that the Target Net Cash on Hand is available in accounts of Company as of the Closing Date.

          (g)Form 8023. Company shall have delivered to Buyer IRS Form 8023 properly executed by each Shareholder.

ARTICLE 7
ACTIONS BY BUYER, THE SURVIVING CORPORATION
AND THE SHAREHOLDERS AFTER THE CLOSING

     7.1Books and Records; Tax Matters.

          (a)The Shareholder Representative shall, at Shareholders’ expense, prepare or cause to be prepared all Tax Returns of the Company for all periods ending prior to or on the Closing Date, which have not been filed as of the Closing Date (“Pre-Closing Tax Return”). At least ten (10) business days prior to the date on which any Pre-Closing Tax Return is required to be filed, the Shareholder Representative shall submit such Pre-Closing Tax Return to Buyer for Buyer’s review. Buyer shall be entitled to review and comment on each such Pre-Closing Tax Return and shall provide written comments, if any, to Shareholder Representative not later than the fifth (5th) business day after receipt of the applicable Pre-Closing Tax Return. Buyer and Shareholder Representative shall use commercially reasonable efforts to resolve any disagreements between them that may exist in such Pre-Closing Tax Return. Upon resolution of any such disagreements, Buyer shall timely file, or cause to be filed, all such Pre-Closing Tax Returns, on or before September 30, 2010. For the avoidance of doubt, taxable income or taxable loss, as the case may be, for the period commencing on January 1, 2010 and ending on the Closing Date, shall be determined based on an interim closing of the Company books effective as of the close of business on the Closing Date. For the purposes of the interim closing of the books calculation, such calculation shall give effect to all deductions and other items with respect to the taxable period ended on the Closing Date (including full utilization on the Pre-Closing Tax Return of any deductions for compensation paid by the Company on or prior to the Closing Date, whether such compensation deduction is the result of a cash payment, the result of any exercise of Company Options or otherwise), to the extent such amounts are otherwise permitted as a deduction or loss, or are includable in income for such period under applicable Regulations.

          (b)Buyer agrees that so long as any books, records and files relating to Company prior to the Closing Date, remain in existence and available, any Shareholder (at its expense) shall, upon prior notice, have the right to inspect and to make copies of the same at any time during business hours for any proper purpose.

          (c)Buyer covenants and agrees that in the event it or the Surviving Corporation receives any notice or inquiry from the IRS with respect to the characterization of any action taken pursuant to or contemplated by this Agreement or any Ancillary Agreement, Buyer will give prompt written notice to the Shareholders’ Representative concerning such notice or inquiry. Buyer agrees to report, and to cause the Surviving Corporation to report, the consideration delivered to the Shareholders under this Agreement in a manner consistent with the terms hereof.

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          (d)Buyer agrees to, and to cause the Surviving Corporation to, (A) retain all books and records with respect to Tax matters pertinent to Company relating to any Tax period beginning before the Closing Date until ninety (90) days after the expiration of the applicable statute of limitations and to abide by all record retention agreements entered into with any Taxing Authority and (B) allow the Shareholders and their representatives, at times and dates mutually acceptable to the parties, to inspect, review and make copies of such records as such party may deem necessary or appropriate from time to time, such activities to be conducted during normal business hours and at such party’s expense.

          (e)If any changes are required to be made to the IRS Forms 8023, required schedules related thereto, or comparable state forms and schedules, prepared by Company and Buyer prior to Closing pursuant to Section 2.11 of this Agreement as a result of information that first becomes available after the Closing, Buyer, Surviving Corporation and the Shareholder Representative shall promptly and in good faith reach an agreement as to the precise changes required to be made. Buyer, Company and the Surviving Corporation shall use the agreed-upon allocation for purposes of preparing all Tax Returns.

     7.2Indemnification and Insurance

          From and after the Closing, Buyer agrees that it will cause Surviving Corporation to continue to indemnify and hold harmless each present and former director and officer of Company against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Closing, whether asserted or claimed prior to, at or after the Closing, to the fullest extent that Company would have been permitted under California law, the Company Articles of Incorporation and the Company bylaws in effect on the date hereof, to indemnify such person (including the advancing of expenses as incurred to the fullest extent permitted under applicable law), provided the person to whom such expenses are advanced provides an undertaking to the Surviving Corporation to repay such advances if it is ultimately determined by a court of competent jurisdiction (which determination shall have become final) that such person is not entitled to indemnification.

     7.3Approval of Issuance of Additional Buyer Common Stock

          Following the issuance of the Subordinated Seller Notes, Buyer shall promptly, and in any event no later than August 31, 2010, prepare and file an Information Statement on Schedule 14C relating to the stockholder approval of issuance of Buyer Common Stock issuable upon conversion of the Subordinated Seller Notes.

     7.4Release of Guaranties; Indemnification

          Buyer, Surviving Corporation and Jensen shall use all commercially reasonable efforts to obtain promptly after the Closing the termination and release of the personal guaranties of Jensen set forth on Schedule 7.4 (the “Guaranties”). From the Closing Date until the Guaranties are terminated and released, Buyer and Surviving Corporation, jointly and severally, shall indemnify Jensen and hold Jensen harmless from and against all losses, expenses or claims by third parties to enforce or collect indebtedness owed by Buyer or Surviving Corporation which is personally guaranteed by Jensen pursuant to the Guaranties.

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ARTICLE 8
INDEMNIFICATION

     8.1Survival of Representations, Etc.

          Except as otherwise provided herein, all statements contained in this Agreement, any schedule or in any certificate or instrument of conveyance delivered by or on behalf of the parties pursuant to this Agreement or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by such party hereunder. The representations and warranties contained herein shall survive the Closing Date until (and claims based upon or arising out of such representations and warranties, as well as any claims based upon or arising out of any covenants and agreements herein, may be asserted at any time before the date which shall be) the date that is eighteen (18) months from the Closing Date, provided that the representations and warranties of Company contained in Sections 3.1, 3.2, 3.3 and 3.5 shall survive forever, the representations of Buyer contained in Sections 4.1, 4.2 and 4.6 shall survive forever, and the representations and warranties of Company contained in Section 3.21 shall survive until the expiration of the statute of limitations for the matters covered in such section. No investigation made by any of the parties hereto (whether prior to, on or after the Closing Date) shall in any way limit the representations and warranties of the parties. The termination of the representations and warranties provided herein shall not affect the rights of a party in respect of any claim properly given by such party prior to the expiration of the applicable survival period provided herein.

     8.2Indemnification.

          (a)General.

          (i)Obligations of the Shareholders. Subsequent to the Closing and subject to Section 8.5, the Shareholders shall, severally and not jointly, indemnify Buyer, its Affiliates, and each of their respective partners, officers, directors, employees, stockholders and agents (“Buyer Indemnified Parties”) against, and hold each of the Buyer Indemnified Parties harmless from, any damage, claim, loss, cost, liability or expense, including without limitation, interest, penalties, reasonable attorneys’ fees and expenses of investigation, response action, removal action or remedial action (collectively “Damages”) incurred by such Buyer Indemnified Party, that are incident to, arise out of, in connection with, or related to, whether directly or indirectly, the breach of any warranty, representation, covenant or agreement of Company contained in this Agreement which survives the Closing Date pursuant to Section 8.1, and any and all Damages incident to any of the foregoing or to the enforcement of this Section 8.2. The term “Damages” as used in this Section 8.2 is not limited to matters asserted by third parties against Buyer Indemnified Parties, but includes Damages incurred or sustained by such persons in the absence of third party claims.

          (ii)Obligations of Buyer. Subsequent to the Closing, Buyer and the Surviving Corporation shall, jointly and severally, indemnify the Shareholders and each of their respective heirs, partners, officers, directors, employees, shareholders and agents (the “Company Indemnified Parties”) against, and hold each of the Company Indemnified Parties harmless from, any Damages incurred by such Company Indemnified Party, that are incident to, arise out of, in connection with, or related to, whether directly or indirectly, the breach of any warranty, representation, covenant or agreement of Buyer contained in this Agreement which survives the Closing Date pursuant to Section 8.1, and any and all Damages incident to any of the foregoing or to the enforcement of this Section 8.2.

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          (b)Procedure for Claims between Parties. Any Buyer Indemnified Party or Company Indemnified Party (in either case, the “Indemnified Party”) seeking indemnification hereunder shall, within the relevant limitation period provided for in Section 8.1 above, give to the party obligated to provide indemnification to such Indemnified Party (the “Indemnitor”) a written notice (a “Claim Notice”) describing in reasonable detail the facts giving rise to any claims for indemnification hereunder and shall include in such Claim Notice (if then known) the amount or the method of computation of the amount of such claim, and a reference to the provision of this Agreement or any agreement, document or instrument executed pursuant hereto or in connection herewith upon which such claim is based; provided, that a Claim Notice in respect of any action at law or suit in equity by or against a third party as to which indemnification will be sought shall be given promptly after the action or suit is commenced; and providedfurther, that failure to give such notice shall not relieve the Indemnitor of its obligations hereunder except to the extent it shall have been prejudiced by such failure. In the case of a Buyer Indemnified Party, the Claim Notice shall be delivered to the Shareholder Representative.

          The Indemnitor shall have ninety (90) days after the giving of any Claim Notice pursuant hereto to (i) agree to the amount or method of determination set forth in the Claim Notice and to pay such amount to such Indemnified Party or (ii) to provide such Indemnified Party with notice that it disagrees with the amount or method of determination set forth in the Claim Notice (the “Dispute Notice”). Within thirty (30) days after the giving of the Dispute Notice, a representative of Indemnitor and such Indemnified Party shall negotiate in a bona fide attempt to resolve the matter. In the event that the controversy is not resolved within thirty (30) days of the giving of the Dispute Notice, either party may commence an action in accordance with the provisions of Section 9.6.

          (c)Defense of Third Party Claims. If any lawsuit or enforcement action is filed against any Indemnified Party and a claim in respect thereof is to be made against the Indemnitor under this Section 8.2, written notice thereof shall be given to the Indemnitor as promptly as practicable (and in any event within fifteen (15) calendar days after the service of the citation or summons). The failure of any Indemnified Party to give timely notice hereunder shall not affect rights to indemnification hereunder, except to the extent that the Indemnitor demonstrates it was actually prejudiced by such failure. After such notice, if the Indemnitor shall acknowledge in writing to the Indemnified Party that it shall be obligated under the terms of its indemnity hereunder in connection with such lawsuit or action, or that it will defend such lawsuit or action under a reservation of rights, then it shall be entitled, if it so elects at its own cost, risk and expense, (i) to take control of the defense and investigation of such lawsuit or action, (ii) to employ and engage attorneys of its own choice to handle and defend the same unless the named parties to such action or proceeding include both the Indemnitor and the Indemnified Party and the Indemnified Party has been advised in writing by counsel that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to the Indemnitor, in which event the Indemnified Party shall be entitled, at the Indemnitor’s cost, risk and expense, to separate counsel of its own choosing, and (iii) to compromise or settle such claim, which compromise or settlement shall be made only with the written consent of the Indemnified Party, such consent not to be unreasonably withheld, unless such compromise or settlement includes an unconditional release of the Indemnified Party, in which case no consent shall be required. The Indemnified Party shall cooperate in all reasonable respects with the Indemnitor and its attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom; provided, however, that the Indemnified Party may, at its own cost, participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom. The parties shall cooperate with each other in any notifications to insurers. If the Indemnitor fails to assume the defense of such claim within fifteen (15) calendar days after receipt of the notice of claim, the Indemnified Party against which such claim has been asserted will (upon delivering notice to such effect to the Indemnitor) have the right to undertake, at the Indemnitor’s cost, risk and expense, the defense, compromise or settlement of such claim on behalf of and for the account and risk of the Indemnitor; provided, however, that such claim shall not be compromised or settled without the written consent of the Indemnitor, which consent shall not be unreasonably withheld, unless such compromise or settlement includes an unconditional release of the Indemnified Party, in which case no consent shall be required. If the Indemnified Party assumes the defense of the claim, the Indemnified Party will keep the Shareholders’ Representative or Buyer, as the case may be, reasonably informed of the progress of any such defense, compromise or settlement. The Indemnitor shall be liable for any settlement of any action effected pursuant to and in accordance with this Section 8.2 and for any final judgment (subject to any right of appeal), and the Indemnitor agrees to indemnify and hold harmless an Indemnified Party from and against any Damages by reason of such settlement or judgment.

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     8.3No Right of Contribution

          After the Closing, no Shareholder shall have any right of contribution against the Surviving Corporation for any breach of any representation, warranty, covenant or agreement of Company.

     8.4Exclusive Remedy

          The remedies set forth in this Article 8 are the sole and exclusive remedies of the parties hereto for any action arising under this Agreement or any agreement, document or instrument executed pursuant hereto or in connection herewith, provided that these limitations will not impair, alter or in any way affect the rights of any party with respect to any Damages resulting from fraud.

     8.5Threshold; Limitations on Indemnity

          (a)Notwithstanding any provisions of this Agreement to the contrary, Buyer on the one hand, and the Shareholders on the other hand, will not be liable for any Damages suffered by the other party unless and until the aggregate Damages suffered or incurred by an Indemnified Party exceeds $100,000 (the “Indemnification Threshold”); provided, however, that once the amount of Damages exceeds the Indemnification Threshold, then the Shareholders shall be liable for the full amount of all Damages including the amount of the Indemnification Threshold.

50

          (b)Subject to the following sentence, the total recourse of the Buyer Indemnified Parties against the Shareholders for Damages pursuant to this Article 8 shall be limited to $1,200,000, and indemnity claims shall be made solely by offset against the Holdback Escrow (or Holdback Shares, if applicable), pro rata against all Shareholders in proportion to the percentage of the Holdback Escrow (or Holdback Shares, if applicable) held by the Escrow Agent for the benefit of each Shareholder. Notwithstanding the foregoing, Buyer Indemnified Parties may make Damage claims in excess of $1,200,000 for Damages (i) arising out of breaches of the representations and warranties contained in Sections 3.1, 3.2, 3.3, 3.5 and 3.21 (which Damages shall not, in the aggregate, exceed the cash portion of the total Merger Consideration hereunder), or (ii) resulting from fraud on the part of a Shareholder (which Damages shall not, in the aggregate, exceed the cash portion of the total Merger Consideration received by such Shareholder hereunder).

          (c)For purposes of calculation the value of the Holdback Shares used to settle Damages claims under this Article 8:

     (i) each Holdback Share shall be valued at the higher of (x) $3.50 per share, and (y) the twenty (20) day weighted average trading price of Buyer Common Stock for the twenty (20) trading days ending on the second trading day prior to the date upon which the Damages claim is made; and

     (ii) the number of Holdback Shares and the value per share shall be adjusted as equitably required to take into account stock splits, reverse stock splits and stock dividends completed by the Buyer after the Effective Time but prior to the payment of a Damage claim.

          (d)Other than such number of Holdback Shares (or such amount of the Holdback Escrow) as may be reasonably required to resolve Damages claims that are pending on the eighteen (18) month anniversary of the Effective Time, the balance of the Holdback Shares or Holdback Escrow, as the case may be, shall be released to the Shareholders on such eighteen (18) month anniversary.

ARTICLE 9
MISCELLANEOUS

     9.1Termination

          (a)This Agreement may be terminated at any time prior to Closing:

          (i)By mutual written consent of Buyer and Company;

          (ii)By Buyer or Company if the Closing shall not have occurred on or before August 31, 2010, other than due to a breach of this Agreement by the party seeking to terminate;

          (iii)[Intentionally Omitted];

51

          (iv)By Buyer if there is a material breach of any representation or warranty set forth in Article 3 or of any covenant or agreement to be complied with or performed by Company pursuant to the terms of this Agreement which would reasonably be expected to cause a failure to meet a condition to closing set forth in Section 6.1 or Section 6.3 (a “Buyer Terminating Breach”), provided, however, that if such Buyer Terminating Breach is curable by Company through the exercise of their commercially reasonable efforts, then, for a period of thirty (30) days, but only so long as Company continues to use its commercially reasonable efforts to cure such Company Terminating Breach (the “Company Cure Period”), such termination shall not be effective, and such termination shall become effective only if the Buyer Terminating Breach is not cured within the Company Cure Period;

          (v)By Buyer if more than twenty percent (20%) of the Shareholders have indicated an intent to exercise dissenters’ rights in connection with the transactions contemplated by this Agreement; or

          (vi)By Company if there is a material breach of any representation or warranty set forth in Article 4 hereof or of any covenant or agreement to be complied with or performed by Buyer or Merger Sub pursuant to the terms of this Agreement, which would reasonably be expected to cause a failure to meet a condition to closing set forth in Section 6.1 or Section 6.2 (an “Company Terminating Breach”), provided, however, that if such Company Terminating Breach is curable by Buyer through the exercise of its commercially reasonable efforts, then, for a period of up to thirty (30) days, but only so long as Buyer continues to use its commercially reasonable efforts to cure such Company Terminating Breach (the “Buyer Cure Period”), such termination shall not be effective, and such termination shall become effective only if the Company Terminating Breach is not cured within the Buyer Cure Period.

          (b)Except as set forth in the following sentence, no party hereto shall have any liability to any other party to this Agreement in the event of termination of this Agreement. Notwithstanding the foregoing, the parties hereto shall remain liable for any breach of, or knowing misrepresentation made in, this Agreement occurring prior to the proper termination of this Agreement.

     9.2Assignment

          Neither this Agreement nor any of the rights or obligations hereunder may be assigned by Company without the prior written consent of Buyer, or by Buyer or Merger Sub without the prior written consent of Company.

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     9.3Notices

          Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered in person or by courier, telegraphed, telexed, sent by facsimile transmission, sent via overnight delivery service or mailed by registered or certified mail (such notice to be effective upon receipt, or, in the case of registered or certified mail, three (3) days after the mailing date), as follows:

If prior to the Closing, to Company:

Strategic Office Solutions, Inc.
235 Montgomery Street, Suite 350
San Francisco, CA 94104
Telecopy: (415) 296-7301
Attention: Kurt Jensen, President

With a copy to:

Farella Braun + Martel LLP
235 Montgomery Street
San Francisco, CA 94104
Telecopy: (415) 954-4480
Attention: Samuel C. Dibble

If to Buyer or, if after the Closing, to the Surviving Corporation:

Unify Corporation
1420 Rocky Ridge Drive
Suite 380
Roseville, CA 95661
Telecopy: (916) 218-4377
Attention: Mr. Todd E. Wille, Chief Executive Officer

With a copy to:

K&L Gates LLP
70 West Madison Street, Suite 3100
Chicago, Illinois 60602
Telecopy: (312) 345-9995
Attention: Jude M. Sullivan

or to such other place and with such other copies as either party may designate as to itself by written notice to the others.

     9.4Choice of Law

          This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of California, except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern.

     9.5Limitation

          NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NO PARTY HERETO SHALL BE LIABLE TO ANY OTHER PARTY HERETO FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM THE TERMINATION OR BREACH OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOSS BUSINESS.

53

     9.6Arbitration

          Subject to Section 2.10(b)(iii), any controversy, dispute or claim arising out of or relating in any way to this Agreement or the Ancillary Agreements or the transactions arising hereunder or thereunder (each, a “Dispute”) shall be finally settled by binding arbitration in a proceeding before a single arbitrator of JAMS/Endispute who is selected by the parties in accordance with the rules of JAMS/Endispute and held in the city of San Francisco, California. The foregoing arbitration proceedings may be commenced by any party to a Dispute by notice to the other parties to the Dispute. The parties to this Agreement consent to the jurisdiction of the Superior Court of the State of California for the City and County of San Francisco, for all purposes in connection with any arbitration.

     9.7Entire Agreement; Amendments and Waivers

          This Agreement, together with all exhibits and schedules hereto and the Ancillary Agreements, constitute the entire agreement among the parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties, provided that the confidentiality provisions of that certain letter agreement dated March 31, 2010 between Buyer and Company, shall remain in full force and effect. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

     9.8Counterparts

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

     9.9Invalidity

          In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument.

     9.10Publicity

          Except as required by law or on advice of counsel, neither party shall issue any press release or make any public statement regarding the transactions contemplated hereby without the prior approval of the other parties, which approval shall not be unreasonably withheld or delayed, and the parties hereto shall issue a mutually acceptable press release as soon as practicable after the date hereof and after the Closing Date. Notwithstanding the foregoing, Buyer shall be permitted to make any public statement without obtaining the consent of any other party hereto if (i) the disclosure is required by law or the requirements of the NCM and (ii) Buyer has first used its reasonable efforts to consult with (but not to obtain the consent of) the other parties about the form and substance of such disclosure.

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     9.11No Third Party Beneficiaries

          This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, including, without limitation, by way of subrogation.

     9.12Expenses

          Except as set forth in Section 9.1(b), Buyer shall pay all Buyer Transaction Expenses and Shareholders shall pay all Company Transaction Expenses.

     9.13Appointment of Shareholder Representative

          (a)Each Signing Shareholder hereby irrevocably constitutes and appoints Jensen (the “Shareholder Representative”) as such Signing Shareholder’s true and lawful attorney in fact and agent and authorizes him to act for such Signing Shareholder and in such Signing Shareholder’s name, place and stead, in any and all capacities to do and perform every act and thing required or permitted to be done after the Effective Time in connection with this Agreement, as fully to all intents and purposes as such Signing Shareholder might or could do in person, including taking any and all action on behalf of such Signing Shareholder from time to time as contemplated hereunder. Any delivery by the Shareholder Representative of any waiver, amendment, agreement, opinion, certificate or other document executed by the Shareholder Representative will bind the Signing Shareholders by such documents or action as fully as if such Signing Shareholder had executed and delivered such documents. This appointment and power of attorney shall be deemed an agency coupled with an interest and all authority conferred hereby shall be irrevocable and shall not be subject to termination by operation of law, whether by the death or incapacity of any Signing Shareholder or the occurrence of any other event or events.

          (b)Indemnification of the Shareholder Representative. Each Signing Shareholder agrees to hold the Shareholder Representative harmless and indemnify the Shareholder Representative, severally (and not jointly) in accordance with the amount of Merger Consideration received by such indemnifying Signing Shareholder, with respect to any and all loss, damage or liability and expenses (including legal fees) which such Signing Shareholder may sustain as a result of any action taken in good faith by the Shareholder Representative.

          (c)Replacement of the Shareholder Representative. Upon the death, disability or incapacity of the initial Shareholder Representative, the Shareholder Representative’s executor, guardian or legal representative, as the case may be, shall appoint a replacement reasonably believed by such person as capable of carrying out the duties and performing the obligations of the Shareholder Representative hereunder within thirty (30) days of such death, disability or incapacity.

55

          (d)Actions of the Shareholder Representative. Buyer and Merger Sub shall be entitled to rely on any action taken by the Shareholder Representative after the Effective Time on behalf of the Signing Shareholders (each, an “Authorized Action”), and that each Authorized Action shall be binding on each Signing Shareholder as fully as if such Signing Shareholder had taken such Authorized Action.

     9.14Other Provisions Relating to Signing Shareholders

          (a)Non-Competition; Non-Solicitation. Each Signing Shareholder agrees that, for a period ending on the third anniversary of the Closing Date, such Signing Shareholder will not, anywhere in the United States, directly or indirectly (whether as an owner, partner, shareholder, agent, officer, director, employee, independent contractor, consultant, or otherwise): (i) own, operate, manage, control, invest in, perform services for, or engage or participate in any manner in, (alone or in association with any Person) any business that engages in the Company Business; provided, however, that a Signing Shareholder may own any amount of debt or equity securities in Buyer or any successor to Buyer and up two (2%) percent of the outstanding debt or equity securities of any other Person without violating the restrictions of this clause (i); (ii) except on behalf of Company or Buyer, Buyer or any successor to Company or Buyer, solicit business from any Person which is a customer of Company, or from any successor in interest to any such Person for the purpose of securing business or contracts which are competitive with the Company Business, and (iii) except on behalf of Company, Buyer or any successor to Company or Buyer, employ, engage or solicit for employment any individual who is, or was at any time during the twelve (12) month period ending on the later of (x) the Closing Date and (y) the date such Signing Shareholder’s employment with Company, Buyer or any successor to Company or Buyer terminates, an employee of Company or otherwise seek to adversely influence or alter such individual’s relationship with Company or any successor to Company; provided, however, that such Signing Shareholder may employ, engage or solicit for employment such individual in the event that such individual was terminated by Company, Buyer, or any successor to Company or Buyer.

          (b)Accredited Investor. Each Signing Shareholder represents and warrants to Buyer that such Signing Shareholder is (i) an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act (unless listed on Schedule 9.14(b)), (ii) (A) familiar with the business and affairs of Buyer and (B) knowledgeable and experienced in financial and business matters to the extent that such Signing Shareholder is capable of evaluating the merits and risks of an investment in the Buyer Stock Consideration and the Subordinated Seller Notes, and (iii) purchasing the Buyer Stock Consideration and the Subordinated Sellers Notes for its own account and not with a view to the sale or distribution of such Buyer Stock Consideration and Subordinated Seller Notes.

          (c)Tax Matters.

          (i)Each Signing Shareholder agrees that the Merger Consideration will be allocated to the assets of Company for all purposes (including Tax and financial accounting) as shown on the allocation schedule attached hereto as Annex II.

          (ii)Each Signing Shareholder agrees that all Tax Returns (including amended returns and claims for refund) and information reports filed by such Signing Shareholder will be consistent with the Pre-Closing Tax Return that is prepared and filed in accordance with Section 7.1(a) of this Agreement.

56

          (iii)Each Signing Shareholder has filed, on a timely basis, all Tax Returns and reports of any nature whatsoever which are required to be filed with any federal, state, local or foreign governmental authority with respect to the Company’s profits or losses that are attributed or attributable to it. Each Signing Shareholder is responsible for all such Taxes related to the period prior to the Effective Time and each Signing Shareholder shall indemnify Buyer and Company against any adverse consequences arising out of its failure to pay any such Taxes; and

          (iv)Each Signing Shareholder shall include any income, gain, loss, deduction or other Tax item resulting from the Section 338(h)(10) Election on its Tax Returns to the extent required by applicable law. Each Signing Shareholder shall pay any Tax imposed on Company attributable to the making of the Section 338(h)(10) Election, including (i) any Tax imposed under Code Section 1374, (ii) any tax imposed under Reg. Section 1.338(h)(10)-1(d)(2), or (iii) any state, local, or non-U.S. Tax imposed on Company’s gain, and shall indemnify Buyer and Company against any adverse consequences arising out of any failure to pay any such Taxes.

          (d)Lock-up. Each Signing Shareholder agrees that, prior to the date (the “First Lock-Up Date”) that is the earlier of: (i) the effectiveness date of the Registration Statement on Form S-3 to be filed by Buyer in connection with the issuance of shares in connection with the Merger or (ii) the date one hundred eighty (180) days after the Effective Time; it will not directly or indirectly transfer, sell, assign, convey, pledge, hypothecate, encumber or otherwise dispose of any Buyer Stock Consideration without the prior written consent of Buyer. Each Signing Shareholder further agrees that, (x) after the First Lock-Up Date, but prior to the first anniversary of the Effective Time, it will not directly or indirectly transfer, sell, assign, convey, pledge, hypothecate, encumber or otherwise dispose of more than one-third (1/3) of the Buyer Stock Consideration without the prior written consent of Buyer, and (y) after the first anniversary but prior to the second anniversary of the Effective Time, it will not directly or indirectly transfer, sell, assign, convey, pledge, hypothecate, encumber or otherwise dispose of more than two-thirds (2/3) of the Buyer Stock Consideration without the prior written consent of Buyer.

          (e)Spousal Consent. Each Signing Shareholders represents and warrants that no consent of such Signing Shareholder or any spouse of such Signing Shareholder is necessary under any “community property” or other laws in order for such Signing Shareholder to enter into and perform his/her obligations under this Agreement.

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          (f)Release by Signing Shareholders. Effective automatically at the Effective Time, each Signing Shareholder (and, if applicable, such party in his or her capacity as an officer, manager, employee and/or director of Company) hereby fully releases and discharges each other Signing Shareholder (including, if applicable, such party in his or her capacity as an officer, manager, employee and/or director of Company) (the “Released Parties”) from all rights, claims, liabilities, demands, causes of action, costs, expenses, attorneys’ fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (“Claims”), which such Signing Shareholder (and, if applicable, such party in his or her capacity as an employee, officer and/or director of Company) now or as of the Effective Time has against any of the Released Parties, arising out of or relating to events occurring at or prior to the Effective Time. Each Signing Shareholder hereby waives and relinquishes all rights and benefits afforded by Section 1542 of the California Civil Code, which states as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

Each Signing Shareholder has had the opportunity to consult with an attorney prior to executing this release. Each Signing Shareholder understands and acknowledges the significance and consequence of this waiver of the benefits afforded by Section 1542 and nevertheless elects to, and does, release those claims described in this Section 9.14(f), known or unknown, that such Signing Shareholder may have.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be duly executed on its behalf by its officer thereunto duly authorized, as of the day and year first above written.

UNIFY CORPORATION, a Delaware corporation
By:	/s/ Todd E. Wille
	Name: Todd E. Wille
	Title: President and Chief Executive Officer

UNIFY ACQUISITION CORP., a California corporation
By:	/s/ Todd E. Wille
	Name: Todd E. Wille
	Title: President

STRATEGIC OFFICE SOLUTIONS, INC. (d/b/a DAEGIS), a California corporation
By:	/s/ Kurt A. Jensen
	Name: Kurt A. Jensen
	Title: President and Chief Financial Officer

[Signature Page to Merger Agreement]

As to Sections 8.2(a)(i), 9.13 and 9.14 only:

/s/ Donald R. Carmignani

Donald R. Carmignani

/s/ Judson Holt

Judson Holt

/s/ Matthew McCormack

Matthew McCormack

/s/ Suzi Schultz

Suzi Schultz

/s/ Douglas Stewart

Douglas Stewart

/s/ Joseph Rodrigues

Joseph Rodrigues

/s/ Kevin Savage

Kevin Savage

THE JENSEN REVOCABLE TRUST

DATED JANUARY 25, 2007

/s/ Carolyn L. Jensen

Carolyn L. Jensen, as Trustee

/s/ Kurt A. Jensen

Kurt A. Jensen, as Trustee

[Signature Page to Merger Agreement]

Schedules and Exhibits Omitted

EX-10.2

EXECUTION COPY

LOAN AND SECURITY AGREEMENT

dated as of June 29, 2010

among

UNIFY CORPORATION,
as Borrower,

The Guarantors Party Hereto From Time to Time,

and

HERCULES TECHNOLOGY II, L.P.,
as Lender

TABLE OF CONTENTS

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

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TABLE OF CONTENTS
(continued)

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

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TABLE OF CONTENTS
(continued)

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

-iii-

TABLE OF CONTENTS
(continued)

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

-iv-

TABLE OF CONTENTS
(continued)

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

-v-

TABLE OF CONTENTS
(continued)

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

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Table of Addenda, Schedules and Exhibits

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

LOAN AND SECURITY AGREEMENT

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

RECITALS

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

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

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

AGREEMENTS

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

SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Closing Date” means the date of this Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(g)Accounts owing by an Affiliate of Borrower;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Permitted Indebtedness” means:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Permitted Investment” means:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION 2. THE LOANS

               2.1Revolving Loan.

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

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

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

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

2.2Term Loan.

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

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

          (c)Interest. 

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

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

(d)Payments. 

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

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

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

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

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

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

          2.4Late Fee; Default Interest.

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

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

2.5Voluntary Prepayments. 

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

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

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2.6Mandatory Prepayments.

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

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

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

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

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

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

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

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

(i)Extraordinary Receipts; Insurance Proceeds.

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

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

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

(j)Application of Mandatory Prepayments.

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

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

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

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

2.8[Intentionally Omitted].

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

2.10Payments Generally.

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

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

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

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

3.1[Intentionally Omitted].

3.2Special Provisions Applicable to the LIBOR Rate.

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

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

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

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

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

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

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

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

          (e)Status of Lenders; Tax Documentation.

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION 4. SECURITY INTEREST

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

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

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

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

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

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

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

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

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

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

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

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

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SECTION 5. CONDITIONS PRECEDENT TO LOANS

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

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

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

(i)this Agreement;

(ii)the Revolving Note;

(iii)the Term Loan Note;

(iv)the Securities Pledge Agreement;

(v)the Intellectual Property Security Agreements;

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

(vii)the ACH Authorization;

(viii)the Perfection Certificate;

(ix)the Daegis Registration Rights Agreement; and

(x)the Warrant.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(k)[Intentionally Omitted].

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

(m)Initial Acquisition.

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

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

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

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

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

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

5.2All Advances. On each Advance Date:

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

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

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

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

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

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SECTION 6. REPRESENTATIONS AND WARRANTIES

Borrower and each Guarantor represent and warrant that:

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

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

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

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

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

6.6No Defaults; Material Adverse Effect.

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

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

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

6.8Ownership of Property; Liens; Indebtedness and Investments.

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

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

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

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

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

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

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

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

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

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

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

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

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

6.18Intellectual Property; Intellectual Property Rights; Etc.

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

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

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

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

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

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

6.23ERISA.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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6.31[Intentionally Omitted].

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

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

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

SECTION 7. INSURANCE; INDEMNIFICATION

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

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

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

SECTION 8. AFFIRMATIVE COVENANTS

Borrower and each Guarantor covenants and agrees as follows:

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

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

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

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

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

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

(f)[Intentionally Omitted]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

8.19Post-Closing Covenants.

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

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

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

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

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

8.20Information Statement.

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

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

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

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

SECTION 9. NEGATIVE COVENANTS

Borrower and each Guarantor covenants and agrees as follows:

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

9.2Indebtedness; Prepayment of Indebtedness.

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

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

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

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

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

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

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

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

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

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          9.10Transactions with Affiliates. Neither Borrower nor any Guarantor shall, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with Borrower or any Guarantor, whether or not in the ordinary course of business, other than on terms that are fair and reasonable and comparable to the terms which would be obtainable by such Borrower or Guarantor at the time in a comparable arm’s length transaction with a Person other than an Affiliate and are fully disclosed in writing to Lender prior to the consummation thereof. 

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

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

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

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

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

9.16[Intentionally Omitted].

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

9.18Financial Covenants.

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

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

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

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

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

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

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

SECTION 10. [INTENTIONALLY OMITTED].

SECTION 11. EVENTS OF DEFAULT

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

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

          11.2Specific Covenants; Other Defaults. Borrower or any Guarantor breaches or defaults in the performance of any covenant or Secured Obligation under this Agreement, the Notes, or any of the other Loan Documents, (a) with respect to a default under any of Section 7, Sections8.1 (other than Section 8.1(o)), 8.3, 8.4, 8.5, 8.6, 8.7, 8.12, 8.19, failure to pay the Fee Payment when due under Section 8.20(d), or Section 9, upon the occurrence of such default; or (b) with respect to any other default under any covenant (other than Section 8.1(o) and Sections 8.20(a) through 8.20(c)), under this Agreement or any other Loan Document (other than as set forth in this Section 11) such default continues for more than ten (10) days after the earlier of the date on which (i) Lender has given notice of such default to Borrower and (ii) Borrower or any Guarantor has knowledge of such default; or 

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

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

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

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

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

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

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

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

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

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

11.13[Intentionally Omitted]; or 

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

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

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

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

SECTION 12. REMEDIES

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

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

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

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

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

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

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

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

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

SECTION 13. GUARANTY

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

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

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

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

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

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

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

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

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

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

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

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

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

13.7Contribution with Respect to Guaranty Obligations.

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

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

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

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

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

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

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

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

SECTION 14. MISCELLANEOUS

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

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

(a)If to Lender:

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

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

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(b)If to Borrower or any Guarantor:

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

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

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

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

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

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

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

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

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

14.10Mutual Waiver of Jury Trial / Judicial Reference.

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

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

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

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

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

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

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

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

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

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

[Remainder of Page Intentionally Left Blank]

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

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

Signature Pages to Loan and Security Agreement

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

Signature Pages to Loan and Security Agreement

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

Signature Pages to Loan and Security Agreement

Accepted in Palo Alto, California:

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

Signature Pages to Loan and Security Agreement

ADDENDUM 1 TO LOAN AND SECURITY AGREEMENT

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

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

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

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

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

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

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

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

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

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

SECURED REVOLVING PROMISSORY NOTE

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

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

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

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

UNIFY CORPORATION


 

 
By:

Title:

SECURED TERM PROMISSORY NOTE

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

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

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

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

UNIFY CORPORATION


 

 
By:

Title:

Schedules and Exhibits Omitted

EX-10.3

EXECUTION COPY

REGISTRATION RIGHTS AGREEMENT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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2. Shelf Registration.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

5. Indemnification by the Company.

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

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

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

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

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

7.Additional Provisions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

EX-10.4

	EXECUTION COPY
No. 1	718,860 Shares

WARRANT TO PURCHASE COMMON STOCK

OF

UNIFY CORPORATION

ISSUED ON JUNE 29, 2010

VOID AFTER 5:30 P.M., EASTERN TIME, ON JUNE 29, 2020

          THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.

          FOR VALUE RECEIVED, UNIFY CORPORATION, a Delaware corporation (the “Company”), hereby agrees to sell upon the terms and conditions hereinafter set forth, but no later than 5:30 p.m., Eastern Time, on the Expiration Date (as hereinafter defined) to Hercules Technology II, L.P. or its registered assigns (the “Holder”), under the terms as hereinafter set forth, 718,860 fully paid and non-assessable shares of the Company’s Common Stock, par value $0.001 per share (the “Warrant Shares”), at a per share purchase price equal to $3.30 per share (the “Warrant Price”), pursuant to this warrant (this “Warrant”). The number of Warrant Shares to be so issued and the Warrant Price are subject to adjustment in certain events as hereinafter set forth. The term “Common Stock” shall mean, when used herein, unless the context otherwise requires, the stock and other securities and property at the time receivable upon the exercise of this Warrant.

1.Definitions

a.“Act” has the meaning set forth in the legend above.

          b.“Certificate of Incorporation” means the Certificate of Incorporation of the Company, as such Certificate of Incorporation may be amended, restated or supplemented from time to time.

c.“Common Stock” has the meaning set forth in the preamble hereto.

d.“Company” has the meaning set forth in the preamble hereto.

e.“Dilutive Issuance” has the meaning set forth in Section 7(d) hereof.

f.“Excluded Securities” means:

               (i)shares of Common Stock, or options to acquire shares of Common Stock, issued to directors, officers, employees and consultants of the Company or any subsidiary pursuant to any qualified or non-qualified stock option plan or agreement, stock purchase plan or agreement, stock restriction agreement, employee stock ownership plan, consultant equity compensation plan or arrangement approved by the Board of Directors of the Company or an authorized committee thereof, including any repurchase or stock restriction agreement, or such other options, issuances, arrangements, agreements or plans intended principally as a means of providing compensation for employment or services and approved by the Board of Directors of the Company; provided that the Company shall not issue options or other rights (including restricted stock, “phantom stock” or securities convertible into or exchangeable for shares of capital stock) under its 2001 Stock Option Plan, 2002 Director Restricted Stock Plan or any other incentive equity plan approved by the Borrower's stockholders after the date hereof for the purchase or acquisition from the Company of more than 550,000 shares of Common Stock or other equity interests (net of any forfeitures and cancellations and as such number of shares may be increased or decreased to reflect stock splits, reverse stock splits or stock dividends) in the aggregate in any twelve (12) month period, with such first twelve (12) month period to commence on the date of this Warrant;

               (ii)shares of Common Stock, or warrants or options to purchase Common Stock, issued in connection with bona fide acquisitions, mergers or similar transactions, the terms of which are approved by the Board of Directors of the Company; and

               (iii)shares of Common Stock issued upon exercise or conversion of any options, warrants or convertible notes of the Company set forth on the capitalization table set forth on Schedule A hereto.

g.“Expiration Date” means June 29, 2020.

h.“fair market value” has the meaning set forth in Section 2(a) hereof.

          i.“Fully-Diluted Basis” means, at any given time and without duplication, the aggregate number of Common Stock and Preferred Stock (as such terms are defined in the Certificate of Incorporation) and any other shares of the Company outstanding at such time plus the aggregate number of Common Stock and Preferred Stock and any other shares of the Company issuable (subject to readjustment upon the actual issuance thereof) upon the exercise, conversion or exchange of any option, right, warrant or convertible or exchangeable security outstanding at such time.

j.“Holder” has the meaning set forth in the preamble hereto.

k.“Loan Agreement”has the meaning set forth in Section 12 hereof.

l.“Net Issuance” has the meaning set forth in Section 2(a) hereof.

          m.“New Issuance” means (A) any issuance or sale by the Company of any class of shares of the Company (including the issuance or sale of any shares owned or held by or for the account of the Company) other than Excluded Securities, (B) any issuance or sale by the Company of any options, rights or warrants to subscribe for any class of shares of the Company other than Excluded Securities, or (C) the issuance or sale of any securities convertible into or exchangeable for any class of shares of the Company other than Excluded Securities. 

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n.“New Issuance Price” has the meaning set forth in Section 7(d) hereof.

o.“Transfer Notice” has the meaning set forth in Section 3(b) hereof.

          p.“Warrant” means this Warrant and any subsequent Warrant issued in accordance with the terms hereof.

q.“Warrant Price has the meaning set forth in the preamble hereto.

r.“Warrant Shares” means has the meaning set forth in the preamble hereto.

2.Exercise of Warrant.

          a.Notwithstanding anything to the contrary in this Warrant, this Warrant shall not be exercisable unless and until the Company shall have distributed to the Company's stockholders an information statement, in accordance with Regulation 14C under the Securities Exchange Act of 1934, as amended, with respect to the action taken by the Company’s stockholders by written consent approving the issuance of the Warrant Shares and twenty (20) days have elapsed from the date such information statement is first given to the Company’s stockholders. At any time on or after the twenty-first (21st) day following the Company’s distribution of such information statement to its stockholders, the Holder or its assignee may exercise this Warrant according to its terms by completing the subscription form attached hereto and surrendering this Warrant to the Company at the address set forth in Section 13, accompanied by payment in full of the purchase price for the number of the Warrant Shares specified in the subscription form, or as otherwise provided in this Warrant, prior to 5:30 p.m., Eastern Time on the Expiration Date. Payment of the purchase price may be made (i) in cash or certified check or by bank draft in lawful money of the United States of America or (ii) in accordance with the net issuance formula below (“Net Issuance”).

          If the Holder elects the Net Issuance method of payment, then the Company shall issue to Holder upon exercise such number of shares of Common Stock determined in accordance with the following formula:

X =	Y(A-B)
	A
Where X =	the number of shares of Common Stock to be issued to the Holder;
Y =	the number of shares of Common Stock with respect to which the Holder is exercising its rights under this Warrant;
A =	the fair market value of one (1) share of Common Stock on the date of exercise; and
B =	the Warrant Price.

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For purposes of the above calculation, “fair market value” shall mean:

(i)

if the Common Stock is listed or traded on the NASDAQ stock market or any United States securities exchange or quoted on any securities quotation service operated by NASDAQ (including the OTC Bulletin Board), the twenty day volume weighted average trading price for the twenty trading days ending on the second trading day prior to the date of exercise; or

(ii)

if at any time the Common Stock is not listed or traded on any United States stock exchange or quoted on any securities quotation service operated by NASDAQ, the fair market value determined in good faith by the Board of Directors of the Company and approved in good faith by the Holder. In the event that the Holder does not accept the valuation determined by the Board, then the Company and the Holder shall, in good faith, select an independent valuation firm mutually acceptable to each of them to conduct a valuation of the price of a Warrant Share. The Holder may elect, in its sole discretion, to receive the number of shares of Common Stock issuable to it upon exercise of this Warrant calculated using the fair market value as determined in good faith by the Board of Directors of the Company. Upon the determination of the independent valuation firm, the Company and the Holder will make adjustments to the issuance of Common Stock based on the determination of such independent valuation firm. The determination of such independent valuation firm shall be conclusive, absent manifest error, as between the Company and the Holder for purposes herein. The Company shall pay all costs and expenses associated with the engagement of the independent valuation firm; provided that a valuation is not required more than once in any given twelve (12) consecutive month period. If at any time there will be more than one Holder, then any determination of the fair market value, made with respect to a Holder, shall apply to all the Holders, unless any party proves that a material change in the valuation of the Company has occurred since the valuation was determined.

          b.This Warrant may be exercised in whole or in part so long as any exercise in part hereof would not involve the issuance of fractional shares of Warrant Shares. If exercised in part, the Company shall deliver to the Holder a new Warrant, identical in form, in the name of the Holder, evidencing the right to purchase the number of Warrant Shares as to which this Warrant has not been exercised, which new Warrant shall be signed by the Chairman, Chief Executive Officer or President and the Secretary or Assistant Secretary of the Company.

          c.No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. The Company shall pay cash in lieu of fractional shares with respect to the Warrants based upon the fair market value of such fractional shares of Common Stock (which, for purposes of this Section 2(c), shall be the closing price of such shares on the exchange or market on which the Common Stock is then traded) at the time of exercise of this Warrant.

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3.Disposition of Warrant Shares and Warrant.

          a.The Holder hereby acknowledges that (i) this Warrant and any Warrant Shares purchased pursuant hereto are, as of the date hereof, not registered: (A) under the Act on the ground that the issuance of this Warrant is exempt from registration under Section 4(2) of the Act as not involving any public offering or (B) under any applicable state securities law because the issuance of this Warrant does not involve any public offering and (ii) the Company’s reliance on the Section 4(2) exemption of the Act and under applicable state securities laws is predicated in part on the representations hereby made to the Company by the Holder. The Holder represents and warrants that it is (i) an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act, (ii) (A) familiar with the business and affairs of the Company and (B) knowledgeable and experienced in financial and business matters to the extent that such Holder is capable of evaluating the merits and risks of an investment in the Warrant and the Warrant Shares, and (iii) acquiring this Warrant and will acquire the Warrant Shares for investment for its own account, with no present intention of dividing his, her or its participation with others or reselling or otherwise distributing the same.

          b.Subject to compliance with applicable federal and state securities laws and the immediately following sentence, and if such intended transferee is not an affiliate of the Holder and the intended transferee provides a duly executed written confirmation that the representations and warranties in Section 3(a) of this Warrant are true and correct as to such intended transferee, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes) upon surrender of this Warrant properly endorsed. The Holder hereby agrees that it will not sell or transfer all or any part of this Warrant and/or Warrant Shares unless and until it shall first have given notice to the Company describing such sale or transfer and, if requested by the Company in writing, furnished to the Company either (i) an opinion, reasonably satisfactory to counsel for the Company, of counsel (skilled in securities matters, selected by the Holder and reasonably satisfactory to the Company) to the effect that the proposed sale or transfer may be made without registration under the Act and without registration or qualification under any state law, or (ii) an interpretative letter from the Securities and Exchange Commission to the effect that no enforcement action will be recommended if the proposed sale or transfer is made without registration under the Act. 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 subject to the transfer restrictions provided for herein, and that the holder hereof, when this Warrant shall have been so endorsed and its transfer recorded on the Company’s books, shall be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant and, notwithstanding any other provision of this Warrant to the contrary, shall be the Holder as referred to in this Warrant.

          The proper transfer of this Warrant shall be recorded in the registry referred to in Section 8(c) upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit II (the “Transfer Notice”), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. Until the Company receives such Transfer Notice, the Company may treat the registered owner hereof as the owner for all purposes.

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          c.If, at the time of issuance of the shares issuable upon exercise of this Warrant, no registration statement is in effect with respect to such shares under applicable provisions of the Act, the Company may at its election require that the Holder provide the Company with written reconfirmation of the Holder’s investment intent and that any stock certificate delivered to the Holder of a surrendered Warrant shall bear legends reading substantially as follows:

          “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.”

          In addition, so long as the foregoing legend may remain on any stock certificate delivered to the Holder, the Company may maintain appropriate “stop transfer” orders with respect to such certificates and the shares represented thereby on its books and records and with those to whom it may delegate registrar and transfer functions.

     4.Reservation of Shares. The Company hereby agrees that at all times there shall be reserved for issuance upon the exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance upon exercise of this Warrant and shall at all times have a sufficient number of authorized shares so as to permit the issuance of the shares of Common Stock upon exercise of this Warrant. The Company further agrees that all Warrant Shares represented by this Warrant will be duly authorized and will, upon issuance and against payment of the exercise price, be validly issued, fully paid and non-assessable.

     5.Exchange, Transfer or Assignment of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations, entitling the Holder or Holders thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled.

     6.Delivery of Stock Certificate Upon Exercise. Promptly after the exercise of this Warrant and payment of the Warrant Price (which payment shall be deemed to have occurred when the funds are immediately available to the Company), the Company will cause to be issued in the name of and delivered to the registered Holder hereof or its assigns, or such Holder’s nominee or nominees, a certificate or certificates for the number of full shares of Common Stock of the Company to which such Holder shall be entitled upon exercise (and in the case of partial exercise, a Warrant of like tenor for the unexercised portion remaining subject to exercise prior to the Expiration Date set forth herein). For all corporate purposes, such certificate or certificates shall be deemed to have been issued and such Holder or Holder’s designee to be named therein shall be deemed to have become a holder of record of such shares of Common Stock as of the date the duly executed exercise form pursuant to this Warrant, together with the full payment of the Warrant Price, is received by the Company as aforesaid. No fraction of a share or scrip certificate for such fraction shall be issued upon exercise of this Warrant; in lieu thereof, the Company will pay or cause to be paid to such Holder cash equal to a like fraction at the prevailing fair market price for such share as determined in good faith by the Company.

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7.Adjustment of Warrant Price and Number of Warrant Shares. The number of Warrant Shares purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment as follows:

          a.Recapitalization, Reclassification and Succession. If any recapitalization of the Company or reclassification of its Common Stock or any merger or consolidation of the Company into or with a corporation or other business entity, or the sale or transfer of all or substantially all of the Company’s assets or of any successor corporation’s assets to any other corporation or business entity (any such corporation or other business entity being included within the meaning of the term “successor corporation”) shall be effected, at any time while this Warrant remains outstanding and unexpired, then, as a condition of such recapitalization, reclassification, merger, consolidation, sale or transfer, lawful and adequate provision shall be made whereby the Holder of this Warrant thereafter shall have the right to receive upon the exercise hereof as provided in Section 1 and in lieu of the shares of Common Stock immediately theretofore issuable upon the exercise of this Warrant, such shares of capital stock, securities or other property as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore issuable upon the exercise of this Warrant had such recapitalization, reclassification, merger, consolidation, sale or transfer not taken place, and in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation.

          b.Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Common Stock, the number of Warrant Shares purchasable upon exercise of this Warrant shall be adjusted in accordance with Section 7(d)(i).

          c.Stock Dividends and Distributions. If the Company at any time while this Warrant is outstanding and unexpired shall issue or pay the holders of its Common Stock, or take a record of the holders of its Common Stock for the purpose of entitling them to receive, a dividend payable in, or other distribution of, Common Stock, then the Warrant Price shall be adjusted in accordance with Section 7(d)(ii).

d.Anti-Dilution.

               (i)If, at any time during the one-year period commencing on the date of issuance of this Warrant, (A) the Company shall make a New Issuance for no consideration or for a consideration per share less than the Warrant Price in effect immediately prior to such New Issuance (a “Dilutive Issuance”) or (B) the total consideration paid (including exercise price of any option, right or warrant to subscribe for any class of shares of the Company or the conversion price of any security convertible into or exchangeable for any class of shares of the Company) (other than an option, right or warrant that is an Excluded Security) is when issued or is later adjusted downward to a price that is less than the exercise price in effect immediately prior to such downward adjustment (such lower consideration price or adjusted exercise price or conversion price, the “New Issuance Price”), then immediately after such Dilutive Issuance or downward adjustment of such exercise price or conversion price, the Warrant Price then in effect shall be reduced to an amount equal to the New Issuance Price. For purposes of this Warrant, if a part or all of the consideration received by the Company in connection with a New Issuance consists of property other than cash, such consideration shall be deemed to have a fair market value as defined in Section 2(a) above.

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               (ii)If, at any time after the one-year period commencing on the date of issuance of this Warrant, the Company makes a Dilutive Issuance, then, upon such issuance, the Warrant Price shall be reduced to equal the amount computed using the following formula:

	A * [(C + D)/B]
where:
	A	=	the Warrant Price in effect immediately prior to the Dilutive Issuance;
	B	=	the number of shares of Common Stock outstanding immediately after the New Issuance (calculated on a Fully-Diluted Basis);
	C	=	the number of shares of Common Stock outstanding immediately prior to the New Issuance (calculated on a Fully-Diluted Basis); and
	D	=	the number of shares of Common Stock that would be issuable for the total consideration to be received for the New Issuance if the purchaser paid the Warrant Price in effect immediately prior to the New Issuance.

               (iii)Upon each adjustment in the Warrant Price pursuant to this Section 7, the number of Warrant Shares purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Warrant Shares purchasable immediately prior to such adjustment by a fraction, (i) the numerator of which shall be the Warrant Price immediately prior to such adjustment, and (ii) the denominator of which shall be the Warrant Price immediately thereafter.

          e.Certain Shares Excluded. The number of shares of Common Stock outstanding at any given time for purposes of the adjustments set forth in this Section 7 shall exclude any shares then directly or indirectly held in the treasury of the Company.

          f.No Impairment. The Company will not, in any way whatsoever, including by amendment of the Certificate of Incorporation, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder, or impair the economic interest of the Holder, but will at all times in good faith assist in the carrying out of all of the provisions hereof and in the taking of all such actions and making of all such adjustments as may be necessary or appropriate in order to protect the rights and economic interests of the Holder against impairment.

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8.Notice To Holders.

a.Notice of Record Date. In case:

               (i)the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of this Warrant) for the purpose of entitling them to receive any dividend (other than a cash dividend payable out of earned surplus of the Company) or other distribution, or any right to subscribe for or purchase any shares of stock of any class or any other securities;

               (ii)of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation with or merger of the Company into another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation; or

(iii)of any voluntary dissolution, liquidation or winding-up of the Company;

then, and in each such case, the Company will mail or cause to be mailed to the Holder hereof a notice specifying, as the case may be, (A) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (B) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution or winding-up. Such notice shall be mailed at least 15 days prior to the record date therein specified; provided, however, failure to provide any such notice shall not affect the validity of such transaction.

          b.Notice of Adjustment. Whenever any adjustment shall be made pursuant to Section 7 hereof, the Company shall promptly notify the Holder of this Warrant of the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Warrant Price and number of Warrant Shares purchasable upon exercise of this Warrant after giving effect to such adjustment.

          c.Warrant Register. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant. The Holder may change such address by giving written notice of the change to the Company.

     9.Registration Rights. The Warrant Shares shall be deemed to be Registerable Shares under that certain Registration Rights Agreement, dated as of June 29, 2010, as such may be amended from time to time.

     10.Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership and the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Company and, in the case of mutilation, upon surrender and cancellation thereof, the Company will execute and deliver a new Warrant of like tenor dated the date hereof.

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     11.Warrant Holder not a Stockholder. The Holder of this Warrant, in its capacity as a warrant holder, shall not be entitled by reason of this Warrant to any rights whatsoever as a stockholder of the Company.

     12.Information Rights. During the term of this Warrant and to the extent it remains the Holder of this Warrant, Hercules Technology II, L.P. shall be entitled to the information rights contained in Section 8.1 of that certain Loan and Security Agreement dated as of June 29, 2010 by and among the Company, as Borrower, certain of its subsidiaries, as Guarantors, and Hercules Technology II, L.P. as lender (the “Loan Agreement”), and Section 8.1of the Loan Agreement is hereby incorporated into this Warrant by reference as though fully set forth herein, provided that (A) the Company shall not be required to deliver a Compliance Certificate (as defined in the Loan Agreement) once all Indebtedness (as defined in the Loan Agreement) owed by the Company to Hercules Technology II, L.P. has been repaid, and (B) for as long as the Holder is the lender under the Loan Agreement, the Company shall not be required to make more than one delivery of each item of information pursuant to Section 8.1of the Loan Agreement.

     13.Notices. Any notice required or contemplated by this Warrant shall be deemed to have been duly given if transmitted by registered or certified mail, return receipt requested, or nationally recognized overnight delivery service, to the Company at its principal executive offices 1420 Rocky Ridge Drive, Suite 380, Roseville, California 95661, Attention: Chief Executive Officer, or to the Holder at the name and address set forth in the Warrant Register maintained by the Company.

     14.Choice of Law. THIS WARRANT IS ISSUED UNDER AND SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.

     15.Jurisdiction and Venue. The Company and the Holder hereby agree that any dispute which may arise between them arising out of or in connection with this Warrant shall be adjudicated before a court located in New Castle County, Delaware and they hereby submit to the exclusive jurisdiction of the federal and state courts of the State of Delaware located in New Castle County with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Warrant or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in the manner set forth in Section 13 of this Warrant.

[Signature page follows.]

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IN WITNESS WHEREOF, the undersigned has duly executed this Warrant as of this ____ day of June, 2010.

UNIFY CORPORATION
By:
	Name:
	Title:

Signature Page to Warrant to Purchase Common Stock

Schedules and Exhibits Omitted

EX-10.5

THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATE TO THE OBLIGATION OF THE COMPANY TO PAY THE SENIOR DEBT (AS DEFINED IN SECTION 13 HEREIN BELOW) PURSUANT TO, AND TO THE EXTENT PROVIDED IN, SECTION 13 BELOW.

This Note and the Buyer Common Stock issuable upon conversion hereof (until such time, if any, as such Buyer Common Stock is registered with the Securities and Exchange Commission pursuant to an effective registration statement) have not been registered under the Securities Act of 1933, as amended (the “Act”), or any state securities laws, and may not be sold, offered for sale of otherwise transferred unless registered or qualified under the Act and applicable state securities laws or unless the Company receives an opinion, in form and from counsel reasonably acceptable to the Company, that registration, qualification or other such actions are not required under any such laws.

SUBORDINATED INDEMNITY NOTE

$1,200,000	Maturity Date:
Issue Date: June [___], 2010	September [__], 2015

     FOR VALUE RECEIVED, Unify Corporation, a Delaware corporation (the “Company”) hereby promises to pay to the order of _______________ or its successors, assigns and legal representatives (the “Holder”), at ___________________________, or at such other location as the Holder may designate from time to time, the aggregate principal sum of $1,200,000 (One Million Two Hundred Thousand Dollars), in lawful money of the United States of America, together with interest thereon at an annual interest rate of (x) three percent (3%) from the Effective Time through the eighteen (18) month anniversary date of the Effective Time and (y) thereafter, eight percent (8%); provided that upon the occurrence of and during the continuance of an Event of Default the annual interest rate shall increase to thirteen percent (13%).

1. Company Notes. This Subordinated Indemnity Note (the “Note”) is one of a series of Notes of like tenor in the aggregate principal amount of $1,200,000 issued by the Company pursuant to the terms of that certain Agreement and Plan of Merger (the “Merger Agreement”), dated June ___, 2010 (the “Issue Date”), by and among the Company, Unify Acquisition Corp., a wholly owned subsidiary of the Company and Strategic Office Solutions, Inc., a California corporation. Capitalized terms used herein shall have the respective meanings ascribed thereto in the Merger Agreement unless otherwise defined herein.

2. Calculation of Interest. Interest hereunder shall be calculated on the basis of a 365-day year for the actual number of days elapsed. Interest shall be calculated on a simple interest basis and shall accrue daily.

3. Payments. Interest shall accrue but not be paid until Section 13 terminates in accordance with Section 13(n). Accrued but unpaid interest shall be paid on the first Business Day of the fiscal quarter of the Company commencing after the termination of Section 13 and shall thereafter be paid quarterly, in arrears. Subject to Section 13, the principal amount, and any accrued but unpaid interest, shall be due and payable on the earlier of (x) September __, 2015 and (y) the date ninety (90) days after the Senior Debt has been fully and finally paid and all lending and other credit commitments under the Loan Agreement and the other Loan Documents have terminated (the “Maturity Date”).

4. Prepayment. Any prepayments hereunder shall be applied first, to the payment of any expenses then owed to the Holder, second, to accrued interest on this Note and third, to the payment of the principal amount outstanding under this Note. The Company shall have no right to make any prepayment of all or any portion of this Note unless the Company makes a simultaneous prepayment of the other Notes pari passu. The Note may be prepaid at any time without penalty, provided that the Company will give the Holder not less than fifteen (15) days advance written notice of prepayment.

5. Conversion.

(a) Optional Conversion. Subject to the provisions hereof, at any time following the twenty-first (21st) day after the Company has sent to its stockholders an information statement under Regulation 14C of the Securities Exchange Act of 1934 with respect to the action by written consent of holders of a majority of the outstanding Buyer Common Stock to authorize the issuance of Buyer Common Stock issuable upon conversion of this Note, and so long as (i) the Buyer Common Stock is authorized for listing or quotation on a national securities exchange, Nasdaq or the Over-the-Counter Bulletin Board or the “pink sheets,” and (ii) all or a portion of the principal amount of this Note remains outstanding, either the Holder or the Company may at its election convert this Note into the number of fully paid and non-assessable shares (the “Conversion Shares”) of Buyer Common Stock equal to the aggregate outstanding principal amount due under this Note (plus accrued interest) divided by the Conversion Price (as defined below), by notice of conversion and surrender (or, in the case of a Company-elected conversion, request for surrender) of this Note at the principal office of the Company, or such other office or agency of the Company as it may reasonably designate by written notice to the Holder, during normal business hours on any Business Day. The “Conversion Price” shall, subject to adjustment as provided in Section 6 below, mean (x) $3.50 (the “Initial Conversion Price”) if either the Company or the Holder elects to convert this Note prior to the first anniversary of the date of issuance and (y) if either the Company or the Holder elects to convert this Note after the first anniversary of the date of issuance, the lesser of (A) the Initial Conversion Price (as it may be adjusted in accordance with Section 6) and (B) the volume weighted average trading price per share of Buyer Common Stock for the twenty (20) trading days ending on the second trading date prior to the date of the notice of conversion. 

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(b) Stock Certificates. On the date on which the Holder shall have satisfied in full the Holder’s obligations set forth herein regarding a conversion of this Note, the Holder (or such other person or persons as directed by the Holder, subject to compliance with applicable securities laws) shall be treated for all purposes as the holder of record of such Conversion Shares as of the close of business on such date. In the event of such conversion of this Note, certificates for the whole number of shares of Buyer Common Stock constituting the Conversion Shares shall be delivered to the Holder (or such other person or persons as directed by the Holder, subject to compliance with applicable securities laws) as promptly as is reasonably practicable (but not later than five (5) days) after such conversion at the Company’s expense.

(c) Reservation of Shares; Stock Fully Paid; Listing. The Company shall keep reserved a sufficient number of shares of the authorized and unissued shares of Buyer Common Stock to provide for the conversion of this Note in compliance with its terms. All Conversion Shares issued upon conversion of this Note shall be, at the time of delivery of the certificates for such Conversion Shares upon conversion of this Note in accordance with the terms hereof, duly authorized, validly issued, fully paid and non-assessable shares of Buyer Common Stock.

(d) Restricted Securities. The Conversion Shares hereunder may not, at the time of issuance, have been registered under any federal or state securities laws, and may constitute “restricted securities” within the meaning of federal and state securities laws. By its receipt of Conversion Shares, if the shares are not then the subject of an effective registration statement under the Securities Act, the Holder will be deemed to acknowledge and confirm that it is receiving such shares for its own account for investment, and not with a view to the resale or distribution thereof in violation of any federal or state securities laws.

6. Adjustments.

6.1 Adjustment Upon Extraordinary Common Stock Event. Upon the happening of an Extraordinary Common Stock Event (as hereinafter defined) prior to the issuance of the Conversion Shares, the Initial Conversion Price shall, simultaneously with the happening of such Extraordinary Common Stock Event, be adjusted by multiplying such Initial Conversion Price by a fraction, the numerator of which shall be the number of shares of Buyer Common Stock outstanding immediately prior to such Extraordinary Common Stock Event and the denominator of which shall be the number of shares of Buyer Common Stock outstanding immediately after such Extraordinary Common Stock Event, and the product so obtained shall thereafter be the Initial Conversion Price which, as so adjusted, shall be readjusted in the same manner upon the happening of any successive Extraordinary Common Stock Event or Events.

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     An “Extraordinary Common Stock Event” shall mean (i) the issue of additional shares of Buyer Common Stock as a dividend or other distribution on outstanding shares of Buyer Common Stock, (ii) a subdivision of outstanding shares of Buyer Common Stock into a greater number of shares of Buyer Common Stock, or (iii) a combination or reverse stock split of outstanding shares of Buyer Common Stock into a smaller number of shares of the Buyer Common Stock.

6.2 Adjustment Upon Certain Dividends. In the event the Company shall make or issue, or shall fix a record date for the determination of holders of Buyer Common Stock entitled to receive, a dividend or other distribution with respect to the Buyer Common Stock payable in (i) securities of the Company other than shares of Buyer Common Stock, or (ii) other assets (excluding cash dividends or distributions), then the Company shall, not less than thirty (30) days before the record date for such event, give the Holder notice of such event.

6.3 Adjustment Upon Capital Reorganization or Reclassification. If the Buyer Common Stock shall be changed into the same or different number of shares of any other class or classes of capital stock, whether by capital reorganization, recapitalization, reclassification or otherwise (other than an Extraordinary Common Stock Event provided for in Section 6.1, a dividend or other distribution provided for in Section 6.2, or a merger or other transaction provided for in Section 6.4), then and in each such event, the Holder shall have the right thereafter to receive, upon conversion of this Note, in lieu of the number of shares of Buyer Common Stock which the Holder would otherwise have been entitled to receive, the kind and amount of shares of capital stock and other securities and property receivable upon such reorganization, recapitalization, reclassification or other change by the holders of the number of shares of Buyer Common Stock for which this Note could have been converted immediately prior to such reorganization, recapitalization, reclassification or change, all subject to further adjustment as provided herein.

6.4 Adjustment for Merger or Reorganization, etc.

          (a) In case of any consolidation or merger of the Company with or into another Company or the sale of all or substantially all of the assets of the Company to another Company, then this Note shall thereafter be convertible for the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Buyer Common Stock of the Company deliverable upon conversion of this Note would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in this Section 6 with respect to the rights and interest thereafter of the Holder of this Note, to the end that the provisions set forth in this Section 6 shall thereafter be applicable, as nearly as reasonably possible, in relation to any shares of stock or other property thereafter deliverable upon the conversion of this Note.

          (b) The provision for such rights with respect to the Subordinated Purchase Notes shall be a condition precedent to the consummation by the Company of any such transaction.

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6.5 Certificate as to Adjustments; Notice by Company. In each case of an adjustment or readjustment of the Initial Conversion Price, the Company at its expense will, within five (5) days of such adjustment or readjustment, furnish the Holder with a certificate prepared by the Treasurer or Chief Financial Officer of the Company, showing such adjustment or readjustment, and stating in detail the facts upon which such adjustment or readjustment is based.

     6.6 Further Adjustments. In the event that, as a result of an adjustment made pursuant to this Section 6, the Holder shall become entitled to receive any shares of capital stock of the Company other than shares of Buyer Common Stock, the number of such other shares so receivable upon conversion of this Note shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Conversion Shares contained in this Note.

     7. Transfer Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance of Conversion Shares issuable upon the conversion of this Note; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Conversion Shares in a name other than that of the registered holder of this Note in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Conversion Shares until the person requesting the same has paid to the Company the amount of such tax or has established to the Company’s reasonable satisfaction that such tax has been paid.

8. Events of Default. Each of the following shall constitute an “Event of Default” hereunder:

(a) The Company shall fail to pay the principal amount of this Note and accrued interest thereon when due and payable (whether at the Maturity Date, upon acceleration or otherwise);

(b) The Company shall sell, transfer, lease or otherwise dispose of all or any substantial portion of its assets in one transaction or a series of related transactions, participate in any share exchange, consummate any recapitalization, reclassification, reorganization or other business combination transaction or adopt a plan of liquidation or dissolution or agree to do any of the foregoing;

(c) An event of default has occurred and is continuing for sixty (60) days or more without being cured with respect to any Senior Debt or the Senior Debt has been accelerated and is due and owing to the Senior Creditor; or

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(d) The Company shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator, or other court-appointed fiduciary of all or a substantial part of its properties; or a custodian, receiver, trustee or liquidator or other court appointed fiduciary shall have been appointed with or without the consent of the Company; or the Company is generally not paying its debts as they become due by means of available assets, or has made a general assignment for the benefit of creditors; or the Company files a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any insolvency law, or an answer admitting the material allegations of a petition in any bankruptcy, reorganization or insolvency proceeding or has taken action for the purpose of effecting any of the foregoing; or if, within thirty (30) days after the commencement of any proceeding against the Company seeking any reorganization, rehabilitation, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Federal bankruptcy code or similar order under future similar legislation, the appointment of any trustee, receiver, custodian, liquidator, or other court-appointed fiduciary of the Company or of all or any substantial part of its properties, such order or appointment shall not have been vacated or stayed on appeal or otherwise or if, within thirty (30) days after the expiration of any such stay, such order or appointment shall not have been vacated (collectively, “Insolvency Events”).

Upon the occurrence of any Event of Default, the Holder may, at its option, declare all amounts due hereunder to be due and payable immediately and, upon any such declaration, the same shall, subject to Section 13 herein below, become and be immediately due and payable. If an Insolvency Event occurs with respect to the Company, then all amounts due hereunder shall become immediately due and payable without any declaration or other act on the part of the Holder. If an Event of Default occurs, the Company shall pay to the Holder the reasonable attorneys’ fees and disbursements and all other reasonable out-of-pocket costs incurred by the Holder in order to collect amounts due and owing under this Note or otherwise to enforce the Holder’s rights and remedies hereunder.

9. Right of Off-Set. Subject to the limitations set forth in Article 8 of the Merger Agreement, the Company may set off Damage claims against the Note. Any Damage claims will be set off pro rata against all other Notes of like tenor.

10. Waiver of Presentment, Demand and Dishonor. The Company hereby waives presentment for payment, protest, demand, notice of protest, notice of non-payment and diligence with respect to this Note, and waives and renounces all rights to the benefit of any statute of limitations or any moratorium, appraisement, exemption or homestead now provided or that hereafter may be provided by any federal or applicable state statute, including but not limited to exemptions provided by or allowed under the Federal Bankruptcy Code, both as to itself and as to all of its property, whether real or personal, against the enforcement and collection of the obligations evidenced by this Note and any and all extensions, renewals and modifications hereof.

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No failure on the part of the Holder hereof to exercise any right or remedy hereunder with respect to the Company, whether before or after the happening of an Event of Default, shall constitute a waiver of any future Event of Default or of any other Event of Default. No failure to accelerate the debt of the Company evidenced hereby by reason of an Event of Default or indulgence granted from time to time shall be construed to be a waiver of the right to insist upon prompt payment thereafter; or shall be deemed to be a novation of this Note or a reinstatement of such debt evidenced hereby or a waiver of such right of acceleration or any other right, or be construed so as to preclude the exercise of any right the Holder may have, whether by the laws of the state governing this Note, by agreement or otherwise; and the Company hereby expressly waives the benefit of any statute or rule of law or equity that would produce a result contrary to or in conflict with the foregoing.

11. Amendment; Waiver. The terms of this Note may not be amended unless all Subordinated Purchase Notes are identically amended. The Holder may waive any of its rights under this Agreement, and no such waiver or consent on any one instance shall be construed to be a continuing waiver or a waiver in any other instance unless it expressly so provides.

12. Transfers. The Holder shall have the right to transfer this Note or any interest herein in any transaction meeting the requirements of applicable securities laws.

13. Subordination. Notwithstanding anything contained in this Note to the contrary, until the Payment In Full of the Senior Debt (as each term is defined herein below), the terms of this Note shall at all times be subject to the provisions set forth in this Section 13.

     (a)Definitions. The following terms shall have the following meanings in this Section 13:

     (i)Loan Agreement. The Loan and Security Agreement, dated as of June [__], 2010, by and among, Unify Corporation, as the borrower thereunder, the guarantors party thereto from time to time, and the Senior Creditor, as lender, as such agreement is amended, restated or otherwise modified and in effect from time to time. 

     (ii)Loan Documents. The “Loan Documents” under and as defined in the Loan Agreement. 

     (iii)Insolvency Proceeding. Has the meaning ascribed thereto in clause (g) hereof. 

     (iv)Payment In Full. (A) The indefeasible payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of any Insolvency Proceeding, whether or not such interest would be allowed in such Insolvency Proceeding) and premium, if any, constituting Senior Debt, (B) Indefeasible payment in full in cash of all other Senior Debt that is outstanding and unpaid or otherwise accrued and owing at or prior to the time the Senior Debt is paid, and (C) termination or expiration of all lending and other credit commitments to lend under the Loan Agreement and the other Loan Documents. 

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(v)Senior Creditor. Hercules Technology II, L.P.

     (vi)Senior Debt. All principal, interest, fees, costs, enforcement expenses (including reasonable legal fees and disbursements), collateral protection expenses and other reimbursement or indemnity obligations created or evidenced by the Loan Agreement or any of the other Loan Documents or any prior, concurrent, or subsequent notes, instruments or agreements of indebtedness, liabilities or obligations of any type or form whatsoever relating to the Loan Agreement or any of the other Loan Documents in favor of the Senior Creditor. Senior Debt shall expressly include any and all interest accruing or out of pocket costs or expenses (including reasonable legal fees and disbursements) incurred after the date of any filing by or against the Company of any petition under the federal Bankruptcy Code or in connection with any other Insolvency Proceeding regardless of whether the Senior Creditor’s claim therefor is allowed or allowable in the case or proceeding relating thereto. 

     (vii)Subordinated Debt. All principal, interest, fees, costs, enforcement expenses (including reasonable legal fees and disbursements), reimbursement and indemnity obligations created or evidenced by this Note or any prior, concurrent or subsequent notes, instruments or agreements of indebtedness, liabilities or obligations of any type or form whatsoever relating to this Note in favor of the Holder and which is unsecured. 

     (viii)Subordinated Documents. Collectively, the Note and any and all other documents or instruments evidencing the Subordinated Debt, whether now existing or hereafter created.

     (b)The Subordinated Debt and any and all Subordinated Documents shall be and hereby are subordinated and the payment thereof is deferred until the Payment In Full of the Senior Debt, whether now or hereafter incurred or owed by the Company.

     (c)The Holder hereby acknowledges and agrees that the Subordinated Debt is unsecured and until the Payment In Full of the Senior Debt, the Company shall not, and shall not permit any of its subsidiaries to, grant to the Holder and the Holder shall not take any lien on or security interest in any of the Company’s or any of its subsidiaries’ property, now owned or hereafter acquired or created to secure the Company’s obligations under the Subordinated Debt. In addition, the Holder hereby agrees, upon request of the Senior Creditor at any time and from time to time, to execute such other documents or instruments as may be reasonably requested by the Senior Creditor further to evidence of public record or otherwise the priority of the Senior Debt as contemplated hereby.

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     (d)Until the Payment In Full of the Senior Debt, the Holder shall not take or permit any action prejudicial to or inconsistent with the Senior Creditor’s priority position over the Holder created by the provisions of this Section 13. Without limiting the foregoing, until the Payment In Full of the Senior Debt, the Holder will not assert, collect or enforce the Subordinated Debt or any part thereof or take any action to foreclose or realize upon the Subordinated Debt or any part thereof or enforce any of the Subordinated Documents except to the extent (but only to such extent) that the commencement of a legal action may be required to toll the running of any applicable statute of limitation. Until the Payment In Full of the Senior Debt, the Holder shall not have any right of subrogation, reimbursement, restitution, contribution or indemnity whatsoever relating to the Subordinated Debt from any assets of the Company or any guarantor of or provider of collateral security for the Senior Debt. The Holder further waives any and all rights with respect to marshalling.

     (e)Until the Payment In Full of the Senior Debt, the Holder will hold in trust and immediately pay over to the Senior Creditor, in the same form of payment received, with appropriate endorsements, for application to the Senior Debt any cash amount that the Company pays to the Holder with respect to the Subordinated Debt, or as collateral for the Senior Debt any other assets of the Company that the Holder may receive with respect to the Subordinated Debt.

     (f)If the Holder, in contravention of the terms of this Section 13, shall commence, prosecute or participate in any suit, action or proceeding against the Company, then the Company may interpose as a defense or plea the provisions of this Section 13, and the Senior Creditor may intervene and interpose such defense or plea in its name or in the name of the Company. If the Holder, in contravention of the terms of the provisions of this Section 13, shall attempt to collect any of the Subordinated Debt or enforce any of the Subordinated Documents, then the Senior Creditor or the Company may, by virtue of the provisions of this Section 13, restrain the enforcement thereof in the name of the Senior Creditor or in the name of the Company. If the Holder, in contravention of the terms of this Section 13, obtains any cash or other assets of the Company in respect of the Subordinated Debt as a result of any administrative, legal or equitable actions, or otherwise, the Holder agrees forthwith to pay, deliver and assign to the Senior Creditor, with appropriate endorsements, any such cash for application to the Senior Debt and any such other assets as collateral for the Senior Debt.

     (g)Until the Payment In Full of the Senior Debt, the Holder will not, with respect to any claim it may have in respect of its Subordinated Debt, commence or join with any other creditor or creditors in commencing any Insolvency Proceeding against the Company. At any meeting of creditors of the Company or in the event of any case or proceeding, voluntary or involuntary, for the distribution, division or application of all or part of the assets of the Company or the proceeds thereof, whether such case or proceeding be for the liquidation, dissolution or winding up of the Company or its business, a receivership, insolvency or bankruptcy case or proceeding, an assignment for the benefit of creditors or a proceeding by or against the Company for relief under the federal Bankruptcy Code or any other bankruptcy, reorganization or insolvency law or any other law relating to the relief of debtors, readjustment of indebtedness, reorganization, arrangement, composition or extension or marshalling of assets or otherwise (collectively, an “Insolvency Proceeding”), the Senior Creditor is hereby irrevocably authorized at any such meeting or in any such proceeding to receive or collect any cash or other assets of the Company distributed, divided or applied by way of dividend or payment, or any securities issued on account of any Subordinated Debt, and apply such cash to or to hold such other assets or securities as collateral for the Senior Debt, and to apply to the Senior Debt any cash proceeds of any realization upon such other assets or securities that the Senior Creditor in its discretion elects to effect, until the Payment In Full of all of the Senior Debt, rendering to the Holder any surplus to which the Holder is then entitled. 

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     (h)Notwithstanding the foregoing provisions of Section 13(g) herein above, the Holder shall be entitled to receive and retain any securities of the Company or any other corporation or other entity provided for by a plan of reorganization or readjustment (i) the payment of which securities is subordinate, at least to the extent provided in this Section 13 with respect to Subordinated Debt, to the payment of all Senior Debt under any such plan of reorganization or readjustment and (ii) all other terms of which are reasonably acceptable to the Senior Creditor.

     (i)At any such meeting of creditors or in the event of any such Insolvency Proceeding, the Holder shall retain the right to vote and otherwise act with respect to the Subordinated Debt (including, without limitation, the right to vote to accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition or extension), provided that the Holder shall not vote with respect to any such plan or take any other action in any way so as to contest (i) the validity of any Senior Debt or any collateral therefor or guaranties thereof, (ii) the relative rights and duties of any holders of any Senior Debt established in any instruments or agreements creating or evidencing any of the Senior Debt with respect to any of such collateral or guaranties, or (iii) the Holder's obligations and agreements set forth in this Section 13.

     (j)The Holder agrees, with respect to the Senior Debt and any and all collateral therefor or guaranties thereof, that the Company and the Senior Creditor may agree to increase the amount of the Senior Debt or otherwise modify the terms of any of the Senior Debt, and the Senior Creditor may grant extensions of the time of payment or performance to and make compromises, including releases of collateral or guaranties, and settlements with the Company and all other persons, in each case without the consent of the Holder or the Company and without affecting the agreements of the Holder or the Company contained in this Section 13; provided, however, that nothing contained in this Section 13(j) shall constitute a waiver of the right of the Company itself to agree or consent to a settlement or compromise of a claim which the Senior Creditor may have against the Company.

     (k)The Holder will not, at any time while the provisions of this Section 13 are in effect, modify any of the terms of any of the Subordinated Debt or any of the Subordinated Documents nor will the Holder sell, transfer, pledge, assign, hypothecate or otherwise dispose of any or all of the Subordinated Debt to any person.

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     (l)Nothing contained in this Section 13 shall impair, as between the Company and the Holder, the obligation of the Company to pay to the Holder all amounts payable in respect of the Subordinated Debt as and when the same shall become due and payable in accordance with the terms thereof, or prevent the Holder (except as expressly otherwise provided in Section 13(d) or Section 13(g)) from exercising all rights, powers and remedies otherwise permitted by the Subordinated Documents and by applicable law upon a default in the payment of the Subordinated Debt or under any Subordinated Document, all, however, subject to the rights of the Senior Creditor as set forth in this Section 13.

     (m)The provisions of this Section 13 shall continue in full force and effect, and the obligations and agreements of the Holder and the Company hereunder shall continue to be fully operative, until the Payment In Full of all of the Senior Debt and such full payment and satisfaction shall be final and not avoidable. To the extent that the Company or any guarantor of or provider of collateral for the Senior Debt makes any payment on the Senior Debt that is subsequently invalidated, declared to be fraudulent or preferential or set aside or is required to be repaid to a trustee, receiver or any other party under any bankruptcy, insolvency or reorganization act, state or federal law, common law or equitable cause (such payment being hereinafter referred to as a “Voided Payment”), then to the extent of such Voided Payment, that portion of the Senior Debt that had been previously satisfied by such Voided Payment shall be revived and continue in full force and effect as if such Voided Payment had never been made. In the event that a Voided Payment is recovered from the Senior Creditor, an Event of Default (under and as defined in the Loan Agreement) shall be deemed to have existed and to be continuing under the Loan Agreement from the date of the Senior Creditor’s initial receipt of such Voided Payment until the full amount of such Voided Payment is restored to the Senior Creditor. During any continuance of any such Event of Default, the provisions of this Section 13 shall be in full force and effect with respect to the Subordinated Debt. To the extent that the Holder has received any payments with respect to the Subordinated Debt subsequent to the date of the Senior Creditor’s initial receipt of such Voided Payment and such payments have not been invalidated, declared to be fraudulent or preferential or set aside or are required to be repaid to a trustee, receiver, or any other party under any bankruptcy act, state or federal law, common law or equitable cause, the Holder shall be obligated and hereby agrees that any such payment so made or received shall be deemed to have been received in trust for the benefit of the Senior Creditor, and the Holder hereby agrees to pay to the Senior Creditor, upon demand, the full amount so received by the Holder during such period of time to the extent necessary fully to restore to the Senior Creditor the amount of such Voided Payment. Upon the Payment In Full of all of the Senior Debt, which payment shall be final and not avoidable, the provisions of this Section 13 will automatically terminate without any additional action by any party hereto.

14. Governing Law; Dispute Resolution. This Note shall be binding upon the Company and its successors, assigns and legal representatives. The validity, construction and interpretation of this Note will be governed, and construed in accordance with, the laws of the State of California. Any Dispute arising out of this Note by and between the Holder and the Company, shall be resolved in accordance with Section 9.6 (Arbitration) of the Merger Agreement.

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[Signature Page Follows]

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HOLDER	COMPANY
ACKNOWLEDGED AND	UNIFY CORPORATION
AGREED:
By:	By:
Name:	Name: Todd E. Wille
Title:	Title: Chief Executive Officer
Dated: June ___, 2010

[Signature Page to Subordinated Indemnity Note]

EX-10.6

THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATE TO THE OBLIGATION OF THE COMPANY TO PAY THE SENIOR DEBT (AS DEFINED IN SECTION 13 HEREIN BELOW) PURSUANT TO, AND TO THE EXTENT PROVIDED IN, SECTION 13 BELOW.

This Note and the Buyer Common Stock issuable upon conversion hereof (until such time, if any, as such Buyer Common Stock is registered with the Securities and Exchange Commission pursuant to an effective registration statement) have not been registered under the Securities Act of 1933, as amended (the “Act”), or any state securities laws, and may not be sold, offered for sale of otherwise transferred unless registered or qualified under the Act and applicable state securities laws or unless the Company receives an opinion, in form and from counsel reasonably acceptable to the Company, that registration, qualification or other such actions are not required under any such laws.

SUBORDINATED PURCHASE NOTE

$__________	Maturity Date:
Issue Date: June [___], 2010	September [__], 2015

     FOR VALUE RECEIVED, Unify Corporation, a Delaware corporation (the “Company”) hereby promises to pay to the order of ________________________ or its successors, assigns and legal representatives (the “Holder”), at ___________________________, or at such other location as the Holder may designate from time to time, the aggregate principal sum of $______________ (___________ Dollars), in lawful money of the United States of America, together with interest thereon at an annual interest rate of eight percent (8%), provided that upon the occurrence of and during the continuance of an Event of Default the annual interest rate shall increase to thirteen percent (13%).

     1. 1. Company Notes. This Subordinated Purchase Note (the “Note”) is one of a series of Notes of like tenor in the aggregate principal amount of $5,000,000 issued by the Company pursuant to the terms of that certain Agreement and Plan of Merger (the “Merger Agreement”), dated June ___, 2010 (the “Issue Date”), by and among the Company, Unify Acquisition Corp., a wholly owned subsidiary of the Company and Strategic Office Solutions, Inc., a California corporation. Capitalized terms used herein shall have the respective meanings ascribed thereto in the Merger Agreement unless otherwise defined herein.

     2. Calculation of Interest. Interest hereunder shall be calculated on the basis of a 365-day year for the actual number of days elapsed. Interest shall be calculated on a simple interest basis and shall accrue daily.

     3. Payments. Interest shall accrue but not be paid until Section 13 terminates in accordance with Section 13(n). Accrued but unpaid interest shall be paid on the first Business Day of the fiscal quarter of the Company commencing after the termination of Section 13 and shall thereafter be paid quarterly, in arrears. Subject to Section 13, the principal amount, and any accrued but unpaid interest, shall be due and payable on the earlier of (x) September __, 2015 and (y) the date ninety (90) days after the Senior Debt has been fully and finally paid and all lending and other credit commitments under the Loan Agreement and the other Loan Documents have terminated (the “Maturity Date”).

     4. Prepayment. Any prepayments hereunder shall be applied first, to the payment of any expenses then owed to the Holder, second, to accrued interest on this Note and third, to the payment of the principal amount outstanding under this Note. The Company shall have no right to make any prepayment of all or any portion of this Note unless the Company makes a simultaneous prepayment of the other Notes pari passu. The Note may be prepaid at any time without penalty, provided that the Company will give the Holder not less than fifteen (15) days advance written notice of prepayment.

     5. Conversion.

          (a) Optional Conversion. Subject to the provisions hereof, at any time following the twenty-first (21st) day after the Company has sent to its stockholders an information statement under Regulation 14C of the Securities Exchange Act of 1934 with respect to the action by written consent of holders of a majority of the outstanding Buyer Common Stock to authorize the issuance of Buyer Common Stock issuable upon conversion of this Note, and so long as (i) the Buyer Common Stock is authorized for listing or quotation on a national securities exchange, Nasdaq or the Over-the-Counter Bulletin Board or the “pink sheets,” and (ii) all or a portion of the principal amount of this Note remains outstanding, either the Holder or the Company may at its election convert this Note into the number of fully paid and non-assessable shares (the “Conversion Shares”) of Buyer Common Stock equal to the aggregate outstanding principal amount due under this Note (plus accrued interest) divided by the Conversion Price (as defined below), by notice of conversion and surrender (or, in the case of a Company-elected conversion, request for surrender) of this Note at the principal office of the Company, or such other office or agency of the Company as it may reasonably designate by written notice to the Holder, during normal business hours on any Business Day. The “Conversion Price” shall, subject to adjustment as provided in Section 6 below, mean (x) $3.50 (the “Initial Conversion Price”) if either the Company or the Holder elects to convert this Note prior to the first anniversary of the date of issuance and (y) if either the Company or the Holder elects to convert this Note after the first anniversary of the date of issuance, the lesser of (A) the Initial Conversion Price (as it may be adjusted in accordance with Section 6) and (B) the volume weighted average trading price per share of Buyer Common Stock for the twenty (20) trading days ending on the second trading date prior to the date of the notice of conversion.

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          (b) Stock Certificates. On the date on which the Holder shall have satisfied in full the Holder’s obligations set forth herein regarding a conversion of this Note, the Holder (or such other person or persons as directed by the Holder, subject to compliance with applicable securities laws) shall be treated for all purposes as the holder of record of such Conversion Shares as of the close of business on such date. In the event of such conversion of this Note, certificates for the whole number of shares of Buyer Common Stock constituting the Conversion Shares shall be delivered to the Holder (or such other person or persons as directed by the Holder, subject to compliance with applicable securities laws) as promptly as is reasonably practicable (but not later than five (5) days) after such conversion at the Company’s expense.

          (c) Reservation of Shares; Stock Fully Paid; Listing. The Company shall keep reserved a sufficient number of shares of the authorized and unissued shares of Buyer Common Stock to provide for the conversion of this Note in compliance with its terms. All Conversion Shares issued upon conversion of this Note shall be, at the time of delivery of the certificates for such Conversion Shares upon conversion of this Note in accordance with the terms hereof, duly authorized, validly issued, fully paid and non-assessable shares of Buyer Common Stock.

          (d) Restricted Securities. The Conversion Shares hereunder may not, at the time of issuance, have been registered under any federal or state securities laws, and may constitute “restricted securities” within the meaning of federal and state securities laws. By its receipt of Conversion Shares, if the shares are not then the subject of an effective registration statement under the Securities Act, the Holder will be deemed to acknowledge and confirm that it is receiving such shares for its own account for investment, and not with a view to the resale or distribution thereof in violation of any federal or state securities laws.

     6. Adjustments.

     6.1 Adjustment Upon Extraordinary Common Stock Event. Upon the happening of an Extraordinary Common Stock Event (as hereinafter defined) prior to the issuance of the Conversion Shares, the Initial Conversion Price shall, simultaneously with the happening of such Extraordinary Common Stock Event, be adjusted by multiplying such Initial Conversion Price by a fraction, the numerator of which shall be the number of shares of Buyer Common Stock outstanding immediately prior to such Extraordinary Common Stock Event and the denominator of which shall be the number of shares of Buyer Common Stock outstanding immediately after such Extraordinary Common Stock Event, and the product so obtained shall thereafter be the Initial Conversion Price which, as so adjusted, shall be readjusted in the same manner upon the happening of any successive Extraordinary Common Stock Event or Events.

     An “Extraordinary Common Stock Event” shall mean (i) the issue of additional shares of Buyer Common Stock as a dividend or other distribution on outstanding shares of Buyer Common Stock, (ii) a subdivision of outstanding shares of Buyer Common Stock into a greater number of shares of Buyer Common Stock, or (iii) a combination or reverse stock split of outstanding shares of Buyer Common Stock into a smaller number of shares of the Buyer Common Stock.

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     6.2 Adjustment Upon Certain Dividends. In the event the Company shall make or issue, or shall fix a record date for the determination of holders of Buyer Common Stock entitled to receive, a dividend or other distribution with respect to the Buyer Common Stock payable in (i) securities of the Company other than shares of Buyer Common Stock, or (ii) other assets (excluding cash dividends or distributions), then the Company shall, not less than thirty (30) days before the record date for such event, give the Holder notice of such event.

     6.3 Adjustment Upon Capital Reorganization or Reclassification. If the Buyer Common Stock shall be changed into the same or different number of shares of any other class or classes of capital stock, whether by capital reorganization, recapitalization, reclassification or otherwise (other than an Extraordinary Common Stock Event provided for in Section 6.1, a dividend or other distribution provided for in Section 6.2, or a merger or other transaction provided for in Section 6.4), then and in each such event, the Holder shall have the right thereafter to receive, upon conversion of this Note, in lieu of the number of shares of Buyer Common Stock which the Holder would otherwise have been entitled to receive, the kind and amount of shares of capital stock and other securities and property receivable upon such reorganization, recapitalization, reclassification or other change by the holders of the number of shares of Buyer Common Stock for which this Note could have been converted immediately prior to such reorganization, recapitalization, reclassification or change, all subject to further adjustment as provided herein.

     6.4 Adjustment for Merger or Reorganization, etc.

          (a) In case of any consolidation or merger of the Company with or into another Company or the sale of all or substantially all of the assets of the Company to another Company, then this Note shall thereafter be convertible for the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Buyer Common Stock of the Company deliverable upon conversion of this Note would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in this Section 6 with respect to the rights and interest thereafter of the Holder of this Note, to the end that the provisions set forth in this Section 6 shall thereafter be applicable, as nearly as reasonably possible, in relation to any shares of stock or other property thereafter deliverable upon the conversion of this Note.

          (b) The provision for such rights with respect to the Subordinated Purchase Notes shall be a condition precedent to the consummation by the Company of any such transaction.

     6.5 Certificate as to Adjustments; Notice by Company. In each case of an adjustment or readjustment of the Initial Conversion Price, the Company at its expense will, within five (5) days of such adjustment or readjustment, furnish the Holder with a certificate prepared by the Treasurer or Chief Financial Officer of the Company, showing such adjustment or readjustment, and stating in detail the facts upon which such adjustment or readjustment is based.

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     6.6 Further Adjustments. In the event that, as a result of an adjustment made pursuant to this Section 6, the Holder shall become entitled to receive any shares of capital stock of the Company other than shares of Buyer Common Stock, the number of such other shares so receivable upon conversion of this Note shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Conversion Shares contained in this Note.

     7. Transfer Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance of Conversion Shares issuable upon the conversion of this Note; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Conversion Shares in a name other than that of the registered holder of this Note in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Conversion Shares until the person requesting the same has paid to the Company the amount of such tax or has established to the Company’s reasonable satisfaction that such tax has been paid.

     8. Events of Default. Each of the following shall constitute an “Event of Default” hereunder:

          (a) The Company shall fail to pay the principal amount of this Note and accrued interest thereon when due and payable (whether at the Maturity Date, upon acceleration or otherwise);

          (b) The Company shall sell, transfer, lease or otherwise dispose of all or any substantial portion of its assets in one transaction or a series of related transactions, participate in any share exchange, consummate any recapitalization, reclassification, reorganization or other business combination transaction or adopt a plan of liquidation or dissolution or agree to do any of the foregoing;

          (c) An event of default has occurred and is continuing for sixty (60) days or more without being cured with respect to any Senior Debt or the Senior Debt has been accelerated and is due and owing to the Senior Creditor; or

          (d) The Company shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator, or other court-appointed fiduciary of all or a substantial part of its properties; or a custodian, receiver, trustee or liquidator or other court appointed fiduciary shall have been appointed with or without the consent of the Company; or the Company is generally not paying its debts as they become due by means of available assets, or has made a general assignment for the benefit of creditors; or the Company files a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any insolvency law, or an answer admitting the material allegations of a petition in any bankruptcy, reorganization or insolvency proceeding or has taken action for the purpose of effecting any of the foregoing; or if, within thirty (30) days after the commencement of any proceeding against the Company seeking any reorganization, rehabilitation, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Federal bankruptcy code or similar order under future similar legislation, the appointment of any trustee, receiver, custodian, liquidator, or other court-appointed fiduciary of the Company or of all or any substantial part of its properties, such order or appointment shall not have been vacated or stayed on appeal or otherwise or if, within thirty (30) days after the expiration of any such stay, such order or appointment shall not have been vacated (collectively, “Insolvency Events”).

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     Upon the occurrence of any Event of Default, the Holder may, at its option, declare all amounts due hereunder to be due and payable immediately and, upon any such declaration, the same shall, subject to Section 13 herein below, become and be immediately due and payable. If an Insolvency Event occurs with respect to the Company, then all amounts due hereunder shall become immediately due and payable without any declaration or other act on the part of the Holder. If an Event of Default occurs, the Company shall pay to the Holder the reasonable attorneys’ fees and disbursements and all other reasonable out-of-pocket costs incurred by the Holder in order to collect amounts due and owing under this Note or otherwise to enforce the Holder’s rights and remedies hereunder.

     9. Right of Off-Set. In accordance with the provisions of Section 2.10(iv) and 2.10(b)(v)(C) of the Merger Agreement, the Company may set off adjustments made pursuant to that section for Actual Net Cash on Hand and Actual Working Capital against the Note. Any adjustments will be set off pro rata against all other Notes of like tenor.

     10. Waiver of Presentment, Demand and Dishonor. The Company hereby waives presentment for payment, protest, demand, notice of protest, notice of non-payment and diligence with respect to this Note, and waives and renounces all rights to the benefit of any statute of limitations or any moratorium, appraisement, exemption or homestead now provided or that hereafter may be provided by any federal or applicable state statute, including but not limited to exemptions provided by or allowed under the Federal Bankruptcy Code, both as to itself and as to all of its property, whether real or personal, against the enforcement and collection of the obligations evidenced by this Note and any and all extensions, renewals and modifications hereof.

     No failure on the part of the Holder hereof to exercise any right or remedy hereunder with respect to the Company, whether before or after the happening of an Event of Default, shall constitute a waiver of any future Event of Default or of any other Event of Default. No failure to accelerate the debt of the Company evidenced hereby by reason of an Event of Default or indulgence granted from time to time shall be construed to be a waiver of the right to insist upon prompt payment thereafter; or shall be deemed to be a novation of this Note or a reinstatement of such debt evidenced hereby or a waiver of such right of acceleration or any other right, or be construed so as to preclude the exercise of any right the Holder may have, whether by the laws of the state governing this Note, by agreement or otherwise; and the Company hereby expressly waives the benefit of any statute or rule of law or equity that would produce a result contrary to or in conflict with the foregoing.

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     11. Amendment; Waiver. The terms of this Note may not be amended unless all Subordinated Purchase Notes are identically amended. The Holder may waive any of its rights under this Agreement, and no such waiver or consent on any one instance shall be construed to be a continuing waiver or a waiver in any other instance unless it expressly so provides.

     12. Transfers. The Holder shall have the right to transfer this Note or any interest herein in any transaction meeting the requirements of applicable securities laws.

     13. Subordination. Notwithstanding anything contained in this Note to the contrary, until the Payment In Full of the Senior Debt (as each term is defined herein below), the terms of this Note shall at all times be subject to the provisions set forth in this Section 13.

     (a)Definitions. The following terms shall have the following meanings in this Section 13:

     (i)Loan Agreement. The Loan and Security Agreement, dated as of June [__], 2010, by and among, Unify Corporation, as the borrower thereunder, the guarantors party thereto from time to time, and the Senior Creditor, as lender, as such agreement is amended, restated or otherwise modified and in effect from time to time.

     (ii)Loan Documents. The “Loan Documents” under and as defined in the Loan Agreement.

     (iii)Insolvency Proceeding. Has the meaning ascribed thereto in clause (g) hereof.

     (iv)Payment In Full. (A) The indefeasible payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of any Insolvency Proceeding, whether or not such interest would be allowed in such Insolvency Proceeding) and premium, if any, constituting Senior Debt, (B) Indefeasible payment in full in cash of all other Senior Debt that is outstanding and unpaid or otherwise accrued and owing at or prior to the time the Senior Debt is paid, and (C) termination or expiration of all lending and other credit commitments to lend under the Loan Agreement and the other Loan Documents.

     (v)Senior Creditor. Hercules Technology II, L.P.

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     (vi)Senior Debt. All principal, interest, fees, costs, enforcement expenses (including reasonable legal fees and disbursements), collateral protection expenses and other reimbursement or indemnity obligations created or evidenced by the Loan Agreement or any of the other Loan Documents or any prior, concurrent, or subsequent notes, instruments or agreements of indebtedness, liabilities or obligations of any type or form whatsoever relating to the Loan Agreement or any of the other Loan Documents in favor of the Senior Creditor. Senior Debt shall expressly include any and all interest accruing or out of pocket costs or expenses (including reasonable legal fees and disbursements) incurred after the date of any filing by or against the Company of any petition under the federal Bankruptcy Code or in connection with any other Insolvency Proceeding regardless of whether the Senior Creditor’s claim therefor is allowed or allowable in the case or proceeding relating thereto.

     (vii)Subordinated Debt. All principal, interest, fees, costs, enforcement expenses (including reasonable legal fees and disbursements), reimbursement and indemnity obligations created or evidenced by this Note or any prior, concurrent or subsequent notes, instruments or agreements of indebtedness, liabilities or obligations of any type or form whatsoever relating to this Note in favor of the Holder and which is unsecured.

     (viii)Subordinated Documents. Collectively, the Note and any and all other documents or instruments evidencing the Subordinated Debt, whether now existing or hereafter created.

     (b)The Subordinated Debt and any and all Subordinated Documents shall be and hereby are subordinated and the payment thereof is deferred until the Payment In Full of the Senior Debt, whether now or hereafter incurred or owed by the Company.

     (c)The Holder hereby acknowledges and agrees that the Subordinated Debt is unsecured and until the Payment In Full of the Senior Debt, the Company shall not, and shall not permit any of its subsidiaries to, grant to the Holder and the Holder shall not take any lien on or security interest in any of the Company’s or any of its subsidiaries’ property, now owned or hereafter acquired or created to secure the Company’s obligations under the Subordinated Debt. In addition, the Holder hereby agrees, upon request of the Senior Creditor at any time and from time to time, to execute such other documents or instruments as may be reasonably requested by the Senior Creditor further to evidence of public record or otherwise the priority of the Senior Debt as contemplated hereby.

     (d)Until the Payment In Full of the Senior Debt, the Holder shall not take or permit any action prejudicial to or inconsistent with the Senior Creditor’s priority position over the Holder created by the provisions of this Section 13. Without limiting the foregoing, until the Payment In Full of the Senior Debt, the Holder will not assert, collect or enforce the Subordinated Debt or any part thereof or take any action to foreclose or realize upon the Subordinated Debt or any part thereof or enforce any of the Subordinated Documents except to the extent (but only to such extent) that the commencement of a legal action may be required to toll the running of any applicable statute of limitation. Until the Payment In Full of the Senior Debt, the Holder shall not have any right of subrogation, reimbursement, restitution, contribution or indemnity whatsoever relating to the Subordinated Debt from any assets of the Company or any guarantor of or provider of collateral security for the Senior Debt. The Holder further waives any and all rights with respect to marshalling.

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     (e)Until the Payment In Full of the Senior Debt, the Holder will hold in trust and immediately pay over to the Senior Creditor, in the same form of payment received, with appropriate endorsements, for application to the Senior Debt any cash amount that the Company pays to the Holder with respect to the Subordinated Debt, or as collateral for the Senior Debt any other assets of the Company that the Holder may receive with respect to the Subordinated Debt.

     (f)If the Holder, in contravention of the terms of this Section 13, shall commence, prosecute or participate in any suit, action or proceeding against the Company, then the Company may interpose as a defense or plea the provisions of this Section 13, and the Senior Creditor may intervene and interpose such defense or plea in its name or in the name of the Company. If the Holder, in contravention of the terms of the provisions of this Section 13, shall attempt to collect any of the Subordinated Debt or enforce any of the Subordinated Documents, then the Senior Creditor or the Company may, by virtue of the provisions of this Section 13, restrain the enforcement thereof in the name of the Senior Creditor or in the name of the Company. If the Holder, in contravention of the terms of this Section 13, obtains any cash or other assets of the Company in respect of the Subordinated Debt as a result of any administrative, legal or equitable actions, or otherwise, the Holder agrees forthwith to pay, deliver and assign to the Senior Creditor, with appropriate endorsements, any such cash for application to the Senior Debt and any such other assets as collateral for the Senior Debt.

     (g)Until the Payment In Full of the Senior Debt, the Holder will not, with respect to any claim it may have in respect of its Subordinated Debt, commence or join with any other creditor or creditors in commencing any Insolvency Proceeding against the Company. At any meeting of creditors of the Company or in the event of any case or proceeding, voluntary or involuntary, for the distribution, division or application of all or part of the assets of the Company or the proceeds thereof, whether such case or proceeding be for the liquidation, dissolution or winding up of the Company or its business, a receivership, insolvency or bankruptcy case or proceeding, an assignment for the benefit of creditors or a proceeding by or against the Company for relief under the federal Bankruptcy Code or any other bankruptcy, reorganization or insolvency law or any other law relating to the relief of debtors, readjustment of indebtedness, reorganization, arrangement, composition or extension or marshalling of assets or otherwise (collectively, an “Insolvency Proceeding”), the Senior Creditor is hereby irrevocably authorized at any such meeting or in any such proceeding to receive or collect any cash or other assets of the Company distributed, divided or applied by way of dividend or payment, or any securities issued on account of any Subordinated Debt, and apply such cash to or to hold such other assets or securities as collateral for the Senior Debt, and to apply to the Senior Debt any cash proceeds of any realization upon such other assets or securities that the Senior Creditor in its discretion elects to effect, until the Payment In Full of all of the Senior Debt, rendering to the Holder any surplus to which the Holder is then entitled.

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     (h)Notwithstanding the foregoing provisions of Section 13(g) herein above, the Holder shall be entitled to receive and retain any securities of the Company or any other corporation or other entity provided for by a plan of reorganization or readjustment (i) the payment of which securities is subordinate, at least to the extent provided in this Section 13 with respect to Subordinated Debt, to the payment of all Senior Debt under any such plan of reorganization or readjustment and (ii) all other terms of which are reasonably acceptable to the Senior Creditor.

     (i)At any such meeting of creditors or in the event of any such Insolvency Proceeding, the Holder shall retain the right to vote and otherwise act with respect to the Subordinated Debt (including, without limitation, the right to vote to accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition or extension), provided that the Holder shall not vote with respect to any such plan or take any other action in any way so as to contest (i) the validity of any Senior Debt or any collateral therefor or guaranties thereof, (ii) the relative rights and duties of any holders of any Senior Debt established in any instruments or agreements creating or evidencing any of the Senior Debt with respect to any of such collateral or guaranties, or (iii) the Holder's obligations and agreements set forth in this Section 13.

     (j)The Holder agrees, with respect to the Senior Debt and any and all collateral therefor or guaranties thereof, that the Company and the Senior Creditor may agree to increase the amount of the Senior Debt or otherwise modify the terms of any of the Senior Debt, and the Senior Creditor may grant extensions of the time of payment or performance to and make compromises, including releases of collateral or guaranties, and settlements with the Company and all other persons, in each case without the consent of the Holder or the Company and without affecting the agreements of the Holder or the Company contained in this Section 13; provided, however, that nothing contained in this Section 13(j) shall constitute a waiver of the right of the Company itself to agree or consent to a settlement or compromise of a claim which the Senior Creditor may have against the Company.

     (k)The Holder will not, at any time while the provisions of this Section 13 are in effect, modify any of the terms of any of the Subordinated Debt or any of the Subordinated Documents nor will the Holder sell, transfer, pledge, assign, hypothecate or otherwise dispose of any or all of the Subordinated Debt to any person.

     (l)Nothing contained in this Section 13 shall impair, as between the Company and the Holder, the obligation of the Company to pay to the Holder all amounts payable in respect of the Subordinated Debt as and when the same shall become due and payable in accordance with the terms thereof, or prevent the Holder (except as expressly otherwise provided in Section 13(d) or Section 13(g)) from exercising all rights, powers and remedies otherwise permitted by the Subordinated Documents and by applicable law upon a default in the payment of the Subordinated Debt or under any Subordinated Document, all, however, subject to the rights of the Senior Creditor as set forth in this Section 13.

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     (m)The provisions of this Section 13 shall continue in full force and effect, and the obligations and agreements of the Holder and the Company hereunder shall continue to be fully operative, until the Payment In Full of all of the Senior Debt and such full payment and satisfaction shall be final and not avoidable. To the extent that the Company or any guarantor of or provider of collateral for the Senior Debt makes any payment on the Senior Debt that is subsequently invalidated, declared to be fraudulent or preferential or set aside or is required to be repaid to a trustee, receiver or any other party under any bankruptcy, insolvency or reorganization act, state or federal law, common law or equitable cause (such payment being hereinafter referred to as a “Voided Payment”), then to the extent of such Voided Payment, that portion of the Senior Debt that had been previously satisfied by such Voided Payment shall be revived and continue in full force and effect as if such Voided Payment had never been made. In the event that a Voided Payment is recovered from the Senior Creditor, an Event of Default (under and as defined in the Loan Agreement) shall be deemed to have existed and to be continuing under the Loan Agreement from the date of the Senior Creditor’s initial receipt of such Voided Payment until the full amount of such Voided Payment is restored to the Senior Creditor. During any continuance of any such Event of Default, the provisions of this Section 13 shall be in full force and effect with respect to the Subordinated Debt. To the extent that the Holder has received any payments with respect to the Subordinated Debt subsequent to the date of the Senior Creditor’s initial receipt of such Voided Payment and such payments have not been invalidated, declared to be fraudulent or preferential or set aside or are required to be repaid to a trustee, receiver, or any other party under any bankruptcy act, state or federal law, common law or equitable cause, the Holder shall be obligated and hereby agrees that any such payment so made or received shall be deemed to have been received in trust for the benefit of the Senior Creditor, and the Holder hereby agrees to pay to the Senior Creditor, upon demand, the full amount so received by the Holder during such period of time to the extent necessary fully to restore to the Senior Creditor the amount of such Voided Payment. Upon the Payment In Full of all of the Senior Debt, which payment shall be final and not avoidable, the provisions of this Section 13 will automatically terminate without any additional action by any party hereto.

     14. Governing Law; Dispute Resolution. This Note shall be binding upon the Company and its successors, assigns and legal representatives. The validity, construction and interpretation of this Note will be governed, and construed in accordance with, the laws of the State of California. Any Dispute arising out of this Note by and between the Holder and the Company, shall be resolved in accordance with Section 9.6 (Arbitration) of the Merger Agreement.

[Signature Page Follows]

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HOLDER ACKNOWLEDGED AND AGREED:	COMPANY UNIFY CORPORATION
	By:
Name:	Name:
	Title:

Dated: June [___], 2010

EX-10.7

EMPLOYMENT AGREEMENT

     This Employment Agreement (“Employment Agreement “) is made this 30th day of June, 2010 by and between Unify Corporation, a Delaware corporation (the “Company”), and Kurt Jensen (“Employee”). Capitalized terms used, but not otherwise defined, herein shall have the meanings ascribed to them in that certain Agreement and Plan of Merger, dated June 29, 2010 (the “Merger Agreement”), by and among the Company, Unify Acquisition Corp., a California corporation, Strategic Office Solutions, Inc., a California corporation (“SOS”) and the shareholders of SOS.

     WHEREAS, Employee has been employed by SOS prior to the Effective Time, and desires to be employed by the Company; and

     WHEREAS, Employee’s agreement to be employed by the Company after the consummation of the transactions contemplated by the Merger Agreement is a condition precedent to the Company’s willingness to enter into the Merger Agreement and a material inducement to the Company to enter into the Employment Agreement; and

     WHEREAS, both parties desire to enter into this Employment Agreement to evidence the terms and conditions of such employment.

     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and promises in this Employment Agreement, the parties agree as follows:

1. EMPLOYMENT. The Company agrees that it will employ Employee and Employee agrees to be employed by the Company upon the terms and conditions of this Employment Agreement. Employee hereby represents and warrants that neither Employee’s entry into this Employment Agreement nor Employee’s performance of Employee’s obligations hereunder will conflict with or result in a breach of the terms, conditions or provisions of any other agreement or obligation of any nature to which Employee is a party or by which Employee is bound, including, without limitation, any development agreement, non-competition agreement or confidentiality agreement previously entered into by Employee.

2. TERM OF EMPLOYMENT. The term of Employee’s employment under this Employment Agreement will commence on the date of this Employment Agreement and will continue until the third anniversary of the date hereof (the “Employment Term”). The term may be extended for additional one-year terms upon mutual agreement between the Company and Employee. Notwithstanding anything to the contrary contained herein, the Employment Term is subject to termination pursuant to Section 13 below.

3. POSITION AND RESPONSIBILITIES. Employee will be employed as the Chief Operating Officer of the Company. Employee shall report to and be subject to the direction of the Chief Executive Officer and the Board of Directors of the Company. Employee shall perform and discharge such duties and responsibilities for the Company as the Chief Executive Officer and/or the Board of Directors may from time to time reasonably assign to Employee.

4. COMMITMENT. During the Employment Term, Employee shall devote Employee’s full business time, attention, skill and efforts to the faithful performance of Employee’s duties herein, and shall perform the duties and carry out the responsibilities assigned to Employee, to the best of Employee’s ability, in a diligent, trustworthy, businesslike and efficient manner for the purpose of advancing the interests of the Company. Employee acknowledges that Employee’s duties and responsibilities will require Employee’s full-time business efforts and agrees that during the Employment Term Employee will not engage in any outside business activities except to the extent that prior written approval has been given by the Chief Executive Officer of the Company for specific activities that do not conflict with the Company’s interests or interfere with the performance of Employee’s duties hereunder.

5. COMPENSATION

     5.1 During the Employment Term, the Company shall pay to Employee a base salary (the “Base Salary”) at the rate of $325,000 per year, payable at the Company’s regular employee payroll intervals, subject to increase pursuant to the Company’s standard policies and approval of the Compensation Committee of the Board of Directors of the Company.

     5.2 In addition to the Base Salary, during the Employment Term, Employee shall be eligible for a bonus (the “Bonus”) each year. The Bonus shall consist of an annual performance bonus of up to fifty-five percent (55%) of Employee’s Base Salary, with the terms, conditions and performance goals of the Bonus established by agreement of Employee and the Company’s Chief Executive Officer subject to approval of the Compensation Committee of the Board of Directors of the Company. The annual Bonus shall be payable by the Company at the same time the other executives of Unify are paid a performance bonus, typically during the month of July.

     5.3 In addition, the Employee shall receive an additional payment on each pay period so divided to equal $175,000 for the twelve month period beginning on the Effective Date of this Agreement. For the second twelve month period of the Employment Term, Employee will receive an additional payment on each pay period so divided to equal $87,500 for that twelve month period.

     5.4 Employee shall also be eligible for stock options in the Company’s stock, with the exercise price equal to the fair market value at the date of issuance. The use of Long Term Equity Incentives (LTI) and the amount of the annual LTI is determined by the Compensation Committee on an annual basis depending on Company financial performance, the compensation survey results and changes in the Committee’s compensation philosophies. The option exercise price and number of shares will be finalized on the grant date of the stock option and the vesting schedule will be monthly over 48 months with a 1/48th share of the total grant vesting each month beginning on the date of the grant. The Company currently has a limitation on the number of stock options shares that can be issued in a fiscal year. Employee has agreed to receive an additional cash performance bonus in-lieu of an annual stock option grant (the “Extra Bonus) until such time as the option shares limitation is modified or eliminated and no longer affects the option shares available for grant. Therefore, for any fiscal years that Employee is to receive the Extra Bonus, Employee will receive approximately 30% of the value of that year’s annual stock option grant (that would have been granted to Employee in accordance with the Compensation Committee’s philosophy and market surveys were it not for the option shares limitation) as an additional performance cash bonus based on the EBITDA attainment. The Extra Bonus will be in addition to the Bonus outlined in Section 5.2. For fiscal 2011, the Extra Bonus will be $101,000 representing 30% of the approximate option value of $337,000.

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     5.5 All compensation payable to Employee hereunder is stated in gross amount and shall be subject to all applicable withholding taxes, other normal payroll and any other amounts required by law to be withheld.

6. BENEFIT PLANS. During the Employment Term, Employee will be entitled to receive benefits and participate in benefit plans at the same level and to the same extent as other executives of the Company (subject to any applicable waiting periods and other restrictions).

7. VACATION. Employee shall be entitled to vacation time in accordance with Company policy, but in no event less than four (4) weeks annually. Employee shall make good faith efforts to schedule vacations so as to least conflict with the conduct of the Company’s business and will give the Company adequate advance notice of Employee’s planned absences.

     8. LOCATION OF EMPLOYMENT. Employee shall perform Employee’s duties under this Employment Agreement at the Company’s offices in San Francisco, California or in other such offices (if any) that the Company maintains within a reasonable commuting distance of Employee’s residence on the date of this Employment Agreement; provided, however, that Employee will be required to spend time at the Company’s offices in Sacramento, California as reasonably required by the Company.

     9. CONFIDENTIALITY AND INVENTIONS.

9.1 Confidential Information.

     (a) Employee acknowledges that the Confidential Information (as defined below) constitutes a protectible business interest of the Company, and covenants and agrees that at all times during the period of Employee’s employment, and at all times after termination of such employment, Employee will not, directly or indirectly, disclose, furnish, make available or utilize any Confidential Information other than in the course of performing duties as an employee of the Company. Employee will abide by Company policies and rules as may be established from time to time by it for the protection of its Confidential Information. Employee agrees that in the course of employment with the Company Employee will not bring to the Company’s offices nor use, disclose to the Company, or induce the Company to use, any confidential information or documents belonging to others. Employee’s obligations under this Section 9.1with respect to particular Confidential Information will survive expiration or termination of this Agreement, and Employee’s employment with the Company, and will terminate only at such time (if any) as the Confidential Information in question becomes generally known to the public other than through a breach of Employee’s obligations under this Agreement.

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     (b) As used in this Agreement, the term “Confidential Information” means any and all confidential, proprietary or trade secret information, whether disclosed, directly or indirectly, verbally, in writing or by any other means in tangible or intangible form, including that which is conceived or developed by Employee, applicable to or in any way related to: (i) the present or future business of the Company or any of its Affiliates (as defined below); (ii) the research and development of the Company or any of its Affiliates; or (iii) the business of any client or vendor of the Company or any of its Affiliates. Such Confidential Information includes the following property or information of the Company and its Affiliates, by way of example and without limitation, trade secrets, processes, formulas, data, program documentation, customer lists, designs, drawings, algorithms, source code, object code, know-how, improvements, inventions, licenses, techniques, all plans or strategies for marketing, development and pricing, business plans, financial statements, profit margins and all information concerning existing or potential clients, suppliers or vendors. Confidential Information of the Company also means all similar information disclosed to the Company by third parties which is subject to confidentiality obligations.

     9.2 Inventions as Sole Property of the Company.

     (a) Employee covenants and agrees that all Inventions (as defined below) shall be the sole and exclusive property of the Company.

     (b) As used in this Agreement, “Inventions” means any and all inventions, developments, discoveries, improvements, works of authorship, concepts or ideas, or expressions thereof, whether or not subject to patents, copyright, trademark, trade secret protection or other intellectual property right protection (in the United States or elsewhere), and whether or not reduced to practice, conceived or developed by Employee while employed with the Company or within one (1) year following termination of such employment which relate to or result from the actual or anticipated business, work, research or investigation of the Company or any of its Affiliates or which are suggested by or result from any task assigned to or performed by Employee for the Company or any of its Affiliates.

     (c) Employee acknowledges that all original works of authorship which are made by him or her (solely or jointly) are works made for hire under the United States Copyright Act (17 U.S.C., et seq.).

     (d) Employee agrees to promptly disclose to the Company all Inventions, all original works of authorship and all work product relating thereto. This disclosure will include complete and accurate copies of all source code, object code or machine-readable copies, documentation, work notes, flow-charts, diagrams, test data, reports, samples and other tangible evidence or results (collectively, “Tangible Embodiments”) of such Inventions, works of authorship and work product. All Tangible Embodiments of any Invention, work of authorship or work product related thereto will be deemed to have been assigned to the Company as a result of the act of expressing any Invention or work of authorship therein.

     (e) Employee hereby assigns to the Company (together with the right to prosecute or sue for infringements or other violations of the same) the entire worldwide right, title and interest to any such Inventions or works made for hire, and Employee agrees to perform, during and after employment, all acts deemed necessary or desirable by the Company to permit and assist it, at the Company’s expense, in registering, recording, obtaining, maintaining, defending, enforcing and assigning Inventions or works made for hire in any and all countries. Employee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Employee’s agents and attorneys-in-fact to act for and in Employee’s behalf and instead of Employee, to execute and file any documents and to do all other lawfully permitted acts to further the above purposes with the same legal force and effect as if executed by Employee; this designation and appointment constitutes an irrevocable power of attorney and is coupled with an interest.

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     (f) Without limiting the generality of any other provision of this Section 9.2, Employee hereby authorizes the Company and each of its Affiliates (and their respective successors) to make any desired changes to any part of any Invention, to combine it with other materials in any manner desired, and to withhold Employee’s identity in connection with any distribution or use thereof alone or in combination with other materials.

     (g) The obligations of Employee set forth in this Section 9.2 (including, without limitation, the assignment obligations) will continue beyond the termination of Employee’s employment with respect to Inventions conceived or made by Employee alone or in concert with others during Employee’s employment with the Company and during the one (1) year thereafter, whether pursuant to this Agreement or otherwise. These obligations will be binding upon Employee and Employee’s executors, administrators and other representatives.

     (h) All Inventions which Employee has made prior to employment by the Company are excluded from the scope of this Agreement. As a matter of record, Employee has set forth on Exhibit A hereto a complete list of those Inventions which might relate to the Company’s business and which have been made by Employee prior to employment with the Company. Employee represents that such list is complete. If no list is attached, Employee represents that there are no prior Inventions.

     (i) Notwithstanding any provisions herein, Employee’s assignment to the Company of any of Employee’s rights set forth in this Section 9 shall not apply to any invention that qualifies fully under the provisions of California Labor Code Section 2870, where no equipment, supplies, facility or trade secret information of the Company was used, where the invention was developed entirely upon Employee’s own time, where the invention does not relate to the Company’s business, and where the invention does not result from any work performed by Employee for the Company.

10. RESTRICTIVE COVENANTS.

     Employee acknowledges that Employee is subject to the restrictions set forth in Section 9.14(a) of the Merger Agreement, provided that Employee agrees that as applicable to Employee the period described in Section 9.14(a) of the Merger Agreement shall end on the latest of (x) the third anniversary of the Closing Date (as defined in the Merger Agreement); (y) the first anniversary of the date Employee’s employment with the Company or any successor to the Company terminates for any reason or (z) the date through which Employee is paid severance under this Employment Agreement.

     11. RETURN OF COMPANY MATERIALS UPON TERMINATION. Employee acknowledges that all records, documents, and Tangible Embodiments containing or of Proprietary Information prepared by Employee or coming into Employee’s possession by virtue of Employee’s employment by the Company are and will remain the property of the Company. Upon termination of Employee’s employment with the Company, Employee shall immediately return to the Company all such items in Employee’s possession and all copies of such items, as well as any other property of the Company.

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     12. EQUITABLE REMEDIES.

     12.1 Employee acknowledges and agrees that the agreements and covenants set forth in Sections 9, 10 and 11 are reasonable and necessary for the protection of the Company’s business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of said covenants, and that in the event of Employee’s actual or threatened breach of any such covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that, in the event of any actual or threatened breach by Employee of any of said covenants, the Company will be entitled to immediate injunctive and other equitable relief, without bond and without the necessity of showing actual monetary damages. Nothing in this Section 12 will be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of any damages that it is able to prove.

     12.2 Each of the covenants in Sections 9, 10 and 11 will be construed as independent of any other covenants or other provisions of this Employment Agreement.

12.3 In the event of any judicial determination that any of the covenants in Sections 9, 10 and 11 are not fully enforceable, it is the intention and desire of the parties that the court treat said covenants as having been modified to the extent deemed necessary by the court to render them reasonable and enforceable, and that the court enforce them to such extent.

13. TERMINATION.

13.1 The Company may terminate the Employment Term immediately upon written notice to Employee if there has been a material breach of this Employment Agreement by Employee. Without limiting the generality of the preceding sentence, any breach by Employee of any of Employee’s obligations under Sections 9, 10 and 11 will be deemed a material breach of this Employment Agreement, and any of the following events will also be deemed a material breach of this Employment Agreement:

     (a) Employee’s continued and deliberate neglect of, willful misconduct in connection with the performance of or refusal to perform Employee’s duties in accordance with, Section 3 of this Employment Agreement; or

     (b) Employee’s commission of an act or acts constituting a felony or other crime of moral turpitude; or

     (c) Employee’s engagement in willful misconduct that causes or is likely to cause a financial injury to the Company or any of its subsidiaries, including, without limitation, Employee’s embezzlement of the funds of the Company or any of its subsidiaries, or theft of the property of the Company or any of its subsidiaries, or fraud against the Company or any of its subsidiaries, or any of their customers.

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     If the Employment Term is terminated by the Company pursuant to this Section 13.1 or in accordance with Section 2, the Company shall have no further obligation hereunder or otherwise with respect to Employee (except payment of Employee’s Base Salary under Section 5.1, subject to Section 5.3 hereof, and benefits under Section 6 accrued through the date of termination).

     13.2 The Employment Term will terminate upon the death or upon written notice from the Company to Employee upon the Disability (as defined below) of Employee. “Disability” of Employee will be deemed to have occurred whenever Employee has suffered physical or mental illness, injury, or infirmity that prevents Employee from performing, with or without reasonable accommodation, Employee’s essential job functions under this Employment Agreement for any ninety (90) days in any one hundred twenty (120) day period and the Company determines in good faith that such illness or other disability is likely to continue for at least the next following thirty (30) days. Employee’s salary prior to the Disability of Employee will be reduced by any benefits Employee receives from disability insurance provided by the Company or pursuant to a plan providing disability benefits maintained by the Company (if any such insurance or plan exists). In the event of termination due to death or Disability, the Employee shall be deemed to have earned the pro rata portion of any Bonus for the then current year based on the date of death or onset of the applicable illness, injury or infirmity. Except as set forth in the preceding two sentences, if the Employment Term is terminated pursuant to this Section 13.2, the Company shall have no further obligation hereunder or otherwise with respect to Employee (except payment of Employee’s Base Salary under Section 5.1, subject to Section 5.3 hereof, and benefits under Section 6 accrued through the date of termination).

     13.3 The Company may elect to terminate Employee’s employment hereunder without Cause (as defined below) at any time; provided that if it does so, the Company shall, contingent upon Employee signing a full general release of all known and unknown claims, (i) continue to pay Employee’s Base Salary in accordance with Section 5.1 for twelve months following the termination date, and continue to pay Employee any additional compensation in accordance with Section 5.3 for twelve months following the termination date in the same manner as if the Company had not terminated Employee and provide benefits to Employee in accordance with Section 6 for a period of twelve (12) months after termination; and (ii) pay Employee the pro rata portion of any performance Bonus earned based on performance goals achieved prior to the date of termination. All payments under this Section 13.3 shall be subject to Section 5.5. Additionally, Employee’s outstanding options shall benefit from twelve months of additional vesting as of the date of termination.

     For the purposes of this Section 13.3, “Cause” shall mean any material breach of the Agreement as set forth in section 13.1(a) – (c) above.

     Except as specifically set forth in this Section 13.3, the Company shall have no further obligation hereunder or otherwise with respect to Employee in the event the Company terminates Employee’s employment without Cause.

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     13.4

(a)Employee may terminate Employee’s employment with the Company at any time for Good Reason (as defined below), in which event the Company shall, contingent upon Employee signing a full general release of all known and unknown claims, provide Employee the same compensation and benefits specified in Section 13.3 above.

For purposes of this Section 13.4, “Good Reason” means the occurrence of any of the following events or circumstances: (A) a substantial adverse change in Employee’s authority, status, the nature of Employee’s duties or responsibilities; (B) a reduction by the Company in Employee’s Base Salary or the additional compensation as outlined in Section 5.3; (C) a failure by the Company to pay compensation or benefits to Employee when due; or (D) the relocation of the office of the Company where Employee is principally employed to a location which is more than fifty (50) miles from such office (except for required travel on the Company’s business to an extent substantially consistent with Employee’s customary business travel obligations in the ordinary course of business prior to the date hereof).

     (b) Except as otherwise provided herein, Employee may terminate Employee’s employment with the Company for any reason. In the event that Employee terminates his employment for other than Good Reason, the Company shall have no further obligation hereunder or otherwise with respect to Employee (except payment of Employee’s Base Salary under Section 5.1 and benefits under Section 6 accrued through the date of termination). Notwithstanding the foregoing, and because Employee acknowledges and understands that his agreement to be employed by the Company was a material inducement to and condition precedent to the Company’s consummation of the Merger Agreement, if Employee terminates his employment with the Company without Good Reason prior to the first anniversary of the date of this Employment Agreement, Employee shall pay to the Company, within three (3) business days of the date of such termination, a buy-out and release fee of $500,000.

     (c) All payments made to Employee under this Section 13.4 shall be subject to Section 5.5.

     13.5. Termination of the Employment Term in accordance with this Section 13, or expiration of the Employment Term, will not affect the provisions of this Employment Agreement that survive such termination, including, without limitation, the provisions in Sections 9, 10 and 11 and will not limit either party’s ability to pursue remedies at law or equity.

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14. GENERAL PROVISIONS.

     14.1 Notices. All notices, consents, waivers, and other communications under this Employment Agreement must be in writing and will be deemed to have been duly given (a) when delivered by hand; (b) when sent by facsimile, provided that a copy is mailed by U.S. certified mail, return receipt requested; (c) three days after being sent by Certified U.S. Mail, return receipt requested; or (d) one day after deposit with a nationally recognized overnight delivery service, in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties):

     If to Employee, to the address set forth on the signature page hereto;

If to the Company, to:

Unify Corporation
1420 Rocky Ridge Drive, Suite 380
Roseville, CA 95661
Attention:	Todd E. Wille
Facsimile No.	(916) 218-4377

     14.2 Waiver. The rights and remedies of the parties to this Employment Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Employment Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege.

     14.3 Entire Agreement and Modification. This Employment Agreement supersedes all prior oral or written agreements between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Employment Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Employment Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment.

     14.4 Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights under this Employment Agreement without the prior consent of the other party, except that Company may assign all (but not part) of its rights and obligations under this Employment Agreement to any majority-owned subsidiary of Company, provided that the Company guarantees the performance by the subsidiary of the subsidiary’s obligations hereunder. Subject to the preceding sentence, this Employment Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Employment Agreement will be construed to give any person other than the parties to this Employment Agreement any legal or equitable right, remedy, or claim under or with respect to this Employment Agreement or any provision of this Employment Agreement.

     14.5 Severability. If any provision of this Employment Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Employment Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

     14.6 Section Headings, Construction. The headings of Sections in this Employment Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Sections” refer to the corresponding Sections of this Employment Agreement. All words used in this Employment Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.

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     14.7 Governing Law; Consent to Jurisdiction.

     (a) This Employment Agreement shall be construed in accordance with and governed by the laws of the State of California, without giving effect to the principles of conflicts of law thereof.

     (b) Each of Employee and the Company hereby irrevocably submits in any suit, action or proceeding arising out of or related to this Employment Agreement or any other instrument, document or agreement executed or delivered in connection herewith and the transactions contemplated hereby and thereby, whether arising in contract, tort, equity or otherwise, to the jurisdiction of the Superior Court in and for the City and County of San Francisco, or the Superior Court in and for the County of Sacramento. Where the nature of the action or proceedings or the claims or defenses asserted therein create jurisdiction in the United States District Court, Employee or the Company may file the action in or remove the action to the United States District Court for the Northern District of California, San Francisco Division, or the United States District Court for the Eastern District of California, Sacramento Division. Employee and the Company waive any objection to the location of the court in any proceeding commenced or removed in accordance with this Section 14.7, including, without limitation, any objection to venue or based on forum non conveniens.

     14.8 Counterparts. This Employment Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Employment Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

     14.9 No Strict Construction. The language used in this Employment Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.

*  *  *  *

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

THE COMPANY:
Unify Corporation
By:	/s/ Todd E. Wille
Name:	Todd E. Wille
Its:	President and Chief Executive Officer
EMPLOYEE:

 

 /s/ Kurt Jensen

Kurt Jensen

Address: