-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ecd1SISl6gzH2ktz/L9Req94uU66+shO3qB96l32ciOCTjPFEY8qIeTQ6uXjhRkK 3gwImBljlJokQldPdnHe0g== 0000908180-99-000019.txt : 19990830 0000908180-99-000019.hdr.sgml : 19990830 ACCESSION NUMBER: 0000908180-99-000019 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19990827 ITEM INFORMATION: FILED AS OF DATE: 19990827 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CFI PROSERVICES INC CENTRAL INDEX KEY: 0000908180 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 930704365 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-21980 FILM NUMBER: 99701419 BUSINESS ADDRESS: STREET 1: 400 S W SIXTH AVE STREET 2: SUITE 200 CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5032747280 MAIL ADDRESS: STREET 1: 400 S W SIXTH AVE STREET 2: STE 200 CITY: PORTLAND STATE: OR ZIP: 97204 8-K 1 FORM 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): August 27, 1999 CFI ProServices, Inc. (Exact name of registrant as specified in its charter) Oregon 0-21980 93-0704365 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 400 S.W. Sixth Avenue, Portland, Oregon 97204 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (503) 274-7280 This Form 8-K consists of 7 pages. Exhibits are indexed on page 5. Item 2. Acquisition or Disposition of Assets. Effective August 13, 1999, CFI ProServices, Inc. dba Concentrex Incorporated, an Oregon corporation (the "Company") acquired all of the outstanding common stock of Ultradata Corporation, a Delaware corporation ("Ultradata") for approximately $63.5 million in cash. The acquisition was effected pursuant to an Agreement and Plan of Merger dated as of May 17, 1999 (the "Merger Agreement"), by and among the Company, UFO Acquisition Co. ("UFO"), a Delaware corporation and a wholly owned subsidiary of the Company, and Ultradata. The Merger Agreement provided for the merger of UFO with and into Ultradata (the "Merger"). As a result of the merger, the separate existence of UFO ended and Ultradata survives as a wholly owned subsidiary of the Company. Pursuant to the Merger Agreement, the former holders of Ultradata common stock received $7.50 in cash for each share of Ultradata common stock they held immediately prior to the Merger. Upon the closing of the Merger, a portion of the outstanding employee stock options issued previously under Ultradata's 1994 Equity Incentive Plan were assumed by the Company and converted into options for 273,266 shares of Company common stock, which shares are a part of the 500,000 employee stock option reserve approved by the Company's shareholders at the 1999 Annual Meeting. Ultradata provides information management software and solutions for relationship-oriented financial institutions. Ultradata's principal offices are located in Pleasanton, California. Ultradata's software and solutions allow its customers to, among other things, engage in cross-selling, relationship pricing, data mining and workflow control as well as provide financial services such as checking, savings and investment accounts, home banking, credit and debit cards, automated teller machine access and consumer lending. Ultradata products are primarily targeted at large and mid-sized credit unions that want to operate their systems in-house. For smaller credit unions, Ultradata works through value-added resellers to provide Ultradata's products. The Company intends to continue to utilize Ultradata's facilities and equipment in the same manner Ultradata utilized them prior to the Merger. The Company believes the Merger will allow the Company to deliver a total system solution for front- and back-end technologies to banks, thrifts, and credit unions and positions the Company as a leader in offering real-time host processing capabilities. In addition, the Merger adds a business segment based on a recurring service fees model, which the Company anticipates will result in more predictable and consistent revenues for the Company, and provides the Company's customer with tools to develop, manage and enhance profitable customer relationships. The Merger Agreement is filed as Exhibit 2.1, attached thereto, and is incorporated into this Current Report on Form 8-K by this reference. To pay for the Merger, on August 13, 1999, the Company and its subsidiaries entered into a financing agreement (the "Financing Agreement") with Foothill Capital Corporation - 2 - ("Foothill") and certain other parties (collectively, the "Lenders") for three credit facilities aggregating $80 million. The credit facilities provided under the Financing Agreement are secured by the Company's assets. The credit facilities provided under the Financing Agreement terminate on August 13, 2002. The first credit facility under the Financing Agreement is a revolving credit facility (the "Foothill Revolver") for up to $15 million, subject to borrowing base restrictions related to accounts receivable of the Company and its subsidiaries. The Foothill Revolver bears interest at an annual rate equal to the prime rate plus 1%. On August 13, 1999 the Company drew $1.7 million under the Foothill Revolver in connection with the Merger and had $7.5 million of availability under that facility. The interest rate on the Foothill Revolver at August 13, 1999 was 9.0%. The second credit facility under the Financing Agreement is a term loan for $35 million (the "Term A Loan") that bears interest at an annual rate equal to the prime rate plus 2%. The Term A Loan has scheduled quarterly prepayments of principal beginning in the second quarter of 2000 that are expected to aggregate $19 million over the term of the loan; the expected remaining principal of $16 million is due on August 13, 2002. On August 13, 1999 the Company drew $35 million under the Term A Loan in connection with the Merger. The interest rate on the Term A Loan at August 13, 1999 was 10.0%. The third credit facility under the Financing Agreement is a term loan for $30 million (the "Term B Loan") that bears interest at an annual rate equal to the prime rate plus 5%. The Term B Loan has no scheduled prepayments of principal. The Term B Loan is due in full on August 13, 2002. On August 13, 1999 the Company drew $30 million under the Term B Loan in connection with the Ultradata acquisition. The interest rate on the Term B Loan at August 13, 1999 was 13.0%. In addition to loan fees and in connection with the credit facilities provided under the Financing Agreement, the Company issued to the Lenders warrants (the "Lender Warrants") to purchase up to 381,822 shares of the common stock of the Company, which represents 5.0% of the fully diluted common stock of the Company. U.S. Bancorp Libra, financial advisor and placement agent for the Company, received warrants (the "Libra Warrants") to purchase 58,000 shares of Company common stock. The exercise price for both the Lender Warrants and the Libra Warrants is $12.34 per share. The Company has agreed to register for resale the shares of common stock issuable upon exercise of the Lender Warrants and the Libra Warrants. The Lender Warrants and the Libra Warrants are exercisable through August 13, 2004. On August 13, 1999 the Company also issued to certain of the Lenders and certain other entities 10% Convertible Subordinated Discount Notes (the "Subordinated Notes") in the aggregate original face amount of $7.4 million (with original issue discount of $1.9 million). The Subordinated Notes are generally non-callable by the Company through August 13, 2002. Interest at 10% per annum accretes on the Subordinated Notes through August 13, 2002 and then becomes payable in cash by the Company if the Subordinated Notes are not redeemed or converted by that date. The Subordinated Notes are convertible into a maximum of 602,534 shares of the Company's - 3 - common stock at the election of the holders. The actual number of shares into which the Subordinated Notes are convertible depends upon the date of conversion and the amount of interest accreted on the Subordinated Notes through the date of conversion. The Company has agreed to register for resale the shares of common stock issuable upon the conversion of the Subordinated Notes. The Subordinated Notes are due on August 13, 2004 if not previously converted by that date. The Company received gross proceeds of $5.5 million upon issuance of the Subordinated Notes, all of which was used in connection with the Merger. The foregoing descriptions of the Foothill Revolver, Term Note A, Term Note B, Financing Warrants, Registration Rights Agreement for the Financing Warrants, Note Purchase Agreement, Subordinated Notes, Registration Rights Agreement for the Subordinated Notes, Libra Warrants, and Registration Rights for the Libra Warrants are qualified by reference to the complete texts of those documents, together with the exhibits attached thereto, and are incorporated into this Current Report on Form 8-K by this reference. The Financing Agreement was filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q dated August 16, 1999 and is incorporated into this Current Report on Form 8-K by this reference. Item 5. Other Events. On July 1, 1999, the Company executed an amendment to its 401(k) Profit Sharing Plan to include employee stock ownership provisions. The plan was renamed the CFI ProServices, Inc. Employee Savings and Stock Ownership Plan ("ESOP"), and it was amended and restated in the form of Exhibit 5.1 hereto and is incorporated into this Current Report on Form 8-K by this reference. The Company has reserved for issuance in 1999 up to 175,000 shares of common stock in accordance with the terms and conditions of the ESOP. Former officers of Ultradata Corporation, the Company's wholly owned subsidiary by virtue of the August 13, 1999 Merger, are subject to preexisting employment contracts with Ultradata Corporation. Those employment contracts are attached hereto and incorporated herein by this reference as Exhibits 5.2 through 5.6, respectively. Item 7. Financial Statements and Exhibits. (a) Financial statements of businesses acquired. Financial statements will be filed with the Commission within 60 days of the date this report is required to be filed, in accordance with Item 7 of this Form 8-K. (b) Pro forma financial information. Pro forma financial information will be filed with the Commission within 60 days of the date this report is required to be filed, in accordance with Item 7 of this Form 8-K. - 4 - (c) Exhibits. Exhibit No. Description 2.1 Agreement and Plan of Merger, dated as of May 17, 1999, among the Company, UFO Acquisition Co. and Ultradata Corporation. 2.2 Revolving Credit Note for principal up to $15,000,000 dated as of August 13, 1999. 2.3 Form of Term Loan A promissory note for aggregate principal of $35,000,000 dated as of August 13, 1999. 2.4 Form of Term Loan B promissory note for aggregate principal of $30,000,000 dated as of August 13, 1999. 2.5 Form of Warrant issued by Company to the Lenders to purchase up to an aggregate of 381,822 shares of the common stock of the Company dated as of August 13, 1999. 2.6 Registration Rights Agreement for the Lender Warrants among the Company and the Lenders dated as of August 13, 1999. 2.7 Note Purchase Agreement among the Company and the Note Holders dated as of August 13, 1999. 2.8 Form of 10% Convertible Subordinated Discount Notes dated as of August 13, 1999. 2.9 Registration Rights Agreement for the Subordinated Notes among the Company and the Note Holders dated as of August 13, 1999. 2.10 Warrant issued to U.S. Bancorp Libra, financial advisor and placement agent for the Company, to purchase 58,000 shares of Company common stock, dated as of August 13, 1999. - 5 - 2.11 Registration Rights Agreement for the Libra Warrants dated as of August 13, 1999. 5.1 CFI ProServices, Inc. Employee Savings and Stock Ownership Plan. 5.2 Ultradata Employment Agreement with Robert J. Majteles dated October 22, 1996. 5.3 Ultradata Employment Agreement with Cindy Cooper dated November 6, 1998. 5.4 Ultradata Employment Agreement with David J. Robbins dated November 6, 1998. 5.5 Ultradata Employment Agreement with James R. Berthelson dated November 6, 1998. 5.6 Ultradata Employment Agreement with Ronald H. Bissinger dated November 6, 1998. 10.1 Financing Agreement dated as of August 13, 1999 by and among CFI ProServices, Inc., Ultradata Corporation, MECA Software, L.L.C., MoneyScape Holdings, Inc., Foothill Capital Corporation, Ableco Finance L.L.C., Levine Leichtman Capital Partners II, L.P. and Foothill Partners III, L.P. previously filed as Exhibit 10.1 to the Company's Form 10-Q dated August 16, 1999, filed with the Securities and Exchange Commission on August 16, 1999 and incorporated herein by reference. - 6 - SIGNATURES 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. CFI PROSERVICES, INC. dba Concentrex Incorporated Date: August 27, 1999 By: /s/ Kurt W. Ruttum ------------------- Kurt W. Ruttum, Vice President and Chief Financial Officer - 7 - EX-2 2 EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER DATED AS OF MAY 17, 1999 AMONG CFI PROSERVICES, INC., UFO ACQUISITION CO. AND ULTRADATA CORPORATION TABLE OF CONTENTS 1. THE MERGER ....................................................... 1 1.1 The Merger .............................................. 1 1.2 Effective Time .......................................... 1 1.3 Closing of the Merger ................................... 2 1.4 Effects of the Merger ................................... 2 1.5 Certificate of Incorporation and Bylaws ................. 2 1.6 Directors ............................................... 2 1.7 Officers ................................................ 2 1.8 Conversion of Shares .................................... 3 1.9 Payment for Shares ...................................... 3 1.10 Dissenting Shares ....................................... 5 1.11 Stock Options ........................................... 5 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY .................... 6 2.1 Organization and Qualification .......................... 6 2.2 Capitalization of the Company and its Subsidiaries ...... 7 2.3 Authority Relative to this Agreement; Consents and Approvals ............................................. 8 2.4 SEC Reports; Financial Statements ....................... 9 2.5 Information Supplied .................................... 10 2.6 Consents and Approvals; No Violations ................... 10 2.7 No Default .............................................. 11 2.8 No Undisclosed Liabilities; Absence of Changes .......... 11 2.9 Litigation .............................................. 11 2.10 Compliance with Applicable Law .......................... 12 2.11 Employee Benefit Plans .................................. 12 2.12 Environmental Laws and Regulations ...................... 14 2.13 Tax Matters ............................................. 15 2.14 Intangible Property ..................................... 15 2.15 Brokers ................................................. 15 2.16 Material Contracts ...................................... 16 2.17 Disclosure .............................................. 16 2.18 Termination of Certain Contracts ........................ 17 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB ................. 17 3.1 Organization ............................................ 17 3.2 Authority Relative to this Agreement .................... 18 3.3 Information Supplied .................................... 18 i 3.4 Consents and Approvals; No Violations ................... 18 3.5 Litigation .............................................. 19 3.6 Brokers ................................................. 19 3.7 Financing ............................................... 19 4. COVENANTS ........................................................ 19 4.1 Conduct of Business of the Company ...................... 19 4.2 Preparation of Proxy Statement and Stockholders' Meeting ............................................... 22 4.3 No Solicitation ......................................... 22 4.4 Access to Information ................................... 24 4.5 Additional Agreements; Reasonable Best Efforts .......... 24 4.6 Consents ................................................ 25 4.7 Public Announcements .................................... 25 4.8 Notification of Certain Matters ......................... 25 4.9 Release of Liens ........................................ 26 4.10 Company 401(k) Plan ..................................... 26 4.11 Parent 401(k) Plan ...................................... 26 5. CONDITIONS TO CONSUMMATION OF THE MERGER ......................... 26 5.1 Conditions to Each Party's Obligations to Effect the Merger ................................................ 26 5.2 Conditions to the Obligations of the Company ............ 27 5.3 Conditions to the Obligations of Parent and Sub ......... 27 6. TERMINATION; AMENDMENT; WAIVER ................................... 28 6.1 Termination ............................................. 28 6.2 Effect of Termination ................................... 29 6.3 Fees and Expenses ....................................... 30 6.4 Amendment ............................................... 31 6.5 Extension; Waiver ....................................... 31 7. MISCELLANEOUS .................................................... 31 7.1 Nonsurvival of Representations and Warranties ........... 31 7.2 Entire Agreement; Assignment ............................ 31 7.3 Validity ................................................ 32 7.4 Notices ................................................. 32 7.5 Governing Law ........................................... 33 7.6 Descriptive Headings .................................... 33 7.7 Parties in Interest ..................................... 33 7.8 Severability ............................................ 34 7.9 Specific Performance .................................... 34 7.10 Subsidiaries ............................................ 34 7.11 Brokers ................................................. 34 ii 7.12 Counterparts ............................................ 34 iii AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, dated as of May 17, 1999, is among CFI PROSERVICES, INC., an Oregon corporation ("Parent"), UFO ACQUISITION CO., a Delaware corporation and a direct wholly owned subsidiary of Parent ("Sub"), and ULTRADATA CORPORATION, a Delaware corporation (the "Company"). WHEREAS, the Boards of Directors of the Company, Parent and Sub each have, in light of and subject to the terms and conditions set forth herein, (i) determined that the Merger (as defined in Section 1.1) is fair to their respective stockholders and in the best interests of such stockholders and (ii) approved the Merger in accordance with this Agreement. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the Company, Parent and Sub hereby agree as follows: 1. THE MERGER 1.1 The Merger At the Effective Time and upon the terms and subject to the conditions of this Agreement and in accordance with the Delaware General Corporation Law (the "DGCL"), Sub shall be merged with and into the Company (the "Merger"). Following the Merger, the Company shall continue as the surviving corporation (the "Surviving Corporation") and the separate corporate existence of Sub shall cease. At the option of Parent, upon five days prior written notice to the Company, the Merger may be structured so that, and this Agreement shall thereupon be deemed to be amended to provide that, either another direct or indirect subsidiary of the Parent shall be merged with and into the Company or the Company shall be merged with and into the Sub or another direct or indirect wholly owned subsidiary of Parent, with the Sub or such other subsidiary of Parent continuing as the Surviving Corporation; provided that, no such change in structure will be deemed to apply for purposes of the Company's representations and warranties contained in Section 2 hereof. 1.2 Effective Time Subject to the provisions of this Agreement, Parent, Sub and the Company shall cause the Merger to be consummated by filing an appropriate Certificate of Merger or other appropriate documents (the "Certificate of Merger") with the Secretary of State of the State of Delaware in such form as required by, and executed in accordance with, the relevant provisions of the DGCL, as soon as practicable on or after the Closing Date (as defined in Section 1.3). The Merger shall become effective upon such filing or at such time thereafter as is provided in the Certificate of Merger (the "Effective Time"). 1.3 Closing of the Merger The closing of the Merger (the "Closing") will take place at a time and on a date to be specified by the parties, which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article 5 (the "Closing Date"), at the offices of Perkins Coie LLP, 1211 S.W. Fifth Avenue, Suite 1500, Portland, Oregon, unless another time, date or place is agreed to in writing by the parties hereto. 1.4 Effects of the Merger The Merger shall have the effects set forth in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Sub shall become the debts, liabilities and duties of the Surviving Corporation. 1.5 Certificate of Incorporation and Bylaws The Restated Certificate of Incorporation of the Company in effect at the Effective Time shall be the certificate of incorporation of the Surviving Corporation until amended in accordance with applicable law. The Bylaws of the Company in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with applicable law. 1.6 Directors The directors of Sub at the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation until such director's successor is duly elected or appointed and qualified. 1.7 Officers The officers of Sub at the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation until such officer's successor is duly elected or appointed and qualified. 2 1.8 Conversion of Shares (a) At the Effective Time, each share of common stock, par value $0.001 per share, of the Company ("Company Common Stock") issued and outstanding immediately prior to the Effective Time (individually a "Share" and collectively, the "Shares") (other than (i) Shares held by any subsidiary of the Company and (ii) Shares held by Parent, Sub or any other subsidiary of Parent or Sub and (iii) Dissenting Shares (as defined in Section 1.10 hereof)) shall, by virtue of the Merger and without any action on the part of Sub, the Company or the holder thereof, be converted into the right to receive (a) $7.50 in cash, payable to the holder thereof without interest thereon, upon surrender of the certificate formerly representing such Share (the "Merger Consideration"). (b) At the Effective Time, each outstanding share of the common stock, par value $0.001 per share, of Sub shall be converted into one share of common stock, par value $0.001 per share, of the Surviving Corporation. (c) At the Effective Time, each share of Company Common Stock held by Parent, Sub or any subsidiary of Parent, Sub or the Company immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of Sub, the Company or the holder thereof, be canceled, retired and cease to exist and no payment shall be made with respect thereto. 1.9 Payment for Shares (a) As of the Effective Time, Chase Mellon Shareholder Services, L.L.C., or another bank or trust company designated by Parent and reasonably acceptable to the Company shall act as paying agent (the "Paying Agent") in effecting the payment of the Merger Consideration for certificates that formerly represented Shares entitled to payment of the Merger Consideration pursuant to Section 1.8 hereof. On or before the Effective Time, Parent or Sub shall deposit, or cause to be deposited, in trust with the Paying Agent, the aggregate Merger Consideration to which holders of Shares shall be entitled at the Effective Time pursuant to Section 1.8 hereof. (b) As soon as reasonably practicable after the Effective Time, the Paying Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding Shares (the "Certificates") whose Shares were converted into the right to receive the Merger Consideration pursuant to Section 1.8: (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent and shall be in such form and have such other provisions as Parent and the Company may reasonably specify) and 3 (ii) instructions for use in effecting the surrender of the Certificates and receiving the Merger Consideration therefor. Upon surrender of a Certificate for cancellation to the Paying Agent, the Paying Agent shall pay the holder of such Certificate the Merger Consideration multiplied by the number of Shares formerly represented by such Certificate, and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Shares which is not registered in the transfer records of the Company, the appropriate Merger Consideration for such surrendered Certificate may be paid to a transferee if the Certificate representing such Shares is presented to the Paying Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 1.9, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the aggregate Merger Consideration relating thereto. No interest shall be paid or accrued on the Merger Consideration. (c) Promptly following the date which is one year after the Effective Time, the Paying Agent shall deliver to the Surviving Corporation all cash, Certificates and other documents in its possession relating to the transactions described in this Agreement, and the Paying Agent's duties shall terminate. Thereafter, each holder of a Certificate formerly representing a Share may surrender such Certificate to the Surviving Corporation and (subject to applicable abandoned property, escheat and similar laws) receive in consideration therefor the aggregate Merger Consideration relating thereto, without any interest or dividends thereon. (d) After the Effective Time, there shall be no transfers on the stock transfer books of the Surviving Corporation of any Shares which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates formerly representing Shares are presented to the Surviving Corporation or the Paying Agent, they shall be surrendered and canceled in return for the payment of the aggregate Merger Consideration relating thereto, subject to applicable law in the case of Dissenting Shares. (e) In the event that any Certificate for Shares shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed, the Paying Agent shall pay to such holder in exchange for such lost, stolen, or destroyed certificate the aggregate Merger Consideration relating thereto, if any, as may be required pursuant to this Agreement; provided, however, that Parent may, in its discretion, require the delivery of a suitable bond or indemnity. 4 (f) Neither Parent nor the Company shall be liable to any holder of Shares for Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.10 Dissenting Shares Notwithstanding anything in this Agreement to the contrary, Shares outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such Shares in accordance with Section 262 of the DGCL, if such Section 262 provides for appraisal rights for such Shares in the Merger ("Dissenting Shares"), shall not be converted into the right to receive the Merger Consideration as provided in Section 1.8 hereof, unless and until such holder fails to perfect or withdraws or otherwise loses his right to appraisal and payment under the DGCL. If, after the Effective Time, any such holder fails to perfect or withdraws or loses his right to appraisal, such Dissenting Shares shall thereupon be treated as if they had been converted as of the Effective Time into the right to receive the Merger Consideration, if any, to which such holder is entitled, without interest or dividends thereon. The Company shall give Parent prompt notice of any demands received by the Company for appraisal of Shares and, prior to the Effective Time, Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. Prior to the Effective Time, the Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands. 1.11 Stock Options (a) At the Effective Time, each outstanding option to purchase Company Common Stock issued pursuant to the Company's 1994 Equity Incentive Plan (the "Assumed Plan"), whether vested or unvested, shall be assumed by Parent and shall constitute an option (an "Assumed Option") to acquire, on the same terms and conditions as were applicable under such option prior to the Effective Time, the number of shares of Common Stock, no par value, of Parent ("Parent Common Stock"), rounded down to the nearest whole number, determined by multiplying .718 by the number of shares of Company Common Stock then subject to purchase pursuant to such option. The exercise price for such Assumed Options shall be equal to the aggregate exercise price for the shares of Company Common Stock then subject to purchase pursuant to such option divided by the number of shares of Parent Common Stock deemed to be purchasable pursuant to such Assumed Option. With respect to an option for shares of Company Common Stock to which Section 421 of the Internal Revenue Code of 1986, as amended (the "Code") applies by reason of its qualification under Section 422 or 423 of the Code (a "qualified stock option"), in no event shall the terms of any Assumed Option give the 5 holder of a qualified stock option additional benefits that he or she did not have under such qualified stock option. Any references in each Assumed Option or Assumed Plan to the Company shall be deemed to refer to Parent, where appropriate, and Parent shall assume the obligations of the Company under the Assumed Options and the Assumed Plan. Parent shall file as soon as reasonably practicable following the Closing Date, and maintain the effectiveness of, a registration statement on Form S-8 with respect to the Parent Common Stock subject to the Assumed Options for so long as such Assumed Options remain outstanding. Parent shall use reasonable efforts to take such actions as are necessary for the conversion of the Assumed Options pursuant to this Section 1.11(b), including the reservation, issuance and listing of shares of Parent Common Stock as is necessary to effectuate the transactions contemplated by this Section 1.11(b). Following the Effective Time, Parent will prepare and distribute to holders of Assumed Options a notice explaining the effect of the conversion of such holder's unvested options into Assumed Options. (b) Except as provided herein or as otherwise agreed to by the parties, (i) the Company shall not take any action (or refrain from taking action) the effect of which would cause any options to accelerate in connection with the Merger (which options would not have otherwise accelerated pursuant to their terms or the terms of any existing employment agreement disclosed to Parent), (ii) the 1995 Director Stock Option Plan shall terminate as of the Effective Time and the provisions in any other plan, program or arrangement, providing for the issuance or grant of any other interest in respect of the capital stock of the Company or any of its subsidiaries (other than the Assumed Plan) shall be canceled as of the Effective Time and (iii) no holder of options to purchase Company Common Stock or any participant in any of the Company's stock option plans or any other plans, programs or arrangements shall have any right thereunder to acquire any equity securities of the Company, the Surviving Corporation or any subsidiary thereof, other than with respect to the Assumed Options. With respect to the options to purchase 100,000 shares of Company Common Stock that have been granted under the 1995 Director Stock Option Plan as of the date hereof and the options to purchase an aggregate of 1.2 million shares of Company Common Stock outside of the Company's stock option plans, on the Closing Date the Company shall pay to each holder of such options an amount in respect thereof equal to the product of (A) the excess of $7.50 over the exercise price thereof and (B) the number of shares of Company Common Stock subject to such option. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on the Disclosure Schedule delivered by the Company to Parent prior to the execution of this Agreement (the "Company Disclosure Schedule"), the Company hereby represents and warrants to each of Parent and Sub as follows: 6 2.1 Organization and Qualification (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. (b) The Company has no subsidiaries and does not own, directly or indirectly, beneficially or of record, any shares of capital stock or other security of any other entity or any other investment in any other entity. (c) The Company is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing would not have a Material Adverse Effect (as defined below) on the Company. When used in connection with the Company, the term "Material Adverse Effect" means any change or effect that, when taken together with all other adverse changes and effects (i) is or is reasonably likely to be materially adverse to the properties, business, results of operations or condition (financial or otherwise) of the Company, or (ii) may impair the ability of the Company to consummate the transactions contemplated hereby. (d) The Company has heretofore delivered to Parent accurate and complete copies of the certificate of incorporation and by-laws, as currently in effect, of the Company. 2.2 Capitalization of the Company and its Subsidiaries (a) The authorized capital stock of the Company consists of 25 million shares consisting of 2 million shares of preferred stock, $0.001 par value, and 23 million shares of Company Common Stock. No preferred shares and 7,748,382 shares of Company Common Stock are issued and outstanding. All of the issued and outstanding shares of Company Common Stock have been validly issued, and are fully paid, nonassessable and free of preemptive rights. The Company has reserved an aggregate of 2,750,000 shares of Company Common Stock for issuance in connection with the Company's stock option plans and otherwise. The Company has reserved an aggregate of 1,300,000 shares of Company Common Stock under the 1994 Equity Incentive Plan, of which 131,781 shares have been issued upon the exercise of options and an aggregate of 862,504 shares of Company Common Stock are currently subject to outstanding grants under such plan. The Company has reserved an aggregate of 250,000 shares of Company Common Stock under the 1995 Directors Plan and options to purchase an aggregate of 7 100,000 shares of Company Common Stock have been granted under such plan. Options to purchase an aggregate of 1.2 million shares have been granted outside of such plans to Nigel P. Gallop and Robert J Majteles (in the amount of 600,000 shares each). Schedule 2.2 sets forth, for each of option plans and for options that were granted outside of the plans, the number of option shares currently vested and exercisable, the number of additional option shares that will vest, by their existing terms, at various specified dates prior to the Effective Time, and the numbers of additional options that will become vested immediately prior to the Merger as a result thereof. The Company has reserved 250,000 shares of Company Common Stock for issuance under the Company's Employee Stock Purchase Plan (the "ESPP"). A maximum of 13,000 shares of Company Common Stock will be issued to participants under the ESPP after the date hereof and prior to the Effective Time. The ESPP will terminate on or before the Effective Time and, except as set forth in the preceding sentence, no additional shares of Company Common Stock will be issued under the ESPP between the date hereof and the Closing Date. Except as set forth above, there are outstanding (i) no shares of capital stock or other voting securities of the Company, (ii) no securities of the Company or its subsidiaries convertible into or exchangeable for shares of capital stock or voting securities of the Company, (iii) no options or other rights to acquire from the Company, and no obligations of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company, and (iv) no equity equivalents, interests in the ownership or earnings of the Company or its subsidiaries or other similar rights (including stock appreciation rights) (collectively, "Company Securities"). There are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any Company Securities. There are no stockholder agreements, voting trusts or other agreements or understandings to which the Company is a party or to which it is bound relating to the voting of any shares of capital stock of the Company. (b) The Company Common Stock constitutes the only class of securities of the Company or its subsidiaries registered or required to be registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 2.3 Authority Relative to this Agreement; Consents and Approvals (a) The Company has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of the Company (the "Company Board") and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated hereby (other than, with respect to the Merger, the approval and adoption of this Agreement by the holders of a majority of the then outstanding 8 shares of Company Common Stock). This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid, legal and binding agreement of the Company, enforceable against the Company in accordance with its terms. (b) The Company Board has, by unanimous vote of those present, duly and validly approved, and taken all corporate actions required to be taken by the Company Board for the consummation of the transactions, including the Merger, contemplated hereby and resolved to recommend that the stockholders of the Company approve and adopt this Agreement; provided, however, that such approval and recommendation may be withdrawn, modified or amended in the event that the Company Board by majority vote determines in its good faith judgment, after consultation with and based upon the advice of independent legal counsel, that it is necessary to do so in order to comply with its fiduciary duties to stockholders under applicable law. No state takeover statute or similar statute or regulation applies or purports to apply to the Merger, this Agreement or any of the transactions contemplated hereby. 2.4 SEC Reports; Financial Statements (a) The Company has filed all required forms, reports and documents with the Securities and Exchange Commission (the "SEC") since February 14, 1996, each of which has complied in all material respects with all applicable requirements of the Securities Act of 1933, as amended (the "Securities Act") and the Exchange Act, each as in effect on the dates such forms, reports and documents were filed. The Company has heretofore delivered to Parent, in the form filed with the SEC (including any amendments thereto), (i) its Annual Reports on Form 10-K for each of the fiscal years ended December 31, 1996, 1997 and 1998, (ii) all definitive proxy statements relating to the Company's meetings of stockholders (whether annual or special) held since February 14, 1996 and (iii) all other reports or registration statements filed by the Company with the SEC since February 14, 1996 (the "Company SEC Reports"). None of such forms, reports or documents, including, without limitation, any financial statements or schedules included or incorporated by reference therein, contained, when filed, any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the Company SEC Reports complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto and fairly present, in conformity with generally accepted accounting principles applied on a consistent basis ("GAAP") (except as may be indicated in the notes thereto), the financial position of the Company as of the dates thereof and its results of operations and changes in financial position for the periods then ended (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments). 9 Since December 31, 1998, except as set forth in the Company SEC Reports, there has not been any change, or any application or request for any change, by the Company or any of its subsidiaries in accounting principles, methods or policies for financial accounting or tax purposes. (b) The Company has heretofore made available to Parent a complete and correct copy of any material amendments or modifications, which have not yet been filed with the SEC, to agreements, documents or other instruments which previously had been filed by the Company with the SEC pursuant to the Exchange Act. 2.5 Information Supplied None of the information with respect to the Company to be included in the Proxy Statement (as defined in this Section below) will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated thereunder. The letters to stockholders, notices of meeting, preliminary proxy statement, definitive proxy statement and forms of proxies to be distributed to stockholders in connection with the Merger, and any schedules to be filed with the SEC in connection therewith are collectively referred to as the "Proxy Statement." 2.6 Consents and Approvals; No Violations Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act, the filing and recordation of the Certificate of Merger as required by the DGCL, and the approval of the stockholders of the Company, no filing with or notice to, and no permit, authorization, consent or approval of, any court or tribunal or administrative, governmental or regulatory body, agency or authority (a "Governmental Entity") or any other person or entity is necessary for the execution and delivery by the Company of this Agreement or the consummation by the Company of the transactions contemplated hereby. Neither the execution, delivery and performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of the Company, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration or Lien (as defined below)) (collectively, a "Default") under any of the terms, conditions or provisions of any material note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation 10 to which the Company is a party or by which it or any of its properties or assets may be bound (collectively, "Agreements") or would result in a Default under any of the Company's Agreements (whether or not such Agreement is material) which would have a Material Adverse Effect on the Company, or (iii) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to the Company or any of its properties or assets. For purposes of this Agreement, "Lien" means, with respect to any asset (including, without limitation, any security) any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. 2.7 No Default The Company is not in default or violation (and no event has occurred which with notice or the lapse of time or both would constitute a default or violation) of any term, condition or provision of (i) its certificate of incorporation or bylaws, or (ii) any order, writ, injunction, decree, law, statute, rule or regulation applicable to the Company or any of its properties or assets, except in the case of subsection (ii) for violations, breaches or defaults that would not have a Material Adverse Effect on the Company. 2.8 No Undisclosed Liabilities; Absence of Changes Except as and to the extent publicly disclosed by the Company in the Company SEC Reports, as of December 31, 1998, the Company had no liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, and whether due or to become due or asserted or unasserted, which would be required by GAAP to be reflected in, reserved against or otherwise described in the balance sheet of the Company (including the notes thereto) as of such date or which could reasonably be expected to have a Material Adverse Effect on the Company. Except as publicly disclosed by the Company in the Company SEC Reports, since December 31, 1998, the business of the Company has been carried on only in the ordinary and usual course, the Company has not incurred any liabilities of any nature, whether or not accrued, contingent or otherwise, and whether due or to become due or asserted or unasserted which could reasonably be expected to have, and there have been no events, changes or effects with respect to the Company having or which could reasonably be expected to have, a Material Adverse Effect on the Company. 2.9 Litigation Except as publicly disclosed by the Company in the Company SEC Reports, there is no suit, claim, action, proceeding or investigation pending or, to the knowledge of the Company, threatened against the Company or any of its properties or assets which (a) could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company or (b) as of the date hereof, questions the validity of this 11 Agreement or any action to be taken by the Company in connection with the consummation of the transactions contemplated hereby or could otherwise prevent or delay the consummation of the transactions contemplated by this Agreement. Except as publicly disclosed by the Company, the Company is not subject to any outstanding order, writ, injunction or decree which, insofar as can be reasonably foreseen, could reasonably be expected to have a Material Adverse Effect on the Company or would prevent or delay the consummation of the transactions contemplated hereby. 2.10 Compliance with Applicable Law Except as publicly disclosed by the Company in the Company SEC Reports, the Company holds all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities necessary for the lawful conduct of its business (the "Company Permits"), except for failures to hold such permits, licenses, variances, exemptions, orders and approvals which could not reasonably be expected to have a Material Adverse Effect on the Company. Except as publicly disclosed by the Company in the Company SEC Reports, the Company is in compliance with the terms of the Company Permits, except where the failure so to comply could not reasonably be expected to have a Material Adverse Effect on the Company. Except as publicly disclosed by the Company in the Company SEC Reports, the business of the Company is not being conducted in violation of any law, ordinance or regulation of any Governmental Entity except for violations or possible violations which do not, and, insofar as reasonably can be foreseen, will not, have a Material Adverse Effect on the Company. Except as publicly disclosed by the Company in the Company SEC Reports, to the best knowledge of the Company no investigation or review by any Governmental Entity with respect to the Company is pending or threatened, nor, to the best knowledge of the Company, has any Governmental Entity indicated an intention to conduct the same. 2.11 Employee Benefit Plans (a)......The Company Disclosure Schedule contains a list of all top hat or excess benefit plans for a select group of management or highly compensated employees, Code Section 401(a) plans, employee bonus plans, Code Section 125 plans, medical, dental, vision, hospitalization and life insurance, tuition reimbursement, disability plans in excess of state law required benefits, paid time off and vacation benefits, severance (including change in control agreements), stock purchase, stock option, stock appreciation rights, fringe benefit and other employee benefit plans and programs (including, without limitation, each "employee benefit plan," as defined in section 3(3) of ERISA) and each employment or consulting contract or agreement which provides for base annual compensation in excess of $75,000, (i) sponsored, maintained or contributed to by the Company or any ERISA Affiliate, (ii) covering or benefiting any current or former 12 officer, employee, director or independent contractor of the Company or any ERISA Affiliate or (iii) with respect to which the Company or any ERISA Affiliate has any material obligation or liability (individually, an "Employee Benefit Plan" and, collectively, the "Employee Benefit Plans"). Neither the Company nor any ERISA Affiliate has any agreement to create any additional employee benefit plan or program, or to modify or amend any existing Employee Benefit Plan. For purposes of this Agreement, "ERISA Affiliate" means any Subsidiary and any other corporation, trade, business or other entity that must be aggregated with either the Company or any Subsidiary under Section 414(b), (c), (m) or (o) of the Code. The Company has delivered to Parent true, complete and accurate copies of all Employee Benefit Plans (including all amendments thereto and summary plan descriptions thereof). (b)......There has been no amendment, written interpretation or announcement (whether or not written) by either the Company or any ERISA Affiliate relating to a change in participation or coverage under any Employee Benefit Plan that, either alone or together with any other such items or events, could increase the expense of maintaining such Plan above the level of expense incurred with respect thereto for the most recent fiscal year included in the Company's or any ERISA Affiliate's audited financial statements. (c)......With respect to each Employee Benefit Plan (i) such Employee Benefit Plan and any related trust agreements, insurance contracts or annuity contracts (or any related trust instruments) are and at all times since inception have been maintained, administered, operated and funded in accordance with their terms and in compliance with each applicable provision of ERISA, the Code and any other applicable laws, including, without limitation, rules promulgated pursuant thereto or in connection therewith, (ii) each Employee Benefit Plan that is intended to be "qualified" within the meaning of Section 401(a) of the Code has been the subject of a favorable determination letter issued by the IRS and, to the best knowledge of the Company, no circumstances exist that have or are likely to adversely affect, or result in the revocation of, such determination, and (iii) no transaction, event or omission has occurred or failed to occur that could subject the Company or any ERISA Affiliate, directly or indirectly, to a tax, fine, penalty or related charge under any applicable law, including, without limitation, Chapter 43 of Subtitle D of the Code and Section 502(c), 502(i), 502(l) or 4071 of ERISA; (d)......All contributions, premiums and other payments due or required to be made to (or with respect to) each Employee Benefit Plan under the terms of such Employee Benefit Plan or under applicable law have been made on or before their due dates in accordance with the terms of such Employee Benefit Plan or applicable law, or, if not yet due, have been properly accrued on the financial statements of the Company. The costs of administering the Employee Benefit Plans, including, without limitation, fees for the 13 trustees and other service providers which are customarily paid by the Company or any ERISA Affiliate, have been timely paid, or will be timely paid or accrued on the financial statements of the Company; (e)......Neither the Company nor any ERISA Affiliate sponsors, maintains or contributes to, or has ever sponsored, maintained or contributed to (or been obligated to contribute to), (i) any multiemployer plan within the meaning of Section 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code, (ii) any multiple employer plan within the meaning of Section 4063 or 4064 of ERISA or Section 413(c) of the Code, or (iii) any employee benefit plan, fund, program, contract or arrangement that is subject to Section 412 of the Code or Section 302 or Title IV of ERISA; (f)......There are no pending or threatened claims, lawsuits or arbitration asserted or instituted against any Employee Benefit Plans, fiduciaries or any officers, employees, directors, agents or owners of the Company or any ERISA Affiliate with respect to such Plan, and the Company has no knowledge of any facts which would give rise to or could reasonably be expected to give rise to any such claims, lawsuits or arbitrations. No Employee Benefit Plan is currently under investigation, audit or review by the IRS, Department of Labor or any other governmental entity or agency, and the Company has no knowledge of any facts which could give rise to or could reasonably be expected to give rise to any such claims, lawsuits or arbitrations; (g)......Neither the execution and delivery of this Agreement or any related agreement nor the consummation of the transactions contemplated by this Agreement or any related agreement will (i) entitle any current or former officer, employee, director, agent or independent contractor of the Company or any ERISA Affiliate to severance pay, unemployment compensation or any other payment from the Company, any ERISA Affiliate or any other Person, or otherwise increase the amount of compensation due to any such individual, (ii) result in any benefit or right becoming established or increased, or accelerate the time of payment or vesting of any benefit, under any Employee Benefit Plan, (iii) require the Company or any ERISA Affiliate to make any contribution to a trust or other funding arrangement or to increase its contributions to any Employee Benefit Plan, or (iv) conflict with the terms of any Employee Benefit Plan, whether or not some other subsequent action or event would be required to trigger any of the items specified in this paragraph. 2.12 Environmental Laws and Regulations (a) Except as publicly disclosed by the Company in the Company SEC Reports, (i) the Company is in compliance with all applicable federal, state and local laws and regulations relating to pollution or protection of human health or the environment 14 (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) (collectively, "Environmental Laws"), except for non-compliance that could not reasonably be expected to have a Material Adverse Effect on the Company, which compliance includes, but is not limited to, the possession by the Company of all material permits and other governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof; (ii) the Company has not received written notice of, and, to the best knowledge of the Company, the Company is not the subject of, any action, cause of action, claim, investigation, demand or notice by any person or entity alleging liability under or non-compliance with any Environmental Law (an "Environmental Claim"); and (iii) to the best knowledge of the Company, there are no circumstances that are reasonably likely to prevent or interfere with such material compliance in the future. (b) Except as publicly disclosed by the Company in the Company SEC Reports, there are no Environmental Claims that are pending or, to the best knowledge of the Company, threatened against the Company or, to the best knowledge of the Company, against any person or entity whose liability for any Environmental Claim the Company has or may have retained or assumed either contractually or by operation of law. 2.13 Tax Matters The Company has accurately prepared in all material respects and duly filed with the appropriate federal, state, local and foreign taxing authorities all tax returns, information returns and reports that are, individually and in the aggregate, material and are required to be filed with respect to the Company and has paid in full or made adequate provision for the payment of all material Taxes (as defined below). The Company is not delinquent in the payment of any material Taxes. As used herein, the term "Taxes" means all federal, state, local and foreign taxes, including, without limitation, income, profits, franchise, employment, transfer, withholding, property, excise, sales and use taxes (including interest penalties thereon and additions thereto). 2.14 Intangible Property The Company owns or possesses adequate licenses or other valid rights to use all material patents, patent rights, trademarks, trademark rights, trade names, trade name rights, copyrights, service marks, trade secrets, applications for trademarks and for service marks, know-how and other proprietary rights and information used or held for use in connection with the business of the Company as currently conducted or as contemplated to be conducted, and the Company is unaware of any assertion or claim challenging the validity of any of the foregoing. The conduct of the business of the Company as heretofore and currently conducted has not and does not conflict in any way with 15 any license, trademark, trademark right, trade name, trade name right, service mark, copyright or, to the Company's best knowledge, any patent or patent right of any third party. To the best knowledge of the Company, there are no infringements of any proprietary rights owned by or licensed by or to the Company. 2.15 Brokers No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission or expense reimbursement in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of the Company or any of its affiliates. The Company shall be responsible for all such fees and expenses, except as otherwise provided in Section 6.3. 2.16 Material Contracts (a) The Company has delivered or otherwise made available to Parent true, correct and complete copies of all contracts and agreements (and all amendments, modifications and supplements thereto and all side letters to which the Company is a party affecting the obligations of any party thereunder) to which the Company is a party or by which any of its properties or assets are bound that are, material to the business, properties or assets of the Company, including, without limitation, to the extent any of the following are, individually or in the aggregate, material to the business, properties or assets of the Company, all: (i) employment, product design or development, personal services, consulting, non-competition, severance or indemnification contracts (including, without limitation, any contract to which the Company is a party involving employees of the Company); (ii) licensing, publishing, merchandising or distribution agreements; (iii) contracts granting a right of first refusal or first negotiation; (iv) partnership or joint venture agreements; (v) agreements for the acquisition, sale or lease of material properties or assets of the Company (by merger, purchase or sale of assets or stock or otherwise); (vi) contracts or agreements with any Governmental Entity; (vii) notes, bonds, mortgages, indentures and leases; and (viii) all commitments and agreements to enter into any of the foregoing (collectively, together with any such contracts entered into in accordance with Section 4.1 hereof, the "Contracts"). The Company is not a party to or bound by any severance, golden parachute or other agreement with any employee or consultant pursuant to which such person would be entitled to receive any additional compensation or an accelerated payment of compensation as a result of the consummation of the transactions contemplated hereby. (b) Each of the Contracts is valid and enforceable in accordance with its terms, and there is no default under any Contract so listed either by the Company or, to the knowledge of the Company, by any other party thereto, and no event has occurred that 16 with the lapse of time or the giving of notice or both would constitute a default thereunder by the Company or, to the knowledge of the Company, any other party, in any such case in which such default or event could reasonably be expected to have a Material Adverse Effect on the Company. No party to any such Contract has given notice to the Company of or made a claim against the Company with respect to any breach or default thereunder. (c) No party to any such Contract has given notice to the Company of or made a claim against the Company with respect to any breach or default thereunder. 2.17 Disclosure No representation or warranty by the Company contained in this Agreement and no statement contained in any certificate delivered by the Company to Sub or Parent pursuant to this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading when taken together in light of the circumstances in which they were made. 2.18 Termination of Certain Contracts The Company has terminated its Distributor Agreement and has no other agreements with ACI Worldwide Inc. (as successor to USSI, Inc., "ACI") (provided that the Company may continue to distribute 50 licenses of ACI's Trans24 software and appropriate provisions of the Distributor Agreement will continue to apply to such licenses). On or prior to the closing the Company shall terminate its agreements with UniKix Technologies. The Company has received a release and settlement providing for a complete release from any and all claims now existing or arising in the future against the Company and its affiliates by ACI (other than with respect to the ongoing licenses and settlement payments) for an amount payable by the Company as described in the Company Disclosure Schedule. On or prior to the Closing the Company will have reached an agreement with UniKix Technologies to provide for software licenses in connection with the Trans24 software licenses with payments not to exceed the amount provided for in the Company Disclosure Schedule. 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub hereby represent and warrant to the Company as follows: 3.1 Organization (a) Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and 17 has all requisite corporate power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted. (b) Each of Parent and Sub is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing would not have a Material Adverse Effect (as defined below) on Parent. When used in connection with Parent or Sub, the term "Material Adverse Effect" means any change or effect that, when taken together with all other adverse changes and effects (i) is or is reasonably likely to be materially adverse to the properties, business, results of operations or condition (financial or otherwise) of Parent and its subsidiaries, taken as a whole, or (ii) may impair the ability of Parent and/or Sub to consummate the transactions contemplated hereby. (c) Parent has heretofore delivered to the Company accurate and complete copies of the articles of incorporation and by-laws of Parent as currently in effect. 3.2 Authority Relative to this Agreement Each of Parent and Sub has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the boards of directors of Parent and Sub and by Parent as the sole stockholder of Sub, and no other corporate proceedings on the part of Parent or Sub are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each of Parent and Sub and constitutes a valid, legal and binding agreement of each of Parent and Sub, enforceable against each of Parent and Sub in accordance with its terms. 3.3 Information Supplied None of the information with respect to Parent or Sub to be supplied by Parent or Sub in writing specifically for inclusion in the Proxy Statement will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 18 3.4 Consents and Approvals; No Violations Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act, and the filing and recordation of the Certificate of Merger as required by the DGCL, no filing with or notice to, and no permit, authorization, consent or approval of, any Governmental Entity or any other person or entity is necessary for the execution and delivery by Parent or Sub of this Agreement or the consummation by Parent or Sub of the transactions contemplated hereby. Neither the execution, delivery and performance of this Agreement by Parent or Sub nor the consummation by Parent or Sub of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the respective certificate of incorporation or bylaws of Parent or Sub, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration or Lien) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Parent or Sub is a party or by which any of them or any of their respective properties or assets may be bound, or (iii) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to Parent or Sub or any of Parent's subsidiaries or any of their respective properties or assets. 3.5 Litigation Except as publicly disclosed by Parent in reports filed by Parent with the SEC (the "Parent SEC Reports"), there is no suit, claim, action, proceeding or investigation pending or, to the knowledge of Parent or Sub, threatened against Parent or Sub or any of their respective properties or assets which as of the date hereof, questions the validity of this Agreement or any action to be taken by Parent in connection with the consummation of the transactions contemplated hereby or could otherwise prevent or delay the consummation of the transactions contemplated by this Agreement. Except as publicly disclosed by Parent in Parent's SEC Reports, neither Parent nor Sub is subject to any outstanding order, writ, injunction or decree which, insofar as can be reasonably foreseen, could reasonably be expected to have a Material Adverse Effect on Parent or would prevent or delay the consummation of the transactions contemplated hereby. 3.6 Brokers No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of Parent or Sub or any of 19 their affiliates, except for fees that may be payable to placement agents or lenders in connection with any debt financing obtained by Parent or Sub. 3.7 Financing Parent or Sub has received commitments or highly confident letters from financially responsible third parties to obtain, and will have at the time of acceptance for payment and purchase of Shares at the Effective Time, the funds necessary to consummate the Merger and to pay the Merger Consideration and related fees and expenses. 4. COVENANTS 4.1 Conduct of Business of the Company Except as contemplated by this Agreement, during the period from the date hereof to the Effective Time, the Company will, and will cause each of its subsidiaries to, conduct its operations in the ordinary course of business consistent with past practice and, to the extent consistent therewith, with no less diligence and effort than would be applied in the absence of this Agreement, seek to preserve intact its current business organizations, seek to keep available the service of its current officers and employees and seek to preserve its relationships with customers, suppliers and others having business dealings with it to the end that goodwill and ongoing businesses shall be unimpaired at the Effective Time. Without limiting the generality of the foregoing, and except as otherwise expressly provided in this Agreement, prior to the Effective Time, neither the Company nor any of its subsidiaries will, without the prior written consent of Parent: (a) amend its certificate of incorporation or bylaws; (b) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities or equity equivalents (including, without limitation, any stock options or stock appreciation rights), except for the issuance of up to 2,162,504 shares of Company Common Stock pursuant to the exercise of currently granted stock options under the Company's stock option plans and existing option agreements; (c) split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, make any other actual, constructive or deemed distribution in respect of any shares of its capital stock or 20 otherwise make any payments to stockholders in their capacity as such, or redeem or otherwise acquire any of its securities or any securities of any of its subsidiaries; (d) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries (other than the Merger); (e) alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of any subsidiary (other than the Merger); (f) (i) incur or assume any long-term or short-term debt or issue any debt securities; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person; (iii) make any loans, advances or capital contributions to, or investments in, any other person; (iv) pledge or otherwise encumber shares of capital stock of the Company or its subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or intangible, or create or suffer to exist any material Lien thereupon; (g) except as may be required by law or as contemplated by this Agreement, enter into, adopt or amend or terminate any Employee Benefit Plan (as defined in Section 2.11), or increase the compensation or fringe benefits of any director, officer or employee or pay any benefit not required by any Employee Benefit Plan as in effect as of the date hereof (including, without limitation, the granting of stock appreciation rights or performance units); (h) acquire, sell, lease or dispose of any assets outside the ordinary course of business or any assets which in the aggregate are material to the Company and its subsidiaries taken as a whole, enter into any commitment or transaction outside the ordinary course of business or grant any exclusive distribution rights, except as contemplated by Section 2.18 hereof; (i) except as may be required as a result of a change in law or in generally accepted accounting principles, change any of the accounting principles or practices used by it; (j) revalue in any material respect any of its assets, including, without limitation, writing down the value of inventory or writing-off notes or accounts receivable other than in the ordinary course of business or as required by GAAP; (k) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or 21 any equity interest therein; (ii) enter into any contract or agreement, other than in the ordinary course of business or as contemplated in Section 2.18 or amend in any material respect any of the Contracts or the agreements referred to in Section 2.16; (iii) authorize any new capital expenditure or expenditures other than up to an aggregate of $150,000, provided such expenditures are in accordance with the Company's capital budget previously provided to Parent; or (iv) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action that would be prohibited hereunder; (l) make or revoke any tax election or settle or compromise any tax liability material to the Company and its subsidiaries taken as a whole or change (or make a request to any taxing authority to change) any material aspect of its method of accounting for tax purposes; (m) pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in, or contemplated by, the financial statements (or the notes thereto) of the Company or incurred in the ordinary course of business consistent with past practice, except as contemplated by Section 2.18 hereof; (n) settle or compromise any pending or threatened suit, action or claim relating to the transactions contemplated hereby, except as contemplated by Section 2.18 hereof; or (o) take (other than to Parent in seeking its consent to the taking of any such action), propose to take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(a) through 4.1(n) or any action which would make any of the representations or warranties of the Company contained in this Agreement untrue or incorrect in any material respect. 4.2 Preparation of Proxy Statement and Stockholders' Meeting (a) In order to consummate the Merger, the Company, acting through the Board, shall, in accordance with applicable law: (i) duly call, give notice of, convene and hold a special meeting of its stockholders (the "Special Meeting") as soon as practicable for the purpose of considering and taking action upon this Agreement; (ii) prepare and file with the SEC a preliminary proxy statement relating to the Merger and this Agreement and use its reasonable efforts (x) to obtain and 22 furnish the information required to be included by the SEC in the Proxy Statement and, after consultation with Parent, to respond promptly to any comments made by the SEC with respect to the preliminary Proxy Statement and cause a definitive Proxy Statement to be mailed to its stockholders and (y) to obtain the necessary approvals of the Merger and this Agreement by its stockholders; and (iii) subject to the fiduciary obligations of the Board under applicable law as advised by outside counsel, include in the Proxy Statement the recommendation of the Board that stockholders of the Company vote in favor of the approval of the Merger and the adoption of this Agreement. (b) Parent agrees that it will vote, or cause to be voted, all of the Shares then owned by it, Sub or any of its other subsidiaries in favor of the approval of the Merger and the adoption of this Agreement. 4.3 No Solicitation (a) The Company, its affiliates and their respective officers, directors, employees, representatives and agents shall immediately cease any existing discussions or negotiations, if any, with any parties conducted heretofore with respect to any acquisition of all or any material portion of the assets of, or any equity interest in, the Company or its subsidiaries or any business combination with the Company or its subsidiaries. The Company may, directly or indirectly, furnish information and access, in each case only in response to unsolicited requests therefor, to any corporation, partnership, person or other entity or group pursuant to confidentiality agreements, and may participate in discussions and negotiate with such entity or group concerning any merger, sale of assets, sale of shares of capital stock or similar transaction involving the Company or any subsidiary or division of the Company, if such entity or group has submitted a proposal to the Company (whether or not in writing) relating to any such transaction and the Company Board by a majority vote determines in its good faith judgment, after consultation with and based upon the advice of independent legal counsel, that it is necessary to do so to comply with its fiduciary duties to stockholders under applicable law. The Company Board shall provide a copy of any such written proposal and a summary of any oral proposal to Parent within 24 hours after receipt thereof and thereafter keep Parent promptly advised of any material development with respect thereto. Except as set forth above, neither the Company nor any of its affiliates shall, nor shall the Company authorize or permit any of its or their respective officers, directors, employees, representatives or agents to directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any corporation, partnership, person or other entity or group (other than Parent and Sub, any affiliate or associate of Parent and Sub or any designees of Parent and Sub) concerning any merger, sale of assets, sale of shares of 23 capital stock or similar transaction involving the Company or any subsidiary or division of the Company; provided, however, that nothing herein shall prevent the Company Board from taking, and disclosing to the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender offer; provided, further, that nothing herein shall prevent the Company Board from making such disclosure to the Company's stockholders as, in the good faith judgment of the Company Board, after consultation with and based upon the advice of independent legal counsel, is necessary to comply with its fiduciary duties to stockholders under applicable law. (b) Except as set forth in this Section 4.3, the Company Board shall not approve or recommend, or cause the Company to enter into any agreement with respect to any Third Party Transaction (as defined in Section 6.1(d)). Notwithstanding the foregoing, if the Board of Directors of the Company, after consultation with and based upon the advice of independent legal counsel, determines in good faith that it is necessary to do so in order to comply with its fiduciary duties to stockholders under applicable law, the Company Board may approve or recommend a Superior Proposal (as defined below) or cause the Company to enter into an agreement with respect to a Superior Proposal, but in each case only (i) after providing reasonable written notice to Parent (a "Notice of Superior Proposal") advising Parent that the Company Board has received a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the person making such Superior Proposal and (ii) if Parent does not make within five days of Parent's receipt of the Notice of Superior Proposal, an offer which the Company Board, after consultation with its financial advisors, determines is superior to such Superior Proposal. For purposes of this Agreement, a "Superior Proposal" means any bona fide proposal to acquire, directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of the shares of Company Common Stock then outstanding or all or substantially all the assets of the Company and otherwise on terms which the Company Board determines in its good faith judgment (based on the written advice of a financial advisor of nationally recognized reputation) to be more favorable to the Company's stockholders than the Merger. 4.4 Access to Information (a) Between the date hereof and the Effective Time, the Company will give to Parent or Sub and their authorized representatives reasonable access to all employees, plants, offices, warehouses and other facilities and to all books and records of its and its subsidiaries, will permit such inspections as may reasonably be required and will cause their officers and those of their subsidiaries to furnish such financial and operating data and other information with respect to their business, properties and personnel as may from time to time be reasonably requested, provided that no 24 investigation pursuant to this Section 4.4(a) shall affect or be deemed to modify any of the representations or warranties made in this Agreement. (b) Between the date hereof and the Effective Time, the Company shall furnish to Parent (i) within five business days after the delivery thereof to management, such monthly financial statements and data as are regularly prepared for distribution to management and (ii) at the earliest time they are available, such quarterly and annual financial statements as are prepared for its SEC filings, which (in the case of this clause (ii)) shall be in accordance with their books and records. (c) Parent and Sub will hold and will cause their consultants and advisors to hold in confidence all documents and information received in connection with the transactions contemplated by this Agreement. 4.5 Additional Agreements; Reasonable Best Efforts Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, (i) cooperation in the preparation and filing of the Proxy Statement; (ii) the taking of all action reasonably necessary, proper or advisable to secure any necessary consents under existing contracts of the Company and its subsidiaries or amend the agreements relating thereto to the extent required by such agreements; (iii) contesting any legal proceeding relating to the Merger; and (iv) the execution of any additional instruments, including the Certificate of Merger, necessary to consummate the transactions contemplated hereby; provided, however, that the Company may postpone a previously-scheduled meeting of Company stockholders in the event that the Company Board by majority vote determines in its good faith judgment, after consultation with and based upon the advice of independent legal counsel, that it is necessary to do so in order to comply with its fiduciary duties to stockholders under applicable law and, at the time of such determination, the Company has received a bona fide proposal to effect an alternate sale that is a Superior Proposal and that has not been withdrawn. In case at any time after the Effective Time any further action is necessary to carry out the purposes of this Agreement, the proper officers and directors of each party hereto shall take all such necessary action. 4.6 Consents Parent, Sub and the Company each will use all reasonable efforts to obtain consents of all third parties and Governmental Entities necessary, proper or advisable for the consummation of the transactions contemplated by this Agreement. 25 4.7 Public Announcements Each of Parent, Sub and the Company will consult with one another before issuing any press release or otherwise making any public statements with respect to the transactions contemplated by this Agreement, including, without limitation, the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law or by obligations pursuant to any listing agreement with the Nasdaq Stock Market, as determined by Parent, Sub or the Company, as the case may be. 4.8 Notification of Certain Matters The Company shall give prompt notice to Parent and Sub, and Parent and Sub shall give prompt notice to the Company, of (i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Time, (ii) any material failure of the Company, Parent or Sub, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, (iii) any notice of, or other communication relating to, a default or event which, with notice or lapse of time or both, would become a default, received by the Company or any of its subsidiaries subsequent to the date of this Agreement and prior to the Effective Time, under any contract or agreement material to the financial condition, properties, businesses or results of operations of it and its subsidiaries taken as a whole to which it or any of its subsidiaries is a party or is subject, (iv) any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transactions contemplated by this Agreement, or (v) any material adverse change in the Company's financial condition, properties, business, results of operations or prospects, other than changes resulting from general economic conditions; provided, however, that the delivery of any notice pursuant to this Section 4.8 shall not cure such breach or non-compliance or limit or otherwise affect the remedies available hereunder to the party receiving such notice. 4.9 Release of Liens Prior to the Closing, the Company shall have all Liens relating to its loan agreement and security agreement with Silicon Valley Bank terminated and released. 4.10 Company 401(k) Plan If requested in writing by Parent, on or prior to the Closing Date, the Company will adopt a resolution that terminates its 401(k) Employee Retirement Plan and cause to 26 be filed with the IRS an application for a determination that the termination of the plan does not adversely affect the qualified status of the plan under Section 401(a) of the Code. The Company shall provide Parent with a copy of such resolution and determination letter application prior to the Closing Date. 4.11 Parent 401(k) Plan Parent will make such amendments to its 401(k) Plan to provide that the Company's employees may commence participation in the Parent's 401(k) Plan, effective upon or within a reasonable period following the Closing Date pursuant to the terms of the plan. 5. CONDITIONS TO CONSUMMATION OF THE MERGER 5.1 Conditions to Each Party's Obligations to Effect the Merger The respective obligations of each party hereto to effect the Merger are subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) this Agreement shall have been approved and adopted by the requisite vote of the stockholders of the Company; (b) no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or enforced by any United States court or United States governmental authority which prohibits, restrains, enjoins or restricts the consummation of the Merger; and (c) any other governmental or regulatory notices or approvals required with respect to the transactions contemplated hereby shall have been either filed or received. 5.2 Conditions to the Obligations of the Company The obligation of the Company to effect the Merger is subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) the representations of Parent and Sub contained in this Agreement or in any other document delivered pursuant hereto shall be true and correct in all material respects at and as of the Effective Time with the same effect as if made at and as of the Effective Time, and at the Closing Parent and Sub shall have delivered to the Company a certificate to that effect signed by the chief executive officer of each of Parent and Sub; and 27 (b) each of the obligations of Parent and Sub to be performed at or before the Effective Time pursuant to the terms of this Agreement shall have been duly performed in all material respects at or before the Effective Time and at the Closing Parent and Sub shall have delivered to the Company a certificate to that effect signed by the chief executive officer of each of Parent and Sub. 5.3 Conditions to the Obligations of Parent and Sub The respective obligations of Parent and Sub to effect the Merger are subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) the representations of the Company contained in this Agreement or in any other document delivered pursuant hereto shall be true and correct in all material respects at and as of the Effective Time with the same effect as if made at and as of the Effective Time, and at the Closing the Company shall have delivered to Parent and Sub a certificate to that effect signed by the chief executive officer of the Company; (b) each of the obligations of the Company to be performed at or before the Effective Time pursuant to the terms of this Agreement shall have been duly performed in all material respects at or before the Effective Time and at the Closing the Company shall have delivered to Parent and Sub a certificate to that effect signed by the chief executive officer of the Company; (c) the Company shall have obtained the consent or approval of each person whose consent or approval shall be required in order to permit the succession by the Surviving Corporation pursuant to the Merger to any obligation, right or interest of the Company or any subsidiary of the Company under any loan or credit agreement, note, mortgage, indenture, lease or other agreement or instrument, except for those for which failure to obtain such consents and approvals would not, individually or in the aggregate, have a Material Adverse Effect on the Company; (d) there shall have been no events, changes or effects with respect to the Company or its subsidiaries having or which could reasonably be expected to have, a Material Adverse Effect on the Company; and (e) each employee of the Company and its subsidiaries shall have entered into a Proprietary Rights and Confidentiality Agreement, in the form attached hereto as Exhibit A. 28 6. TERMINATION; AMENDMENT; WAIVER 6.1 Termination This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time: (a) by mutual written consent of Parent, Sub and the Company; (b) by Parent and Sub or the Company if (i) any court of competent jurisdiction in the United States or other United States governmental authority shall have issued a final order, decree or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action is or shall have become nonappealable or (ii) the Merger has not been consummated by August 31, 1999; provided that no party may terminate this Agreement pursuant to this clause (ii) if such party's failure to fulfill any of its obligations under this Agreement shall have been the reason that the Effective Time shall not have occurred on or before said date; (c) by the Company if (i) there shall have been a breach of any representation or warranty on the part of Parent or Sub set forth in this Agreement, or if any representation or warranty of Parent or Sub shall have become untrue, in either case such that the conditions set forth in Section 5.2(a) would be incapable of being satisfied by August 31, 1999 (or as otherwise extended), (ii) there shall have been a breach by Parent or Sub of any of their respective covenants or agreements hereunder materially adversely affecting (or materially delaying) the consummation of the Merger, and Parent or Sub, as the case may be, has not cured such breach by August 31, 1999 (or as otherwise extended), (iii) the Company enters into a definitive agreement relating to a Superior Proposal in accordance with Section 4.3(b) (provided that such termination shall not be effective until payment of the amount required under Section 6.3(a)), (iv) the Company shall have convened one or more meetings of its stockholders to vote upon the Merger and shall have failed to obtain the requisite vote of its stockholders prior to August 31, 1999, or (v) the Company Board by a majority vote determines in its good faith judgment, after consultation with and based upon the advice of independent legal counsel, that it is necessary to do so to comply with its fiduciary duties to stockholders, provided that such termination under this clause (v) shall not be effective unless at the time of such determination the Company has received a bona fide proposal to effect a Third Party Transaction (as defined below) that is a Superior Proposal and that has not been withdrawn as of the time of such termination (provided that such termination shall not be effective until payment of the amount required under Section 6.3(a)); or 29 (d)......by Parent and Sub if (i) there shall have been a breach of any representation or warranty on the part of the Company set forth in this Agreement, or if any representation or warranty of the Company shall have become untrue, in either case such that the conditions set forth in Section 5.3(a) would be incapable of being satisfied by August 31, 1999 (or as otherwise extended), (ii) there shall have been a breach by the Company of its covenants or agreements hereunder having a Material Adverse Effect on the Company or materially adversely affecting (or materially delaying) the consummation of the Merger, and the Company has not cured such breach by August 31 1999 (or as otherwise extended), (iii) the Company Board shall have withdrawn, modified or changed its approval or recommendation of this Agreement or the Merger, shall have recommended to the Company's stockholders a Third Party Transaction or shall have failed to call, give notice of, convene or hold a stockholders' meeting to vote upon the Merger, or shall have adopted any resolution to effect any of the foregoing, or (iv) the Company shall have convened a meeting of its stockholders to vote upon the Merger and shall have failed to obtain the requisite vote of its stockholders by August 31, 1999 (or as otherwise extended). "Third Party Transaction" means the occurrence of any of the following events (i) the acquisition of the Company by merger or otherwise by any person (which includes a "person" as such term is defined in Section 13(d)(3) of the Exchange Act) or entity other than Parent, Sub or any affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of more than 30% of the total assets of the Company and its subsidiaries, taken as a whole; or (iii) the acquisition by a Third Party of 30% or more of the outstanding shares of Company Common Stock. 6.2 Effect of Termination In the event of the termination and abandonment of this Agreement pursuant to Section 6.1, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party hereto or its affiliates, directors, officers or stockholders, other than the provisions of this Section 6.2 and Sections 4.4(c), 6.3, 7.5, 7.7, 7.9 and 7.11 hereof. Nothing contained in this Section 6.2 shall relieve any party from liability for any breach of this Agreement. 6.3 Fees and Expenses (a) In the event that this Agreement shall be terminated pursuant to Section 6.1(d)(i) through 6.1(d)(iv) or Section 6.1(c)(iii), (iv), or (v) Parent and Sub would suffer direct and substantial damages, which damages cannot be determined with reasonable certainty. To compensate Parent and Sub for such damages, the Company shall pay to Parent the amount of $5.0 million as a termination fee on the date of such 30 termination. It is specifically agreed that the amount to be paid pursuant to this Section 6.3(a) represents a negotiated termination fee and is not a penalty. (b) In the event that this Agreement shall be terminated pursuant to Section 6.1(c)(i) or (ii), the Company would suffer direct and substantial damages, which damages cannot be determined with reasonable certainty. To compensate the Company for such damages, Parent shall pay to the Company the amount of $5.0 million as a termination fee on the date of such termination. It is specifically agreed that the amount to be paid pursuant to this Section 6.3(b) represents a negotiated termination fee and is not a penalty. (c) Upon the termination of this Agreement pursuant to Sections 6.1(c)(iii), (iv) or (v) or 6.1(d)(i) through (iv), the Company shall reimburse Parent, Sub and their affiliates (not later than ten business days after submission of statements therefor) for all actual documented out-of-pocket fees and expenses, not to exceed $250,000, actually and reasonably incurred by any of them or on their behalf in connection with the Merger and the consummation of all transactions contemplated by this Agreement (including, without limitation, fees payable to counsel to any of the foregoing, and accountants). If Parent or Sub shall submit a request for reimbursement hereunder, Parent or Sub will provide the Company in due course with invoices or other reasonable evidence of such expenses upon request. The Company shall in any event pay the amount requested (not to exceed $250,000) within ten business days of such request, subject to the Company's right to demand a return of any portion as to which invoices are not received in due course. (d) Upon the termination of this Agreement pursuant to Sections 6.1(c)(i) or (ii), Parent shall reimburse the Company and their affiliates (not later than ten business days after submission of statements therefor) for all actual documented out-of-pocket fees and expenses, not to exceed $250,000, actually and reasonably incurred by any of them or on their behalf in connection with the Merger and the consummation of all transactions contemplated by this Agreement (including, without limitation, fees payable to counsel to any of the foregoing, and accountants). If the Company shall submit a request for reimbursement hereunder, the Company will provide Parent in due course with invoices or other reasonable evidence of such expenses upon request. Parent shall in any event pay the amount requested (not to exceed $250,000) within ten business days of such request, subject to Parent's right to demand a return of any portion as to which invoices are not received in due course. (e) Except as specifically provided in this Section 6.3, each party shall bear its own expenses in connection with this Agreement and the transactions 31 contemplated hereby. The cost of printing the Proxy Statement shall be paid by the Company. 6.4 Amendment This Agreement may be amended by action taken by the Company, Parent and Sub at any time before or after approval of the Merger by the stockholders of the Company (if required by applicable law) but, after any such approval, no amendment shall be made which requires the approval of such stockholders under applicable law without such approval. This Agreement may not be amended except by an instrument in writing signed on behalf of the parties hereto. 6.5 Extension; Waiver At any time prior to the Effective Time, each party hereto (for these purposes, Parent and Sub shall together be deemed one party and the Company shall be deemed the other party) may (i) extend the time for the performance of any of the obligations or other acts of the other party, (ii) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document, certificate or writing delivered pursuant hereto or (iii) waive compliance by the other party with any of the agreements or conditions contained herein. Any agreement on the part of either party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of either party hereto to assert any of its rights hereunder shall not constitute a waiver of such rights. 7. MISCELLANEOUS 7.1 Nonsurvival of Representations and Warranties The representations and warranties made herein shall not survive beyond the Effective Time or a termination of this Agreement. 7.2 Entire Agreement; Assignment This Agreement (a) constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and (b) shall not be assigned by operation of law or otherwise; provided, however, that Sub may assign any or all of its rights and obligations under this Agreement to any subsidiary of Parent, but no such assignment shall relieve Sub of its obligations hereunder if such assignee does not perform such obligations. 32 7.3 Validity If any provision of this Agreement, or the application thereof to any person or circumstance, is held invalid or unenforceable, the remainder of this Agreement, and the application of such provision to other persons or circumstances, shall not be affected thereby, and to such end, the provisions of this Agreement are agreed to be severable. 7.4 Notices All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by cable, telegram, facsimile or telex, or by registered or certified mail (postage prepaid, return receipt requested), to the other party as follows: if to Parent or Sub: CFI ProServices, Inc. Suite 200 400 S.W. Sixth Avenue Portland, OR 97204 Fax: (503) 274-7280 Attn: President with a copy to: Perkins Coie LLP Suite 1500 1211 S.W. Fifth Avenue Portland, OR 97204 Fax: (503) 727-2222 Attn: Roy W. Tucker 33 and a copy to: Farleigh, Wada & Witt, P.C. Suite 600 121 S.W. Morrison Portland, OR 97204 Fax: (503) 228-1741 Attn: F. Scott Farleigh if to the Company to: Ultradata Corporation 5000 Franklin Drive Pleasanton, CA 94588 Fax: (925) 224-9879 Attn: Chief Financial Officer with a copy to: Fenwick & West LLP 100 The Embarcadero, Suite 300 San Francisco, CA 94105 Fax: (415) 281-1350 Attn: Robert B. Dellenbach or to such other address as the person to whom notice is given may have previously furnished to the other in writing in the manner set forth above. 7.5 Governing Law This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of law thereof. 7.6 Descriptive Headings The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 7.7 Parties in Interest This Agreement shall be binding upon and inure solely to the benefit of each party hereto and its successors and permitted assigns, and nothing in this Agreement, express or 34 implied, is intended to or shall confer upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 7.8 Severability If any term or other provision of this Agreement is invalid, illegal or unenforceable, all other provisions of this Agreement shall remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. 7.9 Specific Performance The parties hereto acknowledge that irreparable damage would result if this Agreement were not specifically enforced, and they therefore consent that the rights and obligations of the parties under this Agreement may be enforced by a decree of specific performance issued by a court of competent jurisdiction. Such remedy shall, however, not be exclusive and shall be in addition to any other remedies, including arbitration, which any party may have under this Agreement or otherwise. 7.10 Subsidiaries The term "subsidiary" shall mean, when used with reference to any entity, any entity more than fifty percent (50%) of the outstanding voting securities or interests (including membership interests) of which are owned directly or indirectly by such former entity. 7.11 Brokers Except as otherwise provided in Section 6.3, the Company agrees to indemnify and hold harmless Parent and Sub, and Parent and Sub agree to indemnify and hold harmless the Company, from and against any and all liability to which Parent and Sub, on the one hand, or the Company, on the other hand, may be subjected by reason of any brokers, finders or similar fees or expenses with respect to the transactions contemplated by this Agreement to the extent such similar fees and expenses are attributable to any action undertaken by or on behalf of the Company, or Parent or Sub, as the case may be. 7.12 Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 35 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf as of the day and year first above written. ULTRADATA CORPORATION By: /s/ Robert J. Majteles ---------------------- Robert J. Majteles Title: President and Chief Executive Officer CFI PROSERVICES, INC. By: /s/ Matthew W. Chapman ---------------------- Matthew W. Chapman Title: Chairman and Chief Executive Officer UFO ACQUISITION CO. By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President ULTRADATA CORPORATION 5000 FRANKLIN DRIVE PLEASANTON, CALIFORNIA 94588-3354 May 17, 1999 CFI Pro Services, Inc. 400 S.W. Sixth Avenue Portland, OR 97204 Ladies and Gentlemen: In connection with and pursuant to Article 2 of that certain Agreement and Plan of Merger dated as of May 17, 1999 (the "Merger Agreement"), by and among CFI Pro Services, Inc., a corporation organized under the laws of the state of Oregon ("Parent"), UFO Acquisition Co., a subsidiary of Parent organized under the laws of the state of Delaware ("Merger Sub") and ULTRADATA Corporation, a corporation organized under the laws of the state of Delaware ("Company"), under cover of this letter Company is delivering to Parent and Merger Sub this disclosure letter ("Disclosure Letter"). UNLESS OTHERWISE DEFINED, ANY CAPITALIZED TERMS IN ANY SCHEDULE DELIVERED BY COMPANY TO PARENT AND MERGER SUB UNDER THIS DISCLOSURE LETTER OR OTHERWISE DELIVERED TO PARENT AND/OR MERGER SUB IN CONNECTION WITH THE MERGER AGREEMENT SHALL HAVE THE SAME MEANINGS ASSIGNED TO SUCH TERMS IN THE MERGER AGREEMENT. NOTHING IN THIS DISCLOSURE LETTER BY COMPANY TO PARENT AND MERGER SUB OR OTHERWISE DELIVERED BY COMPANY TO PARENT AND/OR MERGER SUB IN CONNECTION WITH THE MERGER AGREEMENT SHALL CONSTITUTE AN ADMISSION OF ANY LIABILITY OR OBLIGATION OF THE COMPANY TO ANY THIRD PARTY, NOR AN ADMISSION AGAINST THE COMPANY'S INTERESTS. Sincerely, ULTRADATA CORPORATION /s/ Ronald H. Bissinger ----------------------- Ronald H. Bissinger Chief Financial Officer Schedule 2.2 Options Vested Outs 5/14 Vested 5/14 Vested 8/30 Accelerated Effective Date - --------- ----------- ----------- ----------- -------------- 1994 Equity Incentive Plan - -------------------------- 862,504 364,791 403,906 324,343 728,249 1995 Directors Plan - ------------------- 100,000 46,250 48,750 51,250 100,000 Nigel Gallop Option - ------------------- 600,000 600,000 600,000 0 600,000 Robert Majteles Option - ---------------------- 600,000 387,496 424,995 175,005 600,000 TOTAL - ----- 2,162,504 1,398,537 1,477,651 550,598 2,028,249 - --------- --------- --------- ------- --------- Section 2.4 Company Financial Statements (a) The description of Mr. Gallop's option agreements in Company's Proxy Statement relating to Company's Annual Stockholders' Meeting held on May 8, 1998 provides that Mr. Gallop's option remains in effect so long as he continues to provide services to Company. However, such options remain exercisable though July 31, 2000 without any other obligation on the part of Mr. Gallop. This description was corrected in the Company's Proxy Statement relating to Company's Annual Stockholders' Meeting held on May 7, 1999. The Company received notice of an informal investigation of Company by the U.S. Securities and Exchange Commission relating to certain 1996 and 1997 quarterly and 1997 year-end adjustments made by Company. However, the Company has not received any communication from the SEC since June 10, 1998. Section 2.6 Consents and Approvals; No Violations Consents and/or permissions are required to be obtained prior to the Merger pursuant to the Company's agreements with each of the following customers to avoid breach or termination: Air Academy Federal Credit Union dated September 30, 1996 Bank-Fund Staff Federal Credit Union dated March 6, 1995 Honeywell/Alliant Tech Systems Federal Credit Union dated July 8, 1997 Notices are required to be given in connection with the Merger pursuant to the Company's agreements with each of the following parties: Credit Union 1 (f/k/a Frontier Alaska State Credit Union) dated September 1, 1992 Fischer Technology Group Incorporated, UniKix Technologies Division, under Independent Software Vendor Agreement dated July 1, 1997. The following contracts permit assignment in connection with the Merger so long as Parent and Sub agree to be bound by the terms and conditions of the agreement: GentelCo West Federal Credit Union (f/k/a Long Beach GentelCo Federal Credit Union) dated September December 1, 1994 San Mateo Credit Union dated September 6, 1993 and June 5, 1995 The Merger will trigger the right of Marriott Employees' Federal Credit Union to receive source code pursuant to the Escrow Agreement dated July 16, 1990. Consents and/or permissions is required to be obtained prior to the Merger pursuant to the following Agreements to avoid breach or termination: Reseller Agreement with Tracer Technologies dated August 1, 1998. Value Added Reseller Agreement dated April 14, 1998 with DecisionOne. Distributor Agreement with USSI, Inc., dated June 30, 1997 (only if Parent or Sub is a competitor of USSI). Section 2.9 Litigation Dennis Roberts, a former employee of Company, commenced a lawsuit against Company on July 5, 1997. Mr. Roberts purports to represent a class of current and former employees of Company who he alleges are non-exempt and entitled to payment of overtime wages for hours worked in excess of forty per week or eight per day. Plaintiff alleges he represents employees in all computer related occupations at Company other than clerical employees. Plaintiff worked for Company for approximately nine months as a senior field service engineer. Mr. Roberts' allegations have not yet been adjudicated, nor have his ability or qualifications to represent the alleged class. Mr. Roberts has not yet sought class certification, and discovery has commenced. Company received a notice on May 1, 1998 that Steve Fisher, a former employee of Company at Company's Texas facility, commenced a lawsuit against Company alleging age discrimination and retaliation. Mr. Fisher was laid off on March 31, 1997, along with approximately fifty other employees at Company's Texas facility. Company targeted for layoff programmers and other employees who did not works at Company's headquarters in Pleasanton, California. Mr. Fisher was laid off over similarly qualified, lower paid programmers who worked out of Company's headquarters. Mr. Fisher based his claim of retaliation on alleged discussions prior to the layoff with Human Resources personnel that he was being treated unfairly because of his age or location by his then current supervisor. On May 13, 1999, the Company received a letter on behalf of Ex-Cel Solutions, Inc. in which Ex-Cel alleges breach of contractual relations, misappropriation of trade secrets, interference with contractual relations and unfair trade practices. The letter does not describe in detail the alleged facts on which the assertions of these claims are based. Section 2.10 Compliance with Applicable Law See disclosure with respect to Section 2.4. Section 2.11 Employee Benefit Plans (a) Company maintains or contributes to the following: (i) Company Pension Plans: Company's 401(k) Employee Retirement Plan. --------------------- (ii) Company Welfare Plans: --------------------- (A) Group Health insured through the following: (1) Care-ousel Blue Card Plan issued under Blue Cross Life & Insurance Company. Policy number WLA3010 (JW310). (2) Care-ousel Prudent Buyer Plan (PPO). Issued under Blue Cross of California policy number RT03010 (JW JW 310). (3) Care-ousel California Care HMO Plan. Issued under Blue Cross of California policy number RT03010 (JW JW 310). (4) Kaiser HMO effective January 1, 1999. (B) Group Life and Accidental Dismemberment Plan. Insured benefits are provided under UNUM Life Insurance Company of America policy number 522098-012. (C) Dental Plan: Insured under DMHO Dental Net Plan, policy issued under Blue Cross WL/DN 3040 (JW 310) and Point of Service policy (D) Chiropractic Plan: insured under HMO Medical Plan. Issued under American Specialty Health Plans policy number HP1167. (E) Vision Plan: Insured through Vision Service Plan, Group Number 12055-78 (F) Employee Assistance Plan: Issued under Blue Cross of California, policy number EAP-030310 (JW 310) (G) Cafeteria Plan: Medical Reimbursement and Dependent Care administered by BeneSphere under policy numbers 348936 and 348937. (H) Holiday Benefit (I) Paid Time Off Benefit (J) Wellness . Health Club . Quit Smoking . Weight Watchers (K) Short Term Disability insured through UNUM. (L) Long Term Disability insured through UNUM. (M) Education Reimbursement Program (N) Voluntary Life. Insured under UNUM policy number 521198-0011. (iii) Employee Plans: -------------- (A) 1994 Equity Incentive Plan (B) 1995 Employee Stock Purchase Plan (C) 1995 Director Stock Option Plan (D) Non-Plan Stock Option to Nigel P. Gallop (E) Non-Plan Stock Option to Robert J. Majteles (iv) Employment Agreements: --------------------- (A) 1999 Management Bonus Plan (B) Nigel Gallop Separation Agreement dated April 30, 1997 (C) Robert J. Majteles Employment Agreement dated October 31, 1996 (D) James R. Berthelsen Employment Agreement dated November 6, 1998. (E) Ronald H. Bissinger Employment Agreement dated November 6, 1998. (F) David J. Robbins Employment Agreement dated November 6, 1998. (G) Cindy L. Cooper Employment Agreement dated November 6, 1998. (H) 1999 Sales Compensation Plan, Vice President, Sales & Marketing (Jim Berthelsen). (I) 1999 Sales Compensation Plan, Director, Emerging Technologies, with Addendum (Tim Lerew). (J) 1999 Incentive Plan, Director, Customer Relations (Mary Ann Hearne). (c), (d), (f) Reference is made to the Department of Labor's January 9, 1998 letter stating that it will take no further action with respect to its investigation of the Company's 401(k) Plan. The Department of Labor informed the Company that, as required by ERISA, it will refer the findings of its investigation to the Internal Revenue Service. The Company has not received any communication from the Internal Revenue Service in connection with this referral. (g) The Nonqualified Stock Option Agreement between Company and Robert J. Majteles for a total of 600,000 shares with a date of grant of October 17, 1996 provides that immediately prior to the closing date for a corporate transaction, all shares remaining unvested thereunder shall immediately become vested and exercisable. This acceleration of vesting in addition to a 2.90 severance payment due Mr. Majteles under his Employment Agreement described under clause (a)(iv)(C) above with the Company may cause an "excess parachute payment," as defined in Section 280G of the Code. The employment agreements listed in clauses (a)(iv)(D)-(G) above include provision for full acceleration of options upon the consummation of the Merger and payment of 12 months severance consisting of base salary and other benefits in the event that the employee is terminated without cause or constructively terminated within the 12 months following the consummation of the Merger. Pursuant to Company's 1995 Directors Stock Option Plan, prior to the consummation of the Merger, the vesting of all options granted under such plan will accelerate and the options will become exercisable in full. Section 2.14 The Value Added Reseller Agreement dated September 3, 1992 with UNIDATA, Inc. (now Ardent) has expired. The Company is in the process of negotiating a renewal, which it expects to complete prior to the closing. Section 2.16 See disclosure regarding Section 2.11(g). See disclosure regarding Section 2.14. See information pertaining to Ex-Cel Solutions, Inc. in the disclosure regarding Section 2.9. Section 2.18 The termination agreement with ACI provides for (a) payment of an aggregate of $1.2 million, with $500,000 payable up front and the remaining amount payable over 24 months; and (b) that the Company may continue to distribute 50 licenses of ACI's Trans24 software and that the appropriate provisions of the Distributor Agreement will continue to apply to such licenses. In connection with such distribution, the Company will need to license software from UniKix. The agreement with UniKix provides that it terminates upon the termination of the ACI Distribution Agreement. The Company's position is that the termination of such Distribution Agreement as provided in the termination agreement with ACI terminates the UniKix agreement and the Company's obligation thereunder to pay the additional $350,00 required to be paid under such agreement. However, as certain provisions of the ACI Distribution Agreement survive with respect to the 50 Trans25 licenses, and the Company will need UniKix software in connection with the distribution of such licenses, the Company will need to enter into a new agreement with UniKix, the amounts payable under which will not exceed $350,000. EX-2 3 EXHIBIT 2.2 SECURED PROMISSORY NOTE $15,000,000 As of August 13, 1999 Revolving Credit Note No. 1 FOR VALUE RECEIVED, the undersigned (hereinafter "Borrower"), hereby promises to pay to the order of Foothill Capital Corporation, a California corporation (hereinafter "Lender"), such payment to be made to Administrative Agent for the account of Lender, in such coin or currency of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, the principal sum of $15,000,000 or so much thereof as may be advanced and remain outstanding from time to time, on a revolving basis, together with interest from and after the date hereof on the principal amount hereof outstanding at the end of each day at the greater of (y) 8.75% per annum, and (z) a fluctuating rate per annum equal to the Reference Rate plus 1%. The rate of interest set forth in the foregoing sentence shall increase or decrease by an amount equal to any increase or decrease in the Reference Rate, effective as of the opening of business on the day that any such change in the Reference Rate occurs. This Secured Promissory Note (this "Note") is one of a series of the Revolving Credit Notes referred to in, and is issued pursuant to, that certain Financing Agreement, dated as of August 13, 1999 (hereinafter, as amended from time to time, the "Financing Agreement"), among Borrower, Lender, and certain other financial institutions or funds party thereto and is entitled to all of the benefits and security of the Financing Agreement. All of the terms, covenants and conditions of the Financing Agreement and the other Loan Documents are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Financing Agreement. This Note evidences the Revolving Loans by Lender to Borrower pursuant to Lender's Revolving Credit Commitment, or so much thereof as may be advanced and remain outstanding from time to time. All interest shall be computed in the manner provided in Section 2.04 of the Financing Agreement. Upon the occurrence and during the continuation of an Event of Default, the interest rate provided herein shall be increased in accordance with the provisions of Section 2.04(b) of the Financing Agreement. The principal amount and accrued interest of this Note shall be due and payable in accordance with the Financing Agreement. Notwithstanding the foregoing, the entire unpaid principal balance hereof and accrued interest thereon shall be due and payable immediately upon any termination of the Financing Agreement pursuant to Section 2.05 thereof. This Note shall be subject to mandatory prepayment in accordance with the provisions of Section 2.05(c) of the Financing Agreement. Upon the occurrence of an Event of Default, Lender shall have all of the rights and remedies set forth in Section 8.01 of the Financing Agreement and in the other Loan Documents. 1 Time is of the essence of this Note. To the fullest extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, diligence in collection, and the benefit of any exemption or insolvency laws. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of Lender in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by Lender of any right or remedy preclude any other right or remedy. Lender, at its option, may enforce its rights against any collateral securing this Note without enforcing its rights against Borrower or any other property or indebtedness due or to become due to Borrower. Borrower agrees that, without releasing or impairing Borrower's liability hereunder, Lender (or its agent) may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note. To the maximum extent permitted by law, each Person composing Borrower hereby waives any defenses such Person might have based upon suretyship or impairment of collateral, such waiver being intended to be a reservation of rights or a waiver contemplated by Section 3-606 of the Code. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. [SIGNATURE PAGES FOLLOW] 2 IN WITNESS WHEREOF, this Note has been duly executed and delivered on the date first above written. CFI PROSERVICES, INC., an Oregon corporation By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer ULTRADATA CORPORATION, a Delaware corporation and successor by merger to UFO Acquisition Co. By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer MONEYSCAPE HOLDINGS, INC., an Oregon corporation By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer MECA SOFTWARE, L.L.C., a Delaware limited liability company By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer 3 EX-2 4 EXHIBIT 2.3 FORM OF SECURED PROMISSORY NOTE $35,000,000 As of August 13, 1999 Term Note A No. ____ FOR VALUE RECEIVED, the undersigned (hereinafter "Borrower"), hereby promises to pay to the order of ______________________________________________ (hereinafter "Lender"), such payment to be made to Administrative Agent for the account of Lender, in such coin or currency of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, the principal sum of $__________, together with interest from and after the date hereof on the unpaid principal balance outstanding of the Term Loan A evidenced by this Note at the greater of (y) 9.75% per annum, and (z) a fluctuating rate per annum equal to the Reference Rate plus 2%. The rate of interest set forth in the foregoing sentence shall increase or decrease by an amount equal to any increase or decrease in the Reference Rate, effective as of the opening of business on the day that any such change in the Reference Rate occurs. This Secured Promissory Note (this "Note") is one of a series of the Term Notes A referred to in, and is issued pursuant to, that certain Financing Agreement among Borrower, Lender, and certain other financial institutions or funds party thereto, dated as of August 13, 1999 (hereinafter, as amended from time to time, the "Financing Agreement"), and is entitled to all of the benefits and security of the Financing Agreement. All of the terms, covenants and conditions of the Financing Agreement and the other Loan Documents are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Financing Agreement. This Note evidences the outstanding principal balance of the Term Loan A by Lender to Borrower as of the date hereof. All interest shall be computed in the manner provided in Section 2.04 of the Financing Agreement. Upon the occurrence and during the continuation of an Event of Default, the interest rate provided herein shall be increased in accordance with the provisions of Section 2.04(b) of the Financing Agreement. The principal amount and accrued interest of this Note shall be due and payable in accordance with the Financing Agreement. Notwithstanding the foregoing, the entire unpaid principal balance hereof and accrued interest thereon shall be due and payable immediately upon any termination of the Financing Agreement pursuant to Section 2.05 thereof. This Note shall be subject to mandatory prepayment in accordance with the provisions of Section 2.05(c) of the Financing Agreement. Upon the occurrence of an Event of Default, Lender shall have all of the rights and remedies set forth in Section 8.01 of the Financing Agreement and in the other Loan Documents. Time is of the essence of this Note. To the fullest extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, diligence in collection, and the benefit of any exemption or insolvency laws. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of Lender in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by Lender of any right or remedy preclude any other right or remedy. Lender, at its option, may enforce its rights against any collateral securing this Note without enforcing its rights against Borrower or any other property or indebtedness due or to become due to Borrower. Borrower agrees that, without releasing or impairing Borrower's liability hereunder, Lender (or its agent) may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note. To the maximum extent permitted by law, each Person composing Borrower hereby waives any defenses such Person might have based upon suretyship or impairment of collateral, such waiver being intended as a reservation of rights or a waiver contemplated by Section 3-606 of the Code. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. [SIGNATURE PAGES FOLLOW] 2 IN WITNESS WHEREOF, this Note has been duly executed and delivered on the date first above written. CFI PROSERVICES, INC., an Oregon corporation By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer ULTRADATA CORPORATION, a Delaware corporation and successor by merger to UFO Acquisition Co. By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer MONEYSCAPE HOLDINGS, INC., an Oregon corporation By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer MECA SOFTWARE, L.L.C., a Delaware limited liability company By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer 3 SCHEDULE OF TERM LOAN A NOTES ----------------------------- Holder Amount - ---------------------------- ----------- Foothill Capital Corporation, a California corporation $15,000,000 Ableco Finance LLC, a Delaware limited liability company $10,000,000 Styx Partners, L.P., a Delaware limited partnership $10,000,000 ----------- Total $35,000,000 =========== EX-2 5 EXHIBIT 2.4 FORM OF SECURED PROMISSORY NOTE $30,000,000 As of August 13, 1999 Term Note B No. ___ FOR VALUE RECEIVED, the undersigned (hereinafter "Borrower"), hereby promises to pay to the order of ________________________________________________ (hereinafter "Lender"), such payment to be made to Administrative Agent for the account of Lender, in such coin or currency of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, the principal sum of $_________, together with interest from and after the date hereof on the unpaid principal balance outstanding of the Term Loan B evidenced by this Note at the greater of (y) 12.75% per annum, and (z) a fluctuating rate per annum equal to the Reference Rate plus 5%. The rate of interest set forth in the foregoing sentence shall increase or decrease by an amount equal to any increase or decrease in the Reference Rate, effective as of the opening of business on the day that any such change in the Reference Rate occurs. This Secured Promissory Note (this "Note") is one of a series of the Term Notes B referred to in, and is issued pursuant to, that certain Financing Agreement among Borrower, Lender, and certain other financial institutions or funds party thereto, dated as of August 13, 1999 (hereinafter, as amended from time to time, the "Financing Agreement"), and is entitled to all of the benefits and security of the Financing Agreement. All of the terms, covenants and conditions of the Financing Agreement and the other Loan Documents are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Financing Agreement. This Note evidences the outstanding principal balance of the Term Loan B by Lender to Borrower as of the date hereof. All interest shall be computed in the manner provided in Section 2.04 of the Financing Agreement. Upon the occurrence and during the continuation of an Event of Default, the interest rate provided herein shall be increased in accordance with the provisions of Section 2.04(b) of the Financing Agreement. The principal amount and accrued interest of this Note shall be due and payable in accordance with the Financing Agreement. Notwithstanding the foregoing, the entire unpaid principal balance hereof and accrued interest thereon shall be due and payable immediately upon any termination of the Financing Agreement pursuant to Section 2.05 thereof. This Note shall be subject to mandatory prepayment in accordance with the provisions of Section 2.05(c) of the Financing Agreement. Upon the occurrence of an Event of Default, Lender shall have all of the rights and remedies set forth in Section 8.01 of the Financing Agreement and in the other Loan Documents. Time is of the essence of this Note. To the fullest extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, diligence in collection, and the benefit of any exemption or insolvency laws. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of Lender in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by Lender of any right or remedy preclude any other right or remedy. Lender, at its option, may enforce its rights against any collateral securing this Note without enforcing its rights against Borrower or any other property or indebtedness due or to become due to Borrower. Borrower agrees that, without releasing or impairing Borrower's liability hereunder, Lender (or its agent) may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note. To the maximum extent permitted by law, each Person composing Borrower hereby waives any defenses such Person might have based upon suretyship or impairment of collateral, such waiver being intended as a reservation of rights or a waiver contemplated by Section 3-606 of the Code. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. [SIGNATURE PAGES FOLLOW] 2 IN WITNESS WHEREOF, this Note has been duly executed and delivered on the date first above written. CFI PROSERVICES, INC., an Oregon corporation By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer ULTRADATA CORPORATION, a Delaware corporation and successor by merger to UFO Acquisition Co. By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer MONEYSCAPE HOLDINGS, INC., an Oregon corporation By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer MECA SOFTWARE, L.L.C., a Delaware limited liability company By: /s/ Robert P. Chamness ---------------------- Robert P. Chamness Title: President and Chief Operating Officer 3 SCHEDULE OF TERM LOAN B NOTES ----------------------------- Holder Amount - ---------------------------- ----------- Ableco Finance, LLC, a Delaware limited liability company $ 7,500,000 Levine Leichtman Capital Parnters II, L.P., a California limted partnership $10,000,000 Foothill Partners III, L.P., a Delaware limited partnership $ 5,000,000 Styx Partners, L.P., a Delaware limited partnership $ 7,500,000 ----------- Total $30,000,000 =========== EX-2 6 EXHIBIT 2.5 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF 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, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) UNLESS PURSUANT TO AN EXEMPTION THEREFROM UNDER RULE 144 (OR ANY SUCCESSOR PROVISION) OF THE ACT. Warrant No. ___ Dated: August 13, 1999 CFI PROSERVICES, INC FORM OF WARRANT TO PURCHASE _______ SHARES OF COMMON STOCK CFI PROSERVICES, INC., an Oregon corporation (the "Company"), hereby certifies that, for value received, ________________________________ (the "Initial Holder"), or its registered transferees, successors or assigns (collectively, together with the Initial Holder, the "holder"), is the registered holder of warrants (the "Warrants") to subscribe for and purchase _______ shares of the fully paid and nonassessable Common Stock (as adjusted pursuant to Section 4 hereof, the "Warrant Shares") of the Company, at a purchase price per share equal to $12.34375 (such price, as adjusted pursuant to Section 4 hereof, the "Warrant Price"), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term "Common Stock" shall mean the Company's presently authorized Common Stock, no par value, and any stock into or for which such Common Stock may hereafter be converted or exchanged, and (b) the term "Date of Grant" shall mean the date of this Warrant. The term "Warrant" as used herein shall be deemed to include any warrant issued upon transfer or partial exercise of this Warrant, unless the context clearly requires otherwise. This Warrant is being issued pursuant to that certain Financing Agreement (the "Financing Agreement") of even date herewith by and among the Company, UltraData Corporation, Meca Software, L.L.C., Moneyscape Holdings, Inc., the Lenders (as such term is defined therein), Foothill Capital Corporation, as administrative agent for the Lenders, and Ableco Finance LLC, as collateral agent for the Lender Group. Capitalized terms not otherwise defined herein have the meanings set forth in the Financing Agreement. This Warrant, together with other Warrants issued under the Financing Agreement as of the date hereof, are referred to herein as the "Investor Warrants." The holder is entitled to the rights and benefits under the Registration Rights Agreement (the "Registration Rights Agreement") of even date herewith by and among the Company and the holders of the Investor Warrants. 1. Term. This Warrant is exercisable, in whole or in part, at any time and from time to time from the Date of Grant through and including the close of business on the fifth anniversary of this Warrant (the "Expiration Date"); provided, however, that in the event that any portion of this Warrant is unexercised as of the Expiration Date, the terms of Section 2(b) below shall apply. 2. Exercise. a. Method of Exercise; Payment; Issuance of New Warrant. Subject to Section 1 hereof, this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company, and, except as otherwise provided for herein, by the payment to the Company of an amount equal to the then applicable Warrant Price multiplied by the number of Warrant Shares then being purchased. The person or persons in whose name(s) any certificate(s) representing shares of Common Stock shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised if exercised prior to the close of business on such date; otherwise, the date of record shall be the next business day. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered by the Company at its expense to the holder hereof as soon as possible and in any event within ten (10) days after such exercise and, unless this Warrant has been fully exercised (including without limitation, exercise pursuant to Section 2(b) below), a new Warrant representing the portion of the Warrant Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such ten (10)-day period. b. Automatic Exercise. In the event that any portion of this Warrant remains unexercised as of the Expiration Date and the fair market value (determined in accordance with Section 4.i. below) of one (1) share of Common Stock as of the Expiration Date is greater than the applicable Warrant Price as of the Expiration Date, then this Warrant shall be deemed to have been exercised automatically immediately prior to the close of business on the Expiration Date (or, in the event that the Expiration Date is not a business day, the immediately preceding business day) (the "Automatic Exercise Date"), and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such Warrant Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 2.b. and without any action by the holder of this Warrant or any other person, and payment to the Company of the then applicable Warrant Price multiplied by the number of Warrant Shares then being purchased shall be deemed to be made as of the Automatic Exercise Date pursuant to the conversion provisions of Section 2(c) below (without payment by the holder of any cash exercise price). As promptly as practicable on or after the Automatic Exercise Date and in any event within ten (10) days thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of Warrant Shares issuable upon such exercise. 2 c. Cashless Right to Convert Warrant into Common Stock; Net Issuance. (1) Right to Convert. In addition to and without limiting the rights of the holder hereof under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the "Conversion Right") into shares of Common Stock as provided in this Section 2.c. at any time or from time to time during the term of this Warrant, including upon the Automatic Exercise Date. Upon exercise of the Conversion Right with respect to all or a specified portion of Warrant Shares subject to this Warrant (the "Converted Warrant Shares"), the Company shall deliver to the holder (without payment by the holder of any cash or other cash consideration) that number of shares of fully paid and nonassessable Common Stock equal to the quotient obtained by dividing (i) the value of this Warrant (or the specified portion hereof) on the Conversion Date (as defined in Section 2(c)(2) hereof), which value shall be equal to (A) the aggregate fair market value of the Converted Warrant Shares issuable upon exercise of this Warrant (or the specified portion hereof) on the Conversion Date less (B) the aggregate Warrant Price of the Converted Warrant Shares immediately prior to the exercise of the Conversion Right by (ii) the fair market value of one (1) share of Common Stock on the Conversion Date. Expressed as a formula, such conversion shall be computed as follows: X = A - B ----- Y Where: X = the number of shares of Common Stock to be issued to the holder Y = the fair market value ("FMV") of one (1) share of Common Stock A = the aggregate FMV (i.e., FMV x Converted Warrant Shares) B = the aggregate Warrant Price (i.e., Converted Warrant Shares x Warrant Price) No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date. For purposes of the Registration Rights Agreement, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant. (2) Method of Exercise. The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being 3 surrendered (referred to in Section 2(c)(1) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the "Conversion Date"). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within ten (10) days following the Conversion Date. (3) Determination of Fair Market Value. For purposes of this Section 2.c., "fair market value" of a share of Common Stock shall have the meaning set forth in Section 4.i. below. 3. Stock Fully Paid; Reservation of Shares. All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all taxes, liens, charges, and pre-emptive rights with respect to the issue thereof. The Company shall pay all transfer taxes, if any, attributable to the issuance of the Warrant Shares upon the exercise of this Warrant. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of this Warrant. 4. Adjustment of Warrant Price and Number of Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events as set forth below: a. Adjustment for Initial Errors and the Happening of Certain Events. (1) The Company hereby acknowledges that the initial number of Warrant Shares purchasable upon the exercise of this Warrant (the "Exercise Quantity") was calculated based upon the Company's representation that the number of outstanding shares of Common Stock of the Company as of the Date of Grant, calculated on a fully diluted basis using the treasury stock method as contemplated by the Accounting Principles Board Opinion No. 15 (as referred to in the Statement of Financial Accounting Standards No. 128) (such shares as calculated on any date, being referred to as "Fully Diluted Shares"), and before giving effect to the issuance of any of the Warrants or Warrant Shares, totaled 7,636,440 shares. If for any reason it shall hereafter be determined that the number of Fully Diluted Shares as of the Date of Grant differed from such initial number of Warrant Shares, then the Company or the holder (whichever shall discover such error) shall notify the other of such determination in writing and the Company shall forthwith (but in no event more than five (5) days thereafter) reissue all of the outstanding Warrants with an appropriate proportional adjustment in said number of Warrant Shares to be effective as of and from the Date of Grant, provided that such adjustment shall be made only if it results in an increase in the number of Warrant Shares hereunder. (2) If, prior to the first anniversary of the Date of Grant, holder has been paid in full all Obligations owed to it and has received its pro rata portion of a reduction fee of One Million dollars ($1,000,000) and the "success fee" payable to it (as contemplated in 4 the applicable Lender Group Side Letter), then the initial Exercise Quantity of this Warrant shall be decreased to 114,547 Warrant Shares or 60% of the initial Exercise Quantity (the "First-Year Clawback Quantity"). If, prior to holder's receipt of all such payments, holder has exercised this Warrant for more than the First-Year Clawback Quantity, then holder shall return to the Company (and if such a number of Warrant Shares equal to the excess over the First-Year Clawback Quantity against delivery to holder by the Company of the aggregate exercise price for such excess Warrant Shares (it being understood that if holder has sold or otherwise disposed of such excess Warrant Shares, holder shall still be required to return to the Company such excess Warrant Shares) and, if the holder fails to return such excess Warrant Shares to the Company within forty-five (45) days of the date the holder has been paid in full all Obligations, the Company shall have a right of offset. (3) If, after the first anniversary of the Date of Grant and prior to the second anniversary of the Date of Grant, the holder has been paid in full all Obligations under the Financing owed to it and has received its pro rata portion of a reduction fee of Three Million dollars ($3,000,000) and the "success fee" payable to it (as contemplated in the applicable Lender Group Side Letter), then the initial Exercise Quantity of this Warrant shall be decreased to 57,273 Warrant Shares or 30% of the initial Exercise Quantity (the "Second-Year Clawback Quantity"). If, prior to holder's receipt of all such payments, holder has exercised this Warrant for more than the Second-Year Clawback Quantity, then holder shall return to the Company a number of Warrant Shares equal to the excess over the Second-Year Clawback Quantity against delivery to holder by the Company of the aggregate exercise price for such excess Warrant Shares (it being understood that if holder has sold or otherwise disposed of such excess Warrant Shares, holder shall still be required to return to the Company such excess Warrant Shares) and, if the holder fails to return such excess Warrant Shares to the Company within forty-five (45) days of the date the holder has been paid in full all Obligations, the Company shall have a right of offset. (4) Any adjustments to the Warrant Price and the number of Warrant Shares issuable upon exercise of this Warrant pursuant to the other subsections of this Section 4 prior to the date of any increase or decrease in the Exercise Quantity pursuant to Sections 4.a.(1), (2) or (3) shall be recalculated as if such increased or decreased Exercise Quantity had been the Exercise Quantity since the Date of Grant, but no such adjustment shall affect the number of Warrant Shares issued upon any exercise of this Warrant prior to the date any such adjustment is made. b. Merger, Sale, Reclassification. In case of any (i) consolidation or merger of the Company with or into another entity (other than a merger or reorganization (A) in which the Company is the continuing corporation and which does not result in any reclassification or change of the then outstanding shares of Common Stock or issuance of any dividend or other distribution of cash, securities or property to holders of the then outstanding shares of Common Stock, or (B) resulting solely in a change in par value, or from par value to no par value, or from no par value to par value, or in a stock split, subdivision or combination which is the subject of another paragraph in this Section 4), (ii) sale or other disposition of all or substantially all of the Company's assets or distribution of property to stockholders (other than distributions payable out of earnings or retained earnings), or (iii) reclassification, change or 5 conversion of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of any stock split, subdivision or combination which is the subject of another paragraph in this Section 4), then the Company shall take all necessary actions (including but not limited to executing and delivering to the holder of this Warrant an additional Warrant or other instrument, in form and substance mutually agreeable to the Company and the holder of this Warrant) to ensure that the holder of this Warrant shall thereafter have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon the effectiveness of such consolidation, merger, sale or other disposition, reclassification, change or conversion by a holder of the number of shares of Common Stock then purchasable under this Warrant (which, in the case of such a transaction in which holders of Common Stock were entitled to elect between different forms of consideration, shall be deemed to be the form of consideration received by a plurality of the electing holders of Common Stock). Such new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4. The provisions of this Section 4.b. shall similarly apply to successive reclassifications, changes and conversions. c. Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall split, subdivide or combine its outstanding shares of Common Stock, the Warrant Price shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination, effective at the close of business on the date the split, subdivision or combination becomes effective. d. Stock Dividends and Other Distributions. If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Common Stock payable in Common Stock, or (ii) make any other distribution with respect to Common Stock (except any distribution specifically provided for in Section 4.b. or Section 4.c. hereof) of Common Stock, then the Warrant Price shall be adjusted, from and after the date of determination of stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of Fully Diluted Shares immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of Fully Diluted Shares immediately after such dividend or distribution. e. Rights Offerings. In case the Company shall, at any time after the Date of Grant, issue to holders of shares of the capital stock of the Company (solely as a result of such holders' status as stockholders of the Company) any rights, options or warrants entitling them to subscribe for or purchase shares of Common Stock (or securities convertible or exchangeable into Common Stock) at a price per share of Common Stock (or having a conversion or exchange price per share of Common Stock if a security convertible or exchangeable into Common Stock) less than the fair market value per share of Common Stock on the record date for such issuance (or the date of issuance, if there is no record date), the Warrant Price to be in effect on and after such record date (or issuance date, as the case may be) 6 shall be adjusted so that it shall equal the price determined by multiplying the Warrant Price in effect immediately prior to such record date (or issuance date, as the case may be) by a fraction (i) the numerator of which shall be the number of Fully Diluted Shares on such record date (or issuance date, as the case may be) plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of such Common Stock so to be offered (or the aggregate initial exchange or conversion price of the exchangeable or convertible securities so to be offered) would purchase at such fair market value on such record date (or issuance date, as the case may be) and (ii) the denominator of which shall be the number of Fully Diluted Shares on such record date (or issuance date, as the case may be) plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the convertible securities to be offered are initially exchangeable or convertible). In case such subscription price may be paid in part or in whole in a form other than cash, the fair market value of such consideration shall be determined by the Board of Directors of the Company in good faith as set forth in a duly adopted board resolution certified by the Company's Secretary or Assistant Secretary, provided, that in the event the Board of Directors is unable to make such a determination or holders of at least fifty-one percent (51%) of the Warrant Shares issuable under outstanding Investor Warrants disagree in writing with such determination, then the fair market value of such consideration shall be determined in the same manner as a Valuation Procedure under Section 4(i) below. Such adjustment shall be made successively whenever such an issuance occurs; and in the event that such rights, options, warrants, or convertible or exchangeable securities are not so issued or are canceled, expire or cease to be convertible or exchangeable before they are exercised, converted, or exchanged (as the case may be), then the Warrant Price shall again be adjusted to be the Warrant Price that would then be in effect if such issuance had not occurred, but such subsequent adjustment shall not affect the number of Warrant Shares issued upon any exercise of this Warrant prior to the date such subsequent adjustment is made. f. Other Special Distributions. In case the Company shall fix a record date for the making of a distribution (other than dividends, distributions or issuances referred to in Section 4(c), Section 4(d) or Section 4(e) above) to all holders of shares of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) of cash, evidences of indebtedness, assets or subscription rights, options, warrants, or exchangeable or convertible securities containing the right to subscribe for or purchase shares of any class of equity securities of the Company, the Warrant Price to be in effect on and after such record date shall be adjusted by multiplying the Warrant Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the fair market value per share of Common Stock on such record date (determined in accordance with Section 4(i) below), less the cash and/or the fair market value (as determined by the Board of Directors of the Company in good faith as set forth in a duly adopted board resolution certified by the Company's Secretary or Assistant Secretary) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights, options, warrants, or exchangeable or convertible securities applicable to one (1) share of the Common Stock outstanding as of such record date, provided, that in the event the Board of Directors is unable to make such a determination or holders of at least fifty-one percent (51%) of the Warrant Shares issuable under outstanding Investor Warrants disagree in writing with such determination, then the fair market value of such consideration shall be determined in the same 7 manner as a Valuation Procedure under Section 4(i) below, and (ii) the denominator of which shall be such fair market value per share of Common Stock as determined in the manner set forth under Section 4(i) below. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Warrant Price shall again be adjusted to be the Warrant Price which would then be in effect if such record date had not been fixed, but such subsequent adjustment shall not affect the number of Warrant Shares issued upon any exercise of this Warrant prior to the date such subsequent adjustment was made. g. Other Issuances and Adjustments. (1) In case the Company or any subsidiary thereof shall, at any time after the Date of Grant, issue shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or acquire shares of Common Stock (excluding (i) shares, rights, options, warrants, or convertible or exchangeable securities outstanding on the Date of Grant, or issued in any of the transactions described in Sections 4(b), 4(c), 4(d), 4(e) or 4(f) above, (ii) shares issued upon the exercise of such rights, options or warrants or upon conversion or exchange of such convertible or exchangeable securities, and (iii) up to One Million Nine Hundred Eighty-Nine Thousand Ninety-One (1,989,091) shares of Common Stock (subject to adjustment for splits, recapitalizations or similar events) issued, issuable or reserved for issuance to directors, officers, employees or consultants of the Company or any subsidiary of its subsidiaries in connection with their services as directors, officers, employees or consultants pursuant to any stock grant, stock option, warrant or other similar right issued by the Company and approved by the Board of Directors of the Company under a stock option or incentive plan duly adopted and approved by the shareholders of the Company and in existence on the date hereof), at a price per share of Common Stock (determined in the case of such rights, options, warrants, or convertible or exchangeable securities by dividing (x) the total amount received and/or receivable by the Company in consideration of the sale and issuance of such rights, options, warrants, or convertible or exchangeable securities, plus the total minimum consideration payable to the Company upon exercise, conversion, or exchange thereof by (y) the total maximum number of shares of Common Stock covered by such rights, options, warrants, or convertible or exchangeable securities) less than the fair market value per share of Common Stock (determined in accordance with Section 4(i) below and in the case of rights, options, warrants or convertible or exchangeable securities, determined at the time of issuance of such securities rather than upon exercise thereof), in each case on the date the Company fixes the offering price of such shares, rights, options, warrants, or convertible or exchangeable securities, then the Warrant Price shall be adjusted so that it shall equal the price determined by multiplying the Warrant Price in effect immediately prior thereto by a fraction (i) the numerator of which shall be the sum of (A) the number of Fully Diluted Shares immediately prior to such sale and issuance plus (B) the number of shares of Common Stock which the aggregate consideration received or receivable (determined as provided herein) in connection with such sale or issuance would purchase at such fair market value per share, and (ii) the denominator of which shall be the total number of Fully Diluted Shares immediately after such sale and issuance. Such adjustment shall be made successively whenever such an issuance is made. 8 (2) In case the Company or any subsidiary thereof shall, at any time after the Date of Grant, make or agree to (i) any downward adjustment in the exercise, exchange or conversion price of, (ii) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of, or (iii) any change in the consideration payable for the exercise, conversion or exchange of, any rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or acquire shares of Common Stock, other than such adjustment that is specifically contemplated and required under the terms of any such instrument as of the Date of Grant, then the Warrant Price shall be adjusted so that it shall equal the price determined by multiplying the Warrant Price in effect immediately prior thereto by a fraction the numerator of which shall be the sum of (A) the number of Fully Diluted Shares immediately prior thereto, plus (B) the number of shares of Common Stock to be issued upon such exercise, conversion or exchange immediately prior thereto, multiplied by the aggregate amount of the fair market value of the consideration to be received by the Company upon such exercise, conversion or exchange immediately thereafter, and the denominator shall be the sum of (X) the number of shares of Fully Diluted Shares immediately thereafter, plus (Y) the number of shares of Common Stock to be issued upon such exercise, conversion or exchange immediately thereafter, multiplied by the aggregate amount of the fair market value of the consideration to be received by the Company upon such exercise, conversion or exchange immediately prior thereto. Such adjustment shall be made successively whenever such an issuance is made. (3) For the purposes of an adjustment under this Section 4(g), the maximum number of shares of Common Stock which the holder of any right, option, warrant or convertible or exchangeable security shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding; furthermore, the consideration received by the Company therefor shall be deemed to be equal to the price per share of Common Stock (determined in the case of such rights, options, warrants, or convertible or exchangeable securities by dividing (x) the total amount received and/or receivable by the Company in consideration of the sale and issuance of such rights, options, warrants, or convertible or exchangeable securities, plus the total minimum consideration payable to the Company upon exercise, conversion, or exchange thereof by (y) the total maximum number of shares of Common Stock covered by such rights, options, warrants, or convertible or exchangeable securities) multiplied by the number of shares deemed issued and outstanding in the previous sentence. In case the Company shall issue shares of Common Stock, or issue or make an adjustment to the exercise, exchange or conversion price of rights, options, warrants, or convertible or exchangeable securities containing the right to subscribe for or acquire shares of Common Stock for a consideration consisting, in whole or in part, of consideration other than cash or its equivalent, then in determining the price per share of Common Stock and the consideration received by the Company, the Board of Directors of the Company shall determine, in good faith, the fair market value of said property, and such determination shall be described in a duly adopted board resolution certified by the Company's Secretary or Assistant Secretary, provided, that in the event the Board of Directors is unable to make such a determination or holders of at least fifty-one percent (51%) of the Warrant Shares issuable under outstanding Investor Warrants disagree in writing with such determination, then the fair market value of such consideration shall be determined in the same manner as a Valuation Procedure under Section 4(i) below. In case the Company shall issue shares of Common Stock, or issue or make an adjustment to the exercise or conversion price of rights, 9 options, warrants, or convertible or exchangeable securities containing the right to subscribe for or acquire shares of Common Stock, together with one (1) or more other security as a part of a unit at a price per unit, then in determining the price per share of Common Stock and the consideration received or to be by the Company, the Board of Directors of the Company shall determine, in good faith, which determination shall be described in a duly adopted board resolution certified by the Company's Secretary or Assistant Secretary, the fair market value of the rights, options, warrants, or convertible or exchangeable securities then being sold as part of such unit, provided, that in the event the Board of Directors is unable to make such a determination or holders of at least fifty-one percent (51%) of the Warrant Shares issuable under outstanding Investor Warrants disagree in writing with such determination, then the fair market value of such consideration shall be determined in the same manner as a Valuation Procedure under Section 4(i) below. h. Adjustment of Number of Shares. Upon each adjustment in the Warrant Price, 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 in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter. i. Determination of Fair Market Value. For purposes of those provisions of this Warrant requiring a determination in accordance with this Section 4.i., "fair market value" as of a particular date (the "Determination Date") shall mean (i) if the Common Stock is publicly traded at the time of determination, the average of the closing prices on such day of the Common Stock on all domestic securities exchanges on which the Common Stock is then listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day or, if on any such day the Common Stock is not so listed, the average of the representative bid and asked prices quoted on the NASDAQ system as of 4:00 P.M., New York time, on such day, or if on any day such security is not quoted on the Nasdaq system, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of ten (10) days consisting of the day as of which "fair market value" is being determined and the nine consecutive business days prior to such day (provided that, if fair market value is being determined as of the date of a firm commitment public offering of the Common Stock, fair market value as of such date shall be the offering price for the Common Stock subject to such public offering); or (ii) if the Common Stock is not publicly traded at the time of determination, the Common Stock price per share determined by dividing Market Value (as defined below) by the number of Fully Diluted Shares. "Market Value" means the highest price that would be paid for the entire common equity of the Company on a going-concern basis in an arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry (but without giving effect to any discount in respect of a minority interest) and determined in accordance with the "Valuation Procedure" (as defined below) and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale. For the purposes of determining the "Market Value", (a) the exercise 10 price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of Fully Diluted Shares, shall be deemed to have been received by the Company, (b)(i) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the issued and outstanding number of Fully Diluted Shares of Common Stock and (ii) any contractual limitation in respect of the shares of Common Stock relating to voting rights, shall be deemed to have been eliminated or canceled and (c) full effect shall be given to any discount that may arise as the result of the fact that the shares of Common Stock are not publicly traded. "Valuation Procedure" means, with respect to the determination of any amount or value required to be determined in accordance with such procedure, a determination (which shall be final and binding on the Company and the holders) made (i) by agreement among the Company and the holders of at least fifty-one percent (51%) of the Warrant Shares issuable under outstanding Investor Warrants (collectively, the "Requesting Holders") within twenty (20) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Independent Financial Expert selected in accordance with the further provisions of this definition. If required, an Independent Financial Expert shall be selected within five (5) days following the expiration of the twenty (20)-day period referred to above, either by agreement among the Company and the Requesting Holders or, in the absence of such agreement, by lot from a list of four potential Independent Financial Experts remaining after the Company nominates three (3), the Requesting Holders nominate three (3), and each side eliminates one potential Independent Financial Expert. The Independent Financial Expert shall be instructed by the Company and the Requesting Holders to make its determination within twenty (20) days of its selection. The fees and expenses of an Independent Financial Expert selected hereunder shall be paid by the Company. "Independent Financial Expert" means a nationally-recognized investment banking firm (a) that does not (and whose directors, officers, employees and Affiliates do not) have a direct or indirect material financial interest in the Company or any holder, (b) that has not been, and, at the time it is called upon to serve as an Independent Financial Expert under this Agreement, is not (and none of whose directors, officers, employees or Affiliates is not), a promoter, director or officer of the Company or any Holder, (c) that has not been retained during the preceding two years by the Company or the holder for any purpose, and (d) that is otherwise qualified to serve as an Independent Financial Advisor. Any such person or entity may receive customary compensation and indemnification by the Company for opinions or services it provides as an Independent Financial Expert. j. Adjustments to Anti-Dilution Rights; Limitations on Subsequent Grants of Anti-Dilution Rights. (1) Notwithstanding the foregoing provisions of this Section 4, to the extent that any holders of equity securities of the Company are entitled to anti-dilution rights that are superior or more favorable to the holder of such equity securities than those granted pursuant to this Section 4, the holder hereof shall be entitled to such anti-dilution rights with respect to the Warrant Shares. 11 (2) From and after the Date of Grant, the Company shall not, without the prior written consent of the holders of at least fifty-one percent (51%) of the Warrant Shares issuable under outstanding Investor Warrants, grant any holders of equity securities of the Company anti-dilution rights with respect to such equity securities that are superior or more favorable than those granted pursuant to this Section 4. 5. Notice of Adjustments. Whenever the Warrant Price or the number of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall deliver to holder a certificate, signed by its chief financial officer, setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Warrant Shares purchasable hereunder after giving effect to such adjustment, which certificate shall be mailed (without regard to Section 11 hereof, by first class mail, postage prepaid) to the holder within five (5) days of the date of determination of such adjustment. 6. Fractional Shares. No fractional shares of Common Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value (as determined in accordance with Section 4.i. above) of a share of Common Stock on the date of exercise. 7. Compliance with Securities Act; Disposition of Warrant or Warrant Shares. a. Compliance with Securities Act. The holder of this Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common Stock to be issued upon exercise hereof, are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant or the Warrant Shares except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Act"). Upon exercise of this Warrant, unless the Warrant Shares to be received upon such exercise are intended to be included in a registration statement under the Act, the holder hereof shall confirm in writing, by executing the form attached as Schedule 1 to Exhibit A hereto, that the shares of Common Stock so received are being acquired for investment and not with a view toward distribution or resale in violation of the Act. All shares of Common Stock issued upon exercise of this Warrant (unless registered under the Act shall be stamped or imprinted with a legend in substantially the following form: "THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL AUTHORITY(IES), (iv) UNLESS PURSUANT TO AN EXEMPTION THEREFROM UNDER RULE 144 (OR ANY SUCCESSOR PROVISION) OF THE ACT OR (v) OTHERWISE COMPLYING WITH THE PROVISIONS OF 12 SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED DIRECTLY OR INDIRECTLY." In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows: (1) The holder is aware of the Company's business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Warrant. The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for resale in connection with any "distribution" thereof for purposes of the Act in violation of the Act. The holder acknowledges that such holder, or such holder's representatives, if any, has been given access to information about the Company, through written material provided in or attached to the Financing Agreement, and through meetings with representatives of the Company, and has had an opportunity to verify the accuracy of such information, to ask questions of the Company's officers and directors, and has received answers to such holder's satisfaction. The holder understands that the valuation and terms of this Warrant has been made solely through and upon negotiations between the Company and the holder, and not by an independent accountant, auditor, investment banker or third party. The holder represents that such holder has evaluated the fairness of the terms and conditions of this Warrant to the extent he, she or it has deemed necessary. In making a decision to purchase this Warrant, the holder has relied solely on the information contained or referred to herein and upon independent investigations made by such holder in its discretion. In addition, the holder is not purchasing the Warrant as a result or subsequent to: (1) any advertisement, article, notice, or other publication published in any newspaper, magazine, or similar broadcast media over the internet, television, or radio; or (2) any seminar or meeting whose attendees, including the holder, were invited as a result of, subsequent to, or pursuant to, any general solicitation. (2) The holder understands that this Warrant and the Warrant Shares have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holder's investment intent as expressed herein. (3) The holder understands that this Warrant and the Warrant Shares may be held indefinitely unless subsequently registered under the Act and any applicable state securities laws, or unless exemptions from registration are otherwise available. (4) The holder is aware of the provisions of Rule 144 promulgated under the Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, if applicable, including, among other things: the availability of certain public information about the Company, the resale occurring not less than one (1) year after the party has purchased and paid for the securities to be sold; the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934, as amended) and the amount of securities being sold during any three (3)-month period not exceeding the specified limitations stated therein. 13 (5) The holder understands that at the time such holder wishes to sell this Warrant and the Warrant Shares there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, the holder may be precluded from selling this Warrant and the Warrant Shares under Rule 144 even if the one (1)-year minimum holding period had been satisfied. b. Disposition of Warrant or Warrant Shares. This Warrant and the Warrant Shares may be detached and sold or otherwise transferred, in whole or in part, separately from the Loans made pursuant to the Financing Agreement. With respect to any offer, sale or other disposition of this Warrant, or any Warrant Shares acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or Warrant Shares, the holder hereof and each subsequent holder of this Warrant agrees to deliver, prior to the registration of any such transfer, a written opinion of such holder's counsel (which may be in-house counsel for such holder), if reasonably requested by the Company, to the effect that the sale or other disposition of this Warrant or the Warrant Shares, as the case may be, may be effected without registration under the Act. If a determination has been made pursuant to this Section 7.b. that the opinion of counsel for the holder is not reasonably satisfactory to the Company, the Company shall so notify the holder in writing promptly after such determination has been made (but in any event no more than two business days thereafter). The foregoing notwithstanding, this Warrant or the Warrant Shares, as the case may be, may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 under the Act, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 have been satisfied. Each certificate representing this Warrant or the Warrant Shares thus transferred (except a transfer pursuant to Rule 144) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless based on the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent or, if acting as its own transfer agent, the Company may stop transfer on its corporate books, in connection with such restrictions. 8. Rights as Stockholders; Information. No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of the directors or upon any matter submitted to stockholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise, until this Warrant shall have been exercised and the Warrant Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. The foregoing notwithstanding, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the stockholders. 14 9. Representations and Warranties. The Company represents and warrants to the holder of this Warrant as follows: a. This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies; b. The Warrant Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and are not subject to any preemptive right of any stockholder of the Company; c. The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and the holders thereof are as set forth in the certificate of incorporation of the Company, as amended to the Date of Grant (as so amended, the "Charter"), a true and complete copy of which has been delivered by the Company to the original holder of this Warrant; d. The execution and delivery of this Warrant are not, and the issuance and delivery of the Warrant Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the charter or by-laws of the Company, do not and will not contravene, in any material respect, any governmental rule or regulation, judgment or order applicable to the Company, do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected. This Warrant and the Warrant Shares are not and will not, be subject to any voting trust agreement or other contract, agreement, arrangement, commitment or understanding to which the Company is a party, including such agreement, arrangement, commitment or understanding restricting or otherwise relating to the voting or disposition thereof, other than the Registration Rights Agreement; e. There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, will have a material adverse effect on the ability of the Company to perform its obligations under this Warrant; f. As of the Date of Grant, the authorized capital stock of the Company (of all classes and series, including Common Stock and preferred stock), the par value thereof, and the issued and outstanding amounts thereof, are as set forth on Schedule 9.f. hereof. The issuance and sale of all such interests was in compliance with all applicable federal and state securities laws, and all issued and outstanding shares of capital stock of the Company are duly 15 authorized, validly issued, fully paid, and non-assessable. Other than the Warrants, and other than as specified on Schedule 9.f. hereof, as of the Date of Grant there are no preemptive rights or any outstanding subscriptions, options, warrants, rights, convertible securities, calls or other agreements, arrangements or commitments (including, without limitation, registration rights agreements and anti-dilution rights) relating to the issued or unissued shares of the Company's capital stock or other securities, including any right of conversion or exchange under any outstanding security or other instrument. Other than the Registration Rights Agreement, the Warrants and any shares of Common Stock issued upon exercise of the Warrants are not and will not be subject to any voting trust agreement or other contract, agreement, arrangement, commitment or understanding to which the Company is a party, including any such agreement, arrangement, commitment or understanding restricting or otherwise relating to the voting or disposition thereof. There are not any outstanding bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. Except as set forth on Schedule 9.f., as of the Date of Grant, there are not any securities, options, warrants, calls, rights, convertible or exchangeable securities or commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its subsidiaries is a party or by which any of them is bound obligating the Company or any of its subsidiaries to issue, deliver or sell or create, or cause to be issued, delivered or sold or created, additional shares of capital stock or other voting securities or stock equivalents of the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or understanding. As of the Date of Grant, other than as specified on Schedule 9.f. hereof, the Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or any security convertible into or exchangeable for any of its capital stock. 10. Modification and Waiver. Subject to Section 20, this Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 11. Notices. Unless otherwise specifically provided herein, all communications under this Warrant shall be in writing and shall be deemed to have been duly given (i) on the date of service if served personally on the party to whom notice is to be given, (ii) on the day of transmission if sent by facsimile transmission to a number provided to a party specifically for such purposes, and facsimile confirmation of receipt is obtained promptly after completion of transmission, (iii) on the day after delivery to Federal Express or similar overnight courier, or (iv) on the fifth day after mailing, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed, return receipt requested, to each such holder or to the Company at the address indicated therefor on the signature page of this Warrant. Any party hereto may change its address for purposes of this Section 11 by giving the other party written notice of the new address in the manner set forth herein. 12. Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or 16 substantially all of the Company's assets, and all of the obligations of the Company relating to the Common Stock issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. The Company will, at the time of the exercise or conversion of this Warrant, in whole or in part, upon request of the holder hereof but at the Company's expense, acknowledge in writing its continuing obligation to the holder hereof in respect of any rights to which the holder hereof shall continue to be entitled after such exercise or conversion in accordance with this Warrant; provided, however, that the failure of the holder hereof to make any such request shall not affect the continuing obligation of the Company to the holder hereof in respect of such rights. 13. Lost Warrants or Stock Certificates. The Company covenants to the holder hereof that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any loss, theft or destruction, upon receipt of an executed lost securities bond or indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will promptly (but in no event more than three business days) make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 14. Descriptive Headings. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. 15. Governing Law. The validity, interpretation and performance of this Warrant shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed entirely within such State, regardless of the law that might be applied under principles of conflicts of law. 16. Survival of Representations, Warranties and Agreements. Each of the respective representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) and the termination or expiration of any rights hereunder. Each of the respective agreements of each of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative. 17. Remedies. In case any one (1) or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant. 18. Acceptance. Receipt of this Warrant by the holder hereof shall constitute acceptance of and agreement to the foregoing terms and conditions. 19. No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any 17 of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 20. Amendment. This Warrant may be amended by the signed, written agreement of the Company and holders of holding at least fifty-one percent (51%) of the Investor Warrants, collectively and on an as-exercised basis, and such amendment shall be binding on all holders of this Warrant or Warrant Shares; provided, however, that the consent of all holders of Warrants affected by any amendment will be required for an amendment pursuant to which (i) the Warrant Price is increased, (ii) the number of Warrant Shares purchasable upon exercise of this Warrant is decreased (other than pursuant to any adjustments provided herein), (iii) the Expiration Date is changed, or (iv) any right of the holder is adversely impacted in a manner different than the other holders of Investor Warrants. 21. Registration Rights Agreement. The Company shall provide to the holder hereof, upon written request at any time, a true copy of the Registration Rights Agreement, as amended and modified to date. [Signature page follows.] 18 [SIGNATURE PAGE TO WARRANT] IN WITNESS WHEREOF, the Company has executed this Warrant as of the day and year first above written. COMPANY: CFI PROSERVICES, INC., an Oregon corporation By: /s/ Robert P. Chamness ---------------------- Name: Robert P. Chamness Title: President Address: 400 SW Sixth Avenue Portland, OR 97204 [Signature page continues] EXHIBIT A NOTICE OF EXERCISE To: CFI ProServices, Inc. 1. The undersigned hereby elects to purchase _____ shares of Common Stock of ______________________ pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name or names as are specified below: - ----------------------------- ------------------------------ (Name) ------------------------------ (Address) 3. The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares in violation of the Securities Act of 1933, as amended. In support thereof, the undersigned has executed an Investment Representation Statement attached hereto as Schedule 1. _________________________ (Signature) __________________(Date) 4. Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below: ------------------------------ 5. I elect to convert this Warrant pursuant to the cashless Conversion Right described in Section 2.c. of the Warrant Agreement for ____________ Warrant Shares (as such term is defined therein). ___ (check here) Date: _________________________ By: (Warrantholder) Name: (Print) Its: Schedule 1 INVESTMENT REPRESENTATION STATEMENT Purchaser: Company: CFI ProServices, Inc. Security: Common Stock Amount: Date: In connection with the purchase of the above-listed securities (the "Registrable Securities"), the undersigned (the "Purchaser") represents to the Company as follows: (a) The Purchaser is aware of the Company's business affairs and financial condition, and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Registrable Securities. The Purchaser is purchasing the Registrable Securities for its own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act of 1933, as amended (the "Act"). (b) The Purchaser understands that the Registrable Securities have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Purchaser's investment intent as expressed herein. (c) The Purchaser further understands that the Registrable Securities may be held indefinitely unless subsequently registered under the Act or unless an exemption from registration is otherwise available. In addition, the Purchaser understands that the certificate evidencing the Registrable Securities will be imprinted with the legend referred to in the Warrant under which the Registrable Securities are being purchased. (d) The Purchaser is aware of the provisions of Rule 144 and 144A, promulgated under the Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, if applicable, including, among other things: The availability of certain public information about the Company, the resale occurring not less than one (1) year after the party has purchased and paid for the securities to be sold; the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934, as amended) and the amount of securities being sold during any three-month period not exceeding the specified limitations stated therein. (e) The Purchaser further understands that at the time it wishes to sell the Registrable Securities there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, the Purchaser may be precluded from selling the Registrable Securities under Rule 144 even if the one-year minimum holding period had been satisfied. Purchaser: SCHEDULE OF WARRANTS TO PURCHASE SHARES OF COMMON STOCK ------------------------------------------------------- Number of Holder Shares - --------------------------------------------------------- ---------- Abelco Holdings LLC, a Delaware limited liability company 190,911 Levine Leichtman Capital Partners, II, L.P., a California limited partnership 127,274 Foothill Partners III, L.P., a Delaware limited partnerhip 63,637 ------- Total 381,822 ======= EX-2 7 EXHIBIT 2.6 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT dated as of August 13, 1999 (this "Agreement"), by and among CFI ProServices, Inc., an Oregon corporation (the "Company"), and the Investors named on the signature page hereof (each, an "Investor" and collectively, the "Investors"). R E C I T A L S WHEREAS, this Agreement is being entered into pursuant to that certain Financing Agreement (the "Financing Agreement") of even date herewith by and among the Company, UltraData Corporation, Meca Software, L.L.C., Moneyscape Holdings, Inc., the Lenders (as such term is defined therein), Foothill Capital Corporation, as administrative agent for the Lenders, and Ableco Holdings LLC, as collateral agent for the Lender Group (as such term is defined therein); and WHEREAS, in connection with the Financing Agreement, the Company has agreed to issue to the Investors warrants (the "Warrants") to purchase in the aggregate 381,822 shares of Common Stock representing five percent (5%) of shares of the Company as of Closing on a fully diluted basis. NOW THEREFORE, in consideration of these premises, and the respective promises and covenants contained herein, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS "Act" means the United States Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under the Act, as they each may, from time to time, be in effect. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required to close. "Commission" means the United States Securities and Exchange Commission, or any other Federal agency at the time administering the Act. "Common Stock" means the shares of common stock, no par value, of the Company. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under the Exchange Act, as they each may, from time to time, be in effect. "Holder" means any Investor who holds Registrable Securities and any person or entity who holds Registrable Securities and to whom the rights granted under this Agreement have been transferred in compliance with this Agreement, and their Permitted Transferees (as defined in Section 2.9 hereof). "Indemnified Party" has the meaning described in Section 2.5 (c) below. "Indemnifying Party" has the meaning described in Section 2.5 (c) below. "Registration Statement" means a registration statement filed by the Company with the Commission in compliance with the Act and the rules and regulations promulgated thereunder for a public offering and sale of its Common Stock (other than a registration statement on Form S-8 or Form S-4, or their successors, or any other form for a limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another entity). "Registrable Securities" means shares of Common Stock issued or issuable pursuant to the exercise of the Warrants. Registrable Securities shall include any warrants, shares of capital stock or other securities of the Company issued as a dividend or other distribution with respect to or in exchange for or in replacement of such shares of Common Stock. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (a) a Registration Statement with respect to the sale of such securities shall have become effective under the Act and such securities shall have been sold, transferred, disposed of or exchanged in accordance with such Registration Statement, (b) such securities shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent public distribution of them shall not require registration under the Act, (c) such securities shall have ceased to be outstanding or (d) upon any sale, transfer or other disposition in any manner to a person or entity which, by virtue of Section 2.9 hereof, is not entitled to the rights provided by this Agreement. ARTICLE 2. REGISTRATION RIGHTS Section 2.1 Shelf Registration of Registrable Securities. (a) The Company shall mail as soon as practicable a questionnaire (the "Questionnaire"), soliciting the information required by Items 507 and 508 of Regulations S-K under the Act, to each of the Holders, and shall deliver a copy of such Questionnaire to any 2 Holder within five (5) days of it becoming available. As a condition to any Registrable Securities being included in the Registration Statement referred to below, such Holder shall submit a Questionnaire and shall amend and submit to the Company a revised Questionnaire any time the information contained therein ceases to be accurate and complete. (b) The Company agrees to file with the Commission, a Registration Statement (the "Shelf Registration") for an offering to be made on a continuous basis pursuant to Rule 415 under the Act covering all Registrable Securities held by the Holder, as soon as practicable from the date hereof, but in no event more than ninety (90) days from the date hereof. The Holders shall be included as selling securityholders in such Registration Statement promptly, and within two (2) Business Days, after they have fully completed and returned to the Company the Questionnaire. The Shelf Registration shall be on Form S-3 under the Act or another appropriate form (including Form S-1, if applicable) permitting registration of such Registrable Securities for resale by the Holders in the manner or manners reasonably designated by them (including, without limitation, one or more underwritten offerings). The Company shall cause the Shelf Registration to be declared effective pursuant to the Act on or prior to the date that is 180 days after the date of the Closing under the Financing Agreement (the "Effectiveness Target Date") and to keep the Shelf Registration continuously effective under the Act for 60 months (the "Effectiveness Period") or such shorter period ending when there ceases to be outstanding any Registrable Securities. (c) The Company shall use all reasonable best efforts to keep the Shelf Registration continuously effective, for the period described in Section 2.1(b) hereof, by supplementing and amending the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Act or if reasonably requested by the Holders of a majority in amount of Registrable Securities (determined on a fully converted basis) covered by such Shelf Registration. (d) In the event any adjustment in the Exercise Quantity (as defined in the Warrants) would result in the issuance of additional Registrable Securities upon exercise of the Warrants, the Company shall promptly, and within ten (10) Business Days, amend or supplement the Shelf Registration in order to effect a Shelf Registration of such additional Registrable Securities pursuant to the terms of Section 2.1(b), provided, that notwithstanding anything to the contrary in Section 2.1(b) or the Financing Agreement, the Effectiveness Target Date shall be ninety (90) days from the date of the effective date of the adjustment to the Exercise Quantity resulting in additional Registrable Securities becoming issuable to the Holders. (e) Notwithstanding anything to the contrary in this Section 2.1, the Company may, by delivering written notice to the Holders, prohibit offers and sales of Registrable Securities pursuant to the Shelf Registration at any time if (A)(i) the Company is in possession of material non-public information relating to the Company, (ii) the Company determines (based on advice of counsel) that such prohibition is necessary in order to avoid a 3 requirement to disclose such material non-public information to the public and (iii) the Company determines in good faith that public disclosure of such material non-public information would not be in the best interests of the Company and its stockholders, or (B)(i) the Company has made a public announcement relating to an acquisition or business combination transaction including the Company and/or one or more of its subsidiaries that is material to the Company and its subsidiaries taken as a whole and (ii) the Company determines in good faith that (x) offers and sales of Registrable Securities pursuant to the Shelf Registration prior to the consummation of such transaction (or such earlier date as the Company shall determine) would not be in the best interests of the Company and its shareholders or (y) it would be impracticable at the time to obtain any financial statements relating to such acquisition or business combination transaction that would be required to be set forth in the Shelf Registration; provided, however, that upon (i) the public disclosure by the Company of the material non-public information described in clause (A) of this paragraph or (ii) the consummation, abandonment or termination of, or the availability of the required financial statements with respect to, a transaction described in clause (B) of this paragraph, the suspension of the use of the Shelf Registration pursuant to this Section 2.1(e) shall cease and the Company shall promptly comply, prior to the next Business Day, with Section 2.3 hereof and notify the Holders that dispositions of Registrable Securities may be resumed. In the event that during the Effectiveness Period the prospectus under the Shelf Registration becomes not usable as a result of the Company's notification under this Section, the Company shall use its reasonable best efforts to provide the Holders a usable prospectus as soon as practicable, and in no event shall sales of Registrable Securities under the Shelf Registration be suspended for more than 30 days in any 365-day period. Section 2.2 [Reserved] Section 2.3 Registration Procedures. (a) The Company shall, at its expense: (i) file with the Commission within 90 days a Registration Statement with respect to such Registrable Securities and use its best efforts to cause that Registration Statement to become and remain effective prior to the Effectiveness Target Date and for the duration of the Effectiveness Period; (ii) prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus included in the Registration Statement as may be necessary to keep the Registration Statement effective for the period described in Section 2.3(a)(i) above and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement; (iii) furnish to each selling Holder such reasonable numbers of copies of the Registration Statement, preliminary prospectus, final prospectus and any 4 amendments and supplements and such other documents as each selling Holder may reasonably request in order to facilitate the public offering of such securities; (iv) promptly and prior to the next Business Day, furnish to each selling Holder written notice of any stop order or similar notice issued by the Commission or any state agency charged with the regulation of securities and of any notice from the Nasdaq National Market or other securities exchange then listing the Registrable Securities covered by such Registration Statement; (v) register or qualify the Registrable Securities covered by the Registration Statement under the securities or Blue Sky laws of such states as shall be reasonably appropriate for the distribution of the Registrable Securities; provided, however, that the Company shall not for any purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (vi) use its best efforts to make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Act and Rule 158 thereunder; (vii) use its best efforts to comply with all rules and regulations of the Nasdaq National Market, or such other principal securities exchange on which the equity securities issued by the Company are then quoted or listed and traded, to ensure that the Registrable Securities are freely tradeable thereon upon registration thereof under the Act; (viii) provide, if one has not already been appointed by the Company, a transfer agent and registrar for all Registrable Securities covered by such Registration Statement not later than the effective date of such Registration Statement; (ix) enter into a cross-indemnity agreement, in customary form, with each underwriter, if any; (x) include in the Registration Statement filed with the Commission, all Registrable Securities; and promptly, within two (2) Business Days after filing of such a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to each Holder copies of all such documents so filed including, if requested, documents incorporated by reference in the registration statement; and notify each selling Holder of any stop order issued or threatened by the Commission and use its best efforts to prevent the entry of such stop order or to remove it if entered; (xi) notify each selling Holder, at any time when a prospectus relating to such selling Holder's Registrable Securities is required to be delivered under the Act, 5 of the occurrence of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein not misleading, and as soon as practicable prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (xii) cause all such Registrable Securities to be listed on the Nasdaq National Market System (or on such other principal securities exchange on which the equity securities issued by the Company are then quoted or listed and traded); (xiii) enter into an underwriting agreement in customary form and take all such other actions that the selling Holders or their underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; (xiv) make available for inspection by each selling Holder and one (1) of its counsel acting for them, any underwriter participating in any disposition pursuant to such registration statement, and any counsel retained by any such underwriter, all pertinent financial and other information and corporate documents of the Company reasonably requested, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such selling Holder, underwriter or counsel in connection with such registration statement and to participate in "road shows" or management presentations as may be reasonably requested by any underwriter; (xv) with respect to any underwritten offering, use its reasonable best efforts to obtain a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the selling Holders or any underwriter may reasonably request; (xvi) with respect to an underwritten offering, obtain an opinion of counsel to the Company, addressed to the selling Holders and any underwriter, in customary form and including such matters as are customarily covered by such opinions in underwritten registered offerings of equity securities as the selling Holders or any underwriter may reasonably request, such opinion to be reasonably satisfactory in form and substance to each selling Holder; (xvii) furnish to each selling Holder upon request of such selling Holder within three (3) Business Days, copies of all correspondence between the Company, the Commission and any applicable state securities regulatory agencies relating to such registration; (xviii) during the period that the Company is required to keep such Registration Statement effective, promptly and prior to the next Business Day, notify each selling Holder of Registrable Securities covered by such Registration Statement at any time when a prospectus relating thereto is required to be delivered under the Act, of the happening of 6 any event as a result of which the prospectus or any prospectus supplement included in such registration statement, as then in effect, or any material incorporated by reference therein, includes 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, or if it is necessary to amend or supplement such prospectus or any prospectus supplement or registration statement or material incorporated by reference therein to comply with the law, and at the request of any such selling Holder, prepare and furnish to such selling Holder a reasonable number of copies of a supplement to or an amendment of such prospectus or any prospectus supplement or material incorporated by reference therein as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus or any prospectus supplement or material incorporated by reference therein shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and so that such prospectus or prospectus supplement or registration statement or material incorporated by reference therein, as amended or supplemented, will comply with the law; (xix) upon the reasonable request of any selling Holder, to include in a prospectus supplement or an amendment to a Registrable Securities Shelf Registration any change in the information provided to the Company pursuant to Rules 507 or 508 under Regulation S-K under the Act; and (xx) upon delivery of the certificates with respect to the Registrable Securities to be registered pursuant hereto, issue to any underwriter to which the selling Holder may sell such Registrable Securities in connection with any such registrations (and to any direct or indirect transferee of any such underwriter) certificates evidencing such Registrable Securities without any legend restricting the transferability of the Registrable Securities. (b) Each selling Holder of Registrable Securities agrees that, upon receipt of any written notice from the Company of (i) any request by the Commission for amendments or supplements to a Registration Statement or related prospectus covering any of such selling Holder's Registrable Securities, (ii) the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement covering any of such selling Holder's Registrable Securities or the initiation of any proceedings for that purpose, (iii) the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (iv) the happening of any event that requires the making of any changes in the Registration Statement covering any of such selling Holder's Registrable Securities so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that any related prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, and (v) the Company's reasonable 7 determination that a post-effective amendment to a Registration Statement covering any of such selling Holder's Registrable Securities or a supplement to any related prospectus is required under the Act; such selling Holder will forthwith discontinue disposition of such Registrable Securities until it is advised in writing by the Company that the use of the applicable prospectus (as amended or supplemented, as the case may be) and disposition of the Registrable Securities covered thereby pursuant thereto may be resumed, provided, however, (x) that such selling Holder shall not resume its disposition of Registrable Securities pursuant to such Registration Statement or related prospectus unless it has received notice from the Company that such Registration Statement or amendment has become effective under the Act and has received a copy or copies of the related prospectus (as then amended or supplemented. as the case may be) unless the Registrable Securities are then listed on a national securities exchange and the Company has advised such selling Holder that the Company has delivered copies of the related prospectus, as then amended or supplemented, in transactions effected upon such exchange, subject to any subsequent receipt by such selling Holder from the Company of written notice of any of the events contemplated by clauses (i) through (v) of this paragraph, and, (y) if so directed by the Company, such holder will deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Holders are required to refrain from disposition of Registrable Securities for more than 30 days in any 365-day period, the Company shall be deemed in breach of this Agreement. Section 2.4 Registration Expenses. The Company shall bear all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all fees and expenses relating to the listing of any Registrable Securities with the Nasdaq National Market System (or on such other principal securities exchange on which the equity securities issued by the Company are then quoted or listed and traded), fees and expenses of compliance with securities or Blue Sky laws in jurisdictions reasonably requested by any selling Holder or underwriter pursuant to Section 2.3(b) (including reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities), all word processing, duplicating and printing expenses, messenger and delivery expenses, fees and disbursements of counsel for the Company and one (1) counsel for the selling Holders (selected by Holders holding a majority of the Registrable Securities), independent public accountants (including the expenses of any special audit or "cold comfort" letters required by or incident to such performance) and underwriters (excluding discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals attributable to the securities being registered, which discounts, commissions or fees with respect to any selling Holder's respective Registrable Securities shall be paid by such selling Holder), all the Company's internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), fees of the National Association of Securities Dealers, Inc., the expense of any annual audit, the expenses of any special audit incident to or required by any registration, the expense of any liability insurance (if the Company determines to obtain such insurance) and the reasonable fees and expenses of any special experts 8 (including attorneys) retained by the Company (if it so desires) in connection with such registration and fees and expenses of other persons retained by the Company. Section 2.5 Indemnification. (a) In the event of any registration of any of the Registrable Securities under the Act pursuant to this Agreement, the Company will indemnify and hold harmless the selling Holder of such Registrable Securities, each of its officers, directors, partners, legal counsel and accountants, each underwriter (if any) and each other person, if any, who controls such selling Holder or such underwriter within the meaning of the Act, against any expenses, losses, claims, damages or liabilities, joint or several, arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement under which such Registrable Securities were registered under the Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arising out of or based upon any omission (or alleged omission) to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Act or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration; and, subject to Section 2.5(c) below, the Company will reimburse such selling Holder, each of its officers, directors, partners, legal counsel and accountants, each underwriter, if any, and each such controlling person for any legal and any other expenses reasonably incurred by such selling Holder or controlling person in connection with investigating and defending any such expense, loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such expense, loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus, final prospectus, or summary prospectus, or any such amendment or supplement, made in reliance upon and in conformity with information furnished to the Company, in writing, by such selling Holder and stated to be specifically for use therein. (b) Each selling Holder of Registration Securities will, severally, and not jointly and severally, in the event that any Registrable Securities held by such selling Holder as to which any registration is being effected under the Act pursuant to this Agreement, indemnify and hold harmless the Company, each of its directors and officers and each underwriter (if any), and each other person, if any, who controls the Company or any such underwriter within the meaning of the Act, against any losses, claims, damages or liabilities, joint or several, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement of a material fact contained in any Registration Statement under which such Registrable Securities were registered under the Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading, if the statement or omission was made in 9 reliance upon and in conformity with information furnished in writing to the Company by such selling Holder and stated to be specifically for use therein, and shall reimburse the Company, its directors and officers, and each such controlling person for any legal or other expenses reasonably incurred by any of them in connection with investigation or defending any such loss, claim, damage, liability or action. This indemnity shall remain in full force and effect for the applicable statute of limitation period regardless of any investigation made by or on behalf of the Company or such controlling person and shall survive the transfer of shares. No selling Holder shall be liable to the Company and the other indemnified parties under this Section 2.5(b) for any amount in excess of the net proceeds received from the Registrable Securities sold by it pursuant to the Registration Statement. (c) Each party entitled to indemnification under this Section 2.5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any loss, claim, action, damage or liability as to which indemnity may be sought, and shall permit the Indemnified Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party whose approval shall not be unreasonably withheld); and, provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnified Party of its obligations under this Section 2.5, except to the extent that such failure to give notice prejudices the Indemnifying Party or such Indemnifying Party is damaged by such delay. The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall pay such expense (but in no event shall the Indemnifying Party be obligated to pay the fees and expenses of more than one counsel for the Indemnified Party or Parties) if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would, in the reasonable judgment of the Indemnified Party, be inappropriate due to actual or potential conflict of interests between the Indemnified Party and any other party represented by such counsel in such proceeding. If, in the Indemnified Party's reasonable judgment, a conflict of interest between such Indemnified and Indemnifying Parties may exist in respect of such claim, the Indemnified Party may assume the defense of such claim, jointly with any other Indemnified Party that reasonably determines such conflict of interest to exist, and the Indemnifying Party shall be liable to such Indemnified Parties for the reasonable legal fees and expenses of one counsel for all such Indemnified Parties and for other expenses reasonably incurred in connection with the defense thereof incurred by the Indemnified Parties. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party (which consent shall not be unreasonably withheld), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party. 10 (d) If the indemnification provided for in this Section 2.5 is finally determined by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to therein or contribution is required under the Act in circumstances for which indemnification is provided under this Section 2, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other and also the relative fault of the Indemnifying Party and the Indemnified Party as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact related to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, (A) no Holder will be required to contribute any amount in excess of the net proceeds received from the Registrable Securities sold by it pursuant to such Registration Statement, and (B) no person or entity guilty of fraudulent misrepresentation, within the meaning of Section 11(f) of the Act, shall be entitled to contribution from any person or entity who is not guilty of such fraudulent misrepresentation. (e) Indemnification and contribution similar to that specified in this Section 2.5(e) (with appropriate modifications) shall be given by the Company and each selling Holder with respect to any required registration or other qualification of Registrable Securities under any Federal or state law or regulation of any governmental authority, other than the Act. (f) The indemnification required by this Section 2.5 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (g) The obligations under this Section 2.5 shall survive the completion of any offering of Registrable Securities in a Registration Statement. Section 2.6 Indemnification with Respect to Underwritten Offering. (a) In the event that Registrable Securities are sold pursuant to a Registration Statement in an underwritten offering, the Company agrees to enter into an underwriting agreement containing customary representations and warranties with respect to the business and operations of the Company and customary covenants and agreements to be performed by the Company, including without limitation customary provisions with respect to indemnification by the Company of the underwriters of such offering. 11 (b) No Holder may participate in any underwritten registration pursuant to Section 2 hereunder unless such Holder (i) agrees to sell the Registrable Securities which it proposes to sell in such underwritten registration on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, reasonable and customary indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements and provides such other information and documentation as the Company or the underwriters may reasonably request in connection with such underwritten registration. Section 2.7 Information by Holder. Each holder of Registrable Securities included in any Registration shall furnish to the Company such information regarding such holder and the distribution in proposed by such holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Article 2. Section 2.8 Termination. All of the Company's obligations to register Registrable Securities under this Agreement pursuant to this Agreement shall terminate on the earlier of (x) when there are no Registrable Securities as defined herein and (y) seven years from the date hereof. Section 2.9 Transfer of Rights. (a) The rights and obligations of each Holder (or assignee thereof) under this Agreement may be transferred or assigned by such Holder (or assignee thereof), in whole or in part, without the consent of the Company or any other Holder, (i) to any Affiliate of the Holder or (ii) any person or entity acquiring at least five hundred (500) Registrable Securities (as adjusted for stock splits, stock dividends, recapitalization or similar events) (all of such parties, collectively, the "Permitted Transferees"). The Company may not assign this Agreement or any of its rights or obligations hereunder or under the Warrant without the prior written consent of each Holder and each Warrant holder (which consent may be withheld for any reason in the sole discretion of such Holder or Holders). (b) Any transferee (other than a Holder who is already a party to an agreement in form and substance similar to this Agreement) to whom rights under this Agreement are transferred shall, as a condition to such transfer, deliver to the Company a written instrument by which such transferee identifies itself, gives the Company notice of the transfer of such rights, indicates the Registrable Securities owned by it and agrees to be bound by the obligations imposed upon the Investors under this Agreement. (c) A transferee to whom rights or obligations are transferred pursuant to this Section 2.9 may not again transfer such rights or obligations to any other person or entity, other than as provided in this Section 2.9. 12 Section 2.10 Rule 144. The Company will file the reports required to be filed by it under the Act and the Exchange Act, and will take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Act within the limitations of the exemptions provided by (a) Rule 144 under the Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the written request of any Holder of Registrable Securities, the Company will deliver to such Holder, within five days of delivery of such request, a written statement as to whether it has complied with such filing requirements. In connection with any sale of Registrable Securities that will result in such securities no longer being "restricted securities" (as defined in Rule 144 promulgated under the Act), the Company shall cooperate with the selling Holders and the underwriter(s), if any, and facilitate the preparation and delivery of certificates representing such securities to be sold which do not bear any restrictive legends to permit delivery of such securities. Section 2.11 Information Reports. The Company covenants that, except at such times as the Company is a reporting company under Section 13 or 15(d) of the Exchange Act, the Company shall, upon the written request of any Holder of Registrable Securities, provide to any such Holder and to any prospective institutional transferee of Registrable Securities designated by such Holder, within five Business Days after delivery of such written request, such financial and other information as is available to the Company and as such Holder may reasonably determine is required to permit a transfer of such Registrable Securities to comply with the requirements of Rule 144A promulgated under the Act. Section 2.12 Investor Representations. In connection with the acquisition of the Warrants, each of the Investors hereby represents that it has such knowledge and experience in financial and business matters that such Investor is capable of evaluating the merits and risks of its investment contemplated by this Agreement and has the capacity to protect its own interests. Each Investor acknowledges that investment in the Warrant and the shares of Company common stock issuable upon exercise of such Warrant ("Warrant Shares") is highly speculative and involves a substantial and high degree of risk of loss of the entire investment. Each Investor has adequate means of providing for current and anticipated financial needs and contingencies, is able to bear the economic risk of its investment in the Warrant and Warrant Shares and could afford complete loss of such investment. Each Investor is an "accredited investor" (as such term is defined in Rule 501 of Regulation D under the Act). Section 2.13 Market Stand-off Agreement. Each Holder agrees, in connection with any underwritten public offering that, upon request of the Company or the underwriters managing any underwritten public offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Common Stock of the Company (other than those shares of Common Stock included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred twenty (120) days) from the effective date of 13 such registration as may be requested by the underwriters. The Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. ARTICLE 3. MISCELLANEOUS Section 3.1 Notices. All notices, demands, instructions and other communications required or permitted to be given to or made upon any party hereto shall be in writing delivered to the parties at the addresses set forth on the signature page hereof (or such other address as may be provided by one party in a notice to the other). Notice delivered in accordance with the foregoing shall be effective (i) when delivered, if delivered personally, (ii) three hours after confirmation of receipt, if delivered by facsimile transmission, or (iii) two days after being delivered in the United States (properly addressed and all fees paid) for by overnight delivery service to a courier (such as Federal Express) which regularly provides such service and regularly obtains executed receipts evidencing delivery. Notices shall not be given via U.S. Mail. Section 3.2 Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by (i) the parties hereto; (ii) the Permitted Transferees; and (iii) the respective successors of the foregoing, including those resulting by operation of law. Section 3.3 Headings. Article and Section headings used in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement for any purpose or affect the construction of this Agreement. Section 3.4 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same Agreement. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. Section 3.5 Governing Law. This Agreement shall be deemed to have been made in the State of New York and the validity of this Agreement, the construction, interpretation and enforcement thereof, and the rights of the parties thereto shall be determined under, governed by, and construed in accordance with the internal laws of the State of New York, without regard to principles of conflicts of law. 14 Section 3.6 Survival of Agreements, Representations and Warranties. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement. Section 3.7 WAIVER OF JURY TRIAL. THE COMPANY WAIVES (A) THE RIGHT TO TRIAL BY JURY (WHICH EACH INVESTOR HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE WARRANT OR THE WARRANT CERTIFICATE. THE COMPANY WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVER WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. Section 3.8 Amendment and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the holders of at least 51% of the Registrable Securities; provided, that this Agreement may be amended with the consent of the holders of less than all Registrable Securities (but not less than 51% of such shares) only in a manner which affects all Registrable Securities in the same fashion. In no event may this Agreement be amended to (i) shorten the Effectiveness Period, (ii) extend the Effectiveness Target Date or (iii) require a Holder to pay expenses otherwise borne by the Company under Section 2.4, without the prior written consent of each Holder affected thereby. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. Section 3.9 Availability of Equitable Remedies. Each party acknowledges that a breach of the provisions of this Agreement could not adequately be compensated by money damages. Accordingly, any party shall be entitled, in addition to any other right or remedy available to it, to an injunction restraining such breach or a threatened breach and to specific performance of any such provision of this Agreement, and in either case no bond or other security shall be required in connection therewith, and the parties hereby consent to such injunction and to the ordering of specific performance. Section 3.10 Entire Agreement. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof. Section 3.11 Attorneys Fees. Any holder of the Warrant shall be entitled to recover from the Company the reasonable attorneys' fees and expenses incurred by such holder in connection with enforcement by such holder of any obligation of the Company hereunder or under the Warrant. 15 Section 3.12 No Impairment Rights. The Company will not, by amendment of its Certificate of Incorporation or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Agreement against impairment. Section 3.13 No Inconsistent or Superior Registration Rights. (a) From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority in principal amount of Registrable Securities, (i) enter into any agreement granting registration rights with respect to the Common Stock or other securities which are inconsistent with or superior to the rights granted to the Holders hereunder; or (ii) amend any agreement, in effect as of the date hereof, so as to grant registration rights to any other person or entity which causes such registration rights to be inconsistent with those granted to the Holders hereunder or to otherwise adversely affect the registration rights granted to the Holders hereunder. (b) Notwithstanding the foregoing, the Investors acknowledge and agree that comparable registration rights have been granted concurrently herewith to (i) the holders of the 10% Convertible Subordinated Discount Notes issued pursuant to that certain Note Purchase Agreement dated of even date herewith by and among the Company the subsidiaries of the Company listed on Exhibit A thereto and the purchasers of such notes listed on the signature page thereof and (ii) the holders of 58,000 warrants to purchase shares of Common Stock issued to U.S. Bancorp Investments, Inc., pursuant to a warrant agreement dated of even date herewith. [Signature Page Follows.] 16 [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. CFI PROSERVICES, INC. By: /s/ Robert P. Chamness ---------------------- Name: Robert P. Chamness Title: President Address: 400 S.W. Sixth Avenue Portland, Oregon 97204 INVESTORS: ABLECO HOLDINGS LLC, a Delaware limited liability company By: /s/ Steven Feinberg ------------------- Name: Steven Feinberg Title: Chief Executive Officer LEVINE LEICHTMAN CAPITAL PARTNERS II, L.P., a California limited partnership By: LLCP California Equity Partners II, L.P., a California limited partnership, its General Partner By: Levine Leichtman Capital Partners, Inc., a California corporation, its General Partner By: /s/ Arthur E. Levine -------------------- Name: Arthur E. Levine Title: President [Signature page continues] FOOTHILL PARTNERS III, L.P., a Delaware limited partnership, as a Lender By: /s/ William Shiao ----------------- Name: William Shiao Title: Vice President EX-2 8 EXHIBIT 2.7 NOTE PURCHASE AGREEMENT BY AND AMONG CFI PROSERVICES, INC., THE SUBSIDIARIES OF CFI PROSERVICES, INC., AND THE PURCHASERS LISTED ON EXHIBIT A HERETO August 13, 1999 NOTE PURCHASE AGREEMENT This NOTE PURCHASE AGREEMENT (this "Agreement") is made and entered into as of the 13th day of August 1999, by and among CFI ProServices, Inc., an Oregon corporation ("Seller" or the "Company"), Ultradata Corporation, a Delaware corporation and successor by merger to UFO Acquisition Co. ("Ultradata"), Meca Software, L.L.C., a Delaware limited liability company ("MECA"), Moneyscape Holdings, Inc., an Oregon corporation (together with Ultradata and MECA, the "Guarantors"), and the purchasers listed on Exhibit A hereto (collectively, the "Purchasers"). R E C I T A L S WHEREAS, concurrently herewith, Seller is seeking financing to complete its acquisition of Ultradata Corporation, and for working capital purposes and, in connection therewith is seeking senior debt financing in the form of a $35,000,000 term loan designated as "Term Loan A", a $30,000,000 term loan designated as "Term Loan B", and a revolving credit facility in an aggregate principal amount not to exceed $15,000,000 at any time outstanding, all of which are being issued pursuant to that certain Financing Agreement dated as of August 13, 1999 (the "Credit Agreement," and together with any notes, security agreements or other documents entered into by the Seller pursuant thereto, the "1999 Credit Facility") by and among the Seller, the Guarantors, the financial institutions or funds identified therein as the "Lenders", Foothill Capital Corporation, as administrative agent for the Lenders, and Ableco Finance LLC, as collateral agent for the Lender Group (as defined therein); WHEREAS, as part of the contemplated transaction, Seller is also seeking to obtain subordinated debt financing, the net proceeds of which, together with the net proceeds of the 1999 Credit Facility, would be applied to complete the acquisition of Ultradata Corporation and used for working capital purposes; WHEREAS, in order to obtain such subordinated financing, Seller is willing to authorize, issue and sell, an aggregate principal face amount of $7,437,535 of its 10% Convertible Subordinated Discount Notes (the "Notes"), which Notes will be guaranteed by the Guarantors; and WHEREAS, subject to the terms and conditions set forth herein, the Purchasers are willing to purchase the Notes. A G R E E M E N T In consideration of the mutual premises and covenants and agreements contained herein, the parties hereto agree as follows: SECTION 1 PURCHASE OF THE NOTES 1.1 Authorization. Seller has authorized the issuance, sale and delivery to the Purchasers of the Notes in the form attached as Exhibit B hereto, in the aggregate principal face amount of $7,437,535. 1.2 Purchase from Seller. Subject to the terms and conditions of this Agreement, each Purchaser, severally, and not jointly or jointly and severally, agrees to purchase from Seller, and Seller agrees to sell to each Purchaser Note(s) in the principal face amount set forth opposite each Purchaser's name on Exhibit A, at a purchase price equal to 74.6215% of the principal amount thereof (the "Purchase Price"). 1.3 Closing. The purchase and sale of the Notes (the "Closing") shall take place at the offices of Brobeck, Phleger & Harrison LLP located in Los Angeles, California, on August 13, 1999 (or such other place and time as the parties may mutually agree). At the Closing: (a) Seller shall deliver to each Purchaser such Purchaser's Note(s), dated the Closing Date, duly registered in the Purchaser's name; and (b) Each Purchaser shall deliver to Seller the Purchase Price set forth opposite its name on Exhibit A to the bank account of Seller, designated by Seller two (2) business days prior to the Closing, in immediately available funds. 1.4 Other Defined Terms. Certain other terms used or incorporated by reference herein, but not defined herein, are defined on Annex I. SECTION 2 REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER Each Purchaser hereby severally, and not jointly or jointly and severally, represents and warrants to Seller that: 2.1 Due Incorporation or Formation; Authorization of Agreement. It is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite corporate power and authority necessary to execute and deliver this Agreement and to perform its obligations hereunder, and the execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or other action. This Agreement has been duly and validly executed and delivered by it, and constitutes the legal, valid, and binding obligation of it, enforceable against it in accordance with its terms, subject to 2. bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization and other similar laws of applicability relating to creditors rights and to general equity principles. 2.2 No Conflict. (a) Neither the execution, delivery and performance of this Agreement nor the consummation by it of the transactions contemplated hereby will (i) violate any provision of its organizational documents; or (ii) violate any judgment, order, decree, statute, law, ordinance, rule or regulation binding upon it or its properties or assets, other than such violations which individually or in the aggregate would not have a material adverse effect on its ability to consummate the transactions contemplated by this Agreement and under its Note. (b) No authorization, consent or approval of, or filing with, any public body or governmental authority is necessary for the consummation by it of the transactions contemplated by this Agreement. 2.3 Investment Intent. Each Purchaser is acquiring the Notes and the Common Stock issuable upon conversion of the Notes (the "Securities") pursuant to this Agreement for its own account. Each Purchaser is purchasing the Securities for investment purposes and not with a view to the sale or distribution of any Securities, by public or private sale or other disposition, in violation of the Securities Act. Notwithstanding the foregoing or anything else contained herein to the contrary, the Notes and the shares of Common Stock issuable or issued upon conversion of the Notes may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. 2.4 Certificates to be Legended. Each Purchaser understands that each Security will bear a legend on the face thereof (or on the reverse thereof with a reference to such legend on the face thereof) required by the Securities and Exchange Commission or a state securities commission. 2.5 Securities Will be "Restricted Securities". Each Purchaser understands that the Securities will be "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act. 2.6 Sophistication of Purchasers; Accredited Investor Status. Each Purchaser has such knowledge and experience in financial and business matters that such Purchaser is capable of evaluating the merits and risks of its investment contemplated by this Agreement and has the capacity to protect its own interests. Each Purchaser acknowledges that investment in the Securities is highly speculative and involves a substantial and high degree of risk of loss of the entire investment. Each Purchaser has adequate means of providing for current and anticipated financial needs and contingencies, is able to bear the economic risk of its investment in the Securities and could afford complete loss of such investment. Each Purchaser is an "accredited investor" (as such term is defined in Rule 501 of Regulation D under the Securities Act). 3. 2.7 Due Diligence. Each Purchaser has had an opportunity to discuss the Seller's business, management, and financial affairs with its management. Each Purchaser is entering into this Agreement and the other agreements described therein and the transactions contemplated hereby and thereby in reliance on its own investigation and review of the information concerning the Seller provided to it and the representations contained in this Agreement and in the 1999 Credit Facility. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND GUARANTORS Seller and each of the Guarantors hereby represents and warrants to the Purchasers, jointly and severally, as follows: 3.1 Representations and Warranties Incorporated by Reference. All representations and warranties of Seller and each Guarantor contained in the 1999 Credit Facility as in effect on the Closing Date (without giving effect to any modifications or supplements to the 1999 Credit Facility or termination of the 1999 Credit Facility after the Closing Date) are incorporated herein by reference and are made to or for the benefit of the Purchasers. Without limiting the generality of the foregoing, the representations and warranties of Seller and each Guarantor set forth in Article V and Section 9.02 of the Credit Agreement, together with related definitions and ancillary provisions and schedules and exhibits, are hereby incorporated in this Agreement by reference, as if set forth in this Agreement in full, mutatis mutandis; provided, that, as incorporated into this Agreement, (i) each reference in the Credit Agreement to a "Loan Party" or the "Loan Parties" shall be deemed to be a reference to one or more of the Seller and the Guarantors, (ii) each reference in the Credit Agreement to the "Lender Group" shall be deemed to be a reference to the Purchasers, (iii) each reference in the Credit Agreement to a "Loan Document" or a "Warrant" shall be deemed to be a reference to this Agreement, the Notes, the Registration Rights Agreement, and any other document entered into in connection herewith (the "Subordinated Note Documents"), and (iv) each other defined term used in the Credit Agreement and incorporated by reference herein shall have the meanings given them in the Credit Agreement. 3.2 Shares Reserved. As of the date hereof, 602,534 shares of Seller's Common Stock, no par value per share ("Common Stock"), have been duly authorized for issuance in connection with the conversion of the Notes. Upon conversion, the shares of Common Stock issued to the Holders will be duly authorized, validly issued, fully paid and nonassessable. Except as set forth in the Registration Rights Agreement, and a registration rights agreement entered into pursuant to the 1999 Credit Facility, Seller has not granted to any Person the right to cause Seller to register with any state or federal securities agency any Capital Stock owned by such Person. 4. 3.3 Indebtedness. After giving effect to the transactions contemplated hereby, Seller and the Guarantors will have Indebtedness due to the persons and in the amounts and pursuant to the terms set forth on Exhibit C hereto. SECTION 4 CONDITIONS TO CLOSING The obligation of each Purchaser to purchase the Notes to be purchased during the Closing is subject to the fulfillment to its satisfaction of each of the following conditions: 4.1 Representations and Warranties Correct. The representations and warranties made by the Seller and the Guarantors in Section 3 hereof shall be true and correct in all respects when made, and shall be true and correct on the Closing Date, with the same force and effect as if they had been made on and as of that date. 4.2 Performance. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Seller on or prior to the Closing Date shall have been performed or complied with in all respects. 4.3 Opinion of Seller's Counsel. Each Purchaser shall have received from Farleigh, Wada & Witt, P.C., and Hiscock & Barclay, counsel to the Seller and the Guarantors, opinions addressed to it, dated the Closing Date, and in substantially the form attached as Exhibit D hereto. 4.4 Legal Investment. The issuance of the Notes to each Purchaser hereunder shall be legally permitted by all federal and state laws and regulations, and any rules or regulations of any stock exchange or the Nasdaq National Market, to which such issuance and the Seller are subject. 4.5 Compliance Certificate. Seller shall have delivered an Officer's Certificate, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in Sections 4.1 and 4.2 of this Agreement. 4.6 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated hereby and all documents and instruments incident to such transactions shall be satisfactory in substance and form to each Purchaser and its counsel. 4.7 Qualification. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body that are required in connection with the lawful issuance and sale of the Notes pursuant to this Agreement, the conversion of the Notes into Common Stock and the issuance of such Common Stock upon such conversion shall have been duly obtained and shall be effective on and as of the Closing Date. 5. 4.8 Closing of Credit Agreement. Each of the conditions precedent to the Lender Group's obligation to make the initial loans under the Credit Agreement shall have been satisfied or waived on terms reasonably satisfactory to the Purchasers. 4.9 Closing of Acquisition; Use of Proceeds. The acquisition of Ultradata Corporation shall have been consummated simultaneously herewith pursuant to the terms of the Ultradata Acquisition Documents, and the Purchasers shall have been satisfied in their reasonable discretion that the proceeds of the purchase and sale of the Notes are being used in accordance with Section 7.15 hereof. 4.10 Registration Rights Agreement. Seller shall have delivered to each Purchaser an executed Registration Rights Agreement in the form attached hereto as Exhibit E. 4.11 Suretyship Agreement. Seller shall have delivered to each Purchaser an executed Suretyship Agreement in the form attached hereto as Exhibit F. SECTION 5 SUBORDINATION 5.1 Subordination of the Subordinated Notes. Anything in this Agreement or the Subordinated Notes to the contrary notwithstanding, the Holder, by its acceptance of a Subordinated Note hereunder, hereby agrees that the Indebtedness evidenced by this Agreement and the Subordinated Notes and any guarantee of payment with respect thereto, including the payment of principal of, premium, if any, or interest on the Subordinated Notes and any other Indebtedness, whether now existing or hereafter created, arising under or in connection with this Agreement and the Subordinated Notes, including all expenses, fees, and other amounts now or hereafter payable hereunder or thereunder (all of the foregoing, the "Subordinated Obligations") are and shall be subordinate and junior, to the extent set forth below, and subject in right of payment to the prior payment in full of all Senior Indebtedness. The expression "payment in full" or "paid in full" or any similar term or phrase, when used in this Section 5.1 with respect to Senior Indebtedness, shall mean the payment in full of all such Senior Indebtedness in cash and the termination of all financing commitments of the Senior Lenders, or, in the case of Senior Indebtedness consisting of contingent obligations in respect of letters of credit or other reimbursement obligations, the setting apart of cash sufficient to discharge such portion of Senior Indebtedness in an account for the exclusive benefit of the holders thereof, in which account such holders shall have (or be granted by the Seller) a first priority perfected security interest in a manner reasonably acceptable to such holders. (a) If (i) the Seller shall default in the payment of any Senior Indebtedness (whether principal, interest or other amount) when the same becomes due and payable, whether at maturity or at a date fixed for scheduled payment or by declaration or acceleration or otherwise 6. (a "Payment Default Event"), and (ii) the Holders (or the Designated Representative, as applicable) shall have received a Payment Default Notice, then the Seller shall not make, and no Holder of the Subordinated Notes shall accept or receive, any direct or indirect payment or distribution of any kind or character (whether in cash, securities, Assets, by set-off, or otherwise), on account of the Subordinated Obligations during the Payment Blockage Period applicable to such Payment Default Event (it being understood however that, notwithstanding anything to the contrary, the Seller may issue Common Stock or other junior securities upon conversion of any Subordinated Notes, and the Subordinated Notes shall continue to accrete in value to the extent, and in the manner, provided for in the Subordinated Notes, during any Payment Blockage Period); provided, however, that in the case of any payment on or in respect of any Subordinated Obligation that would (in the absence of any such Payment Default Notice) have been due and payable on any date (a "Scheduled Payment Date") during such Payment Blockage Period, the provisions of this subsection (a) shall not prevent the making of such payment (a "Scheduled Payment") on or after the date immediately following the termination of such Payment Blockage Period. The foregoing provisions of this subsection to the contrary notwithstanding, the failure by the Seller to make a Scheduled Payment on a Scheduled Payment Date during a Payment Blockage Period shall constitute an Event of Default. If the Holders (or the Designated Representative, as applicable), shall have received a Payment Default Notice from or on behalf of the Agent, then each Holder shall, during the Standstill Period applicable thereto, be prohibited from accelerating the Indebtedness evidenced by its Subordinated Notes and enforcing any of its default remedies (other than the application of the Default Rate and the default rate of accretion and the accrual (but not the payment) of Liquidated Damages, if any, but including the right to accelerate such Indebtedness and exercise set-off rights) with respect thereto (including any right to sue the Seller or to file or participate in the filing of an involuntary bankruptcy petition against the Seller) until such Standstill Period shall cease to be in effect; provided, however, that if a Holder had initiated an enforcement action prior to the commencement of such Standstill Period at a time when such Holder was entitled to do so, then such Holder shall not be prevented during such Standstill Period from taking such otherwise prohibited steps, but no others, with respect to such pending enforcement action as are required by a mandatory provision of law. Each Holder upon the termination of any Standstill Period applicable thereto, may, at its sole election, exercise any and all remedies (including the acceleration of the maturity of the Subordinated Notes) available to it under this Agreement, the Subordinated Notes, or applicable law. In the event that, notwithstanding the foregoing, the Seller shall make any payment to any Holder prohibited by the foregoing provisions of this subsection (a), then and in such event such payment shall be segregated by such Holder and held in trust for the benefit of and immediately shall be paid over to the Agent (in the same form received, with all necessary endorsements) for application against the Senior Indebtedness remaining unpaid until the Senior Indebtedness is paid in full. (b) Except under circumstances when the terms of subsections (a) or (d) are applicable, if (i) an event of default (other than a payment default) shall have occurred and be continuing under the Credit Agreement (or a refinancing agreement in respect thereof) (a "Non-Payment Default Event"), and (ii) the Holders (or the Designated Representative, as 7. applicable) shall have received a Non-Payment Default Notice, then the Seller shall not make, and no Holder shall accept or receive, any direct or indirect payment or distribution of any kind or character (whether in cash, Assets, securities, by set-off, or otherwise) on account of the Subordinated Obligations during the Non-Payment Blockage Period applicable to such Non-Payment Default Event (it being understood however that, notwithstanding anything to the contrary, the Seller may issue Common Stock or other junior securities upon conversion of any Subordinated Notes, and the Subordinated Notes shall continue to accrete in value to the extent, and in the manner, provided for in the Subordinated Notes, during any Non-Payment Blockage Period); provided, however, that in the case of any Scheduled Payment on or in respect of any Subordinated Obligation that would (in the absence of any such Non-Payment Default Notice) have been due and payable on any Scheduled Payment Date during such Non-Payment Blockage Period, the provisions of this subsection (b) shall not prevent the making of such Scheduled Payment on or after the date immediately following the termination of such Non-Payment Blockage Period. The foregoing provisions of this subsection (b) to the contrary notwithstanding, the failure by the Seller to make a Scheduled Payment on a Scheduled Payment Date during a Non-Payment Blockage Period shall constitute an Event of Default. If the Holders (or the Designated Representative, as applicable) shall have received a Non-Payment Default Notice from or on behalf of the Agent, then each Holder of the Subordinated Notes, during the Standstill Period applicable thereto, shall be prohibited from accelerating the Indebtedness evidenced thereby and shall be prohibited from enforcing any of its default remedies (other than the application of the Default Rate and the default rate of accretion and the accrual (but not the payment) of Liquidated Damages, if any, but including the right to accelerate such Indebtedness and exercise set-off rights) with respect thereto (including any right to sue the Seller or to file or participate in the filing of an involuntary bankruptcy petition against the Seller) until such Standstill Period shall cease to be in effect; provided, however, that if a holder of a Subordinated Note had initiated an enforcement action prior to the commencement of such Standstill Period at a time when such holder was entitled to do so, then such holder shall not be prevented during such Standstill Period from taking those steps, but no others, with respect to such pending enforcement action as are required by a mandatory provision of law. Each Holder of the Subordinated Notes, upon the termination of any Standstill Period applicable thereto, may, at its sole election, exercise any and all remedies (including the acceleration of the maturity of the Subordinated Notes) available to it under this Agreement or applicable law. In the event that, notwithstanding the foregoing, the Seller shall make any payment to any Holder of the Subordinated Notes prohibited by the foregoing provisions of this subsection (b), then and in such event such payment shall be segregated by such holder and held in trust for the benefit of and immediately shall be paid over to the Agent (in the same form received, with any necessary endorsements) for application against the Senior Indebtedness remaining unpaid until the Senior Indebtedness is paid in full. (c) Anything contained in Sections 5.1(a) or 5.1(b) to the contrary notwithstanding: (i) no Holder shall exercise any of its default remedies (other than the application of the Default Rate and the default rate of accretion and the accrual (but not the payment) of Liquidated Damages, if any, but including any judicial or non-judicial action to 8. accelerate or enforce the Indebtedness evidenced thereby, any exercise of set-off rights, and any right to sue the Seller or to file or participate in the filing of an involuntary bankruptcy petition against the Seller) with respect to an Event of Default prior to five (5) Business Days after the receipt by the Representative of Senior Indebtedness of a written notice from any Holders (or the Designated Representative, as applicable) stating that an Event of Default has occurred and is continuing, specifying in reasonable detail the nature of such Event of Default, and specifically designating such notice as a "Default Notice"; and (ii) the aggregate number of days that any Holder shall be subject to one or more Non-Payment Blockage Periods (or Standstill Periods on account of Non-Payment Blockage Periods) shall not exceed 270 days in any 360 consecutive day period; provided, however, that if the Senior Indebtedness is accelerated and the Agent or the Required Lenders, as the case may be, have commenced and diligently and in good faith are pursuing a judicial proceeding to collect the Senior Indebtedness or diligently and in good faith are pursuing material non-judicial remedies to effect the foreclosure and sale of the collateral securing the Senior Indebtedness, then any applicable Blockage Period (and correlative Standstill Period) may continue beyond the maximum number of days set forth in this clause (ii) unless and until the Agent or the Required Lenders, as applicable, rescind such acceleration in writing, or abandon, terminate, or fail diligently to pursue such judicial or non-judicial remedies. No Non-Payment Default Event that existed on the date of delivery of any Non-Payment Default Notice or during the resulting Non-Payment Blockage Period shall be made the basis for a subsequent Non-Payment Blockage Period. No Non-Payment Default Event or Payment Default Event that existed on the date of delivery of any Payment Default Notice or during the resulting Payment Blockage Period shall be made the basis for a subsequent Non-Payment Blockage Period or Payment Blockage Period. (d) In the event of (i) any Insolvency Proceedings relative to the Seller or any Guarantor, (ii) any proceedings for voluntary liquidation, dissolution, or other winding up of the Seller or any Guarantor, whether involving any Insolvency Proceedings, or (iii) any arrangement, adjustment, composition or relief of the Seller or its debts or any marshaling of the assets of the Seller, then, in each case, (A) all Senior Indebtedness shall first be paid in full before any payment is made by or on behalf of the Seller or any Guarantor on the Subordinated Obligations; (B) any payment or distribution of any kind or character (whether in cash, securities, Assets, by set-off, or otherwise, but excluding any Common Stock or other junior securities issued by the Seller upon conversion of any Subordinated Notes and the accretion in value of the Subordinated Notes to the extent, and in the manner, provided for therein) to which the Holders would be entitled but for the provisions of this subsection (d) (including, without limitation, any payment or distribution which may be payable or deliverable to such holders by reason of the payment of any other Indebtedness of the Seller or its Subsidiaries being subordinated to payment of the Subordinated Obligations) shall be paid or delivered by the Person making such payment or distribution, whether a trustee in bankruptcy, a receiver, a liquidating trustee, or otherwise, directly to the Agent, or the agent or other Representative of the holders of the Senior Indebtedness, for the benefit of the holders of the Senior Indebtedness, as their interest may appear, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid. In the event that, in the circumstances contemplated by this subsection (d), and notwithstanding the foregoing provisions of this subsection (d), the Holders of the Subordinated 9. Notes shall have received any such payment or distribution of any kind or character (whether in cash, securities, Assets, by setoff, or otherwise that they are not entitled to receive by the foregoing provisions, before all Senior Indebtedness is paid in full, then and in such event such payment or distribution shall be segregated and held in trust for the benefit of and immediately shall be paid over to the Agent, or the agent or other representative of the holders of the Senior Indebtedness, for the benefit of the holders of the Senior Indebtedness, as their interest may appear, for application against the payment of all Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full. (e) If any Holder does not file a proper claim or proof of debt or other document or amendment thereof in the form required in any proceeding under the Bankruptcy Code prior to thirty (30) days before the expiration of time to file such claim or other document or amendment thereof, then the Agent shall have the right (but not the obligation) in such proceeding, and hereby irrevocably is appointed lawful attorney of such Holder for the purpose of enabling the Agent to demand, sue for, collect, receive and give receipt for the payments and distributions in respect of the Subordinated Indebtedness owing to such Holder that are made in such proceeding and that are required to be paid or delivered to the holders of the Senior Indebtedness as provided in subsection (d), and to file and prove all claims therefor and to execute and deliver all documents in such proceeding in name of such Holder or otherwise in respect of such claims, as the Agent reasonably may determine to be necessary or appropriate. Each Holder agrees that it will not enter into any amendment or modification of the provisions of this Agreement or the Subordinated Notes, without having first obtained the prior written consent of the Required Lenders, if the effect thereof would be to amend or modify in any way (a) the interest rate or principal amount or schedule of payments of principal and interest with respect to any of the Subordinated Obligations, other than to reduce the interest rate thereon or principal amount thereof or extend the schedule of payments with respect thereto, (b) the subordination provisions set forth in this Section 5 or any of the Subsidiary Guarantees, or (c) the Events of Default set forth herein, other than to make such covenants or Events of Default less restrictive or to issue a waiver in respect thereof. No right of any present or future holder of Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Seller, or by any non-compliance by the Seller or by any Holder with the terms, provisions, and covenants of this Agreement or the Subordinated Notes, regardless of any knowledge thereof any such holder of Senior Indebtedness may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of the Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holders, without incurring responsibility to the Holders, and without impairing or releasing the subordination provided in this Section 5 or the obligations of the Holders to the holders of the Senior Indebtedness, do any one or more of the following: (a) change the manner, place, or terms of payment (including any change in the rate of interest), or extend the time of payment of, 10. or renew, amend, modify, alter, or grant any waiver or release with respect to, or consent to any departure from, any Senior Indebtedness or any instrument evidencing the same or any agreement evidencing, governing, creating, guaranteeing or securing any Senior Indebtedness; (b) sell, exchange, release, or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c) release any Person liable under or in respect of the Senior Indebtedness; (d) fail or delay in the perfection of Liens securing the Senior Indebtedness; (e) exercise or refrain from exercising any rights against the Seller and any other Person; or (f) amend, or grant any waiver or release with respect to, or consent to any departure from, any guarantee for all or any of the Senior Indebtedness. The provisions of this Section 5.1 are for the purpose of defining the relative rights of the holders of Senior Indebtedness, on the one hand, and the Holders, on the other hand, and nothing herein shall impair, as between the Seller and the Holders, the obligation of the Seller, which is unconditional and absolute, to pay to the Holders thereof the principal thereof and premium, if any, and interest thereon in accordance with their terms and the provisions hereof. Upon payment in full of the Senior Indebtedness and the termination of all obligations of the Senior Lenders under the Credit Agreement (or any refinancing agreement in respect thereof), the Holders shall be subrogated (without any representation or warranty on the part of Agent or any holder of Senior Indebtedness) to the rights of the holders of the Senior Indebtedness to receive payments or distributions of Assets of the Seller made on Senior Indebtedness (and any security therefor) until the Subordinated Obligations shall be paid in full, and, for the purposes of such subrogation, no payments to the holders of Senior Indebtedness of any cash, Assets, stock, or obligations to which the Holders would be entitled except for the provisions of subsection (e) above shall, as between the Seller, its creditors (other than the holders of the Senior Indebtedness), and the Holders, be deemed to be a payment by the Seller to or on account of Senior Indebtedness. The agreements contained in this Section 5.1 shall continue to be effective or shall be automatically reinstated, as the case may be, if at any time any payment (or any part of any payment) on the Senior Indebtedness shall be returned by any holder of Senior Indebtedness: (a) under any state or federal law upon or following the insolvency, bankruptcy, or reorganization of the Seller or otherwise; or (b) by reason of any settlement or compromise of any claim against such holder for repayment or recovery of any amount on account of any Senior Indebtedness; in each case, as though such payment had not been made. 5.2 Right of Holder to Hold Senior Indebtedness. Any Holder that is also a Senior Lender shall be entitled to the benefit of the rights set forth in this Section 5 in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Agreement shall be construed to deprive such Holder of any of its rights as a holder of Senior Indebtedness. 5.3 Designated Representative. Within sixty (60) days of the date of this Agreement, the Required Holders shall select a Designated Representative, who may (but need not) be a Holder and provide written notice to the Agent of such selection; provided, however, that if no 11. Designated Representative is selected within such sixty (60) day period, the Agent may select a Designated Representative (who shall be a Holder), and provide written notice to the Holders of such selection. Each Holder shall execute and deliver to the Designated Representative any agency agreement the Designated Representative shall reasonably request; it being understood that the protections and indemnities afforded the Agent under the Credit Agreement are hereby deemed reasonable for this purpose. The Company hereby agrees to pay the reasonable fees and expenses of the Designated Representative within 30 days of invoice therefor. The Designated Representative may be changed from time to time by written consent of the Required Holders, but at all times after the original selection of a Designated Representative, the Holders shall maintain a Designated Representative under this Agreement. This Section 5.3 is, notwithstanding any other provision herein to the contrary, made for the benefit of the Agent and the Senior Lenders (and their successors and assigns under the Senior Loan Documents), who are hereby entitled to rely on and enforce this covenant. The foregoing provisions of this Section 5 shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of Senior Indebtedness, and such provisions are made for the benefit of, and may be enforced directly by, holders of Senior Indebtedness, who hereby are expressly stated to be intended beneficiaries of this Section 5, notwithstanding any rescission of this Agreement by the parties hereto. SECTION 6 GUARANTEE 6.1 Guarantee. Each Guarantor hereby jointly and severally unconditionally guarantees to each Holder, (i) the due and punctual payment of the principal of, and premium, if any, Liquidated Damages, if any, and interest on each Note, when and as the same shall become due and payable, subject to any applicable grace period, if any, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest (including default interest) on the overdue principal of, and premium, Liquidated Damages, if any, and interest on the Notes, to the extent lawful, and the due and punctual performance of all other Obligations of the Seller to the Holders all in accordance with the terms of such Note and this Agreement, subject, however, to the limitations set forth in Section 5, and (ii) in the case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, at stated maturity, by acceleration or otherwise. Each Guarantor hereby agrees that its obligations thereunder and hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Note or this Agreement, any failure to enforce the provisions of any such Note or this Agreement, any waiver, modification or indulgence granted to the Seller with respect thereto by the Holder of such Note, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or such Guarantor. 12. Each Guarantor hereby waives diligence, presentment, demand for payment, filing of claims with a court in the event of merger or bankruptcy of the Seller, any right to require a proceeding first against the Seller, protest or notice with respect to any such Note or the Indebtedness evidenced thereby and all demands whatsoever, and will covenant that this Guarantee will not be discharged as to any such Note except by payment in full of the principal thereof, premium if any, and interest thereon and as provided in Section 6 hereof. Each Guarantor further agrees that, as between such Guarantor, on the one hand, and the Holders, on the other hand, (i) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Section 10 hereof for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such Obligations as provided in Section 10 hereof, such Obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee. In addition, without limiting the foregoing provisions, upon the effectiveness of an acceleration under Section 10 hereof, the Holders are hereby deemed to have made a demand for payment on the Notes under the Guarantee provided for in this Section 6. The guaranty set forth in this Section is a continuing guaranty and shall (a) remain in full force and effect until the later of the cash payment in full of the Obligations (other than indemnification obligations as to which no claim has been made) and all other amounts payable under this Section and the maturity date of the Notes, (b) be binding upon each Guarantor, its successors and assigns, and (c) inure to the benefit of and be enforceable by the Holders and their successors, pledgees, transferees and assigns. Without limiting the generality of the foregoing clause (c), the Holders may pledge, assign or otherwise transfer all or any portion of their rights and obligations under this Agreement and the other Subordinated Note Documents (including, without limitation, all or any portion of its Note) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted the Holders herein or otherwise, in each case as provided in Section 14.9(a). 6.2 Limitation of Guarantee. Notwithstanding any term or provision of this Agreement to the contrary, the maximum aggregate amount of the obligations guaranteed hereunder by any Guarantor shall not exceed the maximum amount that can be guaranteed hereunder by such Guarantor without rendering the Guarantee, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. 6.3 Additional Guarantors. The Seller covenants and agrees that it shall cause any Person which becomes obligated under Section 7.13 hereof, to guarantee the Notes, pursuant to the terms of Section 6 hereof, to execute either a (i) joinder to this Agreement and the Suretyship Agreement or (ii) a guarantee, satisfactory in form and substance to the Purchasers, pursuant to which such Subsidiary shall guarantee the obligations of the Seller under the Notes and this Agreement in accordance with this Section with the same effect and to the same extent as if such Person had been named herein as a Guarantor. 13. 6.4 Release of Guarantor. A Guarantor shall be released from all of its obligations under its Subsidiary Guarantee if: (i) the Guarantor has sold all or substantially all of its assets or the Seller and its Subsidiaries have sold all of the Capital Stock of the Guarantor owned by them, in each case in a transaction in compliance with this Agreement; or (ii) the Guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets to, the Seller or another Guarantor in a transaction in compliance with this Agreement; and in each such case, such Guarantor has delivered to the Holders an Officers' Certificate and an opinion of counsel reasonably acceptable to the Holders, each stating that all conditions precedent herein provided for relating to such transactions have been complied with. The Holders shall, at the sole cost and expense of the Seller, at its request and upon receipt of the documents mentioned in the preceding paragraph, deliver an appropriate instrument evidencing such release, and take such other actions as may be reasonably necessary or desirable. 6.5 Guarantee Obligations Subordinated to Senior Indebtedness. Each Guarantor hereby covenants and agrees, and each Holder of a Note, by its acceptance thereof, likewise covenants and agrees, that to the extent and in the manner hereinafter set forth in Section 5, the Indebtedness represented by the Subsidiary Guarantee and the payment of principal, premium, if any, and interest and Liquidated Damages, if any, on the Notes pursuant to the Subsidiary Guarantee by such Guarantor are hereby expressly made subordinate and subject in right of payment as provided in Section 5 (substituting, for purposes of this Guarantee, the Guarantor's Indebtedness for the Seller's Indebtedness) to the prior indefeasible payment and satisfaction in full of all Senior Indebtedness of such Guarantor, mutatis mutandis. In furtherance and not in limitation of the foregoing, in the event the Holders (or the Designated Representative, as applicable) shall have received a Payment Default Notice or a Non-Payment Default Notice from or on behalf of the Agent, during the Standstill Period applicable thereto each Holder shall be prohibited from accelerating the Indebtedness evidenced by the Subsidiary Guarantee and shall be prohibited from enforcing any of its default remedies (other than application of the Default Rate and the default rate of accretion and the accrual (but not the payment) of Liquidated Damages, if any, but including the right to accelerate such Indebtedness and exercise set-off rights) with respect thereto (including any right to sue the Guarantor or to file or participate in the filing of an involuntary bankruptcy proceeding against the Guarantor) until such Standstill Period shall cease to be in effect; provided, however, that if a Holder had initiated an enforcement action prior to the commencement of such Standstill Period at a time when such Holder was entitled to do so, then such Holder shall not be prevented during such Standstill Period from taking those steps, but no others, with respect to such pending enforcement action as are required by a mandatory provision of law. The failure by any Guarantor to make a payment in respect of its obligations on its Subsidiary Guarantee by reason of any provision of Section 5 14. or this Section 6.5 shall not be construed as preventing the occurrence of a Default or any Event of Default hereunder. This Section 6.5 constitutes a continuing offer to all Persons who, in reliance upon such provisions, become holders of or continue to hold Senior Indebtedness of any Guarantor; and such provisions are made for the benefit of the holders of Senior Indebtedness of each Guarantor; and such holders are made obligees hereunder and they or each of them may enforce such provisions. 6.6 Suretyship Agreement. The agreements and waivers set forth in this Section 6 are in addition to, and not in limitation of, the agreements and waivers set forth in the Suretyship Agreement, and the provisions of the Suretyship Agreement are incorporated herein by this reference. SECTION 7 AFFIRMATIVE COVENANTS The Seller hereby covenants and agrees that, during such time as any Holder owns any Notes or any shares of Common Stock issued upon conversion of the Notes: 7.1 Financial Information. The Seller will furnish the following reports to each Holder so long as the Holder is a holder of any Notes, or Common Stock issued upon conversion of any Notes that, in the aggregate, represent ownership of one percent (1%) or more, of the issued and outstanding voting securities of the Seller: (a) As soon as practicable after the end of each fiscal year of the Seller, and in any event within ninety (90) days thereafter, a consolidated and consolidating balance sheets of the Seller and its subsidiaries, if any, as of the end of such fiscal year, and consolidated statements of operations and retained earnings and consolidated and consolidating statements of cash flows of the Seller and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants from one of the five largest national accounting firms by the Seller, which opinion shall be without (A) a "going concern" or like qualification or exception or (B) any qualification or exception as to the scope of such audit or (C) any qualification which relates to the treatment or classification of any item and which, as a condition to the removal of such qualification, would require an adjustment to such item, the effect of which would be to cause any default under Indebtedness of the Seller. (b) As soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Seller, and in any event within forty-five (45) days thereafter, a consolidated and consolidating balance sheets of the Seller and its subsidiaries, if 15. any, as of the end of each such quarterly period, and consolidated statements of operations and retained earnings and consolidated and consolidating statements of cash flows of the Seller and its subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year, subject to changes resulting from year-end audit adjustments, all in reasonable detail and certified by the principal financial or accounting officer of the Seller. (c) So long as the Seller is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in lieu of the financial information required pursuant to paragraphs 7.1(a) and (b), copies of its Annual and Quarterly Reports on Form 10-K and 10-Q, respectively, or any similar successor forms, as shall be filed on a timely basis with the Securities and Exchange Commission. 7.2 Additional Information. Seller will permit representatives of the Holders to whom Paragraph 7.1 applies to visit and inspect any of the properties of the Seller and its Subsidiaries, including its books of account, and to discuss its affairs, finances and accounts with the Seller's officers and its independent public accountants, all at such reasonable times and as often as a Holder may reasonably request, and the Seller hereby consents to such discussions. If at any time the Seller is no longer subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, or (ii) quotations for the Common Stock of the Seller are no longer reported by the Nasdaq National Market System, or by an equivalent quotations system or stock exchange, the Seller will deliver the reports described below in this paragraph 7.2 to each Purchaser entitled to receive financial information pursuant to Section 7.1: (a) As soon as practicable after the end of each month and in any event within thirty (30) business days thereafter, a consolidated and consolidating balance sheets of the Seller and its Subsidiaries, if any, as at the end of such month, and consolidated statements of operations and retained earnings and consolidated and consolidating statements of cash flows of the Seller and its Subsidiaries, for each month and for the current fiscal year of the Seller to date, prepared in accordance with generally accepted accounting principles consistently applied, and certified, subject to changes resulting from year-end audit adjustments, by the principal financial or accounting officer of the Seller. (b) With reasonable promptness, such other information and data with respect to the Seller and any subsidiaries as a Holder may from time to time reasonably request. (c) The foregoing provisions of this paragraph 7.2 shall not be in limitation of any rights which a Holder may have to the books and records of the Seller and any Subsidiaries, or to inspect their properties or discuss their affairs, finances and accounts, under the laws of the jurisdictions in which they are incorporated. 7.3 Notice of Litigation, Adverse Claims, etc. Seller will promptly deliver to each Holder, but in any event within five (5) days after the discovery, notice of any material adverse 16. event or circumstance affecting the Seller (including, but not limited to, the filing of any litigation or administrative claim against the Seller, any officer of the Seller, or any of its Subsidiaries involving a claim in excess of $1,000,000 or which, if concluded adversely, could reasonably be expected to materially adversely affect the business or assets of the Seller, such officer, or any of its Subsidiaries or the existence of any dispute with any person which involves a reasonable likelihood of litigation being filed or any investigation or proceeding instituted or threatened by any federal or state regulatory agency). 7.4 Notice of Default, Event of Default or Acceleration of the Notes. Seller will deliver to each Holder the notices described herein immediately, and in any event within one (1) day after a Responsible Officer becoming aware of: (i) the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 9.1(f), a written notice specifying the nature and period of existence thereof and what action the Seller is taking or proposes to take with respect thereto, (ii) the acceleration of any Note pursuant to Section 10.1 hereof, a written notice setting forth the principal amount of each Note so accelerated, the name of the holder thereof and the circumstances surrounding such acceleration and (iii) the existence of a default or event of default under any Senior Indebtedness or other indebtedness of the Seller in an amount of $1,000,000 or more, and any concurrent or subsequent acceleration of such indebtedness, a written notice describing such default or acceleration. 7.5 Prompt Payment of Taxes, etc. Seller will, and will cause its Subsidiaries to, promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Seller or any Subsidiary; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Seller shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Seller will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor. 7.6 Maintenance of Properties and Leases. Seller will and will cause its Subsidiaries to, keep its properties and those of its Subsidiaries in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and the Seller and any Subsidiaries will at all times comply with each provision of all leases to which any of them is a party or under which any of them occupies property if the breach of such provision might have a material adverse affect on the condition, financial or otherwise, or operations of the Seller and its Subsidiaries, taken as a whole. 7.7 Insurance. Seller will keep its business and assets and those of its Subsidiaries which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, extended coverage and explosion in reasonable and adequate amounts and 17. the Seller will maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated. 7.8 Account and Records. Seller will keep true records and books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis. 7.9 Independent Accountants. Seller will retain independent public accountants from one of the five largest national accounting firms who shall certify the Seller's financial statements as of the end of each fiscal year. In the event the services of the independent public accountants, so selected, or any firm of independent public accountants hereafter employed by the Seller are terminated, the Seller will immediately, and within one (1) day, thereafter notify the Holders and will request the firm of independent public accountants whose services are terminated to deliver to the Purchasers a letter of such firm setting forth the reasons for the termination of their services. In the event of such termination, the Seller will promptly thereafter engage another one of the five largest national accounting firms. In its notice to the Holders the Seller shall state whether the change of accountants was recommended or approved by the Board of Directors or any committee thereof. 7.10 Compliance with Requirements of Governmental Authorities. Seller shall, and cause all of its Subsidiaries to, duly observe and conform to all valid requirements of governmental authorities relating to the conduct of their businesses or to their property or assets, and shall comply in all material respects to all laws and regulations applicable to Seller, its Subsidiaries or their business. 7.11 Maintenance of Corporate Existence, etc. Seller shall, and shall cause its Subsidiaries to, maintain in full force and effect their corporate existence, rights and franchises and all licenses and other rights to use patents, processes, licenses, trademarks, trade names or copyrights owned or possessed by them and deemed by the Seller to be necessary to the conduct of their business. Seller shall at all times maintain the listing of its Common Stock on the Nasdaq National Market, the New York Exchange, or an equivalent nationally recognized exchange. 7.12 Availability of Common Stock for Conversion. Seller will, from time to time, in accordance with the laws of the state of its incorporation, increase the authorized amount of Common Stock prior to such time as the failure to do so would cause the number of shares of Common Stock remaining authorized and unissued to be insufficient to permit conversion of all the then outstanding Notes. No later than the first to occur of (i) the date a Shelf Registration with respect to the Common Stock issuable upon conversion of the Notes is filed with the SEC pursuant to the Registration Rights Agreement or (ii) ninety (90) days from the date hereof, the Board of Directors of the Seller shall specifically reserve for issuance 602,534 shares of Common Stock to be issued upon conversion of the Notes. Upon any adjustment in the number 18. of shares of Common Stock that become issuable upon conversion of the Notes, whether due to the antidilution provisions of the Notes, a reset of the Conversion Price (as defined in the Notes), or a default rate of accretion or default rate of interest or Liquidated Damages becoming due and available for conversion into shares of Common Stock, or otherwise, Seller shall reserve such shares for issuance upon conversion and maintain an adequate number of shares so reserved until all of the Notes have been converted or paid in full. Seller will cause any additional shares of Common Stock that become issuable upon conversion of the Notes as a result of an adjustment to the Conversion Price (as defined in the Notes) to be listed, as of the effective time of such adjustment, on the Nasdaq National Market or other exchange on which the Common Stock is then listed. 7.13 Subsidiary Guarantee. At such time as any Person becomes a Subsidiary of the Seller, to cause such Person to deliver either (i) a joinder to this Agreement and the Suretyship Agreement and thereby become a Guarantor hereunder or (ii) a Guarantee of the Notes, in either case in form and substance satisfactory to the Holders. 7.14 Registration Rights. (a) Pursuant to the terms of the Registration Rights Agreement, the Seller shall register the Common Stock issuable upon conversion of the Notes for re-sale by the Holders. (b) The Seller and the Purchaser agree that the Holders of the Notes will suffer damages if the Seller fails to fulfill its obligations pursuant to the Registration Rights Agreement and that it would not be possible to ascertain the extent of such damages. Accordingly, in the event of a failure by the Seller to fulfill its obligation to register the Common Stock for resale pursuant to the terms of the Registration Rights Agreement on or prior to the Effectiveness Target Date, the Seller hereby agrees to pay liquidated damages ("Liquidated Damages") to each Purchaser or Holder of a Note under the circumstances and to the extent set forth below. If the Seller's Shelf Registration (as defined in the Registration Rights Agreement) is not declared effective by the SEC on or prior to the Effectiveness Target Date, or the Shelf Registration has been declared effective by the SEC and such Shelf Registration ceases to be effective or the prospectus ceases to be usable at any time during Effectiveness Period for a period of time which shall exceed 30 days in the aggregate during any 365-day period (any of the foregoing, a "Registration Default") then the Seller shall pay Liquidated Damages in cash on the first Business Day of each month to each Purchaser immediately following the occurrence of such Registration Default in an amount equal to $10.00 per month per $1,000 principal amount of Notes for each month (computed the basis of a 30-day month) or portion thereof that the Registration Default continues. Following the cure of all Registration Defaults relating to any breach of the Registration Rights Agreement, the accrual of Liquidated Damages with respect to such Registration Default shall cease. The Registration Default shall be deemed cured on a date that either the Shelf Registration is declared effective or, in the case of a prospectus that has become unusable, the date the prospectus contained therein again becomes usable consistent with applicable law. 19. (c) The Seller shall notify the Holders on the date of, and on a weekly basis during the pendency of, any Registration Default. The obligation to pay Liquidated Damages shall be deemed to commence on the date of the applicable Registration Default and to cease when all Registration Defaults have been cured. (d) For purposes of this Section 7.14 and the Registration Rights Agreement, the Effectiveness Target Date shall be 180 days after the Closing Date and the Effectiveness Period shall be five years. (e) For purposes of determining the amount of Liquidated Damages due hereunder, Common Stock acquired by a Holder upon conversion of a Note and not disposed of shall be treated as if it were not converted and was still held as Notes by a Holder. 7.15 Use of Proceeds. Seller will use the proceeds from the sale of the Notes to be issued to consummate the Ultradata Acquisition (including the payment of expenses in connection therewith) and for working capital purposes. 7.16 Further Assurances. Seller shall take such action and execute, acknowledge and deliver, and cause each of its Subsidiaries to take such action and execute, acknowledge and deliver, at their sole cost and expense, such agreements, instruments or other documents as the Holders may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement and the other Subordinated Note Documents, (ii) to establish and maintain the validity and effectiveness of any of the Subordinated Note Documents, and (iii) to better assure, convey, grant, assign, transfer and confirm unto the Holders the rights now or hereafter intended to be granted to the Holders under this Agreement or any other Subordinated Note Document. SECTION 8 NEGATIVE COVENANTS 8.1 Employee Stock Purchases; Preferred Stock. (a) Seller will not issue any of its Capital Stock, or grant an option to purchase any of its Capital Stock, to any employee, officer, director, consultant or independent contractor of the Seller or a subsidiary except pursuant to the Seller's Stock Option Plans described in Schedule 5.01(e) to the 1999 Credit Facility or any substantially similar plan approved by the Board of Directors in the ordinary course of business and consistent with past practices or approved by the Seller's shareholders, and except for up to 150,000 options or warrants issued at fair market value to an outside investor relations firm. (b) Seller will not (or cause any Subsidiary to) issue any Prohibited Preferred Stock. 20. 8.2 Transactions with Affiliates. Neither Seller nor any Guarantor shall enter into, renew, extend or be a party to, or permit any of its Subsidiaries to enter into, renew, extend or be a party to any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any of its Affiliates, except in the ordinary course of business in a manner and to an extent consistent with past practice and necessary or desirable for the prudent operation of its business, for fair consideration and on terms no less favorable to Seller, Guarantor or such Subsidiary than would be obtainable in a comparable arm's length transaction with a Person that is not an Affiliate thereof, and unless (i) Seller or Guarantor has obtained the approval of a majority of the members of the Board of Directors not interested in such Affiliate transaction and (ii) at a time reasonably (and no less than five (5) days) prior to the submission of such transaction to the disinterested directors for approval, notice of such transaction has been given to the Holders. 8.3 Nature of Business. Seller will not, and will not permit any Subsidiary to, make any fundamental or material change in the nature of its business as described in Section 5.01(m) of the Credit Agreement. 8.4 Limitation on Restricted Payments. Seller, the Guarantors, and their Subsidiaries shall not, directly or indirectly, (i) declare or pay any dividend or other distribution, direct or indirect, on account of any Capital Stock of Seller, Guarantors or any of their subsidiaries, now or hereafter outstanding, (ii) make any repurchase, redemption, retirement, defeasance, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any Capital Stock of Seller or any Guarantor, now or hereafter outstanding, (iii) make any payment to retire, or to obtain the surrender of, any outstanding warrants, options or other rights for the purchase or acquisition of shares of any class of Capital Stock of Seller or any Guarantor, now or hereafter outstanding, (iv) return any capital to any shareholders or other equity holders of Seller, Guarantors or any of their Subsidiaries, or make any other distribution of property, assets, shares of Capital Stock, warrants, rights, options, obligations or securities thereto as such, (v) purchase, redeem or otherwise acquire or retire for value prior to maturity Indebtedness that is subordinated to or pari passu with the Notes or (vi) pay any management fees or any other fees or expenses (including the reimbursement thereof by Seller, Guarantors or any of their Subsidiaries) pursuant to any management, consulting or other services agreement to any of the shareholders or other equityholders of Seller, Guarantor or any of their Subsidiaries or other Affiliates, or to any other Subsidiaries or Affiliates of Seller or any Guarantor; provided, however, that: (A) Subsidiaries that are wholly-owned directly or indirectly by Seller may declare and pay cash and stock dividends, return capital and make distributions of assets to Seller; (B) Seller may make regularly scheduled mandatory redemptions, as and when due and payable, of the CFI Class A Preferred Stock, in an aggregate amount not to exceed $103,142 in any fiscal year; 21. (C) Seller may declare and pay dividends and distributions payable solely in shares of Seller's Common Stock, subject to the adjustment provisions of the Notes; (D) Ultradata may make payments to holders of the "Dissenting Shares" (as such term is defined in the Ultradata Acquisition Documents), if any, with respect to such Dissenting Shares, to the extent required under the Delaware General Corporation Law and the Ultradata Acquisition Documents; provided, however, that the number of Dissenting Shares shall not constitute more than 5% of the Capital Stock of Ultradata issued and outstanding immediately prior to the consummation of the Ultradata Acquisition; and (E) Seller may make payments to the holders of the Warrants issued in connection with the 1999 Credit Facility under Sections 4(a)(2) or 4(a)(3) thereof in order to reduce the number of shares of Common Stock issuable upon exercise of the Warrants, but the Seller may not amend such provisions to increase the amounts paid thereunder without the consent of the Required Holders. 8.5 Restriction On Fundamental Changes. Without the consent of the Required Holders, Seller shall not (i) liquidate, wind-up or dissolve (or permit or suffer any thereof), (ii) enter into any agreement that would impair or restrict the Seller's ability to perform its obligations under this Agreement, the Notes or the Registration Rights Agreement, (iii) amend its charter or bylaws in any manner which would impair or restrict the Seller's ability to perform its obligations under this Agreement, the Notes or the Registration Rights Agreement, or (iv) agree to do any of the foregoing, provided, that any wholly-owned Subsidiary of Seller or a Guarantor may be merged with any other wholly-owned Subsidiary of Seller or a Guarantor, so long as (A) no other provisions of this Agreement would be violated thereby, (B) Seller gives the Holders at least 30 days' prior written notice of such merger, (C) no Default or Event of Default shall have occurred and be continuing either before or after giving effect to such transaction, and (D) if the merger is between a Subsidiary that is a Guarantor and another Subsidiary that is not a Guarantor, the Subsidiary that is a Guarantor shall be the surviving entity of such merger or, the party designated to survive the merger shall deliver a Guarantee prior to the date of such merger. 8.6 Limitation on Dividend Payments by Subsidiaries. Neither Seller nor any Subsidiary shall create or otherwise cause, incur, assume, suffer or permit to exist or become effective any agreement restricting the payment of dividends, or the transfer, loan or advance of funds or assets by or from any Subsidiary of Seller to Seller, or the payment of any Note on behalf of Seller (pursuant to the Guaranty or otherwise) unless otherwise required by (i) any Senior Indebtedness or (ii) applicable laws and regulations, provided, that in each case the Holders of the Notes are provided at least 30 days prior written notice of the effectiveness of such restriction. 22. SECTION 9 EVENTS OF DEFAULT 9.1 Events of Default. A "Default" or an "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Seller defaults in the payment of any principal or premium, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or acceleration or otherwise; or (b) the Seller defaults in the payment of any interest on any Note when the same becomes due and payable; or (c) the Seller defaults in the performance of or compliance with any covenant contained in Sections 8.1 through 8.6, or Sections 7.12 through 7.14; or (d) the Seller defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 9.1) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer of the Seller obtaining actual knowledge of such default or (ii) the Seller receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this Section 9); or (e) any representation or warranty made in writing by or on behalf of the Seller or by any officer of the Seller in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any respect on the date as of which made; or (f) (i) (A) the Seller or any Subsidiary is in default (as principal or as guarantor or other surety) in the payment, of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $1,000,000 beyond any period of grace provided with respect thereto, or (B) the Seller or any Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $1,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and (ii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests), the Seller or any Subsidiary has become obligated to purchase or repay Indebtedness, or any Indebtedness has matured, or has become or been declared due or payable before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $1,000,000, provided, that the occurrence of a default of the type described in clause (i) of this paragraph (f) shall entitle the Holders to receive interest at the 23. Default Rate or the default rate of accretion under the Notes (notwithstanding that Seller is not in Default hereunder); or (g) the Seller or any Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Seller or any of its Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Seller or any of its Subsidiaries, or any such petition, order or approval shall be filed against the Seller or any of its Subsidiaries and such petition, order or approval shall not be dismissed with prejudice within 60 days; or (i) a final judgment or judgments for the payment of money aggregating in excess of $1,000,000 are rendered against one or more of the Seller and its Subsidiaries and such judgments are not, within 30 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 30 days after the expiration of such stay; or (j) if the amount of unfunded benefit liabilities of the Seller under any employee benefit plan shall exceed $100,000, or the Seller or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Seller or any Subsidiary thereunder. As used in Section 9.1(i), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in Section 3 of ERISA. SECTION 10 REMEDIES ON DEFAULT 10.1 Acceleration. If an Event of Default with respect to the Seller described in paragraph (g) or (h) of Section 9.1 has occurred, all the Notes then outstanding shall automatically become immediately due and payable. Subject to the subordination provisions set 24. forth in Sections 5 and 6, if any other Event of Default has occurred and is continuing, any Holder or Holders of more than 33-1/3% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Seller, declare all the Notes then outstanding to be immediately due and payable. Upon any Note becoming due and payable under this Section 10.1, whether automatically or by declaration, such Note will forthwith mature and the entire unpaid principal amount of such Note, plus all accrued and unpaid interest thereon, and Liquidated Damages, if any, shall immediately become due and payable. 10.2 Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 10.1, the Holder of any Note at the time outstanding may proceed to protect and enforce the rights of such Holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 10.3 Rescission. At any time after any Notes have been declared due and payable pursuant to the second sentence of Section 10.1, the Holders of not less than 50% in principal amount of the Notes then outstanding, by written notice to the Seller, may rescind and annul any such declaration and its consequences if (a) the Seller has paid all overdue interest on the Notes, all principal of and premium and Liquidated Damages, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and premium, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 14.1, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 10.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 10.4 No Waivers or Election of Remedies, Expenses, etc. No course of dealing and no delay on the part of any Holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any Holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Seller under Section 11.1, the Seller will pay to the Holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such Holder incurred in any enforcement or collection under this Section 10, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 25. SECTION 11 EXPENSES, ETC. 11.1 Transaction Expenses; Fees. The Seller will pay, on demand, all Holder Group Expenses incurred by or on behalf of the Holders, regardless of whether the transactions contemplated hereby are consummated, including, without limitation, reasonable fees, costs, client charges and expenses of the several counsel (including in-house counsel) for the Holders, accounting, due diligence, periodic field audits, physical counts, valuations, investigations, monitoring of assets, environmental assessments, miscellaneous disbursements, examination, travel, lodging and meals, arising from or relating to: the negotiation, preparation, execution, delivery, performance and administration of this Agreement the Notes or any other related documents, (including, without limitation, (a) any requested amendments, waivers or consents to this Agreement, the Notes or any other related documents whether or not such documents become effective or are given, (b) the preservation and protection of any of the Holder's rights under this Agreement, the Notes or any other related documents, (c) the defense of any claim or action asserted or brought against any Holder by any Person that arises from or relates to this Agreement, the Notes or any other related documents, the Holder's claims against the Seller or any Guarantor or any and all matters in connection therewith, (d) the commencement or defense of, or intervention in, any court proceeding arising from or related to this Agreement, the Notes or any other related documents, (e) the filing of any petition, complaint, answer, motion or other pleading by any Holder in connection with this Agreement, the Notes or any other related documents, (f) any attempt to collect from the Seller or any Guarantor, (g) the receipt by any Holder of any advice from its professionals with respect to any of the foregoing, (h) all liabilities and costs arising from or in connection with the past, present or future operations of the Seller or any Guarantor involving any damage to real or personal property or natural resources or harm or injury alleged to have resulted from any Release of Hazardous Materials on, upon or into such property, or any Environmental Liabilities and Costs incurred in connection with the investigation, removal, cleanup and/or remediation of any Hazardous Materials present or arising out of the operations of any facility of the Seller and its Subsidiaries, or (i) any Environmental Liabilities and Costs incurred in connection with any Environmental Lien. Without limitation of the foregoing or any other provision of this Agreement, the Notes or any other related documents: (x) the Seller agrees to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter imposed or levied in connection with this Agreement, the Notes (or the conversion thereof) or any related documents, and the Seller agrees to hold the Holders harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions, (y) the Seller agrees to pay all broker fees that may become due in connection with the transactions contemplated by this Agreement, and (z) if the Seller or any Guarantor fails to perform any covenant or agreement contained herein or in the Notes or any related documents, the Holders may perform or cause performance of such covenant or agreement, and the Holder Group Expenses of the Holders incurred in connection therewith shall be reimbursed on demand by the Seller. 26. 11.2 Survival. The obligations of the Seller under this Section 11 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. SECTION 12 INDEMNIFICATION 12.1 Losses. Whether or not the transactions contemplated by this Agreement are consummated, the Seller and each Guarantor, jointly and severally, shall indemnify and hold harmless each Purchaser and its Affiliates, employees, partners, general partners, members, managers, officers, directors, representatives, agents, attorneys, successors and assigns, (the "Indemnified Parties") from and against any and all losses, claims, damages, liabilities, expenses and costs, including, without limitation, attorneys' fees and other fees and expenses incurred in, and the costs of preparing for, investigating or defending any matter (collectively, "Losses"), incurred by such Indemnified Party in connection with or arising from (i) any breach of any warranty or the inaccuracy of any representation made by the Seller in, or the failure of the Seller to fulfill any of its agreements or undertakings under, this Agreement, any Note or any other agreement, instrument, or document contemplated hereby or relating to the transactions contemplated hereby, (ii) any failure by the Seller or its Subsidiaries to perform any their covenants hereunder or under any Note, or (iii) any actions taken by the Seller or any of the Seller's Affiliates, employees, officers, directors, representatives, agents or attorneys in connection with the transactions contemplated by this Agreement. The Seller shall either pay directly all Losses which it is required to pay hereunder or reimburse any Indemnified Party within ten (10) days after any request for such payment. The obligations of the Seller to the Indemnified Parties under this Section 12.1 shall be separate obligations to each Indemnified Party, and the liability of the Seller to such Indemnified Parties hereunder shall not be extinguished solely because any Indemnified Party is not entitled to indemnity hereunder. The obligations of the Seller and the Guarantors to the Indemnified Parties under this Section 12.1 shall survive (a) the payment of any Note (whether at maturity, by prepayment or acceleration or otherwise), (b) the conversion of all or a part of any Note, (c) any transfer of any Note or any interest therein, (d) the termination of this Agreement or any other agreement, instrument or document contemplated hereby or relating hereto, (e) the termination, refinancing, restructuring or repayment of the 1999 Credit Facility and (f) the sale of Common Stock acquired upon conversion of any Note. 12.2 Indemnification Procedures. Any Person entitled to indemnification under this Section 12 shall (a) give prompt written notice to the Seller of any claim with respect to which it seeks indemnification and (b) permit the Seller to assume the defense of such claim with counsel selected by the Seller and reasonably acceptable to such Person; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (i) the Seller has agreed to pay such fees or expenses; (ii) the 27. Seller has failed to notify such Person in writing within ten (10) days of its receipt of such written notice of claim that it will assume the defense of such claim and employ counsel reasonably satisfactory to such Person; or (iii) in the judgment of any such Person, based upon the written advice of counsel, a conflict of interest may exist between such Person and the Seller with respect to such claims (in which case, if the Person notifies the Seller in writing that such Person elects to employ separate counsel at the expense of the Seller, the Seller shall not have the right to assume the defense of such claim on behalf of such Person). The Seller and the Guarantors will not be subject to any liability for any settlement made without the Seller's consent (but such consent may not be unreasonably withheld). No Indemnified Party may, without the consent (which consent will not be unreasonably withheld) of the Seller, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the Seller of a release from all liability in respect of such claim or litigation. 12.3 Contribution. If the indemnification provided for in this Section 12 is unavailable to the Purchaser or any other Indemnified Party in respect of any Losses, then the Seller, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by the Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Seller, on the one hand, and such Indemnified Party on the other hand, in connection with the actions, statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Seller, on the one hand, and such Indemnified Party on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, either the Seller or such Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The parties agree that it would not be just and equitable if contribution pursuant to this Section 12.3 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. SECTION 13 SURVIVAL ETC. 13.1 Survival of Representations and Warranties; Entire Agreement. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by a Purchaser of any Note or portion thereof or interest therein the payment of any Note, and the termination, refinancing, restructuring, or repayment of the 1999 Credit Facility and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of the Purchasers or any 28. other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Seller pursuant to this Agreement shall be deemed representations and warranties of the Seller under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between the Purchasers and the Seller and supersede all prior oral and written agreements and understandings relating to the subject matter hereof, except that the letter agreement dated July 29, 1999, by and between the Seller and Levine Leichtman Capital Partners, Inc. shall survive the execution of this Agreement until the obligations set forth therein have been fully performed. SECTION 14 AMENDMENT AND WAIVER; MISCELLANEOUS 14.1 Requirements. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Seller and the Required Holders, (and, in the case of Section 5 and Section 6.5, of the Agent and the Required Lenders) except that without the written consent of each Holder affected, an amendment or waiver under this Section 14.1 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce or increase the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the prepayment or redemption of the Notes; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Agreement relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or interest or premium or Liquidated Damages, if any, on the Notes; (g) adversely affect the right of such Holder to convert Notes, or the other rights of the Holders with respect to conversion under Section 6 of the Notes; or 29. (h) impair the right to institute suit for the conversion of a Note or for the enforcement of any payment (to the extent already permitted under Section 5) on or after the due date thereof. 14.2 Solicitation of Holders of Notes. (a) Solicitation. The Seller will provide each Holder of the Notes (irrespective of the amount of Notes then owned by it) with a reasonably sufficient amount of information, with reasonable (and at least five (5) days) prior notice in advance of the date a decision is required, to enable such Holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Seller will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 14 to each holder of outstanding Notes promptly (within two (2) Business Days) following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite Holders of Notes. (b) Payment. The Seller will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any Holder of Notes as consideration for or as an inducement to the entering into by any Holder of Notes of any waiver or amendment of any of the terms and provisions hereof or of the Notes unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each Holder of Notes then outstanding whether or not such Holder consented to such waiver or amendment. 14.3 Binding Effect, etc. Any amendment or waiver consented to as provided in this Section 14 applies equally to all Holders of Notes and is binding upon them and upon each future Holder of any Note and upon the Seller without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Seller and the Holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any Holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 14.4 Notes Held by Seller, etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Seller, any of its Affiliates or any Subsidiary shall be deemed not to be outstanding. 30. 14.5 "Required Holders". "Required Holders" shall mean the Holders of 50.1% of the principal amount of Notes then outstanding. 14.6 Notices. All notices and communications provided for hereunder shall be in writing and sent (a) by telefacsimile, or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (a) if to a Purchaser, it at the address specified for such communications in Exhibit A or at such other address as it shall have specified to the Seller in writing, (b) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Seller in writing, or (c) if to the Seller or any Guarantor, CFI Pro Services, Inc. 400 S.W. Sixth Avenue, Suite 200 Portland, Oregon 97204 Attention: Jeffrey P. Strickler, Esq. Telephone: (503) 274-7280 Facsimile: (503) 790-9229 With a copy to: Farleigh, Wada & Witt, P.C. 121 S. W. Morrison, Suite 600 Portland, Oregon 97204 Attention: F. Scott Farleigh, Esq. Telephone: (503) 228-6044 Facsimile: (503) 228-1741 Notices under this Section 14.6 will be deemed given only when actually received, or three hours after confirmation of a successful telefacsimile transmission. 14.7 Confidential Information. Each Holder agrees (on behalf of itself and each of its affiliates, directors, officers, partners, general partners, members, managers, and its or their employees and representatives) to use reasonable precautions to keep confidential, in accordance with its customary procedures for handling confidential information of this nature and in accordance with safe and sound practices of comparable investors, the Confidential Information and to prevent a Holder's unauthorized use of the Confidential Information; provided, however, that nothing herein shall limit the disclosure of any Confidential Information (a) to the extent required by statute, rule, regulation or judicial process, (b) (i) to any other Holder, (ii) to counsel for such Holder on a "need to know" basis if such disclosure is reasonably determined by the 31. disclosing party to be reasonably necessary to such Person in connection with the Obligations or Notes or the transactions contemplated thereunder, or (iii) to counsel for any other Holder on a "need to know" basis if such disclosure is reasonably determined by the disclosing party to be reasonably necessary to such Person in connection with the Obligations or the Notes or the transactions contemplated thereunder, (c) to examiners, auditors or accountants on a "need to know" basis if such disclosure is reasonably determined by the disclosing party to be reasonably necessary to such Person in connection with the Obligations or the Notes or the transactions contemplated thereunder, (d) in connection with any litigation to which the Holder is a party, (e) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first agrees, in writing, to be bound by confidentiality provisions similar in substance to this Section 14.7 in all material respects, or (f) in connection with the exercise of the Holder's remedies upon the occurrence and during the continuation of an Event of Default. The Holder agrees that, upon receipt of a request or identification of the requirement for disclosure pursuant to clauses (a) or (d) hereof, it will make reasonable efforts to keep Seller informed of such request or identification (and, unless prohibited by applicable law, statute, regulation, or court order, concurrently with, or where practicable, prior to the disclosure thereof); provided, however, that Seller and the Guarantors acknowledge that the Holders may make disclosure as required or requested by any governmental authority or representative thereof and that the Holders may be subject to review by regulatory agencies and may be required to provide to, or otherwise make available for review by, the representatives of such parties or agencies any such non-public information, and that Seller shall be kept informed reasonably of such requests and review of Confidential Information. 14.8 Registration of Notes. The Seller shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each Holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Seller shall not be affected by any notice or knowledge to the contrary. The Seller shall give to any Holder of a Note promptly, and within one (1) day, upon request therefor, a complete and correct copy of the names and addresses of all registered Holders of Notes. 14.9 Miscellaneous. (a) Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent Holder of a Note) whether so expressed or not. (b) Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any 32. such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. (c) Construction. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. (d) Legal Representation of LLCP. In connection with the negotiation, drafting, and execution of Subordinated Note Documents or in connection with future legal representation relating to administration, amendments, modifications, waivers, or enforcement of remedies thereof, Riordan & McKinzie, a Professional Law Corporation, ("R&M") only has represented and only shall represent Levine Leichtman Capital Partners II, L.P., one of the Purchasers. Each other Purchaser hereby acknowledges that R&M does not represent any other Purchaser in connection with any such matters. (e) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by fewer than all, but together signed by all, of the parties hereto. (f) Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. (g) CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OTHER RELATED DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT OR A JOINDER HERETO, SELLER AND EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. SELLER AND EACH GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SELLER OR THE GUARANTOR AT ITS ADDRESS FOR NOTICES AS SET FORTH IN SECTION 14.6, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE HOLDERS TO SERVICE OF PROCESS IN ANY 33. OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE SELLER OR ANY GUARANTOR IN ANY OTHER JURISDICTION. THE SELLER AND EACH GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE SELLER OR ANY GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE SELLER AND EACH GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT, THE NOTES OR ANY OTHER RELATED DOCUMENTS. (h) WAIVER OF JURY TRIAL, ETC. THE PARTIES HERETO AND ANY SUBSEQUENT GUARANTOR OR HOLDER OF A NOTE HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, THE NOTES OR OTHER DOCUMENTS PREPARED IN CONNECTION HEREWITH, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SELLER AND EACH GUARANTOR CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE PURCHASERS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE PURCHASERS WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. SELLER AND EACH GUARANTOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER'S ENTERING INTO THIS AGREEMENT. Signature pages follow 34. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SELLER: CFI PROSERVICES, INC., an Oregon corporation By: /s/ Robert P. Chamness ---------------------- Name: Robert P. Chamness Title: President GUARANTORS: ULTRADATA CORPORATION, a Delaware corporation and successor by merger to UFO Acquisition Co. By: /s/ Robert P. Chamness ---------------------- Name: Robert P. Chamness Title: President MECA SOFTWARE, L.L.C., a Delaware limited liability company By: /s/ Robert P. Chamness ---------------------- Name: Robert P. Chamness Title: President MONEYSCAPE HOLDINGS, INC., an Oregon corporation By: /s/ Robert P. Chamness ---------------------- Name: Robert P. Chamness Title: President Note Purchase Agreement S-1 PURCHASERS: LEVINE LEICHTMAN CAPITAL PARTNERS II, L.P., a California limited partnership By: LLCP California Equity Partners II, L.P., a California limited partnership Its: General Partner By: Levine Leichtman Capital Partners, Inc., a California corporation Its: General Partner By: /s/ Lauren B. Leichtman ----------------------- Lauren B. Leichtman Chief Executive Officer Note Purchase Agreement S-2 BAY STAR CAPITAL, L.P. By: Bay Star Management, LLC By: /s/ Brian J. Stark ------------------ Name: Brian J. Stark Title: Managing Member Note Purchase Agreement S-3 U.S. BANCORP LIBRA, a division of U.S. Bancorp Investments, Inc. By: /s/ James B. Upchurch -------------------- Name: James B. Upchurch Title: President Note Purchase Agreement S-4 SOUNDSHORE HOLDINGS LTD. By: /s/ Andrew W. Gitlin -------------------- Andrew W. Gitlin Director of SoundShore Holdings Ltd. Note Purchase Agreement S-5 SOUNDSHORE OPPORTUNITY HOLDING FUND LTD. By: /s/ Andrew W. Gitlin -------------------- Andrew W. Gitlin Director of SoundShore Opportunity Holding Fund Ltd. Note Purchase Agreement S-6 EXHIBIT A PURCHASERS
Purchaser Name, Address Original and Tax I.D. No. Purchase Price Principal Amount - ------------------------------------------- -------------- ---------------- Levine Leichtman Capital Partners II, L.P. $ 2,000,000 $2,680,193 335 N. Maple Drive Suite 240 Beverly Hills, CA 90210 Tax ID No. Bay Star Capital, L.P. $ 1,500,000 $2,010,145 1500 W. Market Street Suite 200 Mequon, WI 53902 Tax ID No. U.S. Bancorp Libra $ 1,050,000 $1,407,101 11766 Wilshire Boulevard Suite 870 Los Angeles, CA 90025 Tax ID No. SoundShore Holdings Ltd. $ 500,000 $670,048 Registered Address: 29 Richmond Road Pembroke HMO8 Bermuda Mailing Address: 1281 East Main Street Stamford, CT 06902 Tax ID No. n/a SoundShore Opportunity Holding Fund Ltd. $ 500,000 $670,048 Registered Address: 29 Richmond Road Pembroke HMO8 Bermuda Mailing Address: 1281 East Main Street Stamford, CT 06902 Tax ID No. n/a
EXHIBIT C SCHEDULE OF INDEBTEDNESS See Schedule 6.02(b) to the Credit Agreement, which is incorporated herein by this reference. TABLE OF CONTENTS (Continued) TABLE OF CONTENTS Page SECTION 1 PURCHASE OF THE NOTES........................................2 1.1 Authorization................................................2 1.2 Purchase from Seller.........................................2 1.3 Closing......................................................2 1.4 Other Defined Terms..........................................2 SECTION 2 REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER.............2 2.1 Due Incorporation or Formation; Authorization of Agreement....................................................2 2.2 No Conflict..................................................3 2.3 Investment Intent............................................3 2.4 Certificates to be Legended..................................3 2.5 Securities Will be "Restricted Securities"...................3 2.6 Sophistication of Purchasers; Accredited Investor Status.....3 2.7 Due Diligence................................................4 SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND GUARANTORS...................................................4 3.1 Representations and Warranties Incorporated by Reference.....4 3.2 Shares Reserved..............................................4 3.3 Indebtedness.................................................5 SECTION 4 CONDITIONS TO CLOSING........................................5 4.1 Representations and Warranties Correct.......................5 4.2 Performance..................................................5 4.3 Opinion of Seller's Counsel..................................5 4.4 Legal Investment.............................................5 4.5 Compliance Certificate.......................................5 4.6 Proceedings and Documents....................................5 4.7 Qualification................................................5 4.8 Closing of Credit Agreement..................................6 4.9 Closing of Acquisition; Use of Proceeds......................6 4.10 Registration Rights Agreement................................6 4.11 Suretyship Agreement.........................................6 SECTION 5 SUBORDINATION................................................6 5.1 Subordination of the Subordinated Notes......................6 5.2 Right of Holder to Hold Senior Indebtedness.................11 5.3 Designated Representative...................................11 SECTION 6 GUARANTEE...................................................12 6.1 Guarantee...................................................12 i TABLE OF CONTENTS (Continued) Page 6.2 Limitation of Guarantee.....................................13 6.3 Additional Guarantors.......................................13 6.4 Release of Guarantor........................................14 6.5 Guarantee Obligations Subordinated to Senior Indebtedness...14 6.6 Suretyship Agreement........................................15 SECTION 7 AFFIRMATIVE COVENANTS.......................................15 7.1 Financial Information.......................................15 7.2 Additional Information......................................16 7.3 Notice of Litigation, Adverse Claims, etc...................16 7.4 Notice of Default, Event of Default or Acceleration of the Notes...................................................17 7.5 Prompt Payment of Taxes, etc................................17 7.6 Maintenance of Properties and Leases........................17 7.7 Insurance...................................................17 7.8 Account and Records.........................................18 7.9 Independent Accountants.....................................18 7.10 Compliance with Requirements of Governmental Authorities....18 7.11 Maintenance of Corporate Existence, etc.....................18 7.12 Availability of Common Stock for Conversion.................18 7.13 Subsidiary Guarantee........................................19 7.14 Registration Rights.........................................19 7.15 Use of Proceeds.............................................20 7.16 Further Assurances..........................................20 SECTION 8 NEGATIVE COVENANTS..........................................20 8.1 Employee Stock Purchases; Preferred Stock...................20 8.2 Transactions with Affiliates................................21 8.3 Nature of Business..........................................21 8.4 Limitation on Restricted Payments...........................21 8.5 Restriction On Fundamental Changes..........................22 8.6 Limitation on Dividend Payments by Subsidiaries.............22 SECTION 9 EVENTS OF DEFAULT...........................................23 9.1 Events of Default...........................................23 SECTION 10 REMEDIES ON DEFAULT.........................................24 10.1 Acceleration................................................24 10.2 Other Remedies..............................................25 10.3 Rescission..................................................25 10.4 No Waivers or Election of Remedies, Expenses, etc...........25 ii SECTION 11 EXPENSES, ETC...............................................26 11.1 Transaction Expenses; Fees..................................26 11.2 Survival....................................................27 SECTION 12 INDEMNIFICATION.............................................27 12.1 Losses......................................................27 12.2 Indemnification Procedures..................................27 12.3 Contribution................................................28 SECTION 13 SURVIVAL ETC................................................28 13.1 Survival of Representations and Warranties; Entire Agreement.................................................28 SECTION 14 AMENDMENT AND WAIVER........................................29 14.1 Requirements................................................29 14.2 Solicitation of Holders of Notes............................30 14.3 Binding Effect, etc.........................................30 14.4 Notes Held by Seller, etc...................................30 14.5 "Required Holders"..........................................31 14.6 Notices.....................................................31 14.7 Confidential Information....................................31 14.8 Registration of Notes.......................................32 14.9 Miscellaneous...............................................32 EXHIBIT Exhibit A -- List of Purchasers Exhibit B -- Form of 10% Convertible Subordinated Discount Note Exhibit C -- Pro Forma Indebtedness Schedule Exhibit D -- Forms of Opinions of Seller's and Guarantor's Counsel Exhibit E -- Form of Registration Rights Agreement Exhibit F -- Form of Suretyship Agreement APPENDICES Appendix A-1 -- Definition of Terms iii Appendix I to Note Purchase Agreement Definition of Terms "1999 Credit Facility" has the meaning specified in the Recitals. "Affiliate" means as to any Person, any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (i) vote 10% or more of the Capital Stock having ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise, including, without limitation, any officer or director of such Person or any Person controlled by an officer or director. Notwithstanding anything herein to the contrary, in no event shall a Holder be considered an "Affiliate" of any Seller or Guarantor, except to the extent that a Holder qualifies under clause (i) hereof. "Agent" means Ableco Finance LLC, in its capacity as "Collateral Agent" under the Credit Agreement for the Lender Group (as defined in the Credit Agreement), and any successor thereto, if any, in such capacity as Collateral Agent under the Credit Agreement. If any refinancing agreement is in effect with respect to the Credit Agreement at any time, then "Agent" also shall mean the collateral agent (or, if such refinancing agreement is not syndicated, the lender thereunder) defined in such refinancing agreement (or any comparable term of the refinancing agreement in respect thereof). "Agreement" means this Note Purchase Agreement. "Asset" means any interest in any kind of property or asset, whether real, personal, or mixed, and whether tangible or intangible. "Asset Sale" means any transaction, or series of related transactions, pursuant to which Seller or any of its direct or indirect Subsidiaries sells, assigns, transfers or otherwise disposes of any property or assets (whether now owned or hereafter acquired) to any other Person, in each case whether or not the consideration therefor consists of cash, securities or other assets owned by the acquiring Person, excluding (a) any sales, leases or licenses of inventory in the ordinary course of business on ordinary business terms, or (b) sales or other dispositions of Permitted Investments (as such term is defined in the 1999 Credit Facility). A-1 "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as codified under Title 11 of the United States Code, and the Bankruptcy Rules promulgated thereunder, as the same may be in effect from time to time. "Blockage Period" means a Non-Payment Blockage Period and/or a Payment Blockage Period. "Board of Directors" means the Board of Directors of the Seller. "Business Day" means any day other than a Saturday, Sunday, or any day that either is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such State are authorized or required by law or other governmental action to close. "Capitalized Lease" means with respect to any Person, any lease of real or personal property by such Person as lessee which is required under GAAP to be capitalized on the balance sheet of such Person. "Capitalized Lease Obligations" means with respect to any Person, obligations of such Person and its Subsidiaries under Capitalized Leases, and, for purposes hereof, the amount of any such obligation shall be the capitalized amount thereof determined in accordance with GAAP. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, and (ii) with respect to any Person that is not a corporation, any and all partnership, limited liability company or other equity interests of such Person. "Closing" has the meaning specified in Section 1.3. "Closing Date" means the date of the Closing. "Common Stock" has the meaning specified in Section 3.2. "Confidential Information" means any confidential, proprietary, or non-public information supplied to Holders pursuant to this Agreement or the other documents entered into in connection herewith which is identified in writing by Seller as being confidential pursuant to this definition or otherwise at, or reasonably concurrent with, the time the same is delivered to such Holder (and which at the time is not, and does not thereafter become, publicly available or available to such Holder from another source not known by the Holder to be subject to a confidentiality obligation not to disclose such information). The foregoing provision relative to timing of Seller's identification of such information as being confidential notwithstanding, the following categories of information that is confidential, proprietary, or non-public hereby are designated by Seller as confidential for purposes of this definition (subject to the same not being publicly available or available to such Holder from another source not known by such Holder to be subject to a confidentiality obligation not to disclose such information): all systems and tools, A-2 object and source codes, procedure codes, software documentation, computer software programs, subroutines, modules, modifications, upgrades, and interfaces owned or developed by any of Seller or Guarantors; all non-public business and marketing plans of Seller or Guarantors; and all customer lists, customer agreements, customer specifications, and customer information of Seller or Guarantors. "Credit Agreement" means that certain Financing Agreement dated of even date herewith by and among Seller, the Guarantors, the Senior Lenders, the Agent and Foothill Capital Corporation, as administrative agent for the Senior Lenders, as amended, supplemented, restated or otherwise modified from time to time. "Default" has the meaning specified in Section 9.1. "Designated Representative" means any Person who is designated as the "Designated Representative" pursuant to Section 5.3, or any successor thereto who subsequently serves in such capacity. "Effectiveness Period" has the meaning specified in Section 7.14(d). "Effectiveness Target Date" has the meaning specified in Section 7.14(d). "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. ss. 9601, et seq.), the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801, et seq.). the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901, et seq.), the Federal Clean Water Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq. and the Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.) as such laws may be amended or otherwise modified from time to time, and any other present or future federal, state, local or foreign statute, ordinance, rule, regulation, order, judgment, decree, permit, license or other binding determination of any Governmental Authority imposing liability or establishing standards of conduct for protection of the environment. "Environmental Liabilities and Costs" means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigations and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any environmental condition or a Release of Hazardous Materials from or onto (i) any property presently or formerly owned by any Seller or any of its Subsidiaries, or (ii) any facility which received Hazardous Materials generated by any Seller or any of its Subsidiaries. "Environmental Lien" means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs. A-3 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute or similar import, and regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "Event of Default" has the meaning specified in Section 9.1. "Exchange Act" means the Securities and Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. "Governmental Authority" means any nation or government, any federal, state, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Hazardous Materials" means (a) any element, compound or chemical that is defined, listed or otherwise classified as a contaminant, pollutant, toxic pollutant, toxic or hazardous substances, extremely hazardous substance or chemical, hazardous waste, special waste, or solid waste under Environmental Laws; (b) petroleum and its refined products; (c) polychlorinated biphenyls; (d) any substance exhibiting a hazardous waste characteristic, including but not limited to, corrosivity, ignitability, toxicity or reactivity as well as any radioactive or explosive materials; and (e) any raw materials, building components, or manufactured products containing asbestos or other hazardous substances. "Hedging Agreement" means any interest rate, foreign currency, commodity or equity swap, collar, cap, floor or forward rate agreement, or other agreement or arrangement designed to protect against fluctuations in interest rates or currency, commodity or equity values (including, without limitation, any option with respect to any of the foregoing and any combination of the foregoing agreements or arrangements), and any confirmation executed in connection with any such agreement or arrangement. "Holder" means the Purchasers and any subsequent holder of a Note. "Holder Group Expenses" means all (a) costs or expenses (including taxes, and insurance premiums) required to be paid by the Seller or any Guarantor under this Agreement, the Notes or any related documents that are paid or incurred by the Holders, (b) fees or charges paid or incurred by one or more Holders in connection with this Agreement, the Notes or any related documents, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches and including searches with the patent and trademark office, or the copyright office), filing, recording, publication, appraisal (including periodic enterprise valuations), real estate surveys, real estate title policies and endorsements, and environmental audits, (c) costs and expenses A-4 incurred by one or more Holders in the disbursement of funds to the Seller (by wire transfer or otherwise), (d) charges paid or incurred by one or more Holders resulting from the dishonor of checks, (e) reasonable costs and expenses paid or incurred by one or more Holders to correct any default that has or may occur or enforce any provision of this Agreement, the Notes or any related documents, (f) reasonable costs and expenses paid or incurred by one or more Holders in examining the books and records of the Seller or any Guarantor, (g) reasonable costs and expenses of third party claims or any other suit paid or incurred by one or more Holders in enforcing or defending the this Agreement, the Notes or any related documents or in connection with the transactions contemplated by these documents, and (h) reasonable fees and expenses (including attorneys fees) incurred by one or more Holders in advising, structuring, drafting, reviewing, administering, amending, terminating, enforcing (including attorneys fees and expenses, and expenses of third party consultants or advisors, incurred in connection with a "workout," a "restructuring," or Insolvency Proceeding concerning the Seller or any Guarantor), defending, or concerning this Agreement, the Notes or any related documents, irrespective of whether suit is brought or the forum of any suit. "Indebtedness" means without duplication, with respect to any Person, (i) all indebtedness of such Person for borrowed money; (ii) all obligations of such Person for the deferred purchase price of property or services (other than trade payables or other account payables incurred in the ordinary course of such Person's business and not past due for more than 90 days after the date such payable was created); (iii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments or upon which interest payments are customarily made; (iv) all obligations and liabilities of such Person created or arising under any conditional sales or other title retention agreement with respect to property used and/or acquired by such Person, even though the rights and remedies of the lessor, seller and/or lender thereunder are limited to repossession or sale of such property; (v) all Capitalized Lease Obligations of such Person; (vi) all obligations and liabilities, contingent or otherwise, of such Person, in respect of letters of credit, acceptances and similar facilities; (vii) all obligations and liabilities, calculated on a basis reasonably satisfactory to the Holders and in accordance with accepted practice, of such Person under Hedging Agreements; (viii) all Contingent Obligations (as defined in the Credit Agreement); (ix) liabilities incurred under Title IV of ERISA with respect to any plan (other than a Multiemployer Plan (as defined in ERISA)) covered by Title IV of ERISA and maintained for employees of such Person or any of its ERISA Affiliates (as defined in the Credit Agreement); (x) withdrawal liability incurred under ERISA by such Person or any of its ERISA Affiliates to any Multiemployer Plan; (xi) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person (other than (A) trade payables or other account payables incurred in the ordinary course of such Person's business and not past due for more than 90 days after the date such payable was created, and (B) accrued expenses, deferred revenues, customer deposits, and income taxes payable incurred in the ordinary course of business); and (xii) all obligations referred to in clauses (i) through (xi) of this definition of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a lien or security interest upon property owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. The Indebtedness of any Person shall A-5 include the Indebtedness of any partnership of or joint venture in which such Person is a general partner or a joint venturer. "Indemnified Parties" has the meaning specified in Section 12.1. "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, or proceedings seeking reorganization, arrangement, liquidation or other similar relief, or formal or informal moratoria, compositions, or extensions made or agreed to generally with such Person's creditors. "Lien" means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement, any Capitalized Lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security. "Liquidated Damages" has the meaning specified in Section 7.14. "Losses" has the meaning specified in Section 12.1. "Non-Payment Blockage Period" means, with respect to any Non-Payment Default Event, the period from and including the date of receipt by each Holder (or the Designated Representative, as applicable) of a Non-Payment Default Notice relating thereto until the first to occur of (a) the 270th day after receipt of such Non-Payment Default Notice; provided, however, that if, on or before such date (i) the Senior Indebtedness is accelerated and (ii) the Agent or the Required Lenders (as such term is defined in the Credit Agreement), as the case may be, have commenced and diligently and in good faith are pursuing a judicial proceeding to collect the Senior Indebtedness or diligently and in good faith are pursuing material non-judicial remedies to effect the foreclosure and sale of the collateral securing the Senior Indebtedness, then such period shall continue unless and until the Agent or the Required Lenders, as applicable, rescind such acceleration in writing, or abandon, terminate, or fail diligently to pursue such judicial or non-judicial remedies, (b) the date on which the Required Lenders shall have expressly waived or acknowledged the cure of such Non-Payment Default Event, in each case, in writing, or (c) the date on which the Required Lenders shall have expressly and irrevocably waived the application of Sections 5.1(a) and (b) hereof in writing. "Non-Payment Default Event" has the meaning specified in Section 5.2(b) hereof. "Non-Payment Default Notice" means a written notice from or on behalf of the Agent (or a Representative under a refinancing agreement in respect of the Credit Agreement) to each Holder (or the Designated Representative, as applicable) of the existence of a Non-Payment Default Event and specifically designating such notice as a "Non-Payment Default Notice." A-6 "Notes" has the meaning specified in the Recitals. "Obligations" means (i) the obligations of the Seller to pay, as and when due and payable (by scheduled maturity, required prepayment, acceleration, demand or otherwise), all amounts from time to time owing by it in respect of the Notes or this Agreement, whether direct or indirect, absolute or contingent, now existing or hereafter arising, whether for principal, interest (including, without limitation, any interest that, but for the provisions of the Bankruptcy Code, would have accrued), fees (including, without limitation, any fees that, but for the provisions of the Bankruptcy Code, would have accrued), indemnification payments, expenses (including, without limitation, any costs or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), or otherwise, and (ii) the obligations of the Seller and the Guarantors to perform or observe all of its obligations from time to time existing under this Agreement, the Notes or any other related documents, including, without limitation, the obligation of the Seller to deliver, upon conversion of any Note, duly authorized, validly issued, fully paid and nonassessable shares of Common Stock. "Officers' Certificate" means a certificate signed on behalf of the Seller by two officers of the Seller, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Seller. "Payment Blockage Period" means, with respect to any Payment Default Event, the period from and including the date of receipt by each Holder (or the Designated Representative, as applicable) of a Payment Default Notice relating thereto until the first to occur of (a) the date on which the Required Lenders shall have expressly waived or acknowledged the cure of such Payment Default Event, in each case in writing, or (b) the date on which the Required Lenders shall expressly and irrevocably waive the application of Sections 5.1(a) and (b) hereof, in writing. "Payment Default Event" has the meaning specified in Section 5.1(a) hereof. "Payment Default Notice" means a written notice from or on behalf of the Agent (or a Representative under a refinancing agreement in respect of the Credit Agreement) to each Holder (or the Designated Representative, as applicable) of the existence of a Payment Default and specifically designating such notice as a "Payment Default Notice." "Person" means an individual, corporation, limited liability company, partnership, association, joint-stock company, trust, unincorporated organization, joint venture or Governmental Authority. "Preferred Stock" means, with respect to any Person, any class or series of Capital Stock of such Person that is entitled, upon distribution of assets of such Person, whether by dividend or liquidation, to a preference over another class or series of Capital Stock of such Person. A-7 "Prohibited Preferred Stock" means any Preferred Stock of Seller or any Subsidiary the terms and conditions of issuance, and rights and preferences, of which are not approved in writing by the Required Holders in their sole and absolute discretion, including any Preferred Stock of Seller or any Subsidiary that by its terms is mandatorily redeemable or subject to any other payment obligation (including any obligation to pay dividends, other than dividends of Preferred Stock of the same class and series payable in kind or dividends of common stock) on or before a date earlier than February 28, 2005 or, on or before a date earlier than February 28, 2005, is redeemable at the option of the holder thereof for cash (or assets or securities other than distributions in kind of Preferred Stock of the same class and series or of common stock), provided that such February 28, 2005 date shall be extended day-for-day for any extension of the maturity date of the Notes. "Purchase Price" has the meaning specified in Section 1.2. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, seeping, migrating, dumping or disposing of any Hazardous Material (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Hazardous Material) into the indoor or outdoor environment, including ambient air, soil, surface or ground water. "Registration Default" has the meaning specified in Section 7.14(b). "Remedial Action" means all actions taken to (i) clean up, remove, remediate, contain, treat, monitor, assess, evaluate or in any other way address Hazardous Materials in the indoor or outdoor environment; (ii) prevent or minimize a Release or threatened Release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (iii) perform pre-remedial studies and investigations and post-remedial operation and maintenance activities; or (iv) any other actions authorized by 42 U.S.C. 9601. "Representative" means the agent, trustee, or other appointed representative of a holder of Indebtedness. "Required Holders" has the meaning specified in Section 14.5. "Responsible Officer" means with respect to any Seller or Guarantor, the Chief Executive Officer, the Chief Financial Officer, or any other officer, of such Seller or Guarantor (or, in the case of any Seller or Guarantor that is a partnership or a limited liability company, the managing partner or the managing member thereof). "Securities Act" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. A-8 "SEC" means the Securities and Exchange Commission or any other similar or successor agency of the Federal government administering the Securities Act. "Seller" means CFI ProServices, Inc., an Oregon corporation, or any of its permitted successors or assigns. "Senior Indebtedness" means all payment obligations (whether now outstanding or hereafter incurred) of the Seller or any Guarantor in respect of (a) principal (including reimbursement obligations in respect of letters of credit) under the Credit Agreement or other Senior Loan Documents (or a refinancing agreement entered into with respect thereto), (b) interest and premium, if any, on the outstanding Indebtedness referred to in clause (a) above, (c) all fees (including commitment, agency, and letter of credit fees) payable pursuant to the Credit Agreement (or a refinancing agreement entered into with respect thereto), (d) all other payment obligations (including costs, expenses, or otherwise) of the Seller or any Guarantor to Agent or the Senior Lender Group under or arising pursuant to the Credit Agreement or other Senior Loan Documents (or to third Persons under comparable provisions of a refinancing agreement entered into with respect thereto), including all costs and expenses incurred by the Agent or the Senior Lender Group in connection with their enforcement of any rights or remedies under the Senior Loan Documents, the collection of any of the Senior Indebtedness, or the protection of, or realization upon, any collateral after the occurrence and during the continuance of a default under the Senior Loan Documents, including by way of example, reasonable attorneys fees, court costs, appraisal and consulting fees, auctioneers fees, rent, storage, insurance premiums, and like items, and irrespective of whether allowable as a claim against the Seller or any Guarantor in any Insolvency Proceeding, and (e) post-petition interest on the Indebtedness referred to in clauses (a) through (d) above, at the rate provided for in the instrument or agreements evidencing or creating such Indebtedness, accruing subsequent to the commencement of an Insolvency Proceeding (whether or not such interest is allowed as a claim in such Insolvency Proceeding). "Senior Lender Group" means the "Lender Group" (as such term is defined in the Credit Agreement or in any comparable term of a refinancing agreement in respect thereof). "Senior Lender Notes" means the promissory notes issued by Seller in favor of the Senior Lenders pursuant to the Credit Agreement and shall include any note or notes issued under any refinancing agreement in respect of the Credit Agreement, as such promissory notes may be amended, supplemented, restated, replaced, or otherwise modified, from time to time. "Senior Lenders" means, collectively, the Lenders (as such term is defined in the Credit Agreement or in any comparable term of a refinancing agreement in respect thereof). "Senior Loan Documents" means the Credit Agreement, the Senior Lender Notes and the other Loan Documents (as such term is defined in the Credit Agreement), or refinancing agreements entered into in connection with Refinancing Indebtedness in respect thereof. A-9 "Shelf Registration" has the meaning as is given to the term "Note Shares Shelf Registration" in the Registration Rights Agreement. "Solvent" means, with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is not less than the total amount of its liabilities of such Person, (ii) such Person is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iii) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (iv) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital, after giving due consideration to the prevailing practices in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that reasonably can be expected to become an actual or matured liability. "Standstill Period" means, with respect to any Payment Default Event or Non-Payment Default Event, as the case may be, the period from and including the date of receipt by each Holder (or the Designated Representative, as applicable) of a Payment Default Notice or Non-Payment Default Notice, as the case may be, until the first to occur of (a) the termination of the applicable Blockage Period, (b) the date on which the Required Lenders shall have expressly waived or acknowledged the cure of such Payment Default Event or Non-Payment Default Event, as applicable, in each case, in writing, (c) the date on which there is commenced, either by or against the Seller or any Guarantor, any Insolvency Proceeding, and (d) the date on which the Required Lenders shall expressly and irrevocably waive the application of Sections 5.1(a) and (b) hereof in writing. "Stock Option Plan" has the meaning specified in the 1999 Credit Facility. "Subordinated Note Documents" means this Agreement, the Note, the Registration Rights Agreement, the Suretyship Agreement and each other document or agreement entered into or delivered in connection with any of them, all as they may be amended, modified, supplemented, extended, restated or refinanced from time to time. "Subordinated Obligations" has the meaning specified in Section 5.1(a) hereof. "Subordinated Notes" means, for purposes of Sections 5 and 6, the Notes issued pursuant to this Agreement, and shall include any additional Notes issued in replacement thereof or in substitution therefor. "Subsidiary Guarantee" or "Guarantee"means the guarantee set forth in Section 6 of this Agreement, and any future guarantee executed by each Guarantor in favor of Purchaser guaranteeing the obligations of the Seller under the Subordinated Notes and this Agreement A-10 (which guarantee shall be subordinate in right of payment to any guarantee given to the holders of the Senior Indebtedness). "Subsidiary" means with respect to any Person at any date, any corporation, limited or general partnership, limited liability company, trust, association or other entity (i) the accounts of which would be consolidated with those of such Person in such Person's consolidated financial statements if such financial statements were prepared in accordance with GAAP or (ii) of which more than 50% of (A) the outstanding Capital Stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors of such corporation, (B) the interest in the capital or profits of such partnership or limited liability company or (C) the beneficial interest in such trust or estate is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such Person. "Term Loan A" has the meaning specified in the Recitals. "Term Loan B" has the meaning specified in the Recitals. "Ultradata Acquisition" means the acquisition of Ultradata Corporation by the Seller pursuant to the Ultradata Acquisition Documents. "Ultradata Acquisition Documents" means collectively, the Agreement and Plan of Merger, dated as of May 17, 1999, by and among Seller, UFO Acquisition Co., and Ultradata Corporation, and all documents and instruments to be executed or delivered in connection therewith, in each case, as in effect on the date hereof. A-11 EX-2 9 EXHIBIT 2.8 FORM OF No. __________ THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT IN COMPLIANCE WITH SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. THIS NOTE IS SUBORDINATE TO SENIOR INDEBTEDNESS UNDER THE TERMS OF THAT CERTAIN NOTE PURCHASE AGREEMENT OF EVEN DATE HEREWITH BY AND AMONG THE BORROWER, THE GUARANTORS, THE PURCHASER OF THIS NOTE AND THE OTHER NOTE PURCHASERS LISTED THEREIN, A COPY OF WHICH MAY BE OBTAINED FROM BORROWER'S PRINCIPAL BUSINESS OFFICE. THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (OID). AS PROVIDED IN SECTION 1275 OF THE INTERNAL REVENUE CODE AND THE TREASURY REGULATIONS THEREUNDER, KURT W. RUTTUM, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, A REPRESENTATIVE OF CFI PROSERVICES, INC., TELEPHONE NUMBER (800) 274-7280, WILL MAKE AVAILABLE UPON REQUEST BEGINNING TEN DAYS AFTER THE ISSUE DATE THE INFORMATION DESCRIBED IN TREASURY REGULATION 1.1275-3(b)(1)(i). CFI PROSERVICES, INC. 10% CONVERTIBLE SUBORDINATED DISCOUNT NOTE $_______________ August 13, 1999 FOR VALUE RECEIVED, CFI PROSERVICES, INC., an Oregon corporation (the "Borrower" or the "Company"), hereby promises to pay to the order of _______________ ("Purchaser", and together with any assignee or transferee of Purchaser, the "Holder"), the principal sum of ____________________ DOLLARS ($__________) in immediately available funds and in lawful money of the United States of America, all as provided below. This 10% Convertible Subordinated Discount Note (this "Note"), due on the Maturity Date (as such term is defined below) has been issued pursuant to the terms of that certain Note Purchase Agreement between the Company, the Guarantors (as defined therein) and the Purchasers (defined therein) dated as of August 13, 1999 (as it may be amended, restated, supplemented, or otherwise modified from time to time, the "Purchase Agreement"), is one of the Notes referred to therein, and is subject to and entitled to the benefits of the Purchase Agreement. Capitalized terms used in this Note which are not defined in this Note shall have the meanings given to such terms in the Purchase Agreement. The Indebtedness evidenced by this Note, including the payment of principal, premium, if any, and interest on this Note, shall be subordinate and subject in right of payment, to the extent and 1 in the manner set forth in Section 5 of the Purchase Agreement, to the prior payment in full of all Senior Indebtedness. 1. Payment of Principal. The Company shall pay in full the entire outstanding principal balance of this Note, together with all premium or Liquidated Damages, if any, accrued and unpaid interest on, and all other amounts due under this Note on August 13, 2004. If all of the Notes issuable under the Purchase Agreement are issued, the purchase price originally paid by the Purchasers for these Notes of $5,550,000 will accrete in value in the manner specified in Section 3(c) hereof to an aggregate principal amount of $7,437,535 on August 13, 2002, at a rate of 10% per annum, compounded semi-annually on February 13, and August 13 of each year, or at the Default rate specified in Section 3(c). 2. Interest. (a) Deferral and Payment of Interest. Interest under this Note shall accrue, commencing August 13, 2002, at a rate equal to 10% per annum, payable in cash semi-annually in arrears on February 13 and August 13 of each year (with the first such payment due February 13, 2003), to the Holder of record on that date, with respect to the principal amount of the Note and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any interest which is in arrears until the date the Note is indefeasibly repaid in full or converted into shares of the Company's Common Stock as set forth herein and as provided for in the Purchase Agreement, compounded semi-annually. Interest for any partial period shall be computed on the basis of the actual number of days elapsed over a 360-day year, including the first day and excluding the last day. (b) Default Rate of Interest. If at any time (i) the Company fails to make any payment of principal as and when due (whether at stated maturity, upon acceleration or required prepayment or otherwise), (ii) the Company fails to make any payment of interest, premium, if any, Liquidated Damages, if any, fees, costs, expenses or other amounts due hereunder within one (1) Business Day after the date when due, or (iii) any other Default or Event of Default has occurred and is continuing, then, in addition to the rights and remedies available to the Holder under the Purchase Agreement and applicable laws, the outstanding principal balance of, premium, if any, Liquidated Damages, if any, and accrued and unpaid interest on this Note shall bear interest at a rate per annum equal to 12% (the "Default Rate") from the date on which such Default or Event of Default is deemed to have first occurred (as provided in Section 9 of the Purchase Agreement) until such time as such Default or Event of Default is cured or waived. 3. Optional Prepayment. (a) No Prepayment Period. Except as provided in Section 4 below, the Company shall have no right to redeem this Note on or prior to August 13, 2002. Thereafter, the Company may prepay the principal balance of this Note at any time following thirty (30) days prior written notice to Holder, without premium or penalty; provided, however, that Holder may, at its sole option at any time prior to the expiration of such thirty (30) day notice period and in lieu of such prepayment, require the Company to convert this Note in accordance with the provisions of 2 Section 6; provided, further, that with any prepayment, the Company shall also prepay all accrued but unpaid interest and Liquidated Damages on the portion of the outstanding and unpaid principal which is being prepaid. (b) Stock Performance Prepayment. Notwithstanding the provisions of this Section (a) above, if (i) on or after August 13, 2001, the closing price (last trade, or if there is no trade, an average of the bid and ask), of Common Stock on the Nasdaq National Market ("Closing Price") is greater than 150% of the then applicable Conversion Price (as defined below) for each of the twenty (20) consecutive trading days prior to the date a prepayment notice is given, (ii) there is not then pending a Default or Event of Default, and (iii) the Shelf Registration for the Common Stock issuable upon conversion of the Note is then effective, and remains effective for the entire thirty (30) day notice period referenced below, then the Company may offer to prepay the Note at an amount equal to the then Accreted Value of the Note through the date of Prepayment, following thirty (30) days prior written notice to Holder, without premium or penalty; provided, however, that Holder may, at its sole option at any time prior to the expiration of such thirty (30) day notice period and in lieu of such prepayment, require the Company to convert this Note in accordance with the provisions of Section 6; provided, further, that with any prepayment, the Company shall also prepay all accrued but unpaid interest and Liquidated Damages on the portion of the outstanding and unpaid principal which is being prepaid. (c) Definition of Accreted Value. For purposes of this Note, "Accreted Value" means, as of any date of determination prior to August 13, 2002, with respect to any Note, the sum of (i) the initial purchase price, or 74.6215% of the original principal amount, of such Note, and (ii) the portion of the excess of the principal amount of such Note over such initial offering price which shall have been accreted thereon through such date, such amount to be so accreted on a daily basis at a rate of 10% per annum of the initial purchase price of the Note, compounded semi-annually on each February 13 and August 13 from the date of original issuance of the Notes through the date of determination, computed on the basis of a 360-day year of twelve 30-day months; provided, however, during any time when a Default or Event of Default has occurred and is continuing, then in addition to the rights and remedies available to the Holder under the Purchase Agreement and applicable laws, the principal amount of the Note shall accrete at a rate of 12% per annum. The Notes shall cease to accrete on August 13, 2002. 4. Mandatory Prepayments. The Company shall make mandatory prepayments with respect to this Note as follows: (a) Asset Sale Prepayments. If at any time the Company intends to consummate any Asset Sale, it shall, within thirty (30) days prior to the proposed date of consummation, notify the Holder in writing of the proposed Asset Sale (including, without limitation, the subject matter and the material terms thereof and the proposed date of consummation). Promptly following consummation of the Asset Sale, any Net Cash Proceeds (as defined in the 1999 Credit Facility) not applied to reduce Senior Indebtedness shall be offered as a prepayment on the Notes pursuant to Section (d) of this Section 4. 3 (b) Change in Control Prepayment. The Holder may require the Company to prepay this Note, in whole or in part as requested by the Holder, at any time during the 90-day period following the consummation of a transaction which constitutes a Change in Control (as such term is defined in the 1999 Credit Facility), at the greater of the (i) Accreted Value together with all accrued and unpaid interest and Liquidated Damages, if any, thereon or (ii) the amount determined by multiplying the Closing Price of the Common Stock on the date prior to the Change of Control by the number of shares that would have been obtained had this Note been converted in full on that date. The Company shall notify the Holder thirty (30) days in advance of the date on which a Change in Control will occur or as soon as reasonably practicable thereafter, and shall, in such notification, inform the Holder of the Holder's right to require the Company to prepay this Note as provided in this Section 4 and of the date on which such right shall terminate (which shall be no less than 30 days after a Holder's receipt of notice). If the Holder elects to require the Company to prepay this Note pursuant to this Section 4, it shall furnish, prior to the date fixed in the Company's notice, written notice to the Company advising the Company of such election and the amount of principal of this Note to be prepaid. The Company shall prepay this Note in accordance with this Section 4 within one (1) Business Day after receipt of the Holder's election to require prepayment. (c) Liquidation, Dissolution or Winding Up. Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company or any sale, lease, transfer, assignment or other disposition of all or substantially all of the assets of the Company on a consolidated basis, (a "Liquidation Event") the Company shall be required to offer to pay the Accreted Value of this Note through the date of prepayment, together with all accrued and unpaid interest and Liquidated Damages, if any, thereon. The Company shall notify the Holder thirty (30) days in advance of the date on which a Liquidation Event will occur or as soon as reasonably practicable thereafter, and shall, in such notification, inform the Holder of the Holder's right to require the Company to prepay this Note as provided in this Section 4 and of the date on which such right shall terminate (which shall be no less than 30 days after a Holder's receipt of notice). If the Holder elects to require the Company to prepay this Note pursuant to this Section 4, it shall furnish, prior to the date fixed in the Company's notice, written notice to the Company advising the Company of such election and the amount of principal of this Note to be prepaid. The Company shall prepay this Note in accordance with this Section 4 within one (1) Business Day after receipt of the Holder's election to require prepayment. If, upon any Liquidation Event, the Notes will share equally and ratably (in proportion to the respective amounts that would be payable on the Notes, if all amounts payable thereon had been paid in full) in any distribution of assets of the Company to which all Indebtedness pari passu in rights to the Notes are entitled. (d) Prepayment Amount. The mandatory prepayments provided for in this Section 4 shall be paid at the Accreted Value of the principal amount required to be prepaid through the date of prepayment, plus premium and Liquidated Damages, if any, and accrued and unpaid interest, all as provided for above, provided that the Holder shall be given as much notice as possible, but no less then thirty (30) days, prior to the date fixed for prepayment to permit conversion of the Note as permitted by Section 6. To the extent that any payment required by this Section 4 is not made because such payment is not permitted under the terms of the Senior Indebtedness, the 4 obligation to make such payment shall be deferred until such time as the Senior Indebtedness is no longer outstanding or such payment becomes permitted, and such payment shall be made on the next following Business Day. Notwithstanding the notice periods set forth herein, no payments due to the holders of Common Stock, preferred stock or other equity securities of the Company, or to the holders of indebtedness of the Company junior in right of payment to the Note, shall be made without first making the payments due under this Section 4. 5. Manner of Payment. Payments of principal, interest and other amounts due under this Note shall be made no later than 12:00 p.m. (noon) (Los Angeles time) on the date when due and in lawful money of the United States of America (by wire transfer in funds immediately available at the place of payment) to such account as the Holder may designate in writing to the Company. Any payments received after 12:00 p.m. (noon) (Los Angeles time) shall be deemed to have been received on the next succeeding Business Day. Any payments due hereunder which are due on a day which is not a Business Day shall be payable on the first succeeding Business Day and such extension of time shall be included in the computation. 6. Conversion. (a) Voluntary Conversion. At the option of the Holder, at any time, Holder shall have the right, at its option, to convert all or any portion (of $10,000 or more) of the Accreted Value of the Note, plus accrued but unpaid interest and accrued but unpaid Liquidated Damages, if any (the "Converted Amount"), into that number of fully paid and nonassessable shares of Common Stock of the Company, no par value per share ("Common Stock") at the Conversion Price (as defined below) in effect at the time of conversion, as hereinafter provided. (b) Mechanics of Conversion. Upon written notice of conversion of the Note pursuant to an Election to Convert in the form of Exhibit A attached hereto, the Company will, as soon as practicable thereafter, but in no event longer than three (3) business days, issue and deliver to the Holder (i) a certificate for the number of shares of Common Stock to which the Holder shall be entitled, and (ii) an amended and restated promissory note in substantially the same form as this Note, but with the outstanding principal amount reduced by the Converted Amount. Such conversion shall be deemed to have occurred as of the close of business on the date of the surrender of this Note as provided for above, and the Holder shall be treated as the record holder of the Common Stock received upon conversion as of the close of business on such date. (c) Payment of Taxes. The Company will pay all taxes that may be payable in respect of the issue or delivery of Common Stock upon conversion of this Note; provided, that Holder shall pay any tax which may be payable in respect of any transfer involved in the issue and delivery of Common Stock in a name other than that in which this Note so converted was registered. (d) Conversion Price. Each Note shall be convertible into the number of shares of Common Stock that results from dividing the Accreted Value, plus accrued but unpaid interest on such Note and accrued but unpaid Liquidated Damages, if any, on the date of conversion by the Conversion Price per share in effect at the time of the conversion. The initial Conversion Price shall be $12.34375, equal to the average Closing Price over the ten (10) trading days immediately 5 preceding the original issuance of this Note. This initial Conversion Price shall be subject to adjustment from time to time as provided below. (e) One-Year Conversion Price Reset. On August 13, 2000, the Conversion Price shall be adjusted to be equal to the lower of (i) the Conversion Price in effect on the date of the original issuance of this Note (as adjusted pursuant to Sections (f) through (k) below) or (ii) a price equal to the average Closing Price over the ten (10) trading day period ending August 12, 2000. (f) Adjustment for Stock Splits and Combinations. If the Company, at any time or from time to time after the date hereof, effects a subdivision of the outstanding Common Stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased, and conversely, if the Company, at any time or from time to time after the date hereof, combines the outstanding shares of Common Stock into a smaller number of shares, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 6(f) shall become effective at the close of business on the date the subdivision or combination becomes effective. (g) Adjustment for Certain Dividends and Distributions. If the Company at any time or from time to time after the date hereof makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, without payment therefor, a dividend or other distribution payable in Additional Shares of Common Stock, then and in each such event the Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying such Conversion Price then in effect by a fraction (i) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, such Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter such Conversion Price shall be adjusted pursuant to this Section 6(g) as of the time of actual payment of such dividends or distributions. (h) Adjustments for Other Dividends and Distributions. In the event the Company, at any time or from time to time after the date hereof, makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, without payment therefor, a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then and in each such event provision shall be made so that the holders of the Notes shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Company or cash that they would have received had their Notes been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 6 with respect to the rights of the holders of the Notes. 6 (i) Adjustment for Reclassification, Exchange and Substitution. In the event that at any time or from time to time after the date hereof, the Common Stock issuable upon the conversion of the Notes is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 6), then and in any such event each holder of a Note shall have the right thereafter to convert such Note into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change, by holders of the maximum number of shares of Common Stock into which such Note could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein. (j) Reorganization, Mergers, Consolidations or Sales of Assets. If at any time or from time to time after the date hereof, there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 6) or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of the Notes shall thereafter be entitled to receive upon conversion of the Notes the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 6 with respect to the rights of the holders of the Notes after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 6 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Notes) shall be applicable after that event and be as nearly equivalent as may be practicable. (k) Sale of Shares Below Fair Market Value. (i) (1) If at any time or from time to time after the date hereof, the Company issues or sells, or is deemed by the express provisions of this Section 6(k) to have issued or sold, Additional Shares of Common Stock (as defined in paragraph (v) below), other than as a dividend or other distribution on any class of stock as provided in Section (a) above and other than upon a subdivision or combination of shares of Common Stock as provided in Section (f) above, for an "Effective Price" (as defined in paragraph (v) below) less than the Fair Market Value per share of Common Stock (as defined in paragraph (v) below) in effect at the close of business on the day immediately prior to such sale or issuance, then and in each such case the then existing Conversion Price of the Notes shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying that Conversion Price by a fraction (i) the numerator of which shall be (A) the number of shares of Common Stock outstanding at the close of business on the day immediately preceding the date of such issue or sale, plus (B) the number of shares of Common Stock that the aggregate consideration received (or by the express provisions hereof deemed to have been received) by the Company for the total number of Additional Shares 7 of Common Stock so issued would purchase at such Fair Market Value per share, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date of such issue after giving effect to such issue of Additional Shares of Common Stock; provided however, that for the purposes of this Section (k), all shares of Common Stock then issuable upon conversion or exercise of then outstanding rights or options to acquire Common Stock or other stocks or securities convertible into Common Stock shall be deemed to be outstanding. Such adjustment shall be made successively whenever such an issuance is made. The foregoing notwithstanding, if any such sale or issuance of Additional Shares of Common Stock, rights, options, warrants or Convertible Securities (defined below) is effected pursuant to the terms of a bona fide agreement, commitment or letter of intent which is entered into or made prior to the date of such issuance and which specifies the "price per share of Common Stock" (as such phrase is used in this paragraph (i)) to be paid in such issuance, then the determination of whether or not the "price per share of Common Stock" in such issuance is "lower than the Fair Market Value per share of Common Stock" required by this paragraph (i) shall be made as of close of business on the date such agreement or letter of intent is entered into or such commitment is made and shall not be made "immediately prior to such sale and issuance" as provided above. (For example, if the Company enters into an agreement to sell shares of Common Stock in a private placement and the price per share of Common Stock to be paid pursuant to such agreement is equal to or greater than the Fair Market Value per share of Common Stock as of the close of business on the date on which such agreement is entered into, then no adjustment shall be required under this paragraph (i) even if such price is less than the Fair Market Value per share of Common Stock on the date such private placement is consummated.) (2) In case the Company or any subsidiary thereof shall, at any time after the date of this Note, make or agree to (i) any downward adjustment in the exercise, exchange or conversion price of, (ii) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of, or (iii) any change in the consideration payable for the exercise, conversion or exchange of, any rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or acquire shares of Common Stock, other than such adjustment that is specifically contemplated and required under the terms of any such instrument as of the date of this Note, then the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying the Conversion Price in effect immediately prior thereto by a fraction the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding immediately prior thereto, plus (B) the number of shares of Common Stock to be issued upon such exercise, conversion or exchange immediately prior thereto, multiplied by the aggregate amount of the fair market value of the consideration to be received by the Company upon such exercise, conversion or exchange immediately thereafter, and the denominator shall be the sum of (X) the number of shares of Common Stock outstanding immediately thereafter, plus (Y) the number of shares of Common Stock to be issued upon such exercise, conversion or exchange immediately thereafter, multiplied by the aggregate amount of the fair market value of the consideration to be received by the Company upon 8 such exercise, conversion or exchange immediately prior thereto. Such adjustment shall be made successively whenever such an issuance is made. (ii) For the purpose of making any adjustment required under this Section (k), the consideration received by the Company for any issue or sale of securities shall (i) to the extent it consists of cash be computed at the net amount of cash received by the Company after deduction of any expenses payable by the Company and any underwriting or similar commissions, compensation, or concessions paid or allowed by the Company in connection with such issue or sale, (ii) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Directors, subject to paragraph (vi) below, and (iii) if Additional Shares of Common Stock, Convertible Securities (as defined in paragraph (iii) below) or rights, warrants, or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options, subject to paragraph (vi) below. (iii) For the purpose of the adjustment required under this Section (k), if the Company issues or sells any rights, warrants, or options for the purchase of, stock or other securities convertible into, Additional Shares of Common Stock or rights, warrants or options to purchase such convertible securities (such convertible stock or securities hereinafter referred to as "Convertible Securities") and if the Effective Price of such Additional Shares of Common Stock is less than the Fair Market Value per share of Common Stock at the close of business on the day immediately preceding the date of such issuance, then in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights, warrants or options or Convertible Securities, plus, in the case of such rights, warrants or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights, warrants or options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion thereof. No further adjustment of the applicable Conversion Price, adjusted upon the issuance of such rights, warrants, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights, options or the conversion of any such Convertible Securities. If any such rights, warrants or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the applicable Conversion Price adjusted upon the issuance of such rights, warrants, options or Convertible Securities shall be readjusted to the applicable Conversion Price that would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so 9 issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights, warrants or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights, warrants or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities. (iv) (1) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the date hereof, whether or not subsequently reacquired or retired by the Company, other than (A) shares of Common Stock issued upon conversion of the Notes, and shares of Common Stock issued to employees or directors of, or consultants and advisors to, the Company or any subsidiary pursuant to any stock purchase or stock option plans or other arrangements that are approved by the Board of Directors and approved by the Company's stockholders. The "Effective Price" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Company under this Section (k), into the aggregate consideration received, or deemed to have been received by the Company for such issue under this Section (k), for such Additional Shares of Common Stock. (2) The "Fair Market Value" of a share of Common Stock as of a particular date shall mean (i) if the Common Stock is publicly traded at the time of determination, the average of the closing prices on such day of the Common Stock on all domestic securities exchanges on which the Common Stock is then listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day or, if on any such day the Common Stock is not so listed, the average of the representative bid and asked prices quoted on the Nasdaq system as of 4:00 P.M., New York time, on such day, or if on any day such security is not quoted on the Nasdaq system, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of thirty (30) days consisting of the day as of which "fair market value" is being determined and the twenty-nine consecutive business days prior to such day (provided that, if fair market value is being determined as of the date of a firm commitment public offering of the Common Stock, fair market value as of such date shall be the offering price for the Common Stock subject to such public offering); or (ii) if the Common Stock is not publicly traded at the time of determination, the Common Stock price per share determined by dividing Market Value (as defined below) by the outstanding number of shares of Common Stock calculated on a fully diluted basis using the treasury stock method as contemplated by the Accounting Principles Board Opinion No. 15 (as referred to in the Statement of Financial Accounting Standards No. 128) (such shares as calculated on any date, "Fully Diluted Shares"). "Market Value" means the highest price that would be paid for the entire common 10 equity of the Company on a going-concern basis in an arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry (but without giving effect to any discount in respect of a minority interest) and determined in accordance with the "Valuation Procedure" (as defined below) and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale. For the purposes of determining the "Market Value", (a) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the issued and outstanding number of Fully Diluted Shares of Common Stock, shall be deemed to have been received by the Company, (b)(i) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the issued and outstanding number of Fully Diluted Shares of Common Stock and (ii) any contractual limitation in respect of the shares of Common Stock relating to voting rights, shall be deemed to have been eliminated or canceled and (c) full effect shall be given to any discount that may arise as the result of the fact that the shares of Common Stock are not publicly traded. "Valuation Procedure" means, with respect to the determination of any amount or value required to be determined in accordance with such procedure, a determination (which shall be final and binding on the Company and the holders) made (i) by agreement among the Company and the Required Holders within twenty (20) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Independent Financial Expert selected in accordance with the further provisions of this definition. If required, an Independent Financial Expert shall be selected within five (5) days following the expiration of the twenty (20)-day period referred to above, either by agreement among the Company and the Required Holders or, in the absence of such agreement, by lot from a list of four potential Independent Financial Experts remaining after the Company nominates three, the Required Holders nominate three, and each side eliminates one potential Independent Financial Expert. The Independent Financial Expert shall be instructed by the Company and the Required Holders to make its determination within twenty (20) days of its selection. The fees and expenses of an Independent Financial Expert selected hereunder shall be paid by the Company. "Independent Financial Expert" means a nationally-recognized investment banking firm (a) that does not (and whose directors, officers, employees and Affiliates do not) have a direct or indirect material financial interest in the Company or any holder, (b) that has not been, and, at the time it is called upon to serve as an Independent Financial Expert under this Agreement, is not (and none of whose directors, officers, employees or Affiliates is not), a promoter, director or officer of the Company or any Holder, (c) that has not been retained during the preceding two years by the Company or the holder for any purpose, and (d) that is otherwise qualified to serve as an Independent Financial Advisor. Any such person or entity may receive customary compensation and indemnification by the Company for opinions or services it provides as an Independent Financial Expert. 11 (v) Adjustments to Anti-Dilution Rights; Limitations on Subsequent Grants of Anti-Dilution Rights. (1) Notwithstanding the foregoing provisions of this Section 4, to the extent that any holders of equity securities, or rights, warrants, options or other securities convertible into or exchangeable for equity securities, of the Company are entitled to anti-dilution rights that are superior or more favorable to the holder of such equity securities, or rights, warrants, options or other securities convertible into or exchangeable for equity securities, than those granted pursuant to this Section 6, the holder hereof shall be entitled to such anti-dilution rights with respect to the Notes. (2) From and after the Date of Grant, the Company shall not, without the prior written consent of the Required Holders, grant any holders of equity securities, or rights, warrants, options or other securities convertible into or exchangeable for equity securities, of the Company anti-dilution rights with respect to such equity securities that are superior or more favorable than those granted pursuant to this Section 6. 6.1 Accountants' Certificate of Adjustment. In each case of an adjustment or readjustment of the Conversion Price applicable to the Notes or the number of shares of Common Stock or other securities issuable upon conversion of the Notes, the Company, at its expense, shall cause independent public accountants of recognized standing selected by the Company (who may be the independent public accountants then auditing the books of the Company) to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of the Notes at the holder's address as shown in the Company's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued or sold, (ii) the Conversion Price as then in effect, (iii) the number of Additional Shares of Common Stock and (iv) the type and amount, if any, of other property that at the time would be received upon conversion of the Notes. 6.2 Notices of Record Date. In the event of (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company with or into any other corporation, or any transfer of all or substantially all of the assets of the Company to any other person or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to each holder of a Note at least thirty (30) days prior to the record date specified therein, a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or 12 other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up. 6.3 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Notes. In lieu of any fractional share to which the holder would otherwise be entitled, the Company shall pay cash equal to the product of such fraction multiplied by the Fair Market Value of one share of the Company's Common Stock on the date of conversion. 6.4 No Dilution or Impairment. The Company will not amend its Certificate of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in carrying out all provisions of this Section 6 and in the taking of all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Notes against dilution or other impairment. 6.5 Registration Rights; Liquidated Damages. The Holders of the Notes are entitled to certain rights under the Registration Rights Agreement, and to Liquidated Damages (as provided in the Purchase Agreement) for the breach of the Registration Rights Agreement. Any Liquidated Damages shall be paid pro rata in cash to the holders of the Notes on the first business day of each month following accrual thereof. Shares not registered upon issuance shall bear a legend in the form set forth on the face of this Note. 6.6 Limitation on Ownership. If this Note is held by U.S. Bancorp Investments, Inc. ("USBI"), and not any other Holder, this Note may only be converted if the total number of voting shares of Common Stock held by USBI upon such conversion, when aggregated with any other voting shares held by persons or entities required by Regulation Y of the Federal Reserve Board to be aggregated with USBI's holdings, shall be less than 5.00% of the total shares of voting stock outstanding immediately after such conversion. 7. Remedies upon Event of Default. Upon the acceleration of the indebtedness under the Notes pursuant to the terms of the Purchase Agreement, the principal of and all accrued and unpaid interest on this Note and Liquidated Damages, if any, shall become immediately due and payable without any declaration or other act on the part of the Holder and all without demand, presentment, notice, or protest, all of which are hereby expressly waived, and the Holder may exercise any right or power available to it under this Note or the Purchase Agreement, at law or in equity, all of which rights and powers may be exercised cumulatively and not alternatively. No delay or omission of the Holder of this Note to exercise any right or power accruing upon any Default or Event of Default occurring and continuing shall impair any such right or power or shall be construed to be a waiver of any such Default or Event of Default or an acquiescence therein, and every power and remedy given by this Note or by law may be exercised from time to time, and as often as shall be deemed expedient, by the Holder. 13 8. Assignment and Transfer. Subject to applicable laws, the Holder may, at any time and from time to time and without the consent of the Company, assign or transfer to one or more Persons the entire outstanding principal balance of this Note or any portion thereof (but not less than $100,000 in principal amount in any single assignment (unless such lesser amount represents the entire outstanding principal balance hereof)). Upon surrender of this Note at the Company's principal executive office for registration of any such assignment or transfer, accompanied by a duly executed instrument of transfer, the Company shall, at its expense and within three (3) Business Days of such surrender, execute and deliver one or more new notes of like tenor in the requested principal denominations and in the name of the assignee or assignees and bearing the legend set forth on the face of this Note, and this Note shall promptly be canceled. Each assignment or transfer of this Note, in whole or in part, shall be registered on the register maintained by the Company pursuant to the Purchase Agreement immediately following the surrender of this Note. If the entire outstanding principal balance of this Note is not being assigned, the Company shall issue to the Holder hereof, within three (3) Business Days of the date of surrender hereof, a new note which evidences the portion of such outstanding principal balance not being assigned. Upon the request of any Holder, the Company shall issue an amended and restated Note setting forth the then current principal balance thereon. 9. Benefits Pro Rata. If the Notes issued under the Purchase Agreement are held at any time by more than one Holder, any payments of principal of, or premium, if any, on this Note, and any payments of interest or other amounts which are not sufficient to pay all interest or other amounts due thereunder, shall be made pro rata with respect to all such Notes in accordance with the outstanding principal amounts thereof, respectively. Any Holder receiving any payment or securities in excess of its pro rata portion hereby agrees to hold such excess amount in trust for all other Holders, and upon discovery of any over-payment pay such excess to the other Purchasers, within two (2) Business Days, in order to comply with this Section. 10. Loss, Theft, Destruction or Mutilation of this Note. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or destruction, upon receipt of an indemnity agreement or other indemnity reasonably satisfactory to the Company or, in the case of any such mutilation, upon surrender and cancellation of such mutilated Note, the Company shall make and deliver within three (3) Business Days a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. 11. Costs of Collection. The Company agrees to pay all Holder Group Expenses in connection with the enforcement of Holders' rights hereunder, all as more fully provided in Section 11.1 of the Purchase Agreement. 12. Waiver of Default. Holders holding 50.1% may waive a Default or Event of Default under this Note but may not, without the consent of the Holder, waive a Default in payment of principal of or premium, if any, or interest or Liquidated Damages, if any, on the Note (except a rescission of acceleration of the maturity of the Note and a waiver of the payment default that resulted from such acceleration). 14 13. No Setoffs; Waivers, etc. The Company's obligations under this Note shall be paid and performed by the Company without any defenses, claims, setoffs, counterclaims, recoupments, reductions, limitations, impairments or terminations which the Company may now have or hereafter has or could have against Holder, and the Company hereby waives all of the same. The Company hereby waives the benefit of all laws now or hereafter enacted affording any right to any appraisement, any stay of execution or extension of time for payment. Except as set forth herein, notice of demand, presentation for payment, notice of non-payment or dishonor, protest and notice of protest are hereby waived by the Company. The Company agrees that the granting, without notice of any extension or extensions of time for payment of any sum or sums due hereunder, or for the performance of any covenant, condition or agreement contained herein, or the granting of any other indulgences to the Company, or any other modification or amendment of this Note, or the acceptance, release or substitution by Holder of any security, shall in no way release or discharge the liability of the Company. 14. Highest Rate Permitted. Notwithstanding anything in this Note to the contrary, no provision of this Note shall require the payment or permit the collection of interest in excess of the highest rate permitted by applicable law, and any portion of the interest otherwise payable under this Note which is in excess of the highest rate permitted by applicable law shall be cancelled automatically or (if heretofore paid) shall, at the option of the Company, be either refunded to the Company or credited to the principal amount of this Note. 15. Remedies. The Company stipulates that the remedies at law of the Holder in the event of any default by the Company in the performance of or compliance with any of the terms of this Note are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 16. Covenant to Reserve Securities. The Company shall at all times reserve, for the purpose of issuance upon the conversion into Common Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to comply with the terms of this Note ("Reserved Common Stock"), and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient, the Company will take all action necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 17. Covenant To Take All Proper Legal Steps For Conversion. The Company represents and covenants that it will at all times promptly do any and all lawful things necessary to permit the conversion into Common Stock of the principal and accrued but unpaid interest as provided herein and, among other things, to that end will expeditiously and by proper action take all steps necessary to have available to meet full conversion a sufficient number of shares of Common Stock. 18. Miscellaneous. (a) Notices. All notices and communications provided for hereunder shall be in writing and sent (a) by telefacsimile, or (b) by registered or certified mail with return receipt 15 requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to a Holder, at the address specified for such communications in Exhibit B to the Purchase Agreement or at such other address as it shall have specified to the Seller in writing, or (ii) if to the Company or any Guarantor, CFI Pro Services, Inc. 400 S.W. Sixth Avenue, Suite 200 Portland, Oregon 97204 Attention: Jeffrey P. Strickler, Esq. Telephone: (503) 274-7280 Facsimile: (503) 790-9229 With a copy to: Farleigh, Wada & Witt, P.C. 121 S. W. Morrison, Suite 600 Portland, Oregon 97204 Attention: F. Scott Farleigh, Esq. Telephone: (503) 228-6044 Facsimile: (503) 228-1741 Notices under this Section 18(a) will be deemed given only when actually received, or three hours after confirmation of a successful telefacsimile transmission. (b) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflict of laws. The Company and the Purchasers have each been represented by counsel in the negotiation and drafting of this Note and neither the Company nor the Purchasers nor their respective counsel shall be deemed the drafter of this Note for purposes of construing the provisions of this Note, and all provisions of this Note shall be construed in accordance with their fair meaning, and not strictly for or against the Company or the Purchasers. (c) Modification. Neither this Note nor any provision hereof may be amended unless in an instrument in writing signed by the Holder and the Company, provided, that any amendment to the Purchase Agreement approved by the Required Holders shall be binding upon the Holder of this Note. (d) Severability. If any provision of this Note is held to be invalid, illegal, or unenforceable, such invalidity, illegality, and/or unenforceability shall not affect any other provision of this Note. 16 (e) Successors. Except as set forth to the contrary herein, all the covenants, agreements, representations, and warranties contained in this Note shall bind the parties hereto and their respective heirs, executors, administrators, distributees, successors, and assignees. (f) CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE PURCHASE AGREEMENT, THE NOTES OR ANY OTHER RELATED DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT OR A JOINDER HERETO, THE COMPANY HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS FOR NOTICES AS SET FORTH IN SECTION 14.6 OF THE PURCHASE AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE HOLDERS TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR ANY GUARANTOR IN ANY OTHER JURISDICTION. THE COMPANY AND EACH GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY OR ANY GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE PURCHASE AGREEMENT, THE NOTES AND ANY OTHER RELATED DOCUMENT. (h) WAIVER OF JURY TRIAL, ETC. THE PARTIES HERETO AND ANY SUBSEQUENT GUARANTOR OR PURCHASER OF A NOTE HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THE PURCHASE AGREEMENT, THE NOTES OR OTHER DOCUMENTS PREPARED IN CONNECTION HEREWITH, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THE PURCHASE AGREEMENT AND THE NOTES, AND AGREE THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE 17 TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE COMPANY CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE PURCHASERS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE HOLDERS WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. THE COMPANY HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER'S ENTERING INTO THIS AGREEMENT. (f) Headings. The section headings in this Note are inserted for purposes of convenience only and shall have no substantive effect. IN WITNESS WHEREOF, CFI ProServices, Inc. has executed this Note on August 13, 1999. CFI PROSERVICES, INC. By: /s/ Robert P. Chamness ---------------------- Name: Robert P. Chamness Title: President 18 Exhibit A NOTICE OF ELECTION TO CONVERT The undersigned, as Holder of the 10% Convertible Subordinated Discount Note (the "Note") issued by CFI ProServices, Inc. (the "Company"), hereby elects to convert $__________ of the Accreted Value and accrued interest and Liquidated Damages, if any, on this Note into that number of shares of Common Stock of the Company, equal to $__________ divided by the Conversion Price (or __________ shares), plus $__________ in lieu of fractional shares. Date: _______________ "Holder" By: Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Taxpayer Identifying Number, as you wish them to appear on a Certificate. Name Address Taxpayer Identification Number SCHEDULE TO 10% DISCOUNTED CONVERTIBLE NOTES -------------------------------------------- Holder Amount - --------------------------------------- ----------- U.S. Bancorp Libra $1,050,000 Levine Leichtman Capital Partners II, L.P. $2,000,000 Soundshore Holdings, Ltd $ 500,000 Southshore Opportunity Holding Fund, Ltd $ 500,000 Bay Star Capital, L.P. $1,500,000 ---------- Total $5,550,000 EX-2 10 EXHIBIT 2.9 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT dated as of August 13, 1999 (this "Agreement"), by and among CFI ProServices, Inc., an Oregon corporation (the "Company"), and the Note Purchasers listed on the signature page hereof (each, a "Note Purchaser" and collectively, the "Note Purchasers"). R E C I T A L S WHEREAS, this Agreement is being entered into pursuant to that certain Note Purchase Agreement (the "Note Purchase Agreement") of even date herewith by and among the Company, the subsidiaries of the Company listed on Exhibit A thereto ("Guarantors") and the Note Purchasers; and WHEREAS, in connection with the Note Purchase Agreement the Company has agreed to issue to the Note Purchasers 10% Convertible Subordinated Discount Notes (the "Notes"), convertible into shares of Common Stock (as such term is defined below), at an initial Conversion Price of $12.34375 per share (such shares issued or issuable upon conversion are referred to as "Note Shares"); and WHEREAS, in order to induce the Note Purchasers to purchase the Notes, the Company has agreed to provide the registration rights set forth in this Agreement; and WHEREAS, in connection with services provided to the Company, the Company has granted warrants to purchase Common Stock of the Company to its investment advisor (also a Note Purchaser) or its designees and as additional consideration for such services is agreeing to provide the registration rights set forth in this Agreement. NOW THEREFORE, in consideration of these premises, and the respective promises and covenants contained herein, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS "Act" means the United States Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under the Act, as they each may, from time to time, be in effect. "Commission" or "SEC" means the United States Securities and Exchange Commission, or any other Federal agency at the time administering the Act. "Common Stock" means the shares of common stock, no par value per share, of the Company. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under the Exchange Act, as they each may, from time to time, be in effect. "Holders" means the Note Purchasers, any person or entity to whom the rights granted under this Agreement are validly transferred by any Note Purchaser and their Permitted Transferees (as defined in Section 2.8 hereof). "Indemnified Party" has the meaning described in Section 2.4(c) below. "Indemnifying Party" has the meaning described in Section 2.4(c) below. "Note Shares" means the (i) shares of Common Stock issuable or issued to the Holders upon conversion of the Notes, as provided in the Notes, and any such shares of Common Stock transferred in a private transaction (whether or not Notes are also transferred therewith) to a Permitted Transferee, and (ii) the shares of Common Stock issuable or issued upon exercise of the Warrants. Note Shares shall include any warrants, shares of capital stock or other securities of the Company issued as a dividend or other distribution with respect to or in exchange for or in replacement for the then-existing Note Shares pursuant to any recapitalization of the Company. As to any particular Note Shares, such securities shall cease to be Note Shares when (a) a Registration Statement with respect to the sale of such securities shall have become effective under the Act and such securities shall have been sold, transferred, disposed of or exchanged in accordance with such Registration Statement; (b) such securities shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent public distribution of them shall not require registration under the Act or any state securities law, (c) such securities shall have ceased to be outstanding or (d) upon any sale, transfer or other disposition in any manner to a person or entity which, by virtue of Section 2.8 hereof, is not entitled to the rights provided by this Agreement. "Registration Statement" means a registration statement filed by the Company with the Commission in compliance with the Securities Act and the rules and regulations promulgated thereunder for a public offering and sale of its Common Stock (other than a registration statement on Form S-8 or Form S-4, or their successors, or any other form for a limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another entity). "Warrants" means the 58,000 warrants to purchase shares of Common Stock issued by the Company to U.S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc., pursuant to a warrant agreement dated of even date herewith. 2 ARTICLE 2. REGISTRATION RIGHTS Section 2.1 Shelf Registration of Note Shares. (a) The Company shall mail as soon as practicable a questionnaire (the "Questionnaire"), soliciting the information required by Items 507 and 508 of Regulation S-K, to each of the Note Purchasers, and shall deliver a copy of such Questionnaire to any Note Purchaser or Holder within five (5) days of it becoming available. As a condition to any Note Purchaser's or Holder's Note Shares being included in the Registration Statement referred to below, such Purchaser shall submit a Questionnaire and shall amend and submit to the Company a revised Questionnaire any time the information contained therein ceases to be accurate and complete. (b) The Company shall use its reasonable best efforts to file with the Commission, a Registration Statement (the "Note Shares Shelf Registration") for an offering to be made on a continuous basis pursuant to Rule 415 covering all Note Shares held by the Holder, as soon as practicable from the date hereof, but in no event more than 90 days from the date hereof. The Holders shall be included as selling securityholders in such Registration Statement promptly, and within two (2) Business Days, after they have fully completed and returned to the Company the Questionnaire. The Note Shares Shelf Registration shall be on Form S-3 under the Securities Act or another appropriate form (including Form S-1, if applicable) permitting registration of such Note Shares for resale by the Holders in the manner or manners reasonably designated by them (including, without limitation, one or more underwritten offerings). The Company shall use its reasonable best efforts to cause the Note Shares Shelf Registration to be declared effective pursuant to the Securities Act on or prior to the date that is 180 days after the date of the Closing under the Note Purchase Agreement (the "Effectiveness Target Date") and to keep the Note Shares Shelf Registration continuously effective under the Securities Act for 60 months (the "Effectiveness Period") or such shorter period ending when there ceases to be outstanding any Note Shares. (c) The Company shall use all reasonable best efforts to keep the Note Shares Shelf Registration continuously effective, for the period described in Section 2.1(b) hereof, by supplementing and amending the Note Shares Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Note Shares Shelf Registration, if required by the Securities Act or if reasonably requested by the Holders of a majority in amount of Note Shares (determined on a fully converted basis) covered by such Note Shares Shelf Registration. (d) In the event any adjustment in the Conversion Price (as defined in the Notes) would result in the issuance of additional Note Shares upon conversion of the Notes, the Company shall promptly, and within ten (10) Business Days, amend or supplement the Note Shares Shelf Registration in order to effect a Shelf Registration of such additional Note Shares 3 pursuant to the terms of Section 2.1(b), provided, that notwithstanding anything to the contrary in Section 2.1(b) or the Note Purchase Agreement, the Effectiveness Target Date shall be ninety (90) from the date of the effective date of the adjustment to the Conversion Price resulting in additional Note Shares becoming issuable to the Holders. (e) Notwithstanding anything to the contrary in this Section 2.1, but subject to compliance with Section 7.14 of the Note Purchase Agreement, the Company may, by delivering written notice to the Note Purchasers, prohibit offers and sales of Note Shares pursuant to the Note Shares Shelf Registration at any time if (A)(i) the Company is in possession of material non-public information relating to the Company, (ii) the Company determines (based on advice of counsel) that such prohibition is necessary in order to avoid a requirement to disclose such material non-public information to the public and (iii) the Company determines in good faith that public disclosure of such material non-public information would not be in the best interests of the Company and its stockholders, or (B)(i) the Company has made a public announcement relating to an acquisition or business combination transaction including the Company and/or one or more of its subsidiaries that is material to the Company and its subsidiaries taken as a whole and (ii) the Company determines in good faith that (x) offers and sales of Note Shares pursuant to the Note Shares Shelf Registration prior to the consummation of such transaction (or such earlier date as the Company shall determine) would not be in the best interests of the Company and its stockholders or (y) it would be impracticable at the time to obtain any financial statements relating to such acquisition or business combination transaction that would be required to be set forth in the Note Shares Shelf Registration; provided, however, that upon (i) the public disclosure by the Company of the material non-public information described in clause (A) of this paragraph or (ii) the consummation, abandonment or termination of, or the availability of the required financial statements with respect to, a transaction described in clause (B) of this paragraph, the suspension of the use of the Note Shares Shelf Registration pursuant to this Section 2.1(e) shall cease and the Company shall promptly, prior to the next Business Day, comply with Section 2.2 hereof and notify the Note Purchasers that dispositions of Note Shares may be resumed. In the event that during the Effectiveness Period the prospectus under the Note Shares Shelf Registration becomes not usable as a result of the Company's notification under this Section, the Company shall use its reasonable best efforts to provide the Holders a usable prospectus as soon as practicable, and in no event shall sales of Note Shares under the Note Shares Shelf Registration be suspended for more than 30 days in any 365-day period. (f) In the event that the Company shall (i) fail to cause the Note Shares Shelf Registration to be declared effective on or prior to the Effectiveness Target Date or (ii) fail to keep the Note Shares Shelf Registration effective for the duration of the Effectiveness Period (subject to the rights of the Company under the preceding Section (e)), the Company shall pay the Holders Liquidated Damages for its breach hereof, in the amounts set forth and defined in the Note Purchase Agreement. 4 Section 2.2 Registration Procedures. (a) The Company shall at its expense: (i) file with the Commission within ninety (90) days of the date hereof a Registration Statement with respect to Note Shares and use its reasonable best efforts to cause that Registration Statement to become and remain effective prior to the Effectiveness Target Date and for the duration of the Effectiveness Period; (ii) prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus included in the Registration Statement as may be necessary to keep the Registration Statement effective for the period described in Section 2.2(a)(i) above, and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement; (iii) furnish to each selling Holder such reasonable numbers of copies of the Registration Statement, preliminary prospectus, final prospectus, and any amendments and supplements, and such other documents as each selling Holder may reasonably request in order to facilitate the public offering of such securities; (iv) promptly, and prior to the next Business Day, furnish to each selling Holder written notice of any stop order or similar notice issued by the SEC or any state agency charged with the regulation of securities, and any notice from the Nasdaq National Market or other securities exchange then listing Note Shares covered by such Registration Statement; (v) register or qualify Note Shares covered by the Registration Statement under the securities or Blue Sky laws of such states as shall be reasonably appropriate for the distribution of the Note Shares covered by such Registration Statement; provided, however, that the Company shall not for any purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (vi) use its best efforts to make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Act and Rule 158 thereunder; (vii) use its best efforts to comply with all rules and regulations of the Nasdaq National Market, or such other principal securities exchange on which the equity securities issued by the Company are then quoted or listed and traded, to ensure that Note Shares are freely tradeable thereon upon registration thereof under the Act; 5 (viii) provide, if one has not already been appointed by the Company, a transfer agent and registrar for all Note Shares covered by such Registration Statement not later than the effective date of such Registration Statement; (ix) enter into a cross-indemnity agreement, in customary form, with each underwriter, if any; (x) include in the Registration Statement filed with the SEC all Note Shares; and promptly, and, within two (2) Business Days, after filing of such a Registration Statement or prospectus or any amendments or supplements thereto, the Company shall furnish to each Holder copies of all such documents so filed including, if requested, documents incorporated by reference in the Registration Statement; and notify each selling Holder of any stop order issued or threatened by the SEC and use its best efforts to prevent the entry of such stop order or to remove it if entered; (xi) notify each selling Holder, at any time when a prospectus relating to such selling Holder's Note Shares is required to be delivered under the Act, of the occurrence of any event as a result of which the prospectus included in such Registration Statement contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein not misleading, and as soon as practicable prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Note Shares, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (xii) cause all such Note Shares to be listed on the Nasdaq National Market System (or on such other principal securities exchange on which the equity securities issued by the Company are then quoted or listed and traded); (xiii) enter into an underwriting agreement in customary form and take all such other actions that the selling Holders or their underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Note Shares; (xiv) make available for inspection by each selling Holder and one (1) counsel acting for them, any underwriter participating in any disposition pursuant to such Registration Statement, and any counsel retained by any such underwriter, all pertinent financial and other information and corporate documents of the Company reasonably requested, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such selling Holder, underwriter or counsel in connection with such Registration Statement and to participate in "road shows" or management presentations as may be reasonably requested by any underwriter; (xv) with respect to any underwritten offering, use its reasonable best efforts to obtain a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" 6 letters as the selling Holders or any underwriter may reasonably request; (xvi) with respect to an underwritten offering, obtain an opinion of counsel to the Company, addressed to the selling Holders and any underwriter, in customary form including such matters as are customarily covered by such opinions in underwritten registered offerings of equity securities as the selling Holders or any underwriter may reasonably request, such opinion to be reasonably satisfactory in form and substance to each selling Holder; (xvii) furnish to each selling Holder upon request of such selling Holder, within three (3) Business Days, copies of all correspondence between the Company, the SEC and any applicable state securities regulatory agencies relating to such registration; (xviii) during the period that the Company is required to keep such Registration Statement effective, promptly, and prior to the next Business Day, notify each selling Holder covered by such Registration Statement at any time when a prospectus relating thereto is required to be delivered under the Act, of the happening of any event as a result of which the prospectus or any prospectus supplement included in such Registration Statement, as then in effect, or any material incorporated by reference therein, includes 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, or if it is necessary to amend or supplement such prospectus or any prospectus supplement or Registration Statement or material incorporated by reference therein to comply with the law, and at the request of any such selling Holder, prepare and furnish to such selling Holder a reasonable number of copies of a supplement to or an amendment of such prospectus or any prospectus supplement or material incorporated by reference therein as may be necessary so that, as thereafter delivered to the purchasers of such Note Shares, such prospectus or any prospectus supplement or material incorporated by reference therein shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and so that such prospectus or prospectus supplement or Registration Statement or material incorporated by reference therein, as amended or supplemented, will comply with the law; (xix) upon the reasonable request of any selling Holder, to include in a prospectus supplement or an amendment to a Note Shares Shelf Registration any change in the information provided to the Company pursuant to Rules 507 or 508 under Registration S-K; and (xx) upon delivery of the certificates with respect to Note Shares to be registered pursuant hereto, issue to any underwriter to which the selling Holder may sell such Note Shares in connection with any such registrations (and to any direct or indirect transferee of any such underwriter) certificates evidencing such Note Shares without any legend restricting the transferability of Note Shares. 7 (b) Each selling Holder of Note Shares, respectively, agrees that, upon receipt of any written notice from the Company of (i) any request by the Commission for amendments or supplements to a Registration Statement or related prospectus covering any of such selling Holder's Note Shares, (ii) the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement covering any of such selling Holder's Note Shares or the initiation of any proceedings for that purpose, (iii) the receipt by the Company of any notification with respect to the suspension of the qualification of any Note Shares, for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose (iv) the happening of any event that requires the making of any changes in the Registration Statement covering any of such selling Holder's Note Shares so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that any related prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, and (v) the Company's reasonable determination that a post-effective amendment to a Registration Statement covering any of such selling Holder's Note Shares or a supplement to any related prospectus is required under the Act; such selling Holder will forthwith discontinue disposition of such Note Shares until it is advised in writing by the Company that the use of the applicable prospectus (as amended or supplemented, as the case may be) and disposition of Note Shares covered thereby pursuant thereto may be resumed, provided, however, (x) that such selling Holder shall not resume its disposition of Note Shares pursuant to such Registration Statement or related prospectus unless it has received notice from the Company that such Registration Statement or amendment has become effective under the Act and has received a copy or copies of the related prospectus (as then amended or supplemented, as the case may be) unless Note Shares are then listed on a national securities exchange and the Company has advised such selling Holder that the Company has delivered copies of the related prospectus, as then amended or supplemented, in transactions effected upon such exchange, subject to any subsequent receipt by such selling Holder from the Company of written notice of any of the events contemplated by clauses (i) through (v) of this paragraph, and, (y) if so directed by the Company, such holder will deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Note Shares current at the time of receipt of such notice. In the event the Holders are required to refrain from disposition of Note Shares for more than 30 days in any 365-day period, the Company shall be in breach of this Agreement and shall pay Liquidated Damages to the Holders pursuant to the Note Purchase Agreement. Section 2.3 Registration Expenses. The Company shall bear all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all fees and expenses relating to the listing of any Note Shares with the Nasdaq National Market System (or on such other principal securities exchange on which the equity securities issued by the Company are then quoted or listed and traded), fees and expenses of compliance with securities or Blue Sky laws in jurisdictions reasonably requested by any selling Holder or underwriter pursuant to Section 2.2(a)(v) (including reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of Note Shares), all word processing, duplicating and printing expenses, messenger and delivery expenses, fees and disbursements of 8 counsel for the Company and one (1) counsel for the selling Holders (selected by Holders holding a majority of the Note Shares), independent public accountants (including the expenses of any special audit or "cold comfort" letters required by or incident to such performance) and underwriters (excluding discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals attributable to the securities being registered, which discounts, commissions or fees with respect to any selling Holder's respective Note Shares shall be paid by such selling Holder), all the Company's internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), fees of the National Association of Securities Dealers, Inc., the expense of any annual audit, the expense of any special audits incident to or required by any registration, the expense of any liability insurance (if the Company determines to obtain such insurance) and the reasonable fees and expenses of any special experts (including attorneys) retained by the Company (if it so desires) in connection with such registration and fees and expenses of other persons retained by the Company. Section 2.4 Indemnification. (a) In the event of any registration of any Note Shares under the Act pursuant to this Agreement, the Company will indemnify and hold harmless the selling Holder of such Note Shares, each of its officers, directors, employees, partners, legal counsel and accountants, each underwriter, if any, and each other person, if any, who controls such selling Holder or such underwriter within the meaning of the Act against any expenses, losses, claims, damages or liabilities, joint or several, arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement under which such Note Shares were registered under the Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arising out of or based upon any omission (or alleged omission) to state a material fact required to be stated therein or necessary to make the statements therein not misleading or any violation by the Company of the Act or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration; and, subject to Section 2.4(c) below, the Company will reimburse such selling Holder, each of its officers, directors, partners, legal counsel and accountants, each underwriter, if any, and each such controlling person for any legal and any other expenses reasonably incurred by such selling Holder or controlling person in connection with investigating and defending any such expense, loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such expense, loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus, final prospectus, or summary prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by such selling Holder and stated to be specifically for use therein. (b) Each selling Holder of Note Shares will, severally, and not jointly and severally, in the event that any Note Shares held by such selling Holder are those as to which any 9 registration is being effected under the Act pursuant to this Agreement, indemnify and hold harmless the Company, each of its directors and officers and each underwriter (if any), and each other person, if any, who controls the Company or any such underwriter within the meaning of the Act, against any expenses, losses, claims, damages or liabilities, joint or several, insofar as such expenses, losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement of a material fact contained in any Registration Statement under which such Note Shares were registered under the Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading, if the statement or omission was based reliance upon and made in conformity with information furnished in writing to the Company by such selling Holder and stated to be specifically for use therein, and shall reimburse the Company, its directors and officers, and each such controlling person for any legal or other expenses reasonably incurred by any of them in connection with investigation or defending any such loss, claim, damage, liability or action. This indemnity shall remain in full force and effect for the applicable statute of limitation period regardless of any investigation made by or on behalf of the Company or such controlling person and shall survive the transfer of shares. No selling Holder shall be liable to the Company and the other indemnified parties under this Section 2.4(b) for any amount in excess of the net proceeds received from the Note Shares sold by it pursuant to the Registration Statement. (c) Each party entitled to indemnification under this Section 2.4 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any loss, claim, action, damage or liability as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party whose approval shall not be unreasonably withheld); and, provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.4, except to the extent that such failure to give notice prejudices the Indemnifying Party or such Indemnifying Party is damaged by such delay. The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall pay such expense (but in no event shall the Indemnifying Party be obligated to pay the fees and expenses of more than one counsel for the Indemnified Party or Parties) if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would, in the reasonable judgment of the Indemnified Party, be inappropriate due to actual or potential conflict of interests between the Indemnified Party and any other party represented by such counsel in such proceeding. If, in the Indemnified Party's reasonable judgment, a conflict of interest between such Indemnified and Indemnifying Parties may exist in respect of such claim, the Indemnified Party may assume the defense of such claim, jointly with any other Indemnified Party that reasonably determines such conflict of interest to exist, and the Indemnifying Party shall be liable to such Indemnified Parties for the reasonable legal fees and expenses of one counsel for all such Indemnified Parties and for other expenses reasonably incurred in connection with the defense 10 thereof incurred by the Indemnified Party. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party (which consent shall not be unreasonably withheld), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party. (d) If the indemnification provided for in this Section 2.4 is finally determined by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to therein or contribution is required under the Act in circumstances for which indemnification is provided under this Section 2.4, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other and also the relative fault of the Indemnifying Party and the Indemnified Party as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact related to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, (A) no Holder will be required to contribute any amount in excess of the net proceeds received from the Note Shares sold by it pursuant to such Registration Statement, and (B) no person or entity guilty of fraudulent misrepresentation, within the meaning of Section 11(f) of the Act, shall be entitled to contribution from any person or entity who is not guilty of such fraudulent misrepresentation. (e) Indemnification and contribution similar to that specified in this Section 2.4 (with appropriate modifications) shall be given by the Company and each selling Holder with respect to any required registration or other qualification of Note Shares under any Federal or state law or regulation of any governmental authority, other than the Act. (f) The indemnification required by this Section 2.4 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (g) The obligations under this Section 2.4 shall survive the completion of any offering of Note Shares in a Registration Statement. Section 2.5 Indemnification with Respect to Underwritten Offering. (a) In the event that Note Shares are sold pursuant to a Registration Statement in an underwritten offering, the Company agrees to enter into an underwriting agreement 11 containing customary representations and warranties with respect to the business and operations of the Company and customary covenants and agreements to be performed by the Company, including without limitation customary provisions with respect to indemnification by the Company of the underwriters of such offering. (b) No Holder may participate in any underwritten registration pursuant to this Section 2.5 hereunder unless such Holder (i) agrees to sell Note Shares which it proposes to sell in such underwritten registration on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, reasonable and customary indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements and provides such other information and documentation as the Company or the underwriters may reasonably request in connection with such underwritten registration. Section 2.6 Information by Holder. Each holder of Note Shares included in any Registration shall furnish to the Company such information regarding such holder and the distribution proposed by such holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Article 2. Section 2.7 Termination. All of the Company's obligations to register Note Shares pursuant to this Agreement shall terminate thirty (30) days after the end of the Effectiveness Period or any extension thereof. Section 2.8 Transfer of Rights. (a) The rights and obligations of each Note Purchaser (or assignee thereof) under this Agreement may be transferred or assigned by such Note Purchaser (or assignee thereof), in whole or in part, without the consent of the Company or any other Note Purchaser, to (i) another person or entity that is then a Holder of Note Shares or Notes, (ii) any affiliate of the Holder, (iii) any person or entity acquiring an interest in a Note in a transaction permitted under the Note, or (iv) any person or entity acquiring in a private transaction, including a distribution by a partnership to its partners, 500 or more Note Shares (as adjusted for stock splits, stock dividends, recapitalization or similar events) (all of such parties, collectively, the "Permitted Transferees"). The Company may not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of each Holder (which consent may be withheld for any reason in the sole discretion of such Holder or Holders). (b) Any transferee (other than a Holder who is already a party to an agreement in form and substance similar to this Agreement) to whom rights under this Agreement are transferred shall, as a condition to such transfer, deliver to the Company a written instrument by which such transferee identifies itself, gives the Company notice of the transfer of such rights, indicates the Note Shares owned by it and agrees to be bound by the obligations imposed upon the Note Purchasers under this Agreement. 12 (c) A transferee to whom rights or obligations are transferred pursuant to this Section 2.8 may not again transfer such rights or obligations to any other person or entity, other than as provided in this Section 2.8. Section 2.9 Rule 144. The Company will file the reports required to be filed by it under the Act and the Exchange Act, and will take such further action as any Holder of Note Shares may reasonably request, all to the extent required from time to time to enable such Holder to sell Note Shares without registration under the Act within the limitations of the exemptions provided by (a) Rule 144 under the Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the written request of any Holder of Note Shares, the Company will deliver to such Holder, within five (5) days of delivery of such request, a written statement as to whether it has complied with such filing requirements. In connection with any sale of Note Shares that will result in such securities no longer being "restricted securities" (as defined in Rule 144 promulgated under the Act), the Company shall cooperate with the selling Holders and the underwriter(s), if any, and facilitate the preparation and delivery of certificates representing such securities to be sold which do not bear any restrictive legends to permit delivery of such securities. Section 2.10 Information Reports. The Company covenants that, except at such times as the Company is a reporting company under Section 13 or 15(d) of the Exchange Act, the Company shall, upon the written request of any Holder of Note Shares, provide to any such Holder and to any prospective institutional transferee of Note Shares designated by such Holder, within five (5) days of delivery of such request, such financial and other information as is available to the Company and as such Holder may reasonably determine is required to permit a transfer of such Note Shares to comply with the requirements of Rule 144A promulgated under the Act. ARTICLE 3. MISCELLANEOUS Section 3.1 Notices. All notices, demands, instructions and other communications required or permitted to be given to or made upon any party hereto shall be in writing delivered to the parties at the addresses set forth in the Note Purchase Agreement (or such other address as may be provided by one party in a notice to the other). Notice delivered in accordance with the foregoing shall be effective (i) when delivered, if delivered personally, (ii) three hours after confirmation of receipt, if delivered by facsimile transmission, or (iii) two days after being delivered in the United States (properly addressed and all fees paid) by overnight delivery service to a courier (such as Federal Express) which regularly provides such service and regularly obtains executed receipts evidencing delivery. Notices shall not be given via U.S. Mail. 13 Section 3.2 Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by (i) the parties hereto; (ii) the Permitted Transferees; and (iii) the respective successors of the foregoing, including those resulting by operation of law. Section 3.3 Headings. Article and Section headings used in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement for any purpose or affect the construction of this Agreement. Section 3.4 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when so executed and delivered, shall be deemed to be an original and all of which, taken together, shall constitute one and the same Agreement. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. Section 3.5 Governing Law. This Agreement shall be deemed to have been made in the State of New York and the validity of this Agreement, the construction, interpretation and enforcement thereof, and the rights of the parties thereto shall be determined under, governed by, and construed in accordance with the internal laws of the State of New York, without regard to principles of conflicts of law. Section 3.6 Survival of Agreements, Representations and Warranties. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement. Section 3.7 WAIVER OF JURY TRIAL. THE COMPANY WAIVES THE RIGHT TO TRIAL BY JURY (WHICH THE NOTE PURCHASERS HEREBY ALSO WAIVE) IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE NOTE OR THE NOTE PURCHASE AGREEMENT. THE COMPANY WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVER WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. Section 3.8 Amendment and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company, and the Holders of a majority in principal amount of the Notes (treating Note Shares held by a Holder as if they had not been converted); provided, that this Agreement may be amended with the consent of the Holders of less than all Notes (but not less than 51% of such shares) only in a manner which affects all Holders, as the case may be, in the same fashion. In no event may this Agreement be amended to (i) shorten the Effectiveness Period, (ii) extend the Effectiveness Target Date, or (iii) require a Holder to pay expenses otherwise borne by the Company under Section 2.3, without the Consent of each Holder affected thereby. No waivers of 14 or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. Section 3.9 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE PURCHASE AGREEMENT, THE NOTES OR ANY OTHER RELATED DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT OR A JOINDER HERETO, THE COMPANY HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS FOR NOTICES AS SET FORTH IN SECTION 14.6 OF THE PURCHASE AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE HOLDERS TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR ANY GUARANTOR IN ANY OTHER JURISDICTION. THE COMPANY AND EACH GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY OR ANY GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE PURCHASE AGREEMENT, THE NOTES AND ANY OTHER RELATED DOCUMENT. Section 3.10 Availability of Equitable Remedies. Each party acknowledges that a breach of the provisions of this Agreement could not adequately be compensated by money damages. Accordingly, any party shall be entitled, in addition to any other right or remedy available to it, to an injunction restraining such breach or a threatened breach and to specific performance of any such provision of this Agreement, and in either case no bond or other security shall be required in connection therewith, and the parties hereby consent to such injunction and to the ordering of specific performance. 15 Section 3.11 Entire Agreement. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof. Section 3.12 Attorneys' Fees. Any holder of a Note, or Note Shares, shall be entitled to recover from the Company the reasonable attorneys' fees and expenses incurred by such holder in connection with enforcement by such holder of any obligation of the Company hereunder or under the Note or the Note Purchase Agreement. Section 3.13 No Impairment of Rights. The Company will not, by amendment of its Certificate of Incorporation or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Agreement against impairment. Section 3.14 No Inconsistent or Superior Registration Rights. (a) From and after the date of this Agreement, the Company shall not without the prior written consent of the Holders of a majority in principal amount of Notes, (i) enter into any agreement granting registration rights with respect to the Common Stock or other securities which are inconsistent with, or superior to the rights granted to the Holders hereunder; or (ii) amend any agreement, in effect as of the date hereof, so as to grant registration rights to any other person or entity which causes such registration rights to be inconsistent with those granted to the Holders hereunder or to otherwise adversely affect the registration rights granted to the Holders hereunder. (b) Notwithstanding the foregoing, the Holders acknowledge and agree that comparable registration rights have been granted concurrently herewith to the holders of the Company's Warrants issued pursuant to that certain Financing Agreement dated of even date herewith by and among the Company, Ultradata corporation, MECA Software, L.L.C., Monescape Holdings, Inc., the Lenders (as such term is defined therein), Foothill Capital Corporation, as administrative agent for the Lenders, and Ableco Finance LLC, as collateral agent for the Lender Group (as such term is defined therein). [Signature Pages Follow] 16 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: CFI PROSERVICES, INC., an Oregon corporation By: /s/ Robert P. Chamness ---------------------- Name: Robert P. Chamness Title: President Registration Rights Agreement S-1 NOTE PURCHASERS: LEVINE LEICHTMAN CAPITAL PARTNERS II, L.P., a California limited partnership By: LLCP California Equity Partners II, L.P., a California limited partnership Its: General Partner By: Levine Leichtman Capital Partners, Inc., a California corporation Its: General Partner By: /s/ Lauren B. Leichtman ----------------------- Lauren B. Leichtman Chief Executive Officer Registration Rights Agreement S-2 BAY STAR CAPITAL, L.P. By: Bay Star Management, LLC By: /s/ Brian J. Stark ------------------ Name: Brian J. Stark Title: Managing Director Registration Rights Agreement S-3 U.S. BANCORP LIBRA, a division of U.S. Bancorp Investments, Inc. By: /s/ James B. Upchurch --------------------- Name: James B. Upchurch Title: President Registration Rights Agreement S-4 SOUNDSHORE HOLDINGS LTD. By: /s/ Andrew W. Gitlin -------------------- Andrew W. Gitlin Director of SoundShore Holdings Ltd. Registration Rights Agreement S-5 SOUNDSHORE OPPORTUNITY HOLDING FUND LTD. By: /s/ Andrew W. Gitlin -------------------- Andrew W. Gitlin Director of SoundShore Opportunity Holding Fund Ltd. Registration Rights Agreement S-6 EX-2 11 EXHIBIT 2.10 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF 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, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) UNLESS PURSUANT TO AN EXEMPTION THEREFROM UNDER RULE 144 (OR ANY SUCCESSOR PROVISION) OF THE ACT. August 13, 1999 CFI PROSERVICES, INC WARRANT TO PURCHASE 58,000 SHARES OF COMMON STOCK CFI PROSERVICES, INC., an Oregon corporation (the "Company"), hereby certifies that, for value received, U.S. BANCORP LIBRA, A DIVISION OF U.S. BANCORP INVESTMENTS, INC., a Minnesota corporation (the "Initial Holder"), or its registered transferees, successors or assigns (collectively, together with the Initial Holder, the "holder" or the "holders"), is the registered holder of warrants (the "Warrants") to subscribe for and purchase 58,000 shares of the fully paid and nonassessable Common Stock (as adjusted pursuant to Section 4 hereof, the "Warrant Shares") of the Company, at a purchase price per share equal to $12.34375 (such price, as adjusted pursuant to Section 4 hereof, the "Warrant Price"), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term "Common Stock" shall mean the Company's presently authorized Common Stock, no par value, and any stock into or for which such Common Stock may hereafter be converted or exchanged, and (b) the term "Date of Grant" shall mean August 13, 1999, the date of this Warrant. The term "Warrant" as used herein shall be deemed to include any warrant issued upon transfer or partial exercise of this Warrant, unless the context clearly requires otherwise. This Warrant is being issued pursuant to that certain letter agreement dated May 14, 1999, as amended (the "Letter Agreement"), by and between the Company and the Initial Holder. The holder is entitled to the rights and benefits under the Registration Rights Agreement (the "Registration Rights Agreement") of even date herewith by and among the Company and the Initial Holder. 1. Term. This Warrant is exercisable, in whole or in part, at any time and from time to time from the Date of Grant through and including the close of business on the fifth -1- anniversary of this Warrant (the "Expiration Date"); provided, however, that in the event that any portion of this Warrant is unexercised as of the Expiration Date, the terms of Section 2(b) below shall apply. 2. Exercise. a. Method of Exercise; Payment; Issuance of New Warrant. Subject to Section 1 hereof, this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company, and, except as otherwise provided for herein, by the payment to the Company of an amount equal to the then applicable Warrant Price multiplied by the number of Warrant Shares then being purchased. The person or persons in whose name(s) any certificate(s) representing shares of Common Stock shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised if exercised prior to the close of business on such date; otherwise, the date of record shall be the next business day. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered by the Company at its expense to the holder hereof as soon as possible and in any event within ten (10) days after such exercise and, unless this Warrant has been fully exercised (including without limitation, exercise pursuant to Section 2(b) below), a new Warrant representing the portion of the Warrant Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such ten (10) day period. b. Automatic Exercise. In the event that any portion of this Warrant remains unexercised as of the Expiration Date and the fair market value (determined in accordance with Section 4.i. below) of one (1) share of Common Stock as of the Expiration Date is greater than the applicable Warrant Price as of the Expiration Date, then this Warrant shall be deemed to have been exercised automatically immediately prior to the close of business on the Expiration Date (or, in the event that the Expiration Date is not a business day, the immediately preceding business day) (the "Automatic Exercise Date"), and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such Warrant Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 2.b. and without any action by the holder of this Warrant or any other person, and payment to the Company of the then applicable Warrant Price multiplied by the number of Warrant Shares then being purchased shall be deemed to be made as of the Automatic Exercise Date pursuant to the conversion provisions of Section 2(c) below (without payment by the holder of any cash exercise price). As promptly as practicable on or after the Automatic Exercise Date and in any event within ten (10) days thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of Warrant Shares issuable upon such exercise. -2- c. Cashless Right to Convert Warrant into Common Stock; Net Issuance. (1) Right to Convert. In addition to and without limiting the rights of the holder hereof under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the "Conversion Right") into shares of Common Stock as provided in this Section 2.c. at any time or from time to time during the term of this Warrant, including upon the Automatic Exercise Date. Upon exercise of the Conversion Right with respect to all or a specified portion of Warrant Shares subject to this Warrant (the "Converted Warrant Shares"), the Company shall deliver to the holder (without payment by the holder of any cash or other cash consideration) that number of shares of fully paid and nonassessable Common Stock equal to the quotient obtained by dividing (i) the value of this Warrant (or the specified portion hereof) on the Conversion Date (as defined in Section 2(c)(2) hereof), which value shall be equal to (A) the aggregate fair market value of the Converted Warrant Shares issuable upon exercise of this Warrant (or the specified portion hereof) on the Conversion Date less (B) the aggregate Warrant Price of the Converted Warrant Shares immediately prior to the exercise of the Conversion Right by (ii) the fair market value of one (1) share of Common Stock on the Conversion Date. Expressed as a formula, such conversion shall be computed as follows: X = A - B ----- Y Where: X = the number of shares of Common Stock to be issued to the holder Y = the fair market value ("FMV") of one (1) share of Common Stock A = the aggregate FMV (i.e., FMV x Converted Warrant Shares) B = the aggregate Warrant Price (i.e., Converted Warrant Shares x Warrant Price) No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date. For purposes of the Registration Rights Agreement, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant. (2) Method of Exercise. The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the holder thereby intends to exercise the Conversion Right and -3- indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 2(c)(1) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the "Conversion Date"). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within ten (10) days following the Conversion Date. (3) Determination of Fair Market Value. For purposes of this Section 2.c., "fair market value" of a share of Common Stock shall have the meaning set forth in Section 4.i. below. 3. Stock Fully Paid; Reservation of Shares. All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all taxes, liens, charges, and pre-emptive rights with respect to the issue thereof. The Company shall pay all transfer taxes, if any, attributable to the issuance of the Warrant Shares upon the exercise of this Warrant. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of this Warrant. 4. Adjustment of Warrant Price and Number of Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events as set forth below: a. Adjustment for Initial Errors and the Happening of Certain Events. (1) The Company hereby acknowledges that the initial number of Warrant Shares purchasable upon the exercise of this Warrant (the "Exercise Quantity") was calculated based upon the Company's representation that the number of outstanding shares of Common Stock of the Company as of the Date of Grant, calculated on a fully diluted basis using the treasury stock method as contemplated by the Accounting Principles Board Opinion No. 15 (as referred to in the Statement of Financial Accounting Standards No. 128) (such shares as calculated on any date, being referred to as "Fully Diluted Shares"), and before giving effect to the issuance of any of the Warrants or Warrant Shares, totaled 7,636,440 shares. If for any reason it shall hereafter be determined that the number of Fully Diluted Shares as of the Date of Grant differed from such initial number of Warrant Shares, then the Company or the holder (whichever shall discover such error) shall notify the other of such determination in writing and the Company shall forthwith (but in no event more than five (5) days thereafter) reissue all of the outstanding Warrants with an appropriate proportional adjustment in said number of Warrant Shares to be effective as of and from the Date of Grant, provided that such adjustment shall be made only if it results in an increase in the number of Warrant Shares hereunder. -4- (2) Any adjustments to the Warrant Price and the number of Warrant Shares issuable upon exercise of this Warrant pursuant to the other subsections of this Section 4 prior to the date of any increase or decrease in the Exercise Quantity pursuant to Section 4.a.(1) shall be recalculated as if such increased or decreased Exercise Quantity had been the Exercise Quantity since the Date of Grant, but no such adjustment shall affect the number of Warrant Shares issued upon any exercise of this Warrant prior to the date any such adjustment is made. b. Merger, Sale, Reclassification. In case of any (i) consolidation or merger of the Company with or into another entity (other than a merger or reorganization (A) in which the Company is the continuing corporation and which does not result in any reclassification or change of the then outstanding shares of Common Stock or issuance of any dividend or other distribution of cash, securities or property to holders of the then outstanding shares of Common Stock, or (B) resulting solely in a change in par value, or from par value to no par value, or from no par value to par value, or in a stock split, subdivision or combination which is the subject of another paragraph in this Section 4), (ii) sale or other disposition of all or substantially all of the Company's assets or distribution of property to stockholders (other than distributions payable out of earnings or retained earnings), or (iii) reclassification, change or conversion of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of any stock split, subdivision or combination which is the subject of another paragraph in this Section 4), then the Company shall take all necessary actions (including but not limited to executing and delivering to the holder of this Warrant an additional Warrant or other instrument, in form and substance mutually agreeable to the Company and the holder of this Warrant) to ensure that the holder of this Warrant shall thereafter have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon the effectiveness of such consolidation, merger, sale or other disposition, reclassification, change or conversion by a holder of the number of shares of Common Stock then purchasable under this Warrant (which, in the case of such a transaction in which holders of Common Stock were entitled to elect between different forms of consideration, shall be deemed to be the form of consideration received by a plurality of the electing holders of Common Stock). Such new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4. The provisions of this Section 4.b. shall similarly apply to successive reclassifications, changes and conversions. c. Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall split, subdivide or combine its outstanding shares of Common Stock, the Warrant Price shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination, effective at the close of business on the date the split, subdivision or combination becomes effective. d. Stock Dividends and Other Distributions. If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Common Stock payable in Common Stock, or (ii) make any other distribution with respect to Common Stock -5- (except any distribution specifically provided for in Section 4.b. or Section 4.c. hereof) of Common Stock, then the Warrant Price shall be adjusted, from and after the date of determination of stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of Fully Diluted Shares immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of Fully Diluted Shares immediately after such dividend or distribution. e. Rights Offerings. In case the Company shall, at any time after the Date of Grant, issue to holders of shares of the capital stock of the Company (solely as a result of such holders' status as stockholders of the Company) any rights, options or warrants entitling them to subscribe for or purchase shares of Common Stock (or securities convertible or exchangeable into Common Stock) at a price per share of Common Stock (or having a conversion or exchange price per share of Common Stock if a security convertible or exchangeable into Common Stock) less than the fair market value per share of Common Stock on the record date for such issuance (or the date of issuance, if there is no record date), the Warrant Price to be in effect on and after such record date (or issuance date, as the case may be) shall be adjusted so that it shall equal the price determined by multiplying the Warrant Price in effect immediately prior to such record date (or issuance date, as the case may be) by a fraction (i) the numerator of which shall be the number of Fully Diluted Shares on such record date (or issuance date, as the case may be) plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of such Common Stock so to be offered (or the aggregate initial exchange or conversion price of the exchangeable or convertible securities so to be offered) would purchase at such fair market value on such record date (or issuance date, as the case may be) and (ii) the denominator of which shall be the number of Fully Diluted Shares on such record date (or issuance date, as the case may be) plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the convertible securities to be offered are initially exchangeable or convertible). In case such subscription price may be paid in part or in whole in a form other than cash, the fair market value of such consideration shall be determined by the Board of Directors of the Company in good faith as set forth in a duly adopted board resolution certified by the Company's Secretary or Assistant Secretary, provided, that in the event the Board of Directors is unable to make such a determination or holders of at least fifty-one percent (51%) of the Warrant Shares disagree in writing with such determination, then the fair market value of such consideration shall be determined in the same manner as a Valuation Procedure under Section 4(i) below. Such adjustment shall be made successively whenever such an issuance occurs; and in the event that such rights, options, warrants, or convertible or exchangeable securities are not so issued or are canceled, expire or cease to be convertible or exchangeable before they are exercised, converted, or exchanged (as the case may be), then the Warrant Price shall again be adjusted to be the Warrant Price that would then be in effect if such issuance had not occurred, but such subsequent adjustment shall not affect the number of Warrant Shares issued upon any exercise of this Warrant prior to the date such subsequent adjustment is made. f. Other Special Distributions. In case the Company shall fix a record date for the making of a distribution (other than dividends, distributions or issuances referred to in Section 4(c), Section 4(d) or Section 4(e) above) to all holders of shares of Common Stock -6- (including any such distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) of cash, evidences of indebtedness, assets or subscription rights, options, warrants, or exchangeable or convertible securities containing the right to subscribe for or purchase shares of any class of equity securities of the Company, the Warrant Price to be in effect on and after such record date shall be adjusted by multiplying the Warrant Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the fair market value per share of Common Stock on such record date (determined in accordance with Section 4(i) below), less the cash and/or the fair market value (as determined by the Board of Directors of the Company in good faith as set forth in a duly adopted board resolution certified by the Company's Secretary or Assistant Secretary) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights, options, warrants, or exchangeable or convertible securities applicable to one (1) share of the Common Stock outstanding as of such record date, provided, that in the event the Board of Directors is unable to make such a determination or holders of at least fifty-one percent (51%) of the Warrant Shares disagree in writing with such determination, then the fair market value of such consideration shall be determined in the same manner as a Valuation Procedure under Section 4(i) below, and (ii) the denominator of which shall be such fair market value per share of Common Stock as determined in the manner set forth under Section 4(i) below. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Warrant Price shall again be adjusted to be the Warrant Price which would then be in effect if such record date had not been fixed, but such subsequent adjustment shall not affect the number of Warrant Shares issued upon any exercise of this Warrant prior to the date such subsequent adjustment was made. g. Other Issuances and Adjustments. (1) In case the Company or any subsidiary thereof shall, at any time after the Date of Grant, issue shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or acquire shares of Common Stock (excluding (i) shares, rights, options, warrants, or convertible or exchangeable securities outstanding on the Date of Grant, or issued in any of the transactions described in Sections 4(b), 4(c), 4(d), 4(e) or 4(f) above, (ii) shares issued upon the exercise of such rights, options or warrants or upon conversion or exchange of such convertible or exchangeable securities, and (iii) up to One Million Nine Hundred Eighty-Nine Thousand Ninety-One (1,989,091) shares of Common Stock (subject to adjustment for splits, recapitalizations or similar events) issued, issuable or reserved for issuance to directors, officers, employees or consultants of the Company or any subsidiary of its subsidiaries in connection with their services as directors, officers, employees or consultants pursuant to any stock grant, stock option, warrant or other similar right issued by the Company and approved by the Board of Directors of the Company under a stock option or incentive plan duly adopted and approved by the shareholders of the Company and in existence on the date hereof), at a price per share of Common Stock (determined in the case of such rights, options, warrants, or convertible or exchangeable securities by dividing (x) the total amount received and/or receivable by the Company in consideration of the sale and issuance of such rights, options, warrants, or convertible or exchangeable securities, plus the total minimum consideration payable to the Company upon exercise, conversion, or exchange thereof by (y) the total maximum number -7- of shares of Common Stock covered by such rights, options, warrants, or convertible or exchangeable securities) less than the fair market value per share of Common Stock (determined in accordance with Section 4(i) below and in the case of rights, options, warrants or convertible or exchangeable securities, determined at the time of issuance of such securities rather than upon exercise thereof), in each case on the date the Company fixes the offering price of such shares, rights, options, warrants, or convertible or exchangeable securities, then the Warrant Price shall be adjusted so that it shall equal the price determined by multiplying the Warrant Price in effect immediately prior thereto by a fraction (i) the numerator of which shall be the sum of (A) the number of Fully Diluted Shares immediately prior to such sale and issuance plus (B) the number of shares of Common Stock which the aggregate consideration received or receivable (determined as provided herein) in connection with such sale or issuance would purchase at such fair market value per share, and (ii) the denominator of which shall be the total number of Fully Diluted Shares immediately after such sale and issuance. Such adjustment shall be made successively whenever such an issuance is made. (2) In case the Company or any subsidiary thereof shall, at any time after the Date of Grant, make or agree to (i) any downward adjustment in the exercise, exchange or conversion price of, (ii) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of, or (iii) any change in the consideration payable for the exercise, conversion or exchange of, any rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or acquire shares of Common Stock, other than such adjustment that is specifically contemplated and required under the terms of any such instrument as of the Date of Grant, then the Warrant Price shall be adjusted so that it shall equal the price determined by multiplying the Warrant Price in effect immediately prior thereto by a fraction the numerator of which shall be the sum of (A) the number of Fully Diluted Shares immediately prior thereto, plus (B) the number of shares of Common Stock to be issued upon such exercise, conversion or exchange immediately prior thereto, multiplied by the aggregate amount of the fair market value of the consideration to be received by the Company upon such exercise, conversion or exchange immediately thereafter, and the denominator shall be the sum of (X) the number of shares of Fully Diluted Shares immediately thereafter, plus (Y) the number of shares of Common Stock to be issued upon such exercise, conversion or exchange immediately thereafter, multiplied by the aggregate amount of the fair market value of the consideration to be received by the Company upon such exercise, conversion or exchange immediately prior thereto. Such adjustment shall be made successively whenever such an issuance is made. (3) For the purposes of an adjustment under this Section 4(g), the maximum number of shares of Common Stock which the holder of any right, option, warrant or convertible or exchangeable security shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding; furthermore, the consideration received by the Company therefor shall be deemed to be equal to the price per share of Common Stock (determined in the case of such rights, options, warrants, or convertible or exchangeable securities by dividing (x) the total amount received and/or receivable by the Company in consideration of the sale and issuance of such rights, options, warrants, or convertible or exchangeable securities, plus the total minimum consideration -8- payable to the Company upon exercise, conversion, or exchange thereof by (y) the total maximum number of shares of Common Stock covered by such rights, options, warrants, or convertible or exchangeable securities) multiplied by the number of shares deemed issued and outstanding in the previous sentence. In case the Company shall issue shares of Common Stock, or issue or make an adjustment to the exercise, exchange or conversion price of rights, options, warrants, or convertible or exchangeable securities containing the right to subscribe for or acquire shares of Common Stock for a consideration consisting, in whole or in part, of consideration other than cash or its equivalent, then in determining the price per share of Common Stock and the consideration received by the Company, the Board of Directors of the Company shall determine, in good faith, the fair market value of said property, and such determination shall be described in a duly adopted board resolution certified by the Company's Secretary or Assistant Secretary, provided, that in the event the Board of Directors is unable to make such a determination or holders of at least fifty-one percent (51%) of the Warrant Shares disagree in writing with such determination, then the fair market value of such consideration shall be determined in the same manner as a Valuation Procedure under Section 4(i) below. In case the Company shall issue shares of Common Stock, or issue or make an adjustment to the exercise or conversion price of rights, options, warrants, or convertible or exchangeable securities containing the right to subscribe for or acquire shares of Common Stock, together with one (1) or more other security as a part of a unit at a price per unit, then in determining the price per share of Common Stock and the consideration received or to be by the Company, the Board of Directors of the Company shall determine, in good faith, which determination shall be described in a duly adopted board resolution certified by the Company's Secretary or Assistant Secretary, the fair market value of the rights, options, warrants, or convertible or exchangeable securities then being sold as part of such unit, provided, that in the event the Board of Directors is unable to make such a determination or holders of at least fifty-one percent (51%) of the Warrant Shares disagree in writing with such determination, then the fair market value of such consideration shall be determined in the same manner as a Valuation Procedure under Section 4(i) below. h. Adjustment of Number of Shares. Upon each adjustment in the Warrant Price, 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 in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter. i. Determination of Fair Market Value. For purposes of those provisions of this Warrant requiring a determination in accordance with this Section 4.i., "fair market value" as of a particular date (the "Determination Date") shall mean (i) if the Common Stock is publicly traded at the time of determination, the average of the closing prices on such day of the Common Stock on all domestic securities exchanges on which the Common Stock is then listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day or, if on any such day the Common Stock is not so listed, the average of the representative bid and asked prices quoted on the NASDAQ system as of 4:00 P.M., New York time, on such day, or if on any day such security is not quoted on the Nasdaq system, the average of the highest bid and lowest asked prices on such day in the -9- domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of ten (10) days consisting of the day as of which "fair market value" is being determined and the nine consecutive business days prior to such day (provided that, if fair market value is being determined as of the date of a firm commitment public offering of the Common Stock, fair market value as of such date shall be the offering price for the Common Stock subject to such public offering); or (ii) if the Common Stock is not publicly traded at the time of determination, the Common Stock price per share determined by dividing Market Value (as defined below) by the number of Fully Diluted Shares. "Market Value" means the highest price that would be paid for the entire common equity of the Company on a going-concern basis in an arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry (but without giving effect to any discount in respect of a minority interest) and determined in accordance with the "Valuation Procedure" (as defined below) and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale. For the purposes of determining the Market Value, (a) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of Fully Diluted Shares, shall be deemed to have been received by the Company, (b)(i) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the issued and outstanding number of Fully Diluted Shares of Common Stock and (ii) any contractual limitation in respect of the shares of Common Stock relating to voting rights, shall be deemed to have been eliminated or canceled and (c) full effect shall be given to any discount that may arise as the result of the fact that the shares of Common Stock are not publicly traded. "Valuation Procedure" means, with respect to the determination of any amount or value required to be determined in accordance with such procedure, a determination (which shall be final and binding on the Company and the holders) made (i) by agreement among the Company and the holders of at least fifty-one percent (51%) of the Warrant Shares (collectively, the "Requesting Holders") within twenty (20) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Independent Financial Expert selected in accordance with the further provisions of this definition. If required, an Independent Financial Expert shall be selected within five (5) days following the expiration of the twenty (20)- day period referred to above, either by agreement among the Company and the Requesting Holders or, in the absence of such agreement, by lot from a list of four potential Independent Financial Experts remaining after the Company nominates three (3), the Requesting Holders nominate three (3), and each side eliminates one potential Independent Financial Expert. The Independent Financial Expert shall be instructed by the Company and the Requesting Holders to make its determination within twenty (20) days of its selection. The fees and expenses of an Independent Financial Expert selected hereunder shall be paid by the Company. "Independent Financial Expert" means a nationally-recognized investment banking firm (a) that does not (and whose directors, officers, employees and Affiliates do not) have a direct or indirect material financial interest in the Company or any holder, (b) that has not been, -10- and, at the time it is called upon to serve as an Independent Financial Expert under this Agreement, is not (and none of whose directors, officers, employees or Affiliates is not), a promoter, director or officer of the Company or any Holder, (c) that has not been retained during the preceding two years by the Company or the holder for any purpose, and (d) that is otherwise qualified to serve as an Independent Financial Advisor. Any such person or entity may receive customary compensation and indemnification by the Company for opinions or services it provides as an Independent Financial Expert. j. Adjustments to Anti-Dilution Rights; Limitations on Subsequent Grants of Anti-Dilution Rights. (1) Notwithstanding the foregoing provisions of this Section 4, to the extent that any holders of equity securities of the Company are entitled to anti-dilution rights that are superior or more favorable to the holder of such equity securities than those granted pursuant to this Section 4, the holder hereof shall be entitled to such anti-dilution rights with respect to the Warrant Shares. (2) From and after the Date of Grant, the Company shall not, without the prior written consent of the holders of at least fifty-one percent (51%) of the Warrant Shares, grant any holders of equity securities of the Company anti-dilution rights with respect to such equity securities that are superior or more favorable than those granted pursuant to this Section 4. 5. Notice of Adjustments. Whenever the Warrant Price or the number of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall deliver to holder a certificate, signed by its chief financial officer, setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Warrant Shares purchasable hereunder after giving effect to such adjustment, which certificate shall be mailed (without regard to Section 11 hereof, by first class mail, postage prepaid) to the holder within five (5) days of the date of determination of such adjustment. 6. Fractional Shares. No fractional shares of Common Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value (as determined in accordance with Section 4.i. above) of a share of Common Stock on the date of exercise. 7. Compliance with Securities Act; Disposition of Warrant or Warrant Shares. a. Compliance with Securities Act. The holder of this Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common Stock to be issued upon exercise hereof, are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant or the Warrant Shares except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Act"). Upon exercise of this Warrant, unless the Warrant Shares to be received upon such exercise are intended to be included -11- in a registration statement under the Act, the holder hereof shall confirm in writing, by executing the form attached as Schedule 1 to Exhibit A hereto, that the shares of Common Stock so received are being acquired for investment and not with a view toward distribution or resale in violation of the Act. All shares of Common Stock issued upon exercise of this Warrant (unless registered under the Act shall be stamped or imprinted with a legend in substantially the following form: "THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL AUTHORITY(IES), (iv) UNLESS PURSUANT TO AN EXEMPTION THEREFROM UNDER RULE 144 (OR ANY SUCCESSOR PROVISION) OF THE ACT OR (v) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED DIRECTLY OR INDIRECTLY. In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows: (1) The holder is aware of the Company's business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Warrant. The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for resale in connection with any "distribution" thereof for purposes of the Act in violation of the Act. The holder acknowledges that such holder, or such holder's representatives, if any, has been given access to information about the Company, through written material provided in or attached to the Financing Agreement of even date herewith (the "Financing Agreement") by and among the Company, UltraData Corporation, Meca Software, L.L.C., MoneyScape Holdings, Inc., the Lenders (as such term is defined in the Financing Agreement), Foothill Capital Corporation, as administrative agent for the Lenders, and Ableco Holdings LLC, as collateral agent for the Lender Group (as such term is defined in the Financing Agreement), and through meetings with representatives of the Company, and has had an opportunity to verify the accuracy of such information, to ask questions of the Company's officers and directors, and has received answers to such holder's satisfaction. The holder understands that the valuation and terms of this Warrant has been made solely through and upon negotiations between the Company and the holder, and not by an independent accountant, auditor, investment banker or third party. The holder represents that such holder has evaluated the fairness of the terms and conditions of this Warrant to the extent he, she or it has deemed necessary. In making a decision to purchase this Warrant, the holder has relied solely on the information contained or referred to herein -12- and upon independent investigations made by such holder in its discretion. In addition, the holder is not purchasing the Warrant as a result or subsequent to: (1) any advertisement, article, notice, or other publication published in any newspaper, magazine, or similar broadcast media over the internet, television, or radio; or (2) any seminar or meeting whose attendees, including the holder, were invited as a result of, subsequent to, or pursuant to, any general solicitation. (2) The holder understands that this Warrant and the Warrant Shares have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holder's investment intent as expressed herein. (3) The holder understands that this Warrant and the Warrant Shares may be held indefinitely unless subsequently registered under the Act and any applicable state securities laws, or unless exemptions from registration are otherwise available. (4) The holder is aware of the provisions of Rule 144 promulgated under the Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, if applicable, including, among other things: the availability of certain public information about the Company, the resale occurring not less than one (1) year after the party has purchased and paid for the securities to be sold; the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934, as amended) and the amount of securities being sold during any three (3)-month period not exceeding the specified limitations stated therein. (5) The holder understands that at the time such holder wishes to sell this Warrant and the Warrant Shares there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, the holder may be precluded from selling this Warrant and the Warrant Shares under Rule 144 even if the one (1)-year minimum holding period had been satisfied. b. Disposition of Warrant or Warrant Shares. With respect to any offer, sale or other disposition of this Warrant, or any Warrant Shares acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or Warrant Shares, the holder hereof and each subsequent holder of this Warrant agrees to deliver, prior to the registration of any such transfer, a written opinion of such holder's counsel (which may be in-house counsel for such holder), if reasonably requested by the Company, to the effect that the sale or other disposition of this Warrant or the Warrant Shares, as the case may be, may be effected without registration under the Act. If a determination has been made pursuant to this Section 7.b. that the opinion of counsel for the holder is not reasonably satisfactory to the Company, the Company shall so notify the holder in writing promptly after such determination has been made (but in any event no more than two business days thereafter). The foregoing notwithstanding, this Warrant or the Warrant Shares, as the case may be, -13- may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 under the Act, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 have been satisfied. Each certificate representing this Warrant or the Warrant Shares thus transferred (except a transfer pursuant to Rule 144) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless based on the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent or, if acting as its own transfer agent, the Company may stop transfer on its corporate books, in connection with such restrictions. 8. Rights as Stockholders; Information. No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of the directors or upon any matter submitted to stockholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise, until this Warrant shall have been exercised and the Warrant Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. The foregoing notwithstanding, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the stockholders. 9. Representations and Warranties. The Company represents and warrants to the holder of this Warrant as follows: a. This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies; b. The Warrant Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and are not subject to any preemptive right of any stockholder of the Company; c. The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and the holders thereof are as set forth in the certificate of incorporation of the Company, as amended to the Date of Grant (as so amended, the "Charter"), a true and complete copy of which has been delivered by the Company to the original holder of this Warrant; -14- d. The execution and delivery of this Warrant are not, and the issuance and delivery of the Warrant Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the charter or by-laws of the Company, do not and will not contravene, in any material respect, any governmental rule or regulation, judgment or order applicable to the Company, do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected. This Warrant and the Warrant Shares are not and will not, be subject to any voting trust agreement or other contract, agreement, arrangement, commitment or understanding to which the Company is a party, including such agreement, arrangement, commitment or understanding restricting or otherwise relating to the voting or disposition thereof, other than the Registration Rights Agreement; e. There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, will have a material adverse effect on the ability of the Company to perform its obligations under this Warrant; f. As of the Date of Grant, the authorized capital stock of the Company (of all classes and series, including Common Stock and preferred stock), the par value thereof, and the issued and outstanding amounts thereof, are as set forth on Schedule 9.f. hereof. The issuance and sale of all such interests was in compliance with all applicable federal and state securities laws, and all issued and outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid, and non-assessable. Other than the Warrants, and other than as specified on Schedule 9.f. hereof, as of the Date of Grant there are no preemptive rights or any outstanding subscriptions, options, warrants, rights, convertible securities, calls or other agreements, arrangements or commitments (including, without limitation, registration rights agreements and anti-dilution rights) relating to the issued or unissued shares of the Company's capital stock or other securities, including any right of conversion or exchange under any outstanding security or other instrument. Other than the Registration Rights Agreement, the Warrants and any shares of Common Stock issued upon exercise of the Warrants are not and will not be subject to any voting trust agreement or other contract, agreement, arrangement, commitment or understanding to which the Company is a party, including any such agreement, arrangement, commitment or understanding restricting or otherwise relating to the voting or disposition thereof. There are not any outstanding bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. Except as set forth on Schedule 9.f., as of the Date of Grant, there are not any securities, options, warrants, calls, rights, convertible or exchangeable securities or commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its subsidiaries is a party or by which any of them is bound obligating the Company or any of its subsidiaries to issue, deliver or sell or create, or cause to be issued, delivered or sold or created, additional shares of capital stock or other voting securities or stock equivalents of the Company or -15- any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or understanding. As of the Date of Grant, other than as specified on Schedule 9.f. hereof, the Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or any security convertible into or exchangeable for any of its capital stock. 10. Modification and Waiver. Subject to Section 20, this Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 11. Notices. Unless otherwise specifically provided herein, all communications under this Warrant shall be in writing and shall be deemed to have been duly given (i) on the date of service if served personally on the party to whom notice is to be given, (ii) on the day of transmission if sent by facsimile transmission to a number provided to a party specifically for such purposes, and facsimile confirmation of receipt is obtained promptly after completion of transmission, (iii) on the day after delivery to Federal Express or similar overnight courier, or (iv) on the fifth day after mailing, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed, return receipt requested, to each such holder or to the Company at the address indicated therefor on the signature page of this Warrant. Any party hereto may change its address for purposes of this Section 11 by giving the other party written notice of the new address in the manner set forth herein. 12. Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets, and all of the obligations of the Company relating to the Common Stock issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. The Company will, at the time of the exercise or conversion of this Warrant, in whole or in part, upon request of the holder hereof but at the Company's expense, acknowledge in writing its continuing obligation to the holder hereof in respect of any rights to which the holder hereof shall continue to be entitled after such exercise or conversion in accordance with this Warrant; provided, however, that the failure of the holder hereof to make any such request shall not affect the continuing obligation of the Company to the holder hereof in respect of such rights. 13. Lost Warrants or Stock Certificates. The Company covenants to the holder hereof that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any loss, theft or destruction, upon receipt of an executed lost securities bond or indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will promptly (but in no event more than three business days) make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. -16- 14. Descriptive Headings. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. 15. Governing Law. The validity, interpretation and performance of this Warrant shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed entirely within such State, regardless of the law that might be applied under principles of conflicts of law. 16. Survival of Representations, Warranties and Agreements. Each of the respective representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) and the termination or expiration of any rights hereunder. Each of the respective agreements of each of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative. 17. Remedies. In case any one (1) or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant. 18. Acceptance. Receipt of this Warrant by the holder hereof shall constitute acceptance of and agreement to the foregoing terms and conditions. 19. No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 20. Amendment. This Warrant may be amended by the signed, written agreement of the Company and holders of holding at least fifty-one percent (51%) of the Warrant Shares, collectively and on an as-exercised basis, and such amendment shall be binding on all holders of this Warrant or Warrant Shares; provided, however, that the consent of all holders of Warrants affected by any amendment will be required for an amendment pursuant to which (i) the Warrant Price is increased, (ii) the number of Warrant Shares purchasable upon exercise of this Warrant is decreased (other than pursuant to any adjustments provided herein), (iii) the Expiration Date is changed, or (iv) any right of the holder is adversely impacted in a manner different than the other holders of the Warrants or Warrant Shares. -17- 21. Registration Rights Agreement. The Company shall provide to the holder hereof, upon written request at any time, a true copy of the Registration Rights Agreement, as amended and modified to date. [Signature page follows.] -18- [SIGNATURE PAGE TO WARRANT] IN WITNESS WHEREOF, the Company has executed this Warrant as of the day and year first above written. COMPANY: CFI PROSERVICES, INC., an Oregon corporation By: /s/ Kurt W. Ruttum ------------------ Name: Kurt W. Ruttum Title: Vice President and Chief Financial Officer Address: 400 SW Sixth Avenue Portland, OR 97204 -19- EXHIBIT A NOTICE OF EXERCISE To: CFI ProServices, Inc. 1. The undersigned hereby elects to purchase _____ shares of Common Stock of ______________________ pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name or names as are specified below: (Name) (Address) 3. The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares in violation of the Securities Act of 1933, as amended. In support thereof, the undersigned has executed an Investment Representation Statement attached hereto as Schedule 1. (Signature) (Date) 4. Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below: 5. I elect to convert this Warrant pursuant to the cashless Conversion Right described in Section 2.c. of the Warrant Agreement for ____________ Warrant Shares (as such term is defined therein). |_| (check here) (Date) By: (Warrantholder) Name (print): Its: -20- Schedule 1 INVESTMENT REPRESENTATION STATEMENT Purchaser: Company: CFI ProServices, Inc. Security: Common Stock Amount: Date: In connection with the purchase of the above-listed securities (the "Registrable Securities"), the undersigned (the "Purchaser") represents to the Company as follows: (a) The Purchaser is aware of the Company's business affairs and financial condition, and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Registrable Securities. The Purchaser is purchasing the Registrable Securities for its own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act of 1933, as amended (the "Act"). (b) The Purchaser understands that the Registrable Securities have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Purchaser's investment intent as expressed herein. (c) The Purchaser further understands that the Registrable Securities may be held indefinitely unless subsequently registered under the Act or unless an exemption from registration is otherwise available. In addition, the Purchaser understands that the certificate evidencing the Registrable Securities will be imprinted with the legend referred to in the Warrant under which the Registrable Securities are being purchased. (d) The Purchaser is aware of the provisions of Rule 144 and 144A, promulgated under the Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, if applicable, including, among other things: The availability of certain public information about the Company, the resale occurring not less than one (1) year after the party has purchased and paid for the securities to be sold; the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934, as amended) and the -21- amount of securities being sold during any three-month period not exceeding the specified limitations stated therein. (e) The Purchaser further understands that at the time it wishes to sell the Registrable Securities there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, the Purchaser may be precluded from selling the Registrable Securities under Rule 144 even if the one-year minimum holding period had been satisfied. Purchaser: By: Title: Date: -22- Schedule 9.f EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES The information contained in Schedule 5.01(e) of the Financing Agreement is incorporated into this schedule. -23- EX-2 12 EXHIBIT 2.11 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT dated as of August 13, 1999 (this "Agreement"), by and among CFI ProServices, Inc., an Oregon corporation (the "Company"), and U.S. Bancorp Libra, a Division of U.S. Bancorp Investments, Inc., a Minnesota corporation (the "Investor"). R E C I T A L S WHEREAS, this Agreement is being entered into pursuant to that certain letter agreement dated May 14, 1999, as amended (the "Letter Agreement"), of even date herewith by and between the Company and the Investor; and WHEREAS, in connection with the Letter Agreement, the Company has agreed to issue to the Investor warrants (the "Warrants") to purchase in the aggregate 58,000 shares of Common Stock representing one percent (1%) of shares of the Company as of the date hereof on a fully diluted basis. NOW, THEREFORE, in consideration of these premises and the respective promises and covenants contained herein, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS "Act" means the United States Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under the Act, as they each may, from time to time, be in effect. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required to close. "Commission" means the United States Securities and Exchange Commission, or any other Federal agency at the time administering the Act. "Common Stock" means the shares of common stock, no par value, of the Company. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under the Exchange Act, as they each may, from time to time, be in effect. -1- "Holder" means the Investor who holds Registrable Securities and any person or entity who holds Registrable Securities and to whom the rights granted under this Agreement have been transferred in compliance with this Agreement, and their Permitted Transferees (as defined in Section 2.9 hereof). "Indemnified Party" has the meaning described in Section 2.5 (c) below. "Indemnifying Party" has the meaning described in Section 2.5 (c) below. "Registration Statement" means a registration statement filed by the Company with the Commission in compliance with the Act and the rules and regulations promulgated thereunder for a public offering and sale of its Common Stock (other than a registration statement on Form S-8 or Form S-4, or their successors, or any other form for a limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another entity). "Registrable Securities" means shares of Common Stock issued or issuable pursuant to the exercise of the Warrants. Registrable Securities shall include any warrants, shares of capital stock or other securities of the Company issued as a dividend or other distribution with respect to or in exchange for or in replacement of such shares of Common Stock. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (a) a Registration Statement with respect to the sale of such securities shall have become effective under the Act and such securities shall have been sold, transferred, disposed of or exchanged in accordance with such Registration Statement, (b) such securities shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent public distribution of them shall not require registration under the Act, (c) such securities shall have ceased to be outstanding or (d) upon any sale, transfer or other disposition in any manner to a person or entity which, by virtue of Section 2.9 hereof, is not entitled to the rights provided by this Agreement. ARTICLE 2 REGISTRATION RIGHTS Section 2.1 Shelf Registration of Registrable Securities. (a) The Company shall mail as soon as practicable a questionnaire (the "Questionnaire"), soliciting the information required by Items 507 and 508 of Regulations S-K under the Act, to each of the Holders, and shall deliver a copy of such Questionnaire to any Holder within five (5) days of it becoming available. As a condition to any Registrable Securities being included in the Registration Statement referred to below, such Holder shall submit a Questionnaire and shall amend and submit to the Company a revised -2- Questionnaire any time the information contained therein ceases to be accurate and complete. (b) The Company agrees to file with the Commission, a Registration Statement (the "Shelf Registration") for an offering to be made on a continuous basis pursuant to Rule 415 under the Act covering all Registrable Securities held by the Holder, as soon as practicable from the date hereof, but in no event more than ninety (90) days from the date hereof. The Holders shall be included as selling securityholders in such Registration Statement promptly, and within two (2) Business Days, after they have fully completed and returned to the Company the Questionnaire. The Shelf Registration shall be on Form S-3 under the Act or another appropriate form (including Form S-1, if applicable) permitting registration of such Registrable Securities for resale by the Holders in the manner or manners reasonably designated by them (including, without limitation, one or more underwritten offerings). The Company shall cause the Shelf Registration to be declared effective pursuant to the Act on or prior to the date that is one hundred eighty (180) days after the date of this Agreement (the "Effectiveness Target Date") and to keep the Shelf Registration continuously effective under the Act for sixty (60) months (the "Effectiveness Period") or such shorter period ending when there ceases to be outstanding any Registrable Securities. (c) The Company shall use all reasonable best efforts to keep the Shelf Registration continuously effective, for the period described in Section 2.1(b) hereof, by supplementing and amending the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Act or if reasonably requested by the Holders of a majority in amount of Registrable Securities (determined on a fully converted basis) covered by such Shelf Registration. (d) In the event any adjustment in the Exercise Quantity (as defined in the Warrants) would result in the issuance of additional Registrable Securities upon exercise of the Warrants, the Company shall promptly, and within ten (10) Business Days, amend or supplement the Shelf Registration in order to effect a Shelf Registration of such additional Registrable Securities pursuant to the terms of Section 2.1(b), provided, that notwithstanding anything to the contrary in Section 2.1(b), the Effectiveness Target Date shall be ninety (90) days from the date of the effective date of the adjustment to the Exercise Quantity resulting in additional Registrable Securities becoming issuable to the Holders. (e) Notwithstanding anything to the contrary in this Section 2.1, the Company may, by delivering written notice to the Holders, prohibit offers and sales of Registrable Securities pursuant to the Shelf Registration at any time -3- if (A)(i) the Company is in possession of material non-public information relating to the Company, (ii) the Company determines (based on advice of counsel) that such prohibition is necessary in order to avoid a requirement to disclose such material non-public information to the public and (iii) the Company determines in good faith that public disclosure of such material non-public information would not be in the best interests of the Company and its stockholders, or (B)(i) the Company has made a public announcement relating to an acquisition or business combination transaction including the Company and/or one or more of its subsidiaries that is material to the Company and its subsidiaries taken as a whole and (ii) the Company determines in good faith that (x) offers and sales of Registrable Securities pursuant to the Shelf Registration prior to the consummation of such transaction (or such earlier date as the Company shall determine) would not be in the best interests of the Company and its shareholders or (y) it would be impracticable at the time to obtain any financial statements relating to such acquisition or business combination transaction that would be required to be set forth in the Shelf Registration; provided, however, that upon (i) the public disclosure by the Company of the material non-public information described in clause (A) of this paragraph or (ii) the consummation, abandonment or termination of, or the availability of the required financial statements with respect to, a transaction described in clause (B) of this paragraph, the suspension of the use of the Shelf Registration pursuant to this Section 2.1(e) shall cease and the Company shall promptly comply, prior to the next Business Day, with Section 2.3 hereof and notify the Holders that dispositions of Registrable Securities may be resumed. In the event that during the Effectiveness Period the prospectus under the Shelf Registration becomes not usable as a result of the Company's notification under this Section, the Company shall use its reasonable best efforts to provide the Holders a usable prospectus as soon as practicable, and in no event shall sales of Registrable Securities under the Shelf Registration be suspended for more than thirty (30) days in any three hundred sixty-five (365) day period. Section 2.2 [Reserved] Section 2.3 Registration Procedures. (a) The Company shall, at its expense: (i) file with the Commission within ninety (90) days a Registration Statement with respect to such Registrable Securities and use its best efforts to cause that Registration Statement to become and remain effective prior to the Effectiveness Target Date and for the duration of the Effectiveness Period; -4- (ii) prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus included in the Registration Statement as may be necessary to keep the Registration Statement effective for the period described in Section 2.3(a)(i) above and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement; (iii) furnish to each selling Holder such reasonable numbers of copies of the Registration Statement, preliminary prospectus, final prospectus and any amendments and supplements and such other documents as each selling Holder may reasonably request in order to facilitate the public offering of such securities; (iv) promptly and prior to the next Business Day, furnish to each selling Holder written notice of any stop order or similar notice issued by the Commission or any state agency charged with the regulation of securities and of any notice from the Nasdaq National Market or other securities exchange then listing the Registrable Securities covered by such Registration Statement; (v) register or qualify the Registrable Securities covered by the Registration Statement under the securities or Blue Sky laws of such states as shall be reasonably appropriate for the distribution of the Registrable Securities; provided, however, that the Company shall not for any purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (vi) use its best efforts to make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve (12) months, but not more than eighteen (18) months, beginning with the first month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Act and Rule 158 thereunder; (vii) use its best efforts to comply with all rules and regulations of the Nasdaq National Market, or such other principal securities exchange on which the equity securities issued by the Company are then quoted or listed and traded, to ensure that the Registrable Securities are freely tradeable thereon upon registration thereof under the Act; (viii) provide, if one has not already been appointed by the Company, a transfer agent and registrar for all Registrable Securities -5- covered by such Registration Statement not later than the effective date of such Registration Statement; (ix) enter into a cross-indemnity agreement, in customary form, with each underwriter, if any; (x) include in the Registration Statement filed with the Commission, all Registrable Securities; and promptly, within two (2) Business Days after filing of such a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to each Holder copies of all such documents so filed including, if requested, documents incorporated by reference in the registration statement; and notify each selling Holder of any stop order issued or threatened by the Commission and use its best efforts to prevent the entry of such stop order or to remove it if entered; (xi) notify each selling Holder, at any time when a prospectus relating to such selling Holder's Registrable Securities is required to be delivered under the Act, of the occurrence of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein not misleading, and as soon as practicable prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (xii) cause all such Registrable Securities to be listed on the Nasdaq National Market System (or on such other principal securities exchange on which the equity securities issued by the Company are then quoted or listed and traded); -6- (xiii) enter into an underwriting agreement in customary form and take all such other actions that the selling Holders or their underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; (xiv) make available for inspection by each selling Holder and one (1) of its counsel acting for them, any underwriter participating in any disposition pursuant to such registration statement, and any counsel retained by any such underwriter, all pertinent financial and other information and corporate documents of the Company reasonably requested, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such selling Holder, underwriter or counsel in connection with such registration statement and to participate in "road shows" or management presentations as may be reasonably requested by any underwriter; (xv) with respect to any underwritten offering, use its reasonable best efforts to obtain a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the selling Holders or any underwriter may reasonably request; (xvi) with respect to an underwritten offering, obtain an opinion of counsel to the Company, addressed to the selling Holders and any underwriter, in customary form and including such matters as are customarily covered by such opinions in underwritten registered offerings of equity securities as the selling Holders or any underwriter may reasonably request, such opinion to be reasonably satisfactory in form and substance to each selling Holder; (xvii) furnish to each selling Holder upon request of such selling Holder within three (3) Business Days, copies of all correspondence between the Company, the Commission and any applicable state securities regulatory agencies relating to such registration; (xviii) during the period that the Company is required to keep such Registration Statement effective, promptly and prior to the next Business Day, notify each selling Holder of Registrable Securities covered by such Registration Statement at any time when a prospectus relating thereto is required to be delivered under the Act, of the happening of any event as a result of which the prospectus or any prospectus supplement included in such registration statement, as then in effect, or any material incorporated by reference therein, includes 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, or if it is necessary to amend or supplement such prospectus or any prospectus supplement or registration statement or material incorporated by reference therein to comply with the law, and at the request of any such selling Holder, prepare and furnish to such selling Holder a reasonable number of copies of a supplement to or an amendment of such prospectus or any prospectus supplement or material incorporated by reference therein as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus or any prospectus supplement or material incorporated by reference therein shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the -7- statements therein not misleading in light of the circumstances then existing and so that such prospectus or prospectus supplement or registration statement or material incorporated by reference therein, as amended or supplemented, will comply with the law; (xix) upon the reasonable request of any selling Holder, to include in a prospectus supplement or an amendment to a Registrable Securities Shelf Registration any change in the information provided to the Company pursuant to Rules 507 or 508 under Regulation S-K under the Act; and (xx) upon delivery of the certificates with respect to the Registrable Securities to be registered pursuant hereto, issue to any underwriter to which the selling Holder may sell such Registrable Securities in connection with any such registrations (and to any direct or indirect transferee of any such underwriter) certificates evidencing such Registrable Securities without any legend restricting the transferability of the Registrable Securities. (b) Each selling Holder of Registrable Securities agrees that, upon receipt of any written notice from the Company of (i) any request by the Commission for amendments or supplements to a Registration Statement or related prospectus covering any of such selling Holder's Registrable Securities, (ii) the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement covering any of such selling Holder's Registrable Securities or the initiation of any proceedings for that purpose, (iii) the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (iv) the happening of any event that requires the making of any changes in the Registration Statement covering any of such selling Holder's Registrable Securities so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that any related prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, and (v) the Company's reasonable determination that a post-effective amendment to a Registration Statement covering any of such selling Holder's Registrable Securities or a supplement to any related prospectus is required under the Act; such selling Holder will forthwith discontinue disposition of such Registrable Securities until it is advised in writing by the Company that the use of the applicable prospectus (as amended or supplemented, as the case may be) and disposition of the Registrable Securities covered thereby pursuant thereto may be resumed, provided, however, (x) that such selling Holder shall not resume its disposition of Registrable Securities pursuant to such Registration Statement or related prospectus unless it has received notice from the Company that such Registration Statement or amendment has become effective under the Act and has received a copy or copies of the related prospectus (as then amended or supplemented. as the case may be) unless the Registrable Securities are then listed on a national securities exchange and the Company has advised such selling Holder that the Company has delivered copies of the related prospectus, as then amended or supplemented, in transactions effected upon such exchange, subject to any subsequent receipt by such selling Holder from the Company of written notice of any of the events contemplated by clauses (i) through (v) of this paragraph, and, (y) if so directed by the Company, -8- such holder will deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Holders are required to refrain from disposition of Registrable Securities for more than thirty (30) days in any three hundred sixty-five (365) day period, the Company shall be deemed in breach of this Agreement. Section 2.4 Registration Expenses. The Company shall bear all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all fees and expenses relating to the listing of any Registrable Securities with the Nasdaq National Market System (or on such other principal securities exchange on which the equity securities issued by the Company are then quoted or listed and traded), fees and expenses of compliance with securities or Blue Sky laws in jurisdictions reasonably requested by any selling Holder or underwriter pursuant to Section 2.3(b) (including reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities), all word processing, duplicating and printing expenses, messenger and delivery expenses, fees and disbursements of counsel for the Company and one (1) counsel for the selling Holders (selected by Holders holding a majority of the Registrable Securities), independent public accountants (including the expenses of any special audit or "cold comfort" letters required by or incident to such performance) and underwriters (excluding discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals attributable to the securities being registered, which discounts, commissions or fees with respect to any selling Holder's respective Registrable Securities shall be paid by such selling Holder), all the Company's internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), fees of the National Association of Securities Dealers, Inc., the expense of any annual audit, the expenses of any special audit incident to or required by any registration, the expense of any liability insurance (if the Company determines to obtain such insurance) and the reasonable fees and expenses of any special experts (including attorneys) retained by the Company (if it so desires) in connection with such registration and fees and expenses of other persons retained by the Company. Section 2.5 Indemnification. (a) In the event of any registration of any of the Registrable Securities under the Act pursuant to this Agreement, the Company will indemnify and hold harmless the selling Holder of such Registrable Securities, each of its officers, directors, partners, legal counsel and accountants, each underwriter (if any) and each other person, if any, who controls such selling Holder or such underwriter within the meaning of the Act, against any expenses, losses, claims, damages or liabilities, joint or several, arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement under which such Registrable Securities were registered under the Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arising out of or based upon any omission (or alleged omission) to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Act or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in -9- connection with any such registration; and, subject to Section 2.5(c) below, the Company will reimburse such selling Holder, each of its officers, directors, partners, legal counsel and accountants, each underwriter, if any, and each such controlling person for any legal and any other expenses reasonably incurred by such selling Holder or controlling person in connection with investigating and defending any such expense, loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such expense, loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus, final prospectus, or summary prospectus, or any such amendment or supplement, made in reliance upon and in conformity with information furnished to the Company, in writing, by such selling Holder and stated to be specifically for use therein. (b) Each selling Holder of Registration Securities will, severally, and not jointly and severally, in the event that any Registrable Securities held by such selling Holder as to which any registration is being effected under the Act pursuant to this Agreement, indemnify and hold harmless the Company, each of its directors and officers and each underwriter (if any), and each other person, if any, who controls the Company or any such underwriter within the meaning of the Act, against any losses, claims, damages or liabilities, joint or several, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement of a material fact contained in any Registration Statement under which such Registrable Securities were registered under the Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading, if the statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by such selling Holder and stated to be specifically for use therein, and shall reimburse the Company, its directors and officers, and each such controlling person for any legal or other expenses reasonably incurred by any of them in connection with investigation or defending any such loss, claim, damage, liability or action. This indemnity shall remain in full force and effect for the applicable statute of limitation period regardless of any investigation made by or on behalf of the Company or such controlling person and shall survive the transfer of shares. No selling Holder shall be liable to the Company and the other indemnified parties under this Section 2.5(b) for any amount in excess of the net proceeds received from the Registrable Securities sold by it pursuant to the Registration Statement. (c) Each party entitled to indemnification under this Section 2.5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any loss, claim, action, damage or liability as to which indemnity may be sought, and shall permit the Indemnified Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party whose approval shall not be unreasonably withheld); and, provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnified Party of its obligations under this Section 2.5, except to the extent that such failure to give notice prejudices the Indemnifying Party or such Indemnifying Party -10- is damaged by such delay. The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall pay such expense (but in no event shall the Indemnifying Party be obligated to pay the fees and expenses of more than one counsel for the Indemnified Party or Parties) if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would, in the reasonable judgment of the Indemnified Party, be inappropriate due to actual or potential conflict of interests between the Indemnified Party and any other party represented by such counsel in such proceeding. If, in the Indemnified Party's reasonable judgment, a conflict of interest between such Indemnified and Indemnifying Parties may exist in respect of such claim, the Indemnified Party may assume the defense of such claim, jointly with any other Indemnified Party that reasonably determines such conflict of interest to exist, and the Indemnifying Party shall be liable to such Indemnified Parties for the reasonable legal fees and expenses of one counsel for all such Indemnified Parties and for other expenses reasonably incurred in connection with the defense thereof incurred by the Indemnified Parties. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party (which consent shall not be unreasonably withheld), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party. (d) If the indemnification provided for in this Section 2.5 is finally determined by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to therein or contribution is required under the Act in circumstances for which indemnification is provided under this Section 2, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other and also the relative fault of the Indemnifying Party and the Indemnified Party as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact related to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, (A) no Holder will be required to contribute any amount in excess of the net proceeds received from the Registrable Securities sold by it pursuant to such Registration Statement, and (B) no person or entity guilty of fraudulent misrepresentation, within the meaning of Section 11(f) of the Act, shall be entitled to contribution from any person or entity who is not guilty of such fraudulent misrepresentation. (e) Indemnification and contribution similar to that specified in this Section 2.5(e) (with appropriate modifications) shall be given by the Company and each selling Holder with respect to any required registration or other qualification of Registrable Securities under any Federal or state law or regulation of any governmental authority, other than the Act. -11- (f) The indemnification required by this Section 2.5 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (g) The obligations under this Section 2.5 shall survive the completion of any offering of Registrable Securities in a Registration Statement. Section 2.6 Indemnification with Respect to Underwritten Offering. (a) In the event that Registrable Securities are sold pursuant to a Registration Statement in an underwritten offering, the Company agrees to enter into an underwriting agreement containing customary representations and warranties with respect to the business and operations of the Company and customary covenants and agreements to be performed by the Company, including without limitation customary provisions with respect to indemnification by the Company of the underwriters of such offering. (b) No Holder may participate in any underwritten registration pursuant to Section 2 hereunder unless such Holder (i) agrees to sell the Registrable Securities which it proposes to sell in such underwritten registration on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, reasonable and customary indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements and provides such other information and documentation as the Company or the underwriters may reasonably request in connection with such underwritten registration. Section 2.7 Information by Holder. Each holder of Registrable Securities included in any Registration shall furnish to the Company such information regarding such holder and the distribution in proposed by such holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Article 2. Section 2.8 Termination. All of the Company's obligations to register Registrable Securities under this Agreement pursuant to this Agreement shall terminate on the earlier of (x) when there are no Registrable Securities as defined herein and (y) seven years from the date hereof. Section 2.9 Transfer of Rights. (a) The rights and obligations of each Holder (or assignee thereof) under this Agreement may be transferred or assigned by such Holder (or assignee thereof), in whole or in part, without the consent of the Company or any other Holder, (i) to any Affiliate of the Holder or (ii) any person or entity acquiring at least two hundred fifty (250) Registrable Securities (as adjusted for stock splits, stock dividends, recapitalization or similar events) (all of such parties, collectively, the "Permitted Transferees"). The Company may not assign this Agreement or any of its rights or obligations hereunder or under the Warrant without the prior written consent of each Holder and -12- each Warrant holder (which consent may be withheld for any reason in the sole discretion of such Holder or Holders). (b) Any transferee (other than a Holder who is already a party to an agreement in form and substance similar to this Agreement) to whom rights under this Agreement are transferred shall, as a condition to such transfer, deliver to the Company a written instrument by which such transferee identifies itself, gives the Company notice of the transfer of such rights, indicates the Registrable Securities owned by it and agrees to be bound by the obligations imposed upon the Investor under this Agreement. (c) A transferee to whom rights or obligations are transferred pursuant to this Section 2.9 may not again transfer such rights or obligations to any other person or entity, other than as provided in this Section 2.9. Section 2.10 Rule 144. The Company will file the reports required to be filed by it under the Act and the Exchange Act, and will take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Act within the limitations of the exemptions provided by (a) Rule 144 under the Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the written request of any Holder of Registrable Securities, the Company will deliver to such Holder, within five (5) days of delivery of such request, a written statement as to whether it has complied with such filing requirements. In connection with any sale of Registrable Securities that will result in such securities no longer being "restricted securities" (as defined in Rule 144 promulgated under the Act), the Company shall cooperate with the selling Holders and the underwriter(s), if any, and facilitate the preparation and delivery of certificates representing such securities to be sold which do not bear any restrictive legends to permit delivery of such securities. Section 2.11 Information Reports. The Company covenants that, except at such times as the Company is a reporting company under Section 13 or 15(d) of the Exchange Act, the Company shall, upon the written request of any Holder of Registrable Securities, provide to any such Holder and to any prospective institutional transferee of Registrable Securities designated by such Holder, within five (5) Business Days after delivery of such written request, such financial and other information as is available to the Company and as such Holder may reasonably determine is required to permit a transfer of such Registrable Securities to comply with the requirements of Rule 144A promulgated under the Act. Section 2.12 Investor Representations. In connection with the acquisition of the Warrants, the Investor hereby represents that it has such knowledge and experience in financial and business matters that the Investor is capable of evaluating the merits and risks of its investment contemplated by this Agreement and has the capacity to protect its own interests. The Investor acknowledges that investment in the Warrant and the shares of Company common stock issuable upon exercise of such Warrant ("Warrant Shares") is highly speculative and involves a substantial and high degree of risk of loss of the entire investment. The Investor has adequate means of providing for current and -13- anticipated financial needs and contingencies, is able to bear the economic risk of its investment in the Warrant and Warrant Shares and could afford complete loss of such investment. The Investor is an "accredited investor" (as such term is defined in Rule 501 of Regulation D under the Act). Section 2.13 Market Stand-off Agreement. Each Holder agrees, in connection with any underwritten public offering that, upon request of the Company or the underwriters managing any underwritten public offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Common Stock of the Company (other than those shares of Common Stock included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred twenty (120) days) from the effective date of such registration as may be requested by the underwriters. The Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. ARTICLE 3 MISCELLANEOUS Section 3.1 Notices. All notices, demands, instructions and other communications required or permitted to be given to or made upon any party hereto shall be in writing delivered to the parties at the addresses set forth on the signature page hereof (or such other address as may be provided by one party in a notice to the other). Notice delivered in accordance with the foregoing shall be effective (i) when delivered, if delivered personally, (ii) three (3) hours after confirmation of receipt, if delivered by facsimile transmission, or (iii) two (2) days after being delivered in the United States (properly addressed and all fees paid) for by overnight delivery service to a courier (such as Federal Express) which regularly provides such service and regularly obtains executed receipts evidencing delivery. Notices shall not be given via U.S. Mail. Section 3.2 Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by (i) the parties hereto; (ii) the Permitted Transferees; and (iii) the respective successors of the foregoing, including those resulting by operation of law. Section 3.3 Headings. Article and Section headings used in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement for any purpose or affect the construction of this Agreement. Section 3.4 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same Agreement. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. -14- Section 3.5 Governing Law. This Agreement shall be deemed to have been made in the State of New York and the validity of this Agreement, the construction, interpretation and enforcement thereof, and the rights of the parties thereto shall be determined under, governed by, and construed in accordance with the internal laws of the State of New York, without regard to principles of conflicts of law. Section 3.6 Survival of Agreements, Representations and Warranties. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement. Section 3.7 WAIVER OF JURY TRIAL. THE COMPANY WAIVES (A) THE RIGHT TO TRIAL BY JURY (WHICH INVESTOR HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE WARRANT OR THE WARRANT CERTIFICATE. THE COMPANY WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVER WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. Section 3.8 Amendment and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the holders of at least 51% of the Registrable Securities; provided, that this Agreement may be amended with the consent of the holders of less than all Registrable Securities (but not less than 51% of such shares) only in a manner which affects all Registrable Securities in the same fashion. In no event may this Agreement be amended to (i) shorten the Effectiveness Period, (ii) extend the Effectiveness Target Date or (iii) require a Holder to pay expenses otherwise borne by the Company under Section 2.4, without the prior written consent of each Holder affected thereby. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. Section 3.9 Availability of Equitable Remedies. Each party acknowledges that a breach of the provisions of this Agreement could not adequately be compensated by money damages. Accordingly, any party shall be entitled, in addition to any other right or remedy available to it, to an injunction restraining such breach or a threatened breach and to specific performance of any such provision of this Agreement, and in either case no bond or other security shall be required in connection therewith, and the parties hereby consent to such injunction and to the ordering of specific performance. Section 3.10 Entire Agreement. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof. -15- Section 3.11 Attorney's Fees. Any holder of the Warrant shall be entitled to recover from the Company the reasonable attorney's fees and expenses incurred by such holder in connection with enforcement by such holder of any obligation of the Company hereunder or under the Warrant. Section 3.12 No Impairment Rights. The Company will not, by amendment of its Certificate of Incorporation or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Agreement against impairment. Section 3.13 No Inconsistent or Superior Registration Rights. (a) From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority in principal amount of Registrable Securities, (i) enter into any agreement granting registration rights with respect to the Common Stock or other securities which are inconsistent with or superior to the rights granted to the Holders hereunder; or (ii) amend any agreement, in effect as of the date hereof, so as to grant registration rights to any other person or entity which causes such registration rights to be inconsistent with those granted to the Holders hereunder or to otherwise adversely affect the registration rights granted to the Holders hereunder. (b) Notwithstanding the foregoing, the Investor acknowledges and agrees that comparable registration rights have been granted concurrently herewith to (i) the holders of the Company's warrants issued pursuant to that certain Financing Agreement dated of even date herewith by and among the Company, Ultradata Corporation, MECA Software, L.L.C., MoneyScape Holdings, Inc., the Lenders (as such term is defined in the Financing Agreement), Foothill Capital Corporation, as administrative agent for the Lenders, and Ableco Finance LLC, as collateral agent for the Lender Group (as such term is defined in the Financing Agreement) and (ii) the holders of the 10% Convertible Subordinated Discount Notes issued pursuant to that certain Note Purchase Agreement dated of even date herewith by and among the Company, the subsidiaries of the Company listed on Exhibit A thereto, and the purchasers of such notes listed on the signature page thereof. [Signature Page Follows.] -16- [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. COMPANY: CFI PROSERVICES, INC. By: /s/ Kurt W. Ruttum ------------------ Name: Kurt W. Ruttum Title: Vice President and Chief Financial Officer Address: 400 SW Sixth Avenue Portland, OR 97204 INVESTOR: U.S. BANCORP LIBRA, A DIVISION OF U.S. BANCORP INVESTMENTS, INC. By: /s/ Eben Perison ---------------- Name: Eben Perison Title: General Counsel Address: -17- EX-5 13 EXHIBIT 5.1 CONCENTREX INCORPORATED EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN (As Amended and Restated Effective January 1, 1999) TABLE OF CONTENTS CONTENTS INTRODUCTION..................................................................1 ARTICLE 1 DEFINITIONS.................................................2 Section 1.1 Account.................................................2 Section 1.2 Acquisition Loan........................................2 Section 1.3 Administrative Committee................................2 Section 1.4 Affiliate...............................................2 Section 1.5 Allocable Income........................................2 Section 1.6 Annuity Starting Date...................................2 Section 1.7 Beneficiary.............................................3 Section 1.8 Board...................................................3 Section 1.9 Bonus Contributions.....................................3 Section 1.10 Bonus Period............................................3 Section 1.11 Capital Accumulation....................................3 Section 1.12 Code....................................................3 Section 1.13 Company.................................................3 Section 1.14 Company Stock...........................................3 Section 1.15 Company Stock Account...................................3 Section 1.16 Compensation............................................3 Section 1.17 Culverin After-Tax Account..............................4 Section 1.18 Culverin Plan...........................................4 Section 1.19 Culverin Supplemental Account...........................4 Section 1.20 Disability..............................................4 Section 1.21 Elective Deferrals......................................4 Section 1.22 Elective Deferrals Account..............................5 Section 1.23 Eligible Employee.......................................5 Section 1.24 Eligibility Computation Period..........................5 Section 1.25 Employee................................................5 Section 1.26 Employer................................................6 Section 1.27 Employer Contributions..................................6 Section 1.28 ERISA...................................................6 Section 1.29 ESOP....................................................6 Section 1.30 Financed Shares.........................................6 Section 1.31 401(k) Portion..........................................6 Section 1.32 Highly Compensated Employee.............................6 Section 1.33 Hour of Service.........................................7 Section 1.34 Investment Fund.........................................8 Section 1.35 Leased Employee.........................................8 Section 1.36 Matching Contributions..................................8 i Section 1.37 Maternity or Paternity Leave............................9 Section 1.38 Non-Highly Compensated Employee.........................9 Section 1.39 Normal Retirement Age...................................9 Section 1.40 One-Year Break in Service...............................9 Section 1.41 Other Investments Account..............................10 Section 1.42 Participant............................................10 Section 1.43 Period of Service......................................10 Section 1.44 Period of Severance....................................10 Section 1.45 Plan...................................................10 Section 1.46 Plan Year..............................................10 Section 1.47 Pre-1999 Matching Contributions Account................11 Section 1.48 Rollover Account.......................................11 Section 1.49 Rollover Contribution..................................11 Section 1.50 Service................................................11 Section 1.51 Severance Date.........................................11 Section 1.52 Trust..................................................12 Section 1.53 Trustee................................................12 Section 1.54 Trust Fund.............................................12 Section 1.55 Valuation Date.........................................12 Section 1.56 Year of Eligibility Service............................12 Section 1.57 Year of Participation..................................12 Section 1.58 Year of Service........................................13 ARTICLE 2 PARTICIPATION..............................................14 Section 2.1 Participation Date.........................................14 Section 2.2 Reemployment and Change in Employment Classification.......14 Section 2.3 Termination of Participation...............................15 Section 2.4 Qualified Military Service.................................15 ARTICLE 3 PARTICIPANT CONTRIBUTIONS..................................16 Section 3.1 Elective Deferrals.....................................16 Section 3.2 Election Procedure and Amendments......................17 Section 3.3 Rollovers..............................................17 Section 3.4 Average Deferral Percentage Test.......................17 ARTICLE 4 EMPLOYER CONTRIBUTIONS.....................................21 Section 4.1 Matching Contributions.................................21 Section 4.2 Employer Bonus Contribution............................21 Section 4.3 Contribution of Stock..................................21 Section 4.4 Average Contribution Percentage Test...................22 ARTICLE 5 MAINTENANCE OF PARTICIPANT ACCOUNTS........................25 Section 5.1 Participant Accounts...................................25 Section 5.2 Allocation of Contributions............................26 ii Section 5.3 Financed Shares........................................26 Section 5.4 Allocation of Investment Gains and Losses..............27 Section 5.5 Dividends on Company Stock.............................28 Section 5.6 Accounting for Allocations.............................28 Section 5.7 Account Statements.....................................29 Section 5.8 Limitations Imposed by Code Section 415................29 ARTICLE 6 INVESTMENT OF TRUST ASSETS.................................31 Section 6.1 Investment of 401(k) Portion...........................31 Section 6.2 Investment of ESOP.....................................32 Section 6.3 Purchases of Company Stock.............................32 Section 6.4 Sales of Company Stock.................................32 Section 6.5 Acquisition Loans......................................32 ARTICLE 7 VOTING OF COMPANY STOCK....................................34 Section 7.1 Voting.................................................34 Section 7.2 Tender Offers..........................................34 Section 7.3 Furnishing of Information..............................34 ARTICLE 8 VESTING....................................................35 Section 8.1 Vesting................................................35 Section 8.2 Forfeitures............................................35 ARTICLE 9 IN-SERVICE DISTRIBUTIONS...................................37 Section 9.1 Cash Dividends.........................................37 Section 9.2 ESOP Diversification...................................37 Section 9.3 Hardship Withdrawals...................................38 Section 9.4 Loans..................................................40 Section 9.5 Special Rules..........................................40 ARTICLE 10 PAYMENT OF BENEFITS........................................42 Section 10.1 Time of Distribution...................................42 Section 10.2 Amount and Form of Distribution........................43 Section 10.3 Special Rules for Death Benefits.......................43 Section 10.4 Notice to Participant..................................44 Section 10.5 Minimum Distribution and Incidental Benefit Requirements........................................45 Section 10.6 Post-Termination Withdrawals...........................45 Section 10.7 Special Rules for Amounts Transferred from Culverin Plan................................................45 Section 10.8 Direct Rollovers.......................................45 Section 10.9 Incompetent Participant or Beneficiary.................46 Section 10.10 Beneficiary Dispute.....................................47 ARTICLE 11 ADMINISTRATION.............................................48 Section 11.1 Administrative Committee...............................48 iii Section 11.2 Organization and Procedure.............................48 Section 11.3 Authority of the Administrative Committee..............49 Section 11.4 Actions Conclusive.....................................49 Section 11.5 Use of Professional Services...........................50 Section 11.6 Fees and Expenses......................................50 Section 11.7 Liability and Indemnification..........................50 Section 11.8 Furnishing of Information..............................51 Section 11.9 Claims Procedure.......................................51 Section 11.10 Agent for Service of Process............................52 Section 11.11 Authority to Act for Company............................52 ARTICLE 12 TRUST......................................................53 Section 12.1 Trust Agreement........................................53 Section 12.2 Expenses...............................................53 ARTICLE 13 AMENDMENT OR TERMINATION OF PLAN...........................54 Section 13.1 Amendment of Plan......................................54 Section 13.2 Termination of Plan....................................55 ARTICLE 14 MERGER AND AFFILIATE PARTICIPATION.........................56 Section 14.1 General Rules..........................................56 Section 14.2 Special Rules When Plan Is Survivor....................56 Section 14.3 Affiliate Participation................................57 Section 14.4 Action Binding on Participating Affiliates.............57 Section 14.5 Termination of Participation of Affiliate..............57 ARTICLE 15 TOP-HEAVY PROVISIONS.......................................59 Section 15.1 Applicability..........................................59 Section 15.2 Definitions............................................59 Section 15.3 Minimum Allocation.....................................60 Section 15.4 Modifications to Code Section 415 Limitations..........61 Section 15.5 Uniform Determination of Accrued Benefit...............61 ARTICLE 16 GENERAL PROVISIONS.........................................62 Section 16.1 Exclusive Benefit......................................62 Section 16.2 No Rights..............................................62 Section 16.3 Fiduciary Liability....................................62 Section 16.4 Missing Participant or Beneficiary.....................62 Section 16.5 Antialienation Rule....................................63 Section 16.6 Qualified Domestic Relations Orders....................63 Section 16.7 Contribution Amounts Returnable to Employers...........64 Section 16.8 Word Usage.............................................64 Section 16.9 Applicable Law.........................................65 iv APPENDIX A SURVIVOR ANNUITY REQUIREMENTS.....................................66 Section A.1 Applicability..........................................66 Section A.2 Definitions............................................66 Section A.3 Retirement Annuity Payments............................66 Section A.4 Qualified Preretirement Survivor Annuity...............68 Section A.5 Optional Forms of Payment..............................69 Section A.6 In-Service Withdrawals.................................70 v CONCENTREX INCORPORATED EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN INTRODUCTION The Plan was originally known as the "CFI ProServices, Inc. 401(k) Profit Sharing Plan" and was originally established as a profit sharing plan with a cash or deferred arrangement. The purpose of the Plan, as originally adopted, was to enable eligible employees to save for their retirement on a tax-deferred basis. Effective January 1, 1999 (or such earlier date as is set forth herein with respect to a particular provision hereof), the Plan is renamed the "Concentrex Incorporated Savings and Stock Ownership Plan" and is amended and restated as set forth herein to add an employee stock ownership plan so that Eligible Employees can share in the growth and prosperity of the Company by acquiring an ownership interest in the Company. Accordingly, the Plan now consists of two parts. The first part (the "401(k) Portion"), which consists of Elective Deferrals, Matching Contributions made for Plan Years commencing prior to January 1, 1999, Rollover Contributions, amounts transferred to the Plan from the Culverin Corporation 401(k) Savings Profit Sharing Plan and investment gains and losses attributable thereto, is a profit sharing plan with a qualified cash or deferred arrangement that is intended to be qualified under Code Sections 401(a) and 401(k). The second part (the "ESOP"), which consists of Matching Contributions and Bonus Contributions made for Plan Years commencing after December 31, 1998 and investment gains and losses attributable thereto, is effective January 1, 1999, and is intended to be a stock bonus plan qualified under Code Section 401(a) and an employee stock ownership plan under Code Section 4975(e)(7). The ESOP is designed to be invested primarily in Company Stock. The Trust that holds the Plan's assets is intended to be exempt from taxation under Code Section 501(a). All Trust Fund assets held under the Plan shall be administered, distributed and otherwise governed by the provisions of this Plan and the related Trust Agreement, which constitutes a part of this Plan. Except as specifically provided otherwise herein, the provisions contained herein apply to any person who completes an Hour of Service as an Eligible Employee on or after January 1, 1999. Except as specifically provided otherwise herein, the rights and benefits of any person who does not complete an Hour of Service as an Eligible Employee on or after January 1, 1999 will be governed by the terms of the Plan as in effect at the time such person ceased to be an Eligible Employee. 1 ARTICLE 1 DEFINITIONS Whenever capitalized herein, the following terms shall have the respective meanings set forth below, unless a different meaning is clearly required by the context. Section 1.1 Account "Account" means any of the accounts established for a Participant pursuant to Section 5.1 or 14.2 hereof. Section 1.2 Acquisition Loan "Acquisition Loan" means a loan (or other extension of credit) used by the Trust to finance the acquisition of Company Stock, which loan may constitute an extension of credit to the Trust from a party in interest (as defined in Section 3(14) of ERISA). Section 1.3 Administrative Committee "Administrative Committee" means the committee described in Article 11 hereof (or, if no such committee has been appointed, the Company). Section 1.4 Affiliate "Affiliate" means (i) a member of a controlled group of corporations as defined in Code Section 414(b) (as modified by Code Section 415(h) for purposes of the limitations described in Section 5.8 hereof) of which an Employer is also a member, (ii) an unincorporated trade or business which is under common control with an Employer as determined in accordance with Code Section 414(c) (as modified by Code Section 415(h) for purposes of the limitations described in Section 5.8 hereof), (iii) a member of an affiliated service group (as defined in Code Section 414(m)) of which an Employer is also a member, and (iv) any other entity that must be treated as a single employer with an Employer under Code Section 414(o). Section 1.5 Allocable Income "Allocable Income" means net income or net loss. To calculate Allocable Income for the Plan Year, the Administrative Committee will use a uniform nondiscriminatory method that reasonably reflects the manner used by the Plan to allocate income to the Participant's Accounts. Allocable Income will not be determined for the period between the end of the Plan Year and the date of distribution. Section 1.6 Annuity Starting Date "Annuity Starting Date" means the first day of the first period for which an amount is payable as an annuity or in any other form. 2 Section 1.7 Beneficiary "Beneficiary" means the person(s), trust(s) or other entity(ies) designated by a Participant pursuant to Section 10.3(c) hereof who is or may become entitled to receive a benefit under the Plan in the event of the Participant's death. Section 1.8 Board "Board" means the Board of Directors of the Company. Section 1.9 Bonus Contributions "Bonus Contributions" means amounts contributed to the Plan by the Employers pursuant to Section 4.2 hereof. Bonus Contributions are part of the ESOP. Section 1.10 Bonus Period "Bonus Period" means a six-month period ending on June 30 or December 31 of each Plan Year. Section 1.11 Capital Accumulation "Capital Accumulation" means a Participant's vested interest in his Accounts. Section 1.12 Code "Code" means the Internal Revenue Code of 1986, as amended, and, should the context so require, any predecessor or successor Internal Revenue Code. Section 1.13 Company "Company" means Concentrex Incorporated, an Oregon corporation, and any successor thereto that assumes sponsorship of the Plan. Section 1.14 Company Stock "Company Stock" means the common stock of the Company. Section 1.15 Company Stock Account "Company Stock Account" means the Account that reflects a Participant's interest in Company Stock held under the ESOP. Section 1.16 Compensation Except as provided otherwise herein, "Compensation" means an Employee's "wages" as defined in Code Section 3401(a), determined without regard to any rules under Code 3 Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed, increased by the amount of (1) any Elective Deferrals, (2) any other elective deferrals within the meaning of Code Section 402(g)(3), and (3) any other amount that is contributed or deferred by an Employer at the election of the Participant and that is not includible in the gross income of the Participant by reason of Code Section 125. Notwithstanding the foregoing, a Participant's Compensation for a Plan Year shall not exceed the limitation in effect for such Plan Year under Code Section 401(a)(17). Compensation for any Plan Year will be limited to Compensation paid to a Participant while he is eligible to make Elective Deferrals. Section 1.17 Culverin After-Tax Account "Culverin After-Tax Account" means the Account that reflects a Participant's interest under the Plan attributable to employee after-tax contributions made under the Culverin Plan and transferred to this Plan. All Culverin After-Tax Accounts are held under the 401(k) Portion. Section 1.18 Culverin Plan "Culverin Plan" means the Culverin Corporation 401(k) Savings Profit Sharing Plan, as in effect on December 31, 1995. Section 1.19 Culverin Supplemental Account "Culverin Supplemental Account" means the Account that reflects a Participant's interest under the Plan attributable to employer discretionary contributions made under the Culverin Plan and transferred to this Plan. All Culverin Supplemental Accounts are held under the 401(k) Portion. Section 1.20 Disability "Disability" means the inability to engage in the further performance of the Participant's normal employment activity(ies) with the Employers and Affiliates by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months, or by reason of a permanent loss of a member or function of the body or permanent disfigurement. The permanence and degree of such impairment shall be supported by medical evidence. The Administrative Committee will determine the existence of Disability and may rely upon advice from a physician or other medical examiner satisfactory to it in making such determination. Section 1.21 Elective Deferrals "Elective Deferrals" means amounts designated by a Participant pursuant to Section 3.1 hereof that are contributed by the Participant's Employer to the Plan in lieu of 4 payment of an equal amount directly to the Participant in cash. Elective Deferrals are part of the 401(k) Portion. Section 1.22 Elective Deferrals Account "Elective Deferrals Account" means the Account that reflects a Participant's interest under the Plan attributable to Elective Deferrals. All Elective Deferrals Accounts are held under the 401(k) Portion. Section 1.23 Eligible Employee Except as provided otherwise in an Employer's Participation Agreement, "Eligible Employee" means an Employee of an Employer other than an Employee (a) who is a member of a unit of employees covered by a collective bargaining agreement that does not provide for participation in the Plan, (b) who is a nonresident alien with no U.S.-source earned income (within the meaning of Code Section 911(d)(2)) from the Employers or their Affiliates, (c) who is not treated by an Employer as an employee for payroll tax purposes, but who is subsequently determined by a government agency, by the conclusion or settlement of threatened or pending litigation, or otherwise to be or have been an Employee of an Employer (unless and until determined otherwise by the Board), or (d) any Employee who would be a Leased Employee were he not a common law employee of an Employer. Notwithstanding the foregoing, (a) an Employee who is a temporary or seasonal employee will not become an Eligible Employee prior to his completion of on Year of Eligibility Service, and (b) an Employee of a business that is merged or liquidated into, or whose assets or equity interests are acquired by, an Employer will become an Eligible Employee at such time as is determined by the Board. Section 1.24 Eligibility Computation Period "Eligibility Computation Period" means a 12-consecutive-month period beginning on the date the Employee first completes an Hour of Service or any anniversary of such date; provided, however, that the "Eligibility Computation Period" of any Employee who incurs a One-Year Break in Service prior to becoming a Participant and who is subsequently rehired by an Employer or an Affiliate will commence on the date on which he again performs an Hour of Service following his rehire. Section 1.25 Employee "Employee" means an individual while his status, on or after January 1, 1999, is that of a common law employee of an Employer or an Affiliate. The term "Employee" shall not refer to individuals (a) serving an Employer or an Affiliate as Directors while not otherwise employed by it, (b) engaged only in an advisory or consulting capacity on a retainer or fee basis, (c) engaged only in a capacity determined by the Administrative Committee to be that of an independent contractor, or (d) who are Leased Employees. Such individuals are not eligible to participate in the Plan. Section 1.26 Employer "Employer" means the Company or any Affiliate that, with the consent of the Board, adopts the Plan. Section 1.27 Employer Contributions "Employer Contributions" means Matching Contributions and Bonus Contributions. Section 1.28 ERISA "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Section 1.29 ESOP "ESOP" means the portion of the Plan made up of the Company Stock Accounts and Other Investment Accounts of Participants, and any contributions, earnings and losses that are allocated to such Accounts, which portion is intended to constitute an employee stock ownership plan, within the meaning of Code Section 4975(e)(7). Section 1.30 Financed Shares "Financed Shares" means shares of Company Stock acquired by the Trust with the proceeds of an Acquisition Loan. Section 1.31 401(k) Portion "401(k) Portion" means the portion of the Plan made up of the Elective Deferral Accounts, Pre-1999 Matching Contributions Accounts, Rollover Accounts, Culverin After-Tax Accounts and Culverin Supplemental Accounts of Participants, and any contributions, earnings and losses that are allocated to such Accounts, which portion is intended to constitute a profit sharing plan with a qualified cash or deferred arrangement. Section 1.32 Highly Compensated Employee (a) "Highly Compensated Employee" means an Employee who: (1) was a more-than-5% owner of an Employer (applying the constructive ownership rules of Code Section 318) during the Plan Year or during the preceding 12-month period; or (2) for the preceding Plan Year: (i) had compensation, as defined in Section 5.8(a) hereof, in excess of $80,000 (as adjusted by the Commissioner of Internal Revenue for the relevant year), and 6 (ii) if the Company so elects, was part of the top-paid 20% group of employees (based on Compensation for such Plan Year). (b) Solely for purposes of this Section 1.31, "Employee" includes a Leased Employee (to the extent required by Section 1.34 hereof). (c) The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of the top-paid 20% group and the relevant compensation (as defined in Section 5.8(a) hereof), will be made in a manner consistent with Code Section 414(q) and regulations issued thereunder. Section 1.33 Hour of Service "Hour of Service" means each hour for which the Employee is directly or indirectly paid, or entitled to be paid, by an Employer or an Affiliate for the performance of duties for an Employer or an Affiliate. In addition, for purposes of determining whether an Employee has completed a Year of Eligibility Service, "Hour of Service" will also include each hour for which the Employee is directly or indirectly paid, or entitled to be paid, by an Employer or an Affiliate on account of: (a) A period of time during which the Employee performs no duties (irrespective of whether the employment relationship has terminated), such as paid vacation or sick benefits; provided, however, that unless such hours would be credited by an Employer or an Affiliate under its established practices: (1) No more than 501 Hours of Service will be credited under this paragraph to an Employee on account of any single, continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (2) An hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed will not be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workers' compensation or unemployment compensation or disability insurance laws; and (3) Hours of Service will not be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee. (b) Back pay, irrespective of mitigation of damages, which is either awarded or agreed to by an Employer or an Affiliate. An Employee will not be credited with an Hour of Service for the same hour under more than one of the foregoing categories. The determination of Hours of Service for reasons 7 other than the performance of duties, and the crediting of Hours of Service to computation periods, will be in accordance with Department of Labor Regulationsss. 2530.200b-2(b) and (c). Section 1.34 Investment Fund "Investment Fund" means a separate portion of the Trust Fund established at the direction of the Administrative Committee under the Trust to provide investment options for Participants under the 401(k) Portion. Section 1.35 Leased Employee "Leased Employee" means any person (other than an employee of an Employer) who pursuant to an agreement between an Employer and any other person ("leasing organization") has performed services for the Employer (or for the Employer and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full-time basis for a period of at least one year, and which services are performed under primary direction and control by the Employer. Solely for purposes of determining the number or identity of Highly Compensated Employees or for purposes of testing whether the Plan satisfies the requirements of Code Section 414(n)(3)(A) and (B), Leased Employees will be included as Employees. Contributions or benefits provided to a Leased Employee by the leasing organization which are attributable to services performed for an Employer will be treated as provided by the Employer. But a Leased Employee will not be considered an Employee of an Employer for these testing purposes if: (i) su Leased Employee is covered by a money purchase pension plan providing: (A) a nonintegrated employer contribution rate of at least 10% of compensation (within the meaning of Code Section 414(n)(5)(C)(iii)), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the leased employee's gross income under Code Section 125, 402(e)(3), 402(h) or 403(b), (B) immediate participation, and (C) full and immediate vesting; and (ii) Leased Employees do not constitute more than 20% of the Employer's (and its Affiliates') non-highly compensated workforce. If a Leased Employee (or an individual who would be a Leased Employee but for the fact that he has not performed services for an Employer for at least one year) is hired by an Employer as an Employee, then such individual will receive credit for eligibility and vesting purposes for his service for an Employer as a Leased Employee as if such service had been performed as an Employee. Section 1.36 Matching Contributions "Matching Contributions" means amounts contributed to the Plan by the Employers pursuant to Section 4.1 hereof. Matching Contributions made for Plan Years commencing prior to January 1, 1999 are part of the 401(k) Portion. Matching Contributions made for Plan Years commencing after December 31, 1998 are part of the ESOP. 8 Section 1.37 Maternity or Paternity Leave "Maternity or Paternity Leave" means a period during with the Employee is absent from work due to (1) the pregnancy of such Employee, (2) the birth of a child of such Employee, (3) the placement of a child with such Employee in connection with the adoption of such child by such Employee, or (4) caring for a child of such Employee immediately following the birth or adoption of such child. Section 1.38 Non-Highly Compensated Employee "Non-Highly Compensated Employee" means any Employee who is not a Highly Compensated Employee. Section 1.39 Normal Retirement Age "Normal Retirement Age" means age 65. Section 1.40 One-Year Break in Service (a) "One-Year Break in Service" means a 12-consecutive-month period beginning on an Employee's Severance Date or any anniversary thereof during which the Employee does not perform an Hour of Service; provided, however, that solely for purposes of determining whether an Employee has completed a Year of Eligibility Service, "One-Year Break in Service" means an Eligibility Computation Period in which the Employee does not complete more than 500 Hours of Service. (b) Solely for purposes of determining whether an Employee has incurred a One-Year Break in Service for eligibility reasons, an Employee who is absent from active Service on account of a Maternity or Paternity Leave (whether paid or unpaid) will be credited with up to 501 Hours of Service during such absence. The Administrative Committee will credit Hours of Service during the absence period on the basis of: (a) The number of Hours of Service with which the Employee would normally have been credited but for such absence; or (b) If the Administrative Committee cannot determine the number of Hours of Service with which the Employee would have been credited under subparagraph (a) above, on the basis of eight hours per day during the absence period. The Administrative Committee will credit only the number of Hours of Service (not exceeding five hundred one (501)) necessary to prevent an Employee's One-Year Break in Service. The Committee will credit all Hours of Service described in this subsection (b) to the Eligibility Computation Period in which the absence period begins or, if the Employee does not need these Hours of Service to prevent a One-Year Break in Service in such Eligibility Computation Period, to the immediately following Eligibility Computation Period. 9 Section 1.41 Other Investments Account "Other Investments Account" means the Account that reflects a Participant's interest under the ESOP attributable to Trust Fund assets other than Company Stock. Section 1.42 Participant "Participant" means an Eligible Employee who has satisfied the eligibility requirements of Section 2.1 hereof and who is participating in the Plan. Section 1.43 Period of Service "Period of Service" means a period of time beginning on the date an Employee first completes an Hour of Service following his hire or rehire, as applicable, and ending on his Severance Date. To the extent required by law, or to the extent provided in an Employer's Participation Agreement, an Employee's Period of Service will include Service with such Employer prior to the time such Employer became an Affiliate. In addition, Service with the following employers prior to the time they became Affiliates will also be treated as part of a Participant's Period of Service: Genesys Solutions, Inc. Texas Southwest Technology Group, Inc. Culverin Corporation OnLine Financial Communications Systems Coin Financial Systems Input Creations, Inc. Halcyon Group, Inc. Pathways Software, Inc. Mortgage Dynamics, Inc. Section 1.44 Period of Severance "Period of Severance" means the period of time beginning on an Employee's Severance Date and ending on the date he again performs an Hour of Service. Section 1.45 Plan "Plan" means the "Concentrex Incorporated Employee Savings and Stock Ownership Plan," as set forth herein, together with any amendments hereto. Section 1.46 Plan Year "Plan Year" means the 12-consecutive-month period coinciding with the calendar year. 10 Section 1.47 Pre-1999 Matching Contributions Account "Pre-1999 Matching Contributions Account" means the Account that reflects a Participant's interest under the Plan attributable to Employer Matching Contributions made for Plan Years commencing prior to January 1, 1999. All Pre-1999 Matching Contributions Accounts are held under the 401(k) Portion. Section 1.48 Rollover Account "Rollover Account" means the Account that reflects a Participant's interest under the 401(k) Portion attributable to Rollover Contributions. All Rollover Accounts are held under the 401(k) Portion. Section 1.49 Rollover Contribution "Rollover Contribution" means (i) all or any portion of an eligible rollover distribution, within the meaning of Section 10.8(b)(4) hereof, that is transferred to the Plan either on or before the 60th day after the day on which it was received by the Eligible Employee or as a direct rollover, within the meaning of Section 10.8(b)(4) hereof, or (ii) the amount transferred to the Plan by an Eligible Employee who, having received the entire amount in an individual retirement account or the entire value of an individual retirement annuity which was wholly attributable to a rollover contribution from a qualified trust and any subsequent earnings thereon, transfers the entire such amount on or before the 60th day after the day on which the Eligible Employee received the amount. Rollover Contributions are part of the 401(k) Portion. Section 1.50 Service "Service" means employment as a common law employee with any Employer or Affiliate. Section 1.51 Severance Date (a) "Severance Date" means the earlier of: (1) the date on which the Employee's Service terminates on account of his quit, discharge, retirement, Disability or death; and (2) the first anniversary of the date on which an Employee commences a continuous absence from active service with the Employers and the Affiliates for any other reason, such as vacation, holiday, sickness, disability, leave of absence or layoff. (b) Notwithstanding the foregoing, solely for purposes of determining whether a One-Year Break in Service has occurred for vesting purposes, the "Severance Date" of any Employee who is continuously absent from active service with the Employers and the 11 Affiliates on account of Maternity or Paternity Leave (whether paid or unpaid) will be the second anniversary of the date on which such Employee's absence from the Employers' and Affiliates' service began. The period between the first and second anniversaries of the first day of such absence will not be considered to be a Period of Service or a Period of Severance. Section 1.52 Trust "Trust" means the trust established pursuant to this Plan for the purposes of holding the assets of the Plan. The terms of the Trust are set forth in the Trust Agreement by and between the Company and the Trustee. Said Trust Agreement constitutes a part of the Plan and its terms are incorporated herein by reference. Section 1.53 Trustee "Trustee" means the person(s) or entity(ies) designated by the Board to serve as trustee of the Trust Fund. Section 1.54 Trust Fund "Trust Fund" means the Company Stock and all other property held in the Trust. Section 1.55 Valuation Date "Valuation Date" means the last day of each Plan Year and such other dates as the Administrative Committee and the Trustee may agree upon. Section 1.56 Year of Eligibility Service "Year of Eligibility Service" means an Eligibility Computation Period in which the Employee completes at least 1,000 Hours of Service. An Employee who incurs a One-Year Break in Service prior to becoming a Participant will be treated as a new hire if he again performs an Hour of Service. Hours of Service completed by an Employee with an Affiliate prior to the date on which it became an Affiliate will be taken into account, to the extent they were completed during a period of time taken into account in determining such Employee's Period of Service under Section 1.42 hereof, in determining whether the Employee has completed a Year of Eligibility to Service. Section 1.57 Year of Participation "Year of Participation" means a Plan Year, commencing after December 31, 1998, in which the Participant is entitled to receive an allocation of Matching Contributions, Bonus Contributions or forfeitures under the ESOP. 12 Section 1.58 Year of Service "Year of Service" means a 12-consecutive-month Period of Service. Solely for purposes of determining a Participant's Years of Service, all of the Participant's Periods of Service will be treated as if they had been consecutive and any Period of Severance of less than 12 months in duration will be treated as a Period of Service. For purposes of the preceding sentence, a Period of Severance will be considered to be of less than 12 months in duration only if the Employee again performs an Hour of Service within 12 months of the date on which he is first absent from active service with the Employers and Affiliates. 13 ARTICLE 2 PARTICIPATION Section 2.1 Participation Date (a) Each Eligible Employee who was a Participant in the Plan on December 31, 1998 will continue as a Participant hereunder on January 1, 1999 for purposes of making Elective Deferrals and sharing in Matching Contributions. Except as provided otherwise in an Employer's Participation Agreement, each other Eligible Employee will become a Participant in the Plan for purposes of making Elective Deferrals and sharing in Matching Contributions on the latest of (1) January 1, 1999, (2) the first da of the first calendar quarter commencing on or after the date on which he first completes an Hour of Service as an Eligible Employee, or (3) the first day of the first calendar quarter commencing after the date on which he attains age 21 (age 18, effective June 1, 1999), provided that he is an Eligible Employee on such date. (b) Except as provided otherwise in an Employer's Participation Agreement, each Eligible Employee will become a Participant in the Plan for purposes of sharing in Bonus Contributions on the later of January 1, 1999 or the January 1 or July 1 coinciding with or next following the date on which he first completes an Hour of Service as an Eligible Employee, provided that he is an Eligible Employee on such date. Notwithstanding the foregoing, Employees employed by the Company as salespersons shall not be eligible to share in Bonus Contributions. Section 2.2 Reemployment and Change in Employment Classification (a) Reemployment. A Participant or a former Participant whose Service has terminated and who is later reemployed as an Eligible Employee will resume active participation in the Plan (to the same extent as he was participating as of his Severance Date) as of his reemployment date or as soon as administratively practicable thereafter. (b) Transfer to Ineligible Status. A Participant who ceases to be an Eligible Employee due to his transfer to an ineligible class of Employees will cease to be an active Participant (i.e., will cease to be eligible to make Elective Deferrals or to share in Employer Contributions with respect to periods following his transfer). If such a Participant again becomes an Eligible Employee, then he will again become an active Participant on the date he again becomes an Eligible Employee or as soon as administratively practicable thereafter. (c) Transfer from Ineligible Status. An Employee who has met the requirements for participation, but who is not employed as an Eligible Employee on the date he would otherwise become a Participant, will become a Participant (to the extent he would have become a Participant had he been employed as an Eligible Employee on such date) on the date he becomes (or again becomes) an Eligible Employee or as soon as administratively practicable thereafter. 14 Section 2.3 Termination of Participation A Participant will remain a Participant until his entire vested interest under the Plan has been distributed. Section 2.4 Qualified Military Service Notwithstanding anything herein to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u). 15 ARTICLE 3 PARTICIPANT CONTRIBUTIONS Section 3.1 Elective Deferrals (a) Amount of Elective Deferrals. Subject to the limitations set forth in Sections 3.1(c), 3.4 and 5.8 hereof, an Eligible Employee may elect, effective as of the date he becomes a Participant for purposes of making Elective Deferrals (see Section 2.1 hereof) (or as soon as administratively practicable thereafter), to have any whole percentage (up to such maximum percentage as may be specified by the Administrative Committee) of his Compensation withheld by his Employer and contributed to the Trust as Elective Deferrals in lieu of receiving such amounts in cash. Elective Deferrals will be deducted from the Participant's Compensation prior to the imposition of any federal or state income taxes. (b) Timing of Contribution. The Employers will pay any Elective Deferrals to the Trust within 12 months after the end of the Plan Year in which such amounts are withheld from the Participant's Compensation. (c) Annual Deferral Limitation. The amount of Elective Deferrals made on behalf of a Participant for a calendar year may not exceed the limitation in effect for such calendar year under Code Section 402(g) (the "402(g) limit"). If the Administrative Committee determines that the Elective Deferrals made to the Plan for a calendar year on behalf of a Participant would exceed the 402(g) limit for the calendar year, the Participant's Employer will not make any additional Elective Deferrals o behalf of that Participant for the remainder of that calendar year, paying in cash to the Participant any amounts that would result in the Elective Deferrals made on behalf of the Participant for the calendar year exceeding the 402(g) limit. If the Administrative Committee determines that the Elective Deferrals already contributed to the Plan for a calendar year on behalf of a Participant exceed the 402(g) limit, the Administrative Committee will direct the Trustee to distribute the amount in excess of the 402(g) limit (the "excess deferrals"), adjusted for Allocable Income, to the Participant no later than the April 15 following the end of the calendar year in which the excess deferrals were made. If a Participant participates in another plan under which he makes elective deferrals pursuant to a Code Section 401(k) arrangement, elective deferrals under a simplified employee pension plan, elective deferrals under a simple retirement account plan or salary reduction contributions to a tax-sheltered annuity, irrespective of whether an Employer or an Affiliate maintains the other plan, he may provide the Administrative Committee with a written claim for excess deferrals made for a calendar year. The Participant must submit the claim no later than the March 1 following the close of the calendar year in which the excess deferrals were made, and the claim must specify the amount of the Participant's elective deferrals under the Plan that are excess deferrals. If the Administrative Committee receives a timely claim, it will distribute the excess deferrals (adjusted for Allocable Income) that the Participant has assigned to the Plan no later than the April 15 following the end of the calendar year in which the excess deferrals were made. 16 The Administrative Committee will reduce the amount of excess deferrals for a calendar year distributable to a Participant by the amount of excess contributions, within the meaning of Section 3.4(e) hereof, if any, previously distributed to the Participant for the Plan Year beginning with or within that calendar year. (d) Elective Deferrals Treated as Employer Contributions. For purposes of Code Section 401 and other applicable Code requirements, Elective Deferrals will be considered employer contributions. Section 3.2 Election Procedure and Amendments A Participant's election to make Elective Deferrals under the Plan must be made by notice to the Administrative Committee or its designee in such manner and pursuant to such rules as the Administrative Committee shall establish, and will remain in effect until changed by the Participant. A Participant may elect to change the percentage of his Elective Deferrals effective as of the first day of any calendar quarter (or as soon as administratively practicable thereafter), subject to such rules as the Administrative Committee may establish. A Participant may make Elective Deferrals only with respect to Compensation paid for service as an Eligible Employee. Section 3.3 Rollovers An Eligible Employee may, by application to the Administrative Committee, request that the Trustee accept a Rollover Contribution and the Trustee will be authorized to do so with the Administrative Committee's approval. The application will state the amount of the Rollover Contribution, and such other information as the Administrative Committee may require in order to determine that the amount is in fact a Rollover Contribution. No Employee has any right to have a Rollover Contribution transferred to the Trust, and the Administrative Committee may, in its sole and absolute discretion, approve or deny an application for any reason that it deems sufficient. A Rollover Contribution may be accepted for an Eligible Employee who has not yet met the requirements for eligibility under Article 2 hereof for participation, or who has not elected to contribute and, thus, has no other Account under the Plan. If an Eligible Employee makes a Rollover Contribution before he has satisfied the participation requirements in Section 2.1 hereof, then the Eligible Employee will be deemed to be a Participant for all purposes of the Plan, except that he will not be deemed to be a Participant for purposes of making Elective Deferrals or for purposes of sharing in Matching Contributions, Bonus Contributions or forfeitures under the Plan until he satisfies the relevant participation requirements in Section 2.1 hereof. Section 3.4 Average Deferral Percentage Test (a) Definitions. For purposes of this Section 3.4, the following terms shall have the respective meanings set forth below: 17 (1) "Average Deferral Percentage" means the average (expressed as a percentage) of the Deferral Percentages for the Participants in the relevant group. (2) "Deferral Percentage" means the ratio (expressed as a percentage) of Elective Deferrals contributed on behalf of the Participant for the relevant Plan Year to the Participant's compensation, as defined in any manner permitted under Code Section 414(s) (as elected from time to time by the Administrative Committee), for such Plan Year; provided, however, that the Administrative Committee may (but need not) limit a Participant's compensation to compensation paid while such Participant is eligible to make Elective Deferrals. The Deferral Percentage for a Participant who is eligible to, but who does not elect to, make Elective Deferrals for a Plan Year shall be zero. (b) Average Deferral Percentage Tests. In order to meet the limitations of this Section 3.4, the Administrative Committee shall limit the amount of Elective Deferrals made by Highly Compensated Employees each Plan Year to the extent necessary to satisfy one of the Average Deferral Percentage tests described in (1), (2) or (3) below: (1) If the Average Deferral Percentage of Non-Highly Compensated Employees for the prior Plan Year is less than 2%, then the Average Deferral Percentage of Highly Compensated Employees for the current Plan Year shall not exceed 2 times the Average Deferral Percentage of the Non-Highly Compensated Employees for the prior Plan Year. (2) If the Average Deferral Percentage of Non-Highly Compensated Employees for the prior Plan Year is between 2% and 8%, then the Average Deferral Percentage of Highly Compensated Employees for the current Plan Year shall not exceed the Average Deferral Percentage of the Non-Highly Compensated Employees for the prior Plan Year plus 2%. (3) If the Average Deferral Percentage of Non-Highly Compensated Employees for the prior Plan Year is greater than 8%, then the Average Deferral Percentage of Highly Compensated Employees for the current Plan Year shall not exceed 1.25 times the Average Deferral Percentage of the Non-Highly Compensated Employees for the prior Plan Year. (c) Rules to be Followed in Applying Tests. The following rules shall be followed in applying the tests set forth in subsection (b) immediately above: (1) If a Highly Compensated Employee is eligible to participate in two or more cash or deferred arrangements maintained by the Employers or an Affiliate, then all elective deferrals under such arrangements shall be aggregated for purposes of determining that Participant's Average Deferral Percentage. If the plans containing the Code Section 401(k) arrangements have different plan years, the Administrative Committee will determine the combined deferral contributions on the basis of the pla years ending in the same calendar year. 18 (2) If two or more plans that include cash or deferred arrangements are considered a single plan for purposes of Code Sections 401(a)(4) and 410(b), then all elective deferrals under such arrangements shall be aggregated for purposes of determining a Participant's Average Deferral Percentage. An aggregation of plans under this paragraph (2) does not apply to plans which have different plan years. The Administrative Committee may not aggregate an ESOP (or the ESOP portion of a plan) with non-ESOP plan (or the non-ESOP portion of a plan). (3) If elected by the Administrative Committee for a Plan Year, the Average Deferral Percentage tests may be calculated with reference to the Average Deferral Percentage of Non-Highly Compensated Employees for the current Plan Year; provided, however, that such election may not be changed without regulatory or other published guidance from the Secretary of the Treasury or its designee. The Average Deferral Percentage test for the Plan Year commencing on January 1, 1997 was performed using the Average Deferral Percentage of Non-Highly Compensated Employees for such Plan Year and the Average Deferral Percentage test for the Plan Year commencing on January 1, 1998 was performed using the Average Deferral Percentage of Non-Highly Compensated Employees for the immediately preceding Plan Year. (4) Matching Contributions shall not be payable with respect to any Elective Deferrals that are distributed to Participants pursuant to Section 3.4(d) or 5.8 hereof, and to the extent that any such Matching Contributions have been allocated, they will be forfeited. (d) Excess Contributions. If the Plan is projected to fail one or more of the Average Deferral Percentage Tests for a Plan Year, the Administrative Committee may prospectively limit the amount of Elective Deferrals to be made by Highly Compensated Employees for that Plan Year. Alternatively, the Administrative Committee shall determine the respective shares of excess contributions in the manner described below, which excess will be distributed, together with Allocable Income thereon, to the Participant during the 12-consecutive-month period following the Plan Year in which the excess contributions were made: First -- The Deferral Percentage of the Highly Compensated Employee(s) with the highest Deferral Percentage shall be reduced until it equals that of the Highly Compensated Employee(s) with the next highest Deferral Percentage. This process shall be repeated until one of the Average Deferral 19 Percentage tests is passed. The aggregate dollar amount of excess Elective Deferrals resulting from these reductions shall be determined. Next -- The aggregate dollar amount of excess Before-Tax Contributions that are to be distributed shall be allocated among Highly Compensated Employees. Excess Elective Deferrals shall be allocated first to the Highly Compensated Employee(s) with the highest dollar amount of Elective Deferrals. Excess Elective Deferrals shall be allocated to such Highly Compensated Employee(s) until the dollar amount of his (their) Elective Deferrals has been reduced to equal that of the Highly Compensated Employee(s) with the next highest dollar amount. This process shall be repeated until the aggregate dollar amount of excess Elective Deferrals has been allocated. The Administrative Committee will reduce the amount of excess contributions by the amount of any excess deferrals previously distributed to the Employee for the Employee's taxable year ending with or within the Plan Year. 20 ARTICLE 4 EMPLOYER CONTRIBUTIONS Section 4.1 Matching Contributions (a) Amount of Matching Contribution. Subject to the limitations set forth in Sections 4.4 and 5.8 hereof, for each Plan Year quarter, the Employers will make a Matching Contribution to the Trust in such amount and subject to such dollar limit as the Company will determine, which amount may be zero. (b) Allocation of Matching Contribution. The Administrative Committee will allocate the Employers' Matching Contribution for a Plan Year quarter among the Participants who made Elective Deferrals during such Plan Year quarter in proportion to such Participants' year-to-date Elective Deferrals (not in excess of six percent of year-to-date Compensation), determined as of the last day of such Plan Year quarter; provided, however, that the total Matching Contributions allocated to a Participant's Matching Contributions Account for any Plan Year shall not exceed the dollar limit (if any) established by the Company for such Plan Year. (c) Timing of Matching Contribution. The Employers will pay their Matching Contributions for a Plan Year quarter to the Trust not later than the due date (including extensions thereof) for their federal income tax return for the taxable year in which the relevant Plan Year ends. Section 4.2 Employer Bonus Contribution (a) Amount of Bonus Contribution. Subject to the limitations set forth in Section 5.8 hereof, for each Bonus Period, the Employers will make a Bonus Contribution to the Trust in such amount as the Company will determine, which amount may be zero. (b) Allocation of Bonus Contribution. The Administrative Committee will allocate the Employers' Bonus Contribution for a Bonus Period among the Participants who were Eligible Employees on the last day of such Bonus Period. Each such Participant's share of the Bonus Contribution for a Bonus Period will be determined by dividing such Bonus Contribution by the number of Participants who are eligible to share in such Bonus Contribution. (c) Timing of Bonus Contribution. The Employers will pay their Bonus Contribution for a Bonus Period to the Trust not later than the due date (including extensions thereof) for their federal income tax return for the taxable year in which the relevant Plan Year ends. Section 4.3 Contribution of Stock The Company may require the Employers to pay all or any portion of their Employer Contributions in Company Stock, rather than in cash, in which case such Company Stock will 21 be valued at the average of the closing prices of the Company Stock on the NASDAQ on each day during the relevant period that the NASDAQ is open for trading. For purposes of the Matching Contribution for a Plan Year quarter, the relevant period is such Plan Year quarter. For purposes of the Bonus Contribution for a Bonus Period, the relevant period is such Bonus Period. Section 4.4 Average Contribution Percentage Test (a) Definitions. For purposes of this Section 4.4, the following terms shall have the respective meanings set forth below: (1) "Average Contribution Percentage" means the average (expressed as a percentage) of the Contribution Percentages for the Participants in the relevant group. (2) "Contribution Percentage" means the ratio (expressed as a percentage) of the sum of the Matching Contributions allocated to the Participant's Accounts for the relevant Plan Year to the Participant's "compensation," as defined in any manner permitted under Code Section 414(s) (as elected from time to time by the Administrative Committee), for such Plan Year; provided, however, that the Administrative Committee may (but need not) limit a Participant's compensation to compensation paid while such Participant is eligible to make Elective Deferrals. The Contribution Percentage for a Participant who is eligible to, but who does not elect to, make Elective Deferrals for a Plan Year shall be zero. (b) Average Contribution Percentage Tests. In order to meet the limitations of this Section 4.4, the Administrative Committee shall limit the amount of Elective Deferrals made by Highly Compensated Employees each Plan Year to the extent necessary to satisfy one of the Average Contribution Percentage tests described in (1), (2) or (3) below: (1) If the Average Contribution Percentage of Non-Highly Compensated Employees for the prior Plan Year is less than 2%, then the Average Deferral Percentage of Highly Compensated Employees for the current Plan Year shall not exceed 2 times the Average Contribution Percentage of the Non-Highly Compensated Employees for the prior Plan Year. (2) If the Average Contribution Percentage of Non-Highly Compensated Employees for the prior Plan Year is between 2% and 8%, then the Average Deferral Percentage of Highly Compensated Employees for the current Plan Year shall not exceed the Average Contribution Percentage of the Non-Highly Compensated Employees for the prior Plan Year plus 2%. (3) If the Average Contribution Percentage of Non-Highly Compensated Employees for the prior Plan Year is greater than 8%, then the Average 22 Contribution Percentage of Highly Compensated Employees for the current Plan Year shall not exceed 1.25 times the Average Contribution Percentage of the Non-Highly Compensated Employees for the prior Plan Year. (c) Rules to be Followed in Applying Tests. The following rules shall be followed in applying the tests set forth in subsection (b) immediately above: (1) If a Highly Compensated Employee is eligible to make after-tax contributions or receive matching contributions under two or more plans maintained by the Employers or an Affiliate, then all after-tax and matching contributions under such arrangements shall be aggregated for purposes of determining that Participant's Average Contribution Percentage. If such plans have different plan years, the Administrative Committee will determine the combined contributions on the basis of the plan years ending in the same calendar year. (2) If two or more plans that include after-tax or matching contributions are considered a single plan for purposes of Code Sections 401(a)(4) and 410(b), then all after-tax and matching contributions under such arrangements shall be aggregated for purposes of determining a Participant's Average Contribution Percentage. An aggregation of plans under this paragraph (2) does not apply to plans which have different plan years. The Administrative Committee may not aggregate an ESOP (or the ESOP portion of a plan) with a non-ESOP plan (or the non-ESOP portion of a plan). (3) If elected by the Administrative Committee for a Plan Year, the Average Contribution Percentage tests may be calculated with reference to the Average Contribution Percentage of Non-Highly Compensated Employees for the current Plan Year; provided, however, that such election may not be changed without regulatory or other published guidance from the Secretary of the Treasury or its designee. The Average Contribution Percentage test for the Plan Year commencing on January 1, 1997 was performed using the Average Contribution Percentage of Non-Highly Compensated Employees for such Plan Year, and the Average Contribution Percentage test for the Plan Year commencing on January 1, 1998 was performed using the Average Contribution Percentage of Non-Highly Compensated Employees for the immediately preceding Plan Year. (d) Excess Aggregate Contributions. The Administrative Committee shall determine the respective shares of excess aggregate contributions in the manner described below, which excess will be forfeited (to the extent the Participant is not vested in the Matching Contributions allocated to his Accounts) or distributed (to the extent the Participant is vested in the Matching Contributions allocated to his Accounts), together with Allocable Income thereon: 23 First -- The Contribution Percentage of the Highly Compensated Employee(s) with the highest Contribution Percentage shall be reduced until it equals that of the Highly Compensated Employee(s) with the next highest Contribution Percentage. This process shall be repeated until one of the Average Contribution Percentage tests is passed. The aggregate dollar amount of excess aggregate contributions resulting from these reductions shall be determined. Next -- The aggregate dollar amount of excess aggregate contributions that are to be distributed shall be allocated among Highly Compensated Employees. Excess aggregate contributions shall be allocated first to the Highly Compensated Employee(s) with the highest dollar amount of aggregate contributions. Excess aggregate contributions shall be allocated to such Highly Compensated Employee(s) until the dollar amount of his (their) aggregate contributions has been reduced to equal that of the Highly Compensated Employee(s) with the next highest dollar amount. This process shall be repeated until the aggregate dollar amount of excess aggregate contributions has been allocated. The Administrative Committee will reduce the amount of excess contributions by the amount of any excess deferrals previously distributed to the Employee for the Employee's taxable year ending with or within the Plan Year. (e) Multiple Use Limitation. The Administrative Committee shall limit further the amount of Matching Contributions allocated to the Accounts of Highly Compensated Employees for each Plan Year to the extent necessary to cause the Average Contribution Percentage test to satisfy the multiple use limitation set forth in Section 1.401(m)-2(c) of the Treasury Regulations. 24 ARTICLE 5 MAINTENANCE OF PARTICIPANT ACCOUNTS Section 5.1 Participant Accounts (a) In General. The Administrative Committee will establish and maintain (to the extent necessary) in the name of each Participant an Elective Deferrals Account, a Pre-1999 Matching Contribution Account, a Rollover Account, a Culverin After-Tax Account and a Culverin Supplemental Account to reflect such Participant's interest under the 401(k) Portion and a Company Stock Account and an Other Investments Account to reflect such Participant's interest under the ESOP. Separate subaccounts within each Account will be established as necessary to reflect the type of contributions (i.e., Matching Contributions or Bonus Contributions), the Investment Funds in which such Account is invested or for such other reasons as the Administrative Committee may deem necessary or advisable for the proper administration of the Plan. (b) Company Stock Account. The Company Stock Account maintained for each Participant will be credited with (1) his share of Company Stock (including fractional shares) purchased and paid for by the Trust or contributed in-kind to the Trust as an Employer Contribution, (2) his share of any forfeitures of Company Stock, and (3) any stock dividends on Company Stock allocated to his Company Stock Account. (c) Other Investments Account. The Other Investments Account maintained for each Participant will be credited with (1) his allocable share of Employer Contributions under the ESOP that are not in the form of Company Stock, (2) any cash dividends on Company Stock allocated to his Company Stock Account (other than currently distributed dividends) and (3) his allocable share of any net income of the Trust. Such Account will be debited with the Participant's share of (1) any cash payments made by the Trustee for the acquisition of Company Stock, (2) any payment of any principal and/or interest on an Acquisition Loan and (3) any net loss of the Trust. (d) Elective Deferrals Account. The Elective Deferrals Account maintained for each Participant will be credited with the Elective Deferrals made on behalf of such Participant during the Plan Year. It will also be credited (or debited) with its share of the net income (or loss) of the Trust attributable thereto. (e) Pre-1999 Matching Contributions Account. The Pre-1999 Matching Contributions Account maintained for each Participant will be credited with the Matching Contributions made on behalf of such Participant for Plan Years commencing prior to January 1, 1999. It will also be credited (or debited) with its share of the net income (or loss) of the Trust attributable thereto. (f) Rollover Account. The Rollover Account maintained for a Participant will be credited with the Rollover Contribution made by such Participant. It will also be credited (or debited) with its share of the net income (or loss) of the Trust attributable thereto. 25 (g) Culverin After-Tax Account. The Culverin After-Tax Account maintained for a Participant will be credited with employee after-tax contributions made by such Participant under the Culverin Plan. It will also be credited (or debited) with its share of the net income (or loss) of the Trust attributable thereto. (h) Culverin Supplemental Account. The Culverin Supplemental Account maintained for a Participant will be credited with the employer discretionary contributions made on behalf of such Participant under the Culverin Plan. It will also be credited (or debited) with its share of the net income (or loss) of the Trust attributable thereto. Section 5.2 Allocation of Contributions (a) Elective Deferrals. A Participant's Elective Deferrals for a Plan Year quarter will be allocated to his Elective Deferrals Account as soon as administratively practicable after they are paid to the Trust. (b) Matching Contributions. A Participant's share of the Matching Contribution for a Plan Year quarter will be allocated to his Company Stock Account or Other Investments Account, as applicable, as soon as administratively practicable after such Matching Contribution is paid to the Trust; provided, however, that Matching Contributions made on behalf of a Participant for Plan Years commencing prior to January 1, 1999 will be allocated to his Pre-1999 Matching Contributions Account. (c) Bonus Contributions. A Participant's share of the Bonus Contribution for a Bonus Period will be allocated to his Company Stock Account or Other Investments Account, as applicable, as soon as administratively practicable after such Bonus Contribution is paid to the Trust. (d) Rollover Contributions. A Participant's Rollover Contribution will be allocated to his Rollover Account as soon as administratively practicable after it is paid to the Trust. Section 5.3 Financed Shares (a) Loan Suspense Account. Any Financed Shares acquired by the Trust will initially be credited to a "Loan Suspense Account" and will be released from such Loan Suspense Account and allocated to the Company Stock Accounts of Participants only as payments are made on the related Acquisition Loan. A separate Loan Suspense Account shall be established and maintained for each separate Acquisition Loan. (b) Release of Shares. The number of Financed Shares to be released from a Loan Suspense Account for allocation to Participants' Company Stock Accounts for each Plan Year will be equal to the number of shares held in the Loan Suspense Account immediately before the release multiplied by whichever of the following fractions is applicable, as determined by the Administrative Committee at the time the Financed Shares are acquired (or as provided in the Acquisition Loan): 26 (1) Principal-and-Interest Method. The numerator of the fraction is the amount of principal and interest paid on the Acquisition Loan for that Plan Year and the denominator of the fraction is the sum of the numerator and the total principal and interest on that Acquisition Loan projected to be paid for all future Plan Years. For this purpose, the interest to be paid in future years is to be computed by using the interest rate in effect as of the last day of the current Plan Year. (2) Principal-Only Method. The numerator of the fraction is the amount of principal paid on the Acquisition Loan for that Plan Year and the denominator of the fraction is the outstanding principal balance due on the Acquisition Loan at the beginning of that Plan Year (or on the date of the Acquisition Loan, if made after the beginning of that Plan Year); provided, however, that this fraction may be used only to the extent that: (A) the Acquisition Loan provides for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for ten years; (B) interest included in any payment on the Acquisition Loan is disregarded only to the extent that it would be determined to be interest under standard loan amortization tables; and (C) the entire duration of the Acquisition Loan repayment period (considering any new loan resulting from the renewal, extension or refinancing of the initial loan as being part of the same Acquisition Loan) does not exceed ten years. (c) Allocation of Released Shares. The Financed Shares released from a Loan Suspense Account for a Plan Year will be allocated as of the last day of each Plan Year (and at such other times as the Administrative Committee may determine) among the Company Stock Accounts of Participants in the manner determined by the Administrative Committee based upon the source of funds (i.e., Matching Contributions, Discretionary Contributions, earnings attributable to such Matching Contributions or Bonu Contributions, cash dividends on Financed Shares allocated to Participants' Company Stock Accounts and cash dividends on Financed Shares credited to the Loan Suspense Account) used to make payments on the Acquisition Loan. Notwithstanding the foregoing, if cash dividends on Financed Shares allocated to a Participant's Company Stock Account are used to make payments on an Acquisition Loan during a Plan Year, then Financed Shares released as a result of such payments, and having a fair market value at leas equal to the amount of such dividends, will be allocated to the Participant's Company Stock Account for such Plan Year. Section 5.4 Allocation of Investment Gains and Losses (a) As of each Valuation Date, the net income (or loss) of the Trust since the immediately preceding Valuation Date shall be determined. Net income (or loss) of the Trust includes the increase (or decrease) in the fair market value of Trust Fund assets other than Company Stock, interest income, dividends and other income and gains (or losses) attributable to Trust Fund assets (other than any dividends on allocated Company Stock) since the immediately preceding Valuation Date, reduced by any expenses charged to the 27 Trust fund for the period since the immediately preceding Valuation Date. The determination of the net income (or loss) of the Trust shall not take into account any interest paid by the Trust under an Acquisition Loan. (b) The net income (or loss) of the Trust attributable to the 401(k) Portion will be determined separately for each Investment Fund and allocated among the Elective Deferral Accounts, Pre-1999 Matching Contributions Accounts, Rollover Accounts, Culverin After-Tax Accounts and Culverin Supplemental Accounts of the Participants in proportion to the respective balances of such Accounts invested in each such Investment Fund. (c) Prior to the allocation of Matching Contributions, Bonus Contributions and forfeitures, each Participant's share of any net income (or loss) under the ESOP will be allocated to his Other Investments Account in the ratio that the total balances of both his Company Stock Account and his Other Investments Account on the preceding Valuation Date (reduced by any distribution from such Accounts since the preceding Valuation Date) bear to the sum of such Account balances for all Participants as of that Valuation Date. Section 5.5 Dividends on Company Stock (a) Cash Dividends. Any cash dividends received on shares of Company Stock allocated to Participants' Company Stock Accounts will be allocated to the respective Other Investments Accounts of such Participants. Any cash dividends received on unallocated shares of Company Stock (including any Financed Shares credited to a Loan Suspense Account) shall be included in the computation of the net income (or loss) of the Trust. Any cash dividends that are currently distributed to Participants (or their Beneficiaries) under Section 9.1 hereof shall not be credited to such Participants' Other Investments Accounts. (b) Stock Dividends. Any stock dividends received on Company Stock shall be credited to the Accounts (including any Loan Suspense Account) to which such Company Stock was allocated. Section 5.6 Accounting for Allocations The Administrative Committee will establish accounting procedures for the purpose of making the allocations to Participants' Accounts provided for in this Article 5. The Administrative Committee will maintain adequate records of the aggregate cost basis of Company Stock allocated to each Participant's Company Stock Account. The Administrative Committee will also keep separate records of Financed Shares and of Matching Contributions, Bonus Contributions and earnings thereon made for the purpose of enabling the Trust to repay any Acquisition Loan. From time to time, the Administrative Committee may modify the accounting procedures for the purposes of achieving equitable and nondiscriminatory allocations among the Accounts of Participants in accordance with the general concepts of the Plan, the provisions of this Article 5 and the requirements of the Code and ERISA. 28 Section 5.7 Account Statements The Administrative Committee will provide each Participant with a statement of his Accounts not less frequently than once a year. Section 5.8 Limitations Imposed by Code Section 415 (a) General Limitation. Notwithstanding anything herein to the contrary, the Plan is subject to the limitations imposed by Code Section 415 and the regulations issued thereunder, which limitations are incorporated herein by reference. The limitation year is the Plan Year. Accordingly, the annual additions allocated to any Participant's Accounts with respect to a Plan Year shall not exceed the lesser of $30,000 and 25% of the Participant's "compensation" for such Plan Year. For purposes of this Section 5.8, "annual additions" means the sum of the Elective Deferrals, Matching Contributions, Bonus Contributions and forfeitures (if any) allocated to the Participant's Accounts for the Plan Year, and "compensation" means wages within the meaning of Code Section 3401(a) and all other payments of compensation to an Employee by the Employers and their Affiliates (in the course of an Employer's or an Affiliate's trade or business) for which an Employer or an Affiliate is required to furnish the Employee a written statement under Code Section 6041(d), 6051(d) or 6052 (increased by the amount of (1) any Elective Deferrals, (2) any other elective deferrals within the meaning of Code Section 402(g)(3), and (3) any other amount that is contributed or deferred by an Employer at the election of the Participant and that is not includible in the gross income of the Participant by reason of Code Section 125). (b) Special Acquisition Loan Rules. Any Employer Contributions that are used by the Trust (not later than the due date, including extensions, for filing the Company's federal income tax return for that Plan Year) to pay interest on an Acquisition Loan, and any Financed Shares that are allocated as forfeitures, will not be included as annual additions under subsection (a) immediately above; provided, however, that the provisions of this subsection (b) shall be applicable for any Plan Year only if not more than one-third (1/3) of the Employer Contributions applied to pay principal and/or interest on an Acquisition Loan are allocated to Participants who are Highly Compensated Employees. (c) Correction of Excess Annual Additions. If, as a result of the allocation of forfeitures, a reasonable error in estimating a Participant's annual compensation, or a reasonable error in determining the amount of elective deferrals that may be made with respect to any individual under the limits of Code Section 415, or if under other facts and circumstances as are found by the Internal Revenue Service to justify the availability of the rules set forth in this subsection (c), the annual additions to a Participant's Accounts for a limitation year would cause the limitations of Code Section 415(c) applicable to that Participant for the limitation year to be exceeded, then the excess amounts will be eliminated in the following manner: First -- The Participant's Elective Deferrals for the limitation year, together with any income attributable to such contributions, will be repaid to the Participant (and any related Matching Contributions will be forfeited) to the extent necessary to eliminate such excess. Any amounts returned will be disregarded for purposes of applying the limitation set forth in Section 3.4 hereof. 29 Second-- If, after the application of the immediately preceding paragraph, an excess still exists, then, to the extent necessary to eliminate such excess, the Employers' Bonus Contributions under Section 4.2 hereof will be allocated to a suspense account and held therein, without adjustment for any investment increase or decrease, until it can be allocated and reallocated in a subsequent Plan Year among all Participants as an additional Bonus Contribution under Section 4.2 hereof. The excess may also be used to reduce the Employers' Bonus Contribution for the next Plan Year (and succeeding Plan Years, if necessary) for all Participants. In the event of termination of the Plan, the suspense account will revert to the Employers to the extent it has not been allocated to Participant Accounts. (d) Combined Limit. For Plan Years beginning prior to January 1, 2000, if a Participant in the Plan is or was a participant in a defined benefit plan, as defined in Code Section 414(j), maintained by any Employer or any Affiliate, then the Participant's annual benefit under the defined benefit plan will be limited to the extent necessary to comply with the limitation set forth in Code Section 415(e). (e) Multiple Plans. In applying the limitations of this Section 5.8, all defined contribution plans maintained by the Employers and their Affiliates will be treated as a single plan and all defined benefit plans will be treated as a single plan. If an excess amount is allocated to a Participant's Accounts on an allocation date under this Plan that coincides with an allocation date under any other defined contribution plan maintained by the Employers or their Affiliates, then the total excess amount allocated as of such date will be attributed to this Plan. Any annual additions attributable to a welfare benefit fund will be treated as allocated first, irrespective of the actual allocation date under the welfare benefit plan. 30 ARTICLE 6 INVESTMENT OF TRUST ASSETS Section 6.1 Investment of 401(k) Portion (a) Investment Funds. The Trustee shall invest all amounts credited to a Participant's Elective Deferrals Account, Pre-1999 Matching Contributions Account, Rollover Account, Culverin After-Tax Account and Culverin Supplemental Account in such Investment Funds as the Participant shall direct from among the Investment Funds authorized by the Administrative Committee from time to time. The Administrative Committee may change the characteristics of any Investment Fund and/or add or eliminate Investment Funds at any time and in any way it deems appropriate. The Administrative Committee shall promptly inform the Trustee, the applicable investment manager, if any, and the Participants of the objectives of each Investment Fund and of any changes thereto. (b) Initial Investment Direction. A Participant shall direct, as of the date he becomes a Participant, the percentage of the future contributions to his Elective Deferrals Account and Pre-1999 Matching Contributions Account that will be invested in each of the Investment Funds available at that time in such increments, in such manner and subject to such other rules as the Administrative Committee may prescribe. If a Participant fails to direct the investment of any portion of the future contributions to his Elective Deferrals Account and Pre-1999 Matching Contributions Account, such contributions will be invested in a money market (or an equivalent) fund. (c) Initial Investment Direction for Amounts Transferred From Another Plan. A Participant shall direct, as of the date of transfer or rollover of amounts from another plan to the Plan, the percentage of such amounts that will be invested in each of the Investment Funds available at that time in such increments, in such manner and subject to such other rules as the Administrative Committee may prescribe. If a Participant fails to direct the investment of any portion of such transferred amounts, such amounts will be invested in a money market (or an equivalent) fund. (d) Change in Investment Direction. A Participant's direction of investment for future contributions will remain in effect until changed by the Participant. A Participant may change his investment direction for future contributions to his Elective Deferrals Account and Pre-1999 Matching Contributions Account at such times, in such increments and subject to such rules as the Administrative Committee shall establish. In addition, each Participant may direct that the amounts allocated to his Elective Deferrals Account, Pre-1999 Matching Contributions Account, Rollover Account, Culverin After-Tax Account and Culverin Supplemental Account be reallocated among the Investment Funds then available at such times, in such increments and subject to such rules as the Administrative Committee shall establish. (e) Participant Liable for Consequences of Investment Direction. Each Participant shall bear the sole responsibility for the investment of his Elective Deferrals 31 Account, Pre-1999 Matching Contributions Account, Rollover Account, Culverin After-Tax Account and Culverin Supplemental Account, and none of the Trustee, the Administrative Committee, or any of the Employers will be liable for any loss that may occur in connection with the investment of such Accounts. Section 6.2 Investment of ESOP The portion of the Trust Fund attributable to the ESOP will be invested primarily (or exclusively) in Company Stock in accordance with directions from the Administrative Committee. The Administrative Committee may direct the Trustee to invest up to 100% of the Trust Fund in Company Stock. To the extent directed by the Administrative Committee, the Trustee may also invest the Trust Fund in such other prudent investments as the Administrative Committee deems to be desirable for the Trust, or hold suc assets temporarily in cash. Section 6.3 Purchases of Company Stock At the direction of the Administrative Committee, the Trustee may use Employer Contributions and other assets of the Trust Fund to acquire shares of Company Stock from any Company shareholder or from the Company. Any such purchase from a party in interest (as defined in Section 3(14) of ERISA) must be made at a price that does not exceed adequate consideration (as defined in Section 3(18) of ERISA) for the Company Stock acquired. No commission may be charged in connection with any purchase of Company Stock from a party in interest (as defined in Section 3(14) of ERISA). Section 6.4 Sales of Company Stock Subject to the approval of the Board, or as may be required to comply with Participant (or Beneficiary) directions under Section 9.2 or 10.2 hereof, the Administrative Committee may direct the Trustee to sell shares of Company Stock to any person (including the Company), provided that any such sale to a party in interest (as defined in Section 3(14) of ERISA) must be made at a price that is not less than adequate consideration (as defined in Section 3(18) of ERISA) for the Company Stock sold. No commission may be charged in connection with any sale of Company Stock to a party in interest (as defined in Section 3(14) of ERISA). Section 6.5 Acquisition Loans (a) Incurrence of Acquisition Loans. The Administrative Committee may direct the Trustee to incur Acquisition Loans under the ESOP from time to time to finance the acquisition of Company Stock or to repay a prior Acquisition Loan. An installment obligation incurred in connection with the purchase of Company Stock shall be treated as an Acquisition Loan. An Acquisition Loan shall be for a specified term, shall bear a reasonable rate of interest and shall not be payable on demand except i the event of default. An Acquisition Loan may be secured by a pledge of the Financed Shares acquired with the 32 proceeds thereof (or acquired with the proceeds of a prior Acquisition Loan which is being refinanced). No other assets of the Trust Fund may be pledged as collateral for an Acquisition Loan, and no lender shall have recourse against any assets of the Trust Fund other than any Financed Shares remaining subject to pledge. Any pledge of Financed Shares must provide for the release of the shares s pledged as such shares are released from the related Loan Suspense Account, in accordance with Section 5.3(c) hereof, for allocation to Participants' Company Stock Accounts. If the lender is a party in interest (as defined in Section 3(14) of ERISA), the Acquisition Loan must provide for a transfer of assets from the Trust Fund to the lender on default only upon and to the extent of the failure of the Trust to meet the payment schedule of the Acquisition Loan. (b) Payments on Acquisition Loans. Payments of principal and/or interest on any Acquisition Loan shall be made by the Trustee only from (1) Employer Contributions paid in cash to enable the Trust to repay such Acquisition Loan, (2) earnings attributable to such Employer Contributions, and (3) any cash dividends received by the Trust on the Financed Shares (whether allocated or unallocated); and the payments made with respect to an Acquisition Loan for a Plan Year must not exceed the sum o such Employer Contributions, earnings and dividends for that Plan Year (and prior Plan Years), less the amount of such payments for prior Plan Years. If the Company is the lender with respect to an Acquisition Loan, Employer Contributions may be paid in the form of cancellation of indebtedness under the Acquisition Loan. If the Company is not the lender with respect to an Acquisition Loan, the Company may elect to make payments on the Acquisition Loan directly to the lender and to treat such payments as Employer Contributions. (c) Special Circumstances. Notwithstanding the provisions of subsection (b) immediately above, in the event of a sale or other disposition of Financed Shares allocated to a Loan Suspense Account, the Administrative Committee may direct the Trustee to apply the proceeds of such sale or disposition to the repayment of the Acquisition Loan used to acquire such Financed Shares (or to refinance such Acquisition Loan) and the excess proceeds shall be allocated to Participants' Other Investments Accounts pro rata in relation to the balance in each such Account. The immediately preceding sentence will not apply to a sale or disposition of Financed Shares exchanged for other stock in a transaction described in Code Section 402(j), provided that there is a successor employer that, with the Company's consent, agrees to adopt and continue the Plan as an employee stock ownership plan, within the meaning of Code Section 4975(e)(7). If the Trustee is unable to make payments of principal and/or interest on an Acquisition Loan when due, then the Administrative Committee (with the approval of the Board) may direct the Trustee to sell any Financed Shares that have not been allocated to Participants' Company Stock Accounts or to obtain an Acquisition Loan in an amount sufficient to make such payments. 33 ARTICLE 7 VOTING OF COMPANY STOCK Section 7.1 Voting Each Participant (or Beneficiary, as applicable) shall have the right, with respect to the shares of Company Stock allocated to his Company Stock Account, to direct the Trustee as to the manner in which to vote such Company Stock in any matter put to a shareholder vote. Upon receipt of timely and proper directions from a Participant (or Beneficiary), the Trustee will vote the shares of Company Stock allocated to such Participant's (or Beneficiary's) Company Stock Account in accordance therewith. Th Trustee will not vote any allocated shares of Company Stock with respect to which the Trustee does not receive timely and proper direction. The Trustee will vote any shares of Company Stock that are not then allocated to Participant Accounts in the manner directed by the Administrative Committee (or by such other person as may be appointed by the Board to direct the Trustee in such matter). Section 7.2 Tender Offers Each Participant (or Beneficiary, if applicable) shall have the right, with respect to the shares of Company Stock allocated to his Company Stock Account, to direct the Trustee as to whether to tender such shares in any tender (or other purchase or exchange) offer made with respect to such shares. Upon receipt of timely and proper directions from a Participant (or Beneficiary), the Trustee will tender or not tender the shares of Company Stock allocated to such Participant's (or Beneficiary's) Compan Stock Account in accordance therewith. The Trustee will tender or not tender any shares of Company Stock with respect to which the Trustee does not receive timely and proper directions from the Participant (or Beneficiary) to whose Company Stock Account such shares are allocated, and any shares of Company Stock that are not then allocated to Participant Accounts, as directed by the Administrative Committee (or such other person as may be appointed by the Board to direct the Trustee in such matter). Notwithstanding the first sentence of Section 6.4, Board approval shall not be required with respect to any tender of Company Stock made pursuant to this Section 7.2, even if such tender is directed by the Administrative Committee. Section 7.3 Furnishing of Information On any matter in which a Participant (or Beneficiary) is entitled to direct the Trustee under Section 7.1 or 7.2 hereof, the Trustee will solicit such directions by distributing to each Participant and Beneficiary to whose Company Stock Account Company Stock has been allocated, such information as shall be distributed to shareholders of Company Stock generally in connection with a shareholder vote, together with any additional information as the Trustee deems appropriate for each Participant (or Beneficiary) to give proper directions to the Trustee. The directions received from any Participant will be held in confidence by the Trustee, and will not be individually divulged or released to the Employers, the 34 Administrative Committee or any other person, except to the extent required by law or as may be unavoidable in complying with Section 7.2 hereof. 35 ARTICLE 8 VESTING Section 8.1 Vesting (a) Elective Deferrals and Bonus Contributions. A Participant will at all times be 100% vested in his Elective Deferrals Account, Pre-1999 Matching Contributions Account, Rollover Account and Culverin After-Tax Account, and in the portion of his Company Stock Account and Other Investments Account that is attributable to Bonus Contributions. (b) Matching Contributions. A Participant who has completed three or more Years of Service as of July 1, 1999 will at all times be 100% vested in the portion of his Company Stock Account and Other Investments Account that is attributable to Matching Contributions. Any other Participant will become vested in the portion of his Company Stock Account and Other Investments Account that is attributable to Matching Contributions in accordance with the following schedule, based upon his Years of Service: Year of Service Vested Percentage Less than 1 0% 1 20% 2 40% 3 60% 4 80% 5 or more 100% (c) Culverin Supplemental Accounts. A Participant will vest in his Culverin Supplemental Account in accordance with the terms of the Plan as in effect on December 31, 1998. (d) Vesting upon Death, Disability or Attainment of Normal Retirement Age. Notwithstanding subsections (b) and (c) immediately above, a Participant will become 100% vested in his Culverin Supplemental Account and in that portion of his Company Stock Account and Other Investments Account that is attributable to Matching Contributions upon the Participant's death, Disability or attainment of Normal Retirement Age, provided that he is an Employee on the date such event occurs. Section 8.2 Forfeitures (a) Timing of Forfeitures. Any amounts in a Participant's Accounts that are not vested on his Severance Date will be maintained in such Accounts and will continue to share in allocations under Section 5.4 hereof until the first to occur of (1) the distribution of the Participant's entire Capital Accumulation, or (ii) the Participant's incurrence of five consecutive One-Year Breaks in Service, whereupon such amounts will be forfeited and used to reestablish the forfeited Account balances o Participants rehired during such Plan Year (as provided in subsection (b) immediately below) or to reduce the amount that the Employers 36 would otherwise have to contribute as Employer Contributions for the current Plan Year or future Plan Years. Forfeitures will first be charged against a Participant's Other Investments Account, with any balance charged against his Company Stock Account (at the fair market value). Financed Shares will be forfeited only after other shares of Company Stock have been forfeited. A Participant who has no vested interest will be deemed to have received a distribution of his entire Capital Accumulation on his Severance Date. A Participant whose entire Capital Accumulation has been distributed from the Plan or who has no vested interest will be deemed cashed out from the Plan. (b) Restoration of Forfeitures. If a Participant whose unvested interest in his Accounts has been forfeited pursuant to subsection (a) immediately above is reemployed by an Employer or an Affiliate prior to incurring five consecutive One-Year Breaks in Service, then the amount forfeited will be restored to the relevant Account(s), unadjusted for gains or losses occurring prior to restoration, if the Participant repays to the Plan the full amount of his prior distributions attributable to employer contributions under the Plan before the earlier of (i) the end of the five-year period commencing on the Employee's reemployment date, and (ii) the date on which the Employee incurs five consecutive One-Year Breaks in Service. Such restoration will be made as of the last day of the Plan Year in which repayment occurs and will be made from forfeitures of other Participants for such Plan Year, and if such forfeitures are not sufficient for that purpose, from a special Employer contribution. Restoration of the Participant's Accounts will include restoration of all Code Section 411(d)(6) protected benefits with respect to such Accounts, in accordance with applicable Treasury regulations. If a Participant who was deemed to have received a distribution pursuant to the fourth sentence of subsection (a) immediately above resumes employment as an Employee before the date he incurs five consecutive One-Year Breaks in Service, then such Employee will be deemed to have repaid all distributions as of his reemployment date. (c) Vested Interest. If a Participant is reemployed by an Employer or an Affiliate prior to incurring five consecutive One-Year Breaks in Service, but after receiving a distribution of all or a part of his Capital Accumulation, then such Participant's vested interest in the remaining amounts allocated to his Accounts will not be less than an amount "X" determined by the formula "X=P(AB)+D)-D," where "P" is the vested percentage at the relevant time, "AB" is the aggregate Account balances at the relevant time, and "D" is the amount of the distribution. 37 ARTICLE 9 IN-SERVICE DISTRIBUTIONS Section 9.1 Cash Dividends If so determined by the Board, any cash dividends paid during a Plan Year on shares of Company Stock allocated to a Participant's Company Stock Account may be paid in cash directly to such Participant (or his Beneficiary) or may be paid in cash to the Trustee and distributed by the Trustee (or its agent) to the Participant (or his Beneficiary) no later than 90 days after the close of the Plan Year in which such dividends are received by the Trustee. Section 9.2 ESOP Diversification (a) A Participant who has attained age 55 and completed at least ten Years of Participation in the ESOP may elect to "diversify" a portion of the balance in his Company Stock Account in accordance with such rules as the Administrative Committee shall establish. The rules established by the Administrative Committee shall, at a minimum, permit a qualifying Participant to diversify the balance in his Company Stock Account in accordance with the following provisions: (1) Such Participant shall be permitted to elect to diversify the balance in his Company Stock Account during the 90-day period immediately following the close of each Plan Year during the election period. For purposes of this Section 9.2, "election period" means the period of six consecutive Plan Years beginning with the Plan Year immediately following the Plan Year in which the Participant attains age 55 or completes ten Years of Participation in the Plan, whichever occurs later. (2) For each of the first five Plan Years in the election period, such Participant shall be permitted to diversify not less than 25% of the balance in his Company Stock Account (less any amounts that such Participant diversified previously under this Section 9.2(a)). For the sixth Plan Year in the election period, such Participant shall be allowed to diversify 50% of the balance in his Company Stock Account (less any amounts that such Participant diversified previously under this Section 9.2(a)). Notwithstanding the foregoing, no "diversification" election shall be permitted if the fair market value of a Participant's Company Stock Account (as of the last day of the first Plan Year in the election period) is $500 or less, unless and until the fair market value of his Company Stock Account as of the last day of a subsequent Plan Year in the election period exceeds such amount. 38 (b) "Diversification" may be effected by either of the following methods, as determined by the Administrative Committee: (1) By distributing to the Participant (in cash or in Company Stock, as determined by the Administrative Committee) the portion of the Participant's Company Stock Account that the Participant elected to diversify; or (2) If the Plan allows Participants to direct the investment of their interest under the 401(k) Portion among at least three investment options, by transferring such amount to the 401(k) Portion, where it will be invested in accordance with the Participant's directions, subject to such rules as the Administrative Committee may establish, in the Investment Funds then available under the 401(k) Portion. (c) Any distribution or transfer under this Section 9.2 shall occur no later than 90 days after the end of the 90-day period during which the Participant made his diversification election. Section 9.3 Hardship Withdrawals (a) General. If a Participant experiences a "hardship" (as defined below), he may elect to withdraw an amount from his Elective Deferrals Account that does not exceed the amount required to relieve the financial need (which amount may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the withdrawal); provided, however, that a Participant may not withdraw any earnings credited to his Elective Deferrals Account as of a date that is later than December 31, 1988. (b) Hardship Defined. A withdrawal is on account of hardship only if the withdrawal (1) is made on account of an immediate and heavy financial need of the Participant and (2) is necessary to satisfy such need. (1) Immediate and Heavy Financial Need. A withdrawal will be deemed to be made on account of an immediate and heavy financial need of the Participant if the withdrawal is on account of: (i) uninsured medical expenses described in Code Section 213(d) previously incurred by the Participant, the Participant's spouse, or any dependents of the Participant (as defined in Code Section 152), or necessary for these persons to obtain medical care described in Code Section 213(d); (ii) costs directly related to the purchase (excluding mortgage payments) of a principal residence of the Participant; 39 (iii) payment of tuition, related educational fees and room and board for the next 12 months of post-secondary education for the Participant or the Participant's spouse, children or dependents (as defined in Code Section 152); (iv) the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence; or (v) any need prescribed by the Internal Revenue Service in a revenue ruling, notice or other document of general applicability that satisfies the safe harbor definition of hardship. (2) Withdrawal Necessary to Satisfy Need. A withdrawal will be treated as being necessary to satisfy the need if the requested withdrawal does not exceed the amount of the Participant's immediate and heavy financial need, which may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the withdrawal, and the requirements of subsection (3) immediately below are satisfied. Prior to obtaining a hardship withdrawal, a Participant must have obtained all distributions, other than hardship distributions, and all nontaxable loans (determined at the time of the loan) currently available under this Plan and all other qualified plans maintained by the Employer. (3) Restrictions. The following restrictions apply to a Participant who receives a hardship withdrawal: (i) Such Participant may not make elective deferrals or employee contributions to the Plan or any other qualified plan or nonqualified plan of deferred compensation (but not including a health or welfare benefit plan), other than any mandatory employee contribution portion of a defined benefit plan, maintained by the Company for the 12-consecutive-month period following the date of the hardship withdrawal; and (ii) The Participant's elective deferrals under the Plan and any other qualified plan maintained by the Company for the Participant's taxable year immediately following the taxable year of the hardship withdrawal shall be limited to the Code Section 402(g) limitation (as described in Section 3.1(c) hereof), reduced by the amount of the Participant's elective deferrals (including Basic Contributions) made in the taxable year of the hardship withdrawal. 40 Section 9.4 Loans (a) Loan Policy. The Administrative Committee, in its discretion, may adopt (or having adopted, may revoke) a nondiscriminatory policy that the Trustee must observe in making loans to Participants. Such policy must be a written document and must include: (1) the identity of the person or positions authorized to administer the participant loan program; (2) a procedure for applying for the loan; (3) the criteria for approving or denying a loan; (4) the limitations, if any, on the types an amounts of loans available; (5) the procedure for determining a reasonable rate of interest; (6) the types of collateral that may secure the loan; and (7) the events constituting default and the steps the Plan will take to preserve Plan assets in the event of default. Any written loan policy shall be deemed to be a part of the Plan. (b) Trustee Authorization. This Section 9.4 specifically authorizes the Trustee to make loans on a nondiscriminatory basis to a Participant in accordance with the loan policy established by the Administrative Committee, provided: (1) the loan policy satisfies the foregoing requirements of subsection (a) immediately above; (2) loans may be made only from a Participant's interest under the 401(k) Portion; (3) loans are available to all Participants on a reasonably equivalent basis and are not available in a greater amount for Highly Compensated Employees than for other Employees; (4) loans are limited to 50% of the Participant's Capital Accumulation as of the dates on which the loans are processed; (5) any loan is adequately secured and bears a reasonable rate of interest; (6) the loan provides for repayment within a specified time; (7) the default provisions of the note prohibit offset of the Participant's vested Account balances prior to the time the Trustee otherwise would distribute th Participant's vested Account balances; (8) the amount of the loan does not exceed (at the time the Plan extends the loan) the present value of the Participant's Capital Accumulation under the 401(k) Portion; and (9) the loan otherwise conforms to the exemption provided by Code Section 4975(d)(1). (c) Deemed Distribution Upon Default. If a Participant defaults on a loan made pursuant to the loan policy described in subsection (a) immediately above, the Plan will treat the default as a distributable event. The Trustee, at the time of the default or at such later time as the Administrative Committee may determine, will reduce the Participant's vested Account balances by the lesser of the amount in default (plus accrued interest thereon) or the Plan's security interest in the Participant's vested Account balances; provided, however, that to the extent the loan is secured by the Participant's Elective Deferrals Account, the Trustee will not reduce the Participant's vested Account balances unless the Participant has incurred a Severance Date or has attained age 59 1/2. 1/2. Section 9.5 Special Rules Notwithstanding the foregoing Sections of this Article 9, the following provisions will apply to all withdrawals and loans made under this Article 9: 41 (a) A hardship withdrawal under Section 9.3 hereof or a loan under Section 9.4 hereof requested by a married Participant who is subject to Appendix A hereto shall not be granted by the Administrative Committee unless the Participant's spouse consents in writing to such withdrawal or loan in a manner similar to that described in Section A.3(b) of Appendix A hereto after receiving notice, similar to that described in Section A.3(c) of Appendix A hereto, of the spouse's rights. (b) Withdrawal and loan amounts shall be distributed as soon as administratively practicable after the date on which the Administrative Committee receives the Participant's application (provided that such application is made in accordance with such rules as may be established by the Administrative Committee). Withdrawals and loans shall be charged pro rata to all of the Participant's applicable Investment Funds unless the Administrative Committee, in its sole discretion, determines otherwise. (c) The Participant shall not be entitled to make a withdrawal under this Article 9 to the extent that such withdrawal requires distribution of a portion of his Accounts then outstanding in the form of loans. (d) In the event of the Participant's death prior to a withdrawal or loan pursuant to this Article 9, the Participant's withdrawal election or loan request, as applicable, shall be deemed to have been revoked. (e) The Administrative Committee shall establish such rules and requirements as it deems necessary or advisable to administer this Article 9 so as to satisfy the applicable Code requirements. In addition, the Administrative Committee may establish such other rules and requirements as it deems appropriate or desirable with respect to the terms and conditions of a withdrawal or loan under this Article 9, including, but not limited to, rules limiting the number of withdrawals and loans a Participant may make or have outstanding in any Plan Year or at any time and the minimum amount that a Participant must withdraw or borrow on any single occasion. 42 ARTICLE 10 PAYMENT OF BENEFITS Section 10.1 Time of Distribution (a) In General. Except as provided otherwise in this Section 10.1 or in Section 10.3 hereof, a Participant's Capital Accumulation will be distributed or commence to be distributed to the Participant (or to the Participant's Beneficiary in the case of a deceased Participant) as soon as administratively practicable after the Participant's Severance Date; provided, however, that if the Participant's Capital Accumulation exceeds $5,000, such Capital Accumulation will not be distributed or commence to be distributed to the Participant prior to the Participant's attainment of Normal Retirement Age without the Participant's written consent. (b) Earliest Distribution Date. Except as provided in Section 9.3 hereof, a Participant's Capital Accumulation may not be distributed prior to the earliest of: (1) the Participant's separation from service, death or Disability; (2) the termination of the Plan without the establishment or maintenance of another defined contribution plan, other than an employee stock ownership plan (within the meaning of Code Section 4975(e)(7)); (3) the disposition by a corporation to an unrelated corporation of substantially all of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or business of the corporation disposing of the assets if such corporation continues to maintain the Plan after the disposition, but only with respect to employees who continue employment with the corporation acquiring such assets; (4) the disposition by a corporation to an unrelated entity of such corporation's interest in a subsidiary (within the meaning of Code Section 409(d)(3)) if such corporation continues to maintain the Plan after the disposition, but only with respect to employees who continue employment with the subsidiary; (5) the Participant's attainment of age 59 1/2; and (6) the Participant's incurrence of a hardship, within the meaning of Section 9.3 hereof. (c) Latest Distribution Date Absent Participant Consent. Unless the Participant (or, in the case of a deceased Participant, the Participant's Beneficiary) elects otherwise, the Participant's Capital Accumulation will be distributed or will commence to be distributed no later than 60 days after the end of the Plan Year in which occurs the latest of (1) the Participant's attainment of Normal Retirement Age, (2) the tenth anniversary of the date the 43 Participant became a Participant, and (3) the Participant's termination of Service. Notwithstanding the foregoing, in the case of a nonspouse Beneficiary, Section 10.3 hereof may require that distribution be made or commence sooner. (d) Required Beginning Date. Notwithstanding any provision of the Plan to the contrary, a Participant's Capital Accumulation must be distributed or commence to be distributed no later than April 1 of the calendar year following the later of the calendar year in which such Participant's Service terminates or the calendar year in which such Participant attains age 70 1/2; provided, however, that if a Participant is a 5% owner (as defined in Code Section 416) with respect to the calendar year in which such Participant attains age 70 1/2, distribution to such Participant will be made or commence to be made by April 1 of the calendar year following such calendar year. year. Section 10.2 Amount and Form of Distribution (a) Amount. Except as provided in Appendix A hereto, the amount of a Participant's Capital Accumulation for distribution purposes will be determined as of the Valuation Date coinciding with or immediately preceding the date on which the Participant's distribution is processed, and will not be adjusted for investment earnings or losses occurring subsequent to such Valuation Date. Distributions will be processed at such times as the Administrative Committee shall establish, but in any even at least once each calendar month. (b) Form. Except as provided in Appendix A hereto, a Participant's Capital Accumulation will be distributed to the Participant (or, in the case of a deceased Participant, the Participant's Beneficiary) in a single, lump sum payment. (c) Cash or Stock. Except as provided in Appendix A hereto, a Participant's Capital Accumulation will be distributed in cash, unless the Participant (or, in the case of a deceased Participant, the Participant's Beneficiary) elects to receive that portion of his Capital Accumulation held under the ESOP in whole shares of Company Stock (with cash for any fractional share). The Administrative Committee will notify the Participant (or the Participant's Beneficiary) of his right to receive stock with respect to that portion of his Capital Accumulation held under the ESOP. Section 10.3 Special Rules for Death Benefits (a) Death After Benefit Commencement. If a Participant dies after distribution of his Capital Accumulation has commenced, but before his entire vested interest has been distributed, then the remainder of the Participant's Capital Accumulation will be distributed to the Participant's Beneficiary at least as rapidly as under the distribution method being used as of the date of the Participant's death. (b) Death Prior to Benefit Commencement. If a Participant dies before distribution of his Capital Accumulation has commenced, then distribution to the Participant's Beneficiary must be completed (i) by December 31 of the calendar year 44 containing the fifth anniversary of the Participant's death, or (ii) if payment commences to a designated Beneficiary by December 31 of the calendar year containing the first anniversary of the Participant's death, over a period that does not exceed the designated Beneficiary's life expectancy. Notwithstanding the preceding sentence, if the designated Beneficiary is the Participant's spouse, then distribution of the Participant's Capital Accumulation need not be made or commence to be made until the later of December 31 of the calendar year in which the Participant would have attained age 70 1/2 or December 31 of the year in which the Participant's Service terminates. If the Participant's Beneficiary is his surviving spouse, and the spouse dies after the the Participant but before distributions have begun to the spouse, then the first sentence of this subsection (b) will be applied as if the surviving spouse were the Participant. (c) Beneficiary Designation. A Participant shall designate his Beneficiary on such forms as are prescribed by and filed with the Administrative Committee. A Participant may change his Beneficiary designation at any time by filing a new Beneficiary designation with the Administrative Committee. The most recent Beneficiary designation on file with the Administrative Committee will be controlling. If a married Participant designates a Beneficiary other than his spouse, that designation will be invalid, unless the Participant's spouse has consented in writing to the designation of a different Beneficiary or it is established to the satisfaction of a Plan representative that the Participant has no spouse, the Participant's spouse cannot be located or the Participant is excused from obtaining such consent because of other circumstances approved in federal regulations. The spouse's written consent to the designation of a different Beneficiary (1) must acknowledge the specific nonspouse Beneficiary (including any class of Beneficiaries or any contingent Beneficiaries), which may not be changed without spousal consent (unless the spouse's consent expressly permits designations by the Participant without any requirement for further consent by the spouse), (2) must acknowledge the effect of such consent, and (3) must be witnessed by a Plan representative or a notary public. The spouse's consent may not be revoked. However, the consent of one spouse will have no effect with respect to any subsequent spouse. If there is no valid Beneficiary designation on file with the Administrative Committee, or if no designated Beneficiary survives the Participant, then the Participant's Beneficiary will be the Participant's surviving spouse or, if none, the Participant's surviving children in equal shares, or, if none, the Participant's estate. (d) Death of Beneficiary After Death of Participant. If the Participant's Beneficiary dies after the Participant, but before the Participant's Capital Accumulation has been completely distributed, then the remaining Capital Accumulation will be distributed to the Beneficiary's estate, unless the Participant's Beneficiary designation provides otherwise. Section 10.4 Notice to Participant Not more than 90 days and not less than 30 days before the Participant's Annuity Starting Date, the Administrative Committee shall provide each Participant whose Capital Accumulation exceeds $5,000 a written explanation of the optional forms of benefit under 45 the Plan, including the material features and relative values of those options, when the Participant's benefits will be distributed if the Participant fails to make an election, and the Participant's right to defer distribution until the date distribution is required under Section 10.1(c) hereof. If the Administrative Committee so elects for a Plan Year, distribution of a Participant's Capital Accumulation may be made or commence to be made less than 30 days after such notice is given, provided that (1) the Administrative Committee clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to consent to a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution. Section 10.5 Minimum Distribution and Incidental Benefit Requirements The provisions of the Plan are intended to comply with Code Section 401(a)(9), which prescribes certain rules regarding minimum distributions and requires that death benefits be incidental to retirement benefits. All distributions under the Plan will be made in conformity with Code Section 401(a)(9) and the regulations thereunder, including Treasury Regulation Sections 1.401(a)(9)-1 and 1.401(a)(9)-2, which are incorporated herein by reference. The provisions of the Plan governing distributions are intended to apply in lieu of any default provisions prescribed in the regulations; provided, however, that Code Section 401(a)(9) and the regulations thereunder shall override any Plan provisions inconsistent with such Code section and regulations. Section 10.6 Post-Termination Withdrawals Subject to such rules as the Administrative Committee may establish, a Participant whose Service has terminated, and whose Capital Accumulation exceeds $5,000, may withdraw all or any portion of his Capital Accumulation under the 401(k) Portion at any time. A distribution pursuant to this Section 10.6 will be made as soon as administratively practicable after the Administrative Committee receives the Participant's distribution request (provided that such request is made in accordance with such rules as the Administrative Committee may have established). Section 10.7 Special Rules for Amounts Transferred from Culverin Plan Notwithstanding the provisions in the preceding sections of this Article 10, all amounts transferred to the Plan from the Culverin Plan will be distributed in accordance with the terms of the Plan as in effect on December 31, 1998. Section 10.8 Direct Rollovers (a) General Rule. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section 10.8, a distributee may elect, at the time and in the manner prescribed by the Administrative Committee, to have any 46 portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) Definitions. For purposes of this Section 10.8, the following terms shall have the respective meanings set forth below: (1) "Direct rollover" means a payment by the Plan to the eligible retirement plan specified by the distributee. (2) "Distributee" means an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (3) "Eligible retirement plan" means an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (4) "Eligible rollover distribution" means any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include the following: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); effective for Plan Years commencing after December 31, 1999, any hardship withdrawal pursuant to Section 9.3 hereof; and any other distribution identifie in the Code or in regulations, notices or other materials promulgated by the Internal Revenue Service as not constituting an eligible rollover distribution. Section 10.9 Incompetent Participant or Beneficiary Every person receiving or claiming a benefit under the Plan shall be conclusively presumed to be mentally competent until the date on which the Plan Administrator receives a written notice, in a form and manner acceptable to the Plan Administrator, that such person is incompetent, and that a guardian, conservator, or other person legally vested with the care of 47 such person's person or estate has been appointed; provided, however, that if the Administrative Committee is of the opinion, from informatio deemed by it to be reliable, that a person entitled to benefits hereunder is unable for any reason to attend to his affairs, the Administrative Committee may direct that any benefits payable hereunder will be withheld until a guardian, conservator, or other legal representative for such person has been duly appointed pursuant to proceedings satisfactory to the Administrative Committee and that such benefits be paid only to such guardian, conservator, or legal representative; or, in the alternative, the Administrative Committee may direct that such benefits be paid to (a) the person himself (unless the person is a minor) directly, (b) any relative by blood or connection by marriage of such person appearing to the Administrative Committee to be equitably entitled to same or best qualified to apply same to the comfort, maintenance, and support of such person, or (c) to any custodian under the Uniform Gifts to Minors Act or similar statute. The Administrative Committee's decision on such matters will be conclusive and binding on all persons and parties in interest. The Administrative Committee will not be required to see to the proper application of any payments made to any person pursuant to the provisions of this Section 10.9, and any such payment so made will be a complete discharge of the liability of the Trust, the Trustee, the Employers, the Board and the Administrative Committee therefor. Section 10.10 Beneficiary Dispute If at any time there is doubt as to the right of any Beneficiary to receive any amount, the Trustee may retain such amount, without liability for any earnings thereon, until the rights thereto are determined, or the Trustee may pay such amount into any court of appropriate jurisdiction, in either of which events none of the Trustee, any Employer, the Board or the Administrative Committee will be under any further liability to anyone. 48 ARTICLE 11 ADMINISTRATION Section 11.1 Administrative Committee The Plan shall be administered by the Administrative Committee, which will be the plan administrator for purposes of ERISA. The Administrative Committee shall consist of not less than three persons appointed by, and serving at the pleasure of, the Board. Any member of the Administrative Committee may resign by delivering his written resignation to the Secretary of the Board and to the Secretary of the Administrative Committee and such resignation will become effective on the date specified therein. In the case of a vacancy in the membership of the Administrative Committee, the remaining members of the Administrative Committee may exercise any and all powers, authority, duties, and discretion conferred upon the Administrative Committee pending the filling of the vacancy by the Board. Notwithstanding anything herein to the contrary, the Company shall be the Administrative Committee until the Board has appointed the individual members of such committee. Section 11.2 Organization and Procedure (a) The Board shall designate one of the members of the Administrative Committee to serve as the chairman of the Administrative Committee. The members of the Administrative Committee shall appoint a secretary (who may, but need not, be a member of the Administrative Committee) and such other officers as they may deem necessary. The Administrative Committee shall hold meetings of its members at least annually and shall keep minutes of all such meetings. All actions of the Administrative Committee shall be recorded in such minutes or in other appropriate written form. Subject to such restrictions as the Board may establish from time to time, the Administrative Committee may establish such other rules for the transaction of its business and the administration of the Plan as it deems appropriate. (b) Any determination or action of the Administrative Committee may be made or taken by vote of a majority of the members present at any meeting thereof (provided there is a quorum at such meeting), or by unanimous written consent of all members without a meeting. The majority of the members of the Administrative Committee at the time in office will constitute a quorum for the transaction of business. A member of the Administrative Committee shall not vote or act on any matter relating solely to himself. (c) The Chairman of the Administrative Committee, the Secretary of the Administrative Committee and any other individual or individuals authorized by the Administrative Committee in writing may execute or deliver any notices, applications, certificates, instruments, consents, requests, directions, requisitions, orders for monies, instructions, or other documents on its behalf and may represent the Administrative Committee in any matters or dealings involving the Administrative Committee. 49 (d) The Administrative Committee may delegate to one or more of its members or to any other person(s) or organization(s) any of its rights, powers, duties, and responsibilities as it deems appropriate and as may be so delegated under ERISA. Any such delegation shall be set forth in writing, shall be reviewed periodically by the Administrative Committee and shall be terminable upon such notice as the Administrative Committee in its discretion deems reasonable and proper under the circumstances. Section 11.3 Authority of the Administrative Committee The Administrative Committee shall have and exercise all discretionary and other authority to control and manage the operation and administration of the Plan, except such authority as may be specifically allocated otherwise under the terms of the Plan, and shall have the power to take any action(s) necessary or appropriate to carry out such authority. Without limiting the foregoing, and in addition to the authority and duties specified elsewhere herein, the Administrative Committee shall have the exclusive right and discretionary authority to: (a) construe and interpret the terms and provisions of the Plan; (b) determine the eligibility of any person for benefits under this Plan, the amount of any such benefits and all other questions pertaining to the rights of Participants and their Beneficiaries hereunder; (c) take all steps deemed necessary or advisable by the Administrative Committee to correct mistakes in administering the Plan; (d) formulate, issue, and apply such rules and regulations as it deems necessary or appropriate for the proper and efficient administration of the Plan, provided that such rules are not inconsistent with the terms of the Plan; (e) prescribe and require the use of appropriate forms; (f) direct the Trustee concerning all payments to be made pursuant to the provisions of the Plan; (g) determine the existence of a Disability and, in this connection, may require any Participant to submit to a physical examination by a licensed physician, in accordance with uniform rules and procedures consistently applied to similarly situated individuals; and (h) determine and resolve any and all questions arising under this Plan or in connection with the administration thereof or the applicability thereof to any and all individuals, and remedy possible ambiguities or omissions. 50 Section 11.4 Actions Conclusive All determinations, conclusions, interpretations, corrections, and decisions of the Administrative Committee in respect of any matter or question relating to the Plan or the administration thereof, and any action taken with respect to the Plan at the direction of the Trustee, the Board, the Administrative Committee or any of the Employers, shall be final, conclusive, and binding on all persons affected thereby unless found by a court of competent jurisdiction to have been arbitrary and capricious. Section 11.5 Use of Professional Services The Administrative Committee may engage the services of or consult with any legal counsel, actuary, independent public accountant or other person as it deems necessary or desirable in connection with the administration of the Plan. Such persons may be persons who render advice to the Employers or the Trustee. The Administrative Committee and any person to whom it may delegate any duty or power in connection with the administration of the Plan shall be entitled to rely conclusively upon, and shall b fully protected by the Employers in any prudent action taken by it (or him) in reliance on, the advice of such professionals. Section 11.6 Fees and Expenses No employee of the Employers or any of their Affiliates shall receive any compensation for services rendered as an Administrative Committee member. Any other person serving as an Administrative Committee member shall be entitled to such reasonable compensation therefor as is mutually agreed upon with the Company. Each Administrative Committee member, whether or not an employee, shall be reimbursed for all reasonable expenses incurred by him in his capacity as an Administrative Committee member. Where services are utilized as provided in Section 11.5 hereof, the Administrative Committee shall review and approve fees and other costs for those services. All expenses incurred for brokerage and similar services, or for investment advice and the evaluation thereof, shall be paid from the assets of the Trust Fund. All other expenses shall be paid from the assets of the Trust Fund, unless voluntarily paid by the Employers. Section 11.7 Liability and Indemnification The members of the Administrative Committee shall use ordinary care and diligence in the performance of their duties, but no member shall be personally liable by virtue of any contract, agreement, or other instrument made or executed by him or on his behalf as a member of the Administrative Committee, nor for any mistake of judgment made by himself or any other member, nor for any loss, except insofar as liability may be imposed by ERISA or other applicable law. No member shall be liable for the neglect, omission, or wrongdoing of any other Administrative Committee members or of the agents or counsel of the Administrative Committee, except insofar as liability may be imposed by ERISA or other applicable law. The Employers, the members of the Board, the Trustee, the members of the 51 Administrative Committee, and the officers, agents and representatives of any or all of them shall be entitled to rely upon all tables, annual or other valuations, computations, certificates, and reports furnished by an actuary selected or approved by the Company, upon all certificates and reports made by any accountant selected or approved by the Company and upon all opinions given by any legal counsel selected or approved by the Company. The Employers shall indemnify each member of the Administrative Committee against, and save him harmless from, any and all expenses, costs and liabilities, including attorneys' fees, arising out of any act or omission to act as a member or officer of the Administrative Committee, except such liabilities and expenses as are due to his willful misconduct or failure to exercise good faith. Section 11.8 Furnishing of Information Any person claiming benefits under this Plan must furnish the Administrative Committee such documents, evidence, data, or other information as the Administrative Committee deems necessary or desirable for the purpose of administering this Plan or to protect the Employers, the Board, the Administrative Committee or the Trustee and the provisions of this Plan for each such person are upon the condition that each will furnish promptly full, true and complete data, evidence, and information when requeste by the Administrative Committee or its delegate. The Employers, the Board, the Administrative Committee and the Trustee are fully protected in acting and relying upon any information furnished by any person pursuant to the immediately preceding sentence. Section 11.9 Claims Procedure (a) Filing Claim. A Participant or a Beneficiary, or the authorized representative of either (the "Claimant"), who believes that he is then entitled to benefits hereunder in an amount greater than he is receiving or has received may file a written claim for such benefits with the Secretary of the Administrative Committee. The Administrative Committee may prescribe a form for filing such claims, and, if it does so, a claim will not be deemed properly filed unless such form is used, but the Secretary of the Administrative Committee shall provide a copy of such form to any person whose claim for benefits is improper solely for this reason. (b) Claim Review. Every claim that is properly filed will be decided and answered by the Secretary of the Administrative Committee in writing within 90 days (or within 180 days, if additional time is needed and the Claimant is so notified prior to the commencement of the extension) of the claim's receipt by the Secretary of the Administrative Committee. If the claim is wholly or partially denied, the specific reasons for the denial and reference to the pertinent Plan provisions will be set forth in the written response to the Claimant. Such response will also describe any information necessary for the Claimant to perfect his claim (and why such information is necessary) and an explanation of the Plan's claim appeal procedure, as set forth in subsection (c) immediately below. 52 (c) Appeal. Within 90 days of the Claimant's receipt of the notice that his claim has been denied, in whole or in part, the Claimant may file a written appeal with the Secretary of the Administrative Committee. Such written appeal may include any comments, statements or documents that the Claimant wishes to provide. Appeals will be considered by the entire Administrative Committee, which will make its decision with respect to such appeal, and notify the Participant in writing of such decision, no later than 60 days (or no later than 120 days, if additional time is needed and the Claimant is so notified prior to the commencement of the extension) after such appeal is timely filed. In the event the claim is denied on appeal, the Administrative Committee will set forth the reasons for the denial and the pertinent Plan provisions in its written notice to the Claimant. The Administrative Committee will comply with any reasonable request from a Claimant for documents or information relevant to his claim prior to his filing an appeal. (d) Standard of Review. Any further review, judicial or otherwise, of the Administrative Committee's decision on the Claimant's claim will be limited to whether, in the particular instance, the Administrative Committee acted arbitrarily and capriciously in the exercise of its discretion. In no event will such further review, judicial or otherwise, be on a de novo basis, as the Administrative Committee has discretionary authority to determine eligibility for benefits and to construe and interpret the terms of the Plan. Section 11.10 Agent for Service of Process The Chairman of the Administrative Committee is designated as the agent for service of legal process with respect to all matters pertaining to the Plan. If no Chairman has been designated, service may be made on any Administrative Committee member. Service may be made at the Company's corporate offices. Section 11.11 Authority to Act for Company Any power or authority reserved to the Company hereunder will be exercised by the Board, except that the Board may delegate such power and authority to any person(s), committee(s), or organization(s) it deems appropriate. The Board or the board of directors of an Employer will have no administrative or investment authority or functions, and no member of the Board or the board of directors of an Employer shall be a fiduciary of the Plan solely because of such membership. 53 ARTICLE 12 TRUST Section 12.1 Trust Agreement The Plan will be funded through the Trust. All contributions will be paid to the Trustee. The Trustee will hold, invest and distribute the funds in the Trust in accordance with the terms of the Trust Agreement and this Plan. The Trustee will not be liable or responsible for determining the amount of any contributions to the Trust or for enforcing payment of such contributions. Section 12.2 Expenses All fees and other expenses of the Trustee, the Plan and the Trust will be paid from the Trust Fund, to the extent not paid by the Employers. 54 ARTICLE 13 AMENDMENT OR TERMINATION OF PLAN Section 13.1 Amendment of Plan (a) Subject to the remaining subsections of this Section 13.1, the Board may modify or amend the Plan at any time, in any way, and for any reason, and the Administrative Committee may modify or amend the Plan, if such modifications or amendments are administrative in nature or are required by law or regulation to maintain the qualified status of the Plan under the Code. Amendments may be retroactively effective to the extent permitted by applicable law and regulations. (b) Except as may be permitted by ERISA, the Code or regulations or other guidance issued under ERISA or the Code, no modification or amendment of the Plan may reduce or eliminate Code Section 411(d)(6) protected benefits determined immediately prior to the adoption date (or, if later, the effective date) of the amendment. An amendment reduces or eliminates Code Section 411(d)(6) protected benefits if the amendment (1) reduces the amount credited to any Participant's Accounts, (2) eliminates or reduces an early retirement benefit or a retirement-type subsidy (as defined in Treasury regulations), or (3) eliminates an optional form of benefit. Furthermore, no modification or amendment of the Plan may cause or permit any part of the Trust to be diverted to purposes other than for the exclusive benefit of Participants and their Beneficiaries and for defraying the reasonable expenses of administering the Plan or Trust, or to revert to or become the property of the Employers, unless it shall have first been determined by the Internal Revenue Service that the Plan with the proposed modification or amendment will continue to be a qualified plan under Code Section 401 or any statute of similar import. No amendment or modification of this Plan may increase the duties of the Trustee without its consent. The Administrative Committee shall disregard an amendment to the extent application of the amendment would fail to satisfy this paragraph. (c) If the Plan is amended to change a vesting schedule, such amendment shall not be applied to reduce the nonforfeitable percentage of any Participant's accrued benefit derived from Employer contributions (determined as of the later of the date the Employer adopts the amendment or the date the amendment becomes effective) to a percentage less than the nonforfeitable percentage computed under the Plan without regard to the amendment. Unless expressly provided otherwise, the amended vestin schedule will apply to a Participant only if the Participant is credited with at least one Hour of Service after the new vesting schedule becomes effective. (d) If the Board or Administrative Committee makes a permissible amendment to the vesting schedule, each Participant whose nonforfeitable percentage of his accrued benefit is determined under such schedule, and who has completed at least three Years of Service at the time of the amendment to the vesting schedule may elect to have the percentage of his nonforfeitable accrued benefit computed under the Plan without regard to the amendment. The Participant must file his election with the Administrative Committee 55 within sixty days after the latest of (1) the date the amendment is adopted; (2) the effective date of the amendment; or (3) the date the Participant is issued written notice of the amendment. The Administrative Committee shall forward a true copy of any amendment to the vesting schedule to each affected Participant, together with an explanation of the effect of the amendment, the appropriate form upon which the Participant may make an election to remain under the vesting schedul provided under the Plan prior to the amendment and notice of the time within which the Participant must make an election to remain under the prior vesting schedule. Notwithstanding the foregoing, the election described in this paragraph does not apply to a Participant if the amended vesting schedule provides for vesting at least as rapid at all times as the vesting schedule in effect prior to the amendment. Section 13.2 Termination of Plan (a) The Board may terminate the Plan or order the discontinuance of contributions to the Plan at any time and for any reason. Upon a complete or partial termination of this Plan, or a complete discontinuance of employer contributions hereto, the interests of the Participants in their Accounts (or, in the case of a partial termination, the interests of those Participants for whom the Plan has terminated) shall become fully vested and nonforfeitable. Upon termination, the Company may continue the Trust as it relates to the Plan or distribute that portion of the Trust Fund relating to the Plan. If the Trust Fund is liquidated, the Administrative Committee will allocate the net assets thereof among Participants and Beneficiaries in proportion to their interests. (b) If the Company Stock held in the Trust is sold in connection with the termination of the Plan or the amendment of the Plan to become a qualified employee plan that is not a stock bonus plan, then all Capital Accumulations will be distributed in cash. 56 ARTICLE 14 MERGER AND AFFILIATE PARTICIPATION Section 14.1 General Rules In the event of any merger or consolidation of the Plan with, or transfer in whole or in part of the assets and liabilities of the Trust to, another trust fund held under any other plan of deferred compensation maintained or to be established for the benefit of all or some of the Participants, the assets of the Trust applicable to such Participants shall be transferred to another trust fund only if: (a) each Participant (if either this Plan or the other plan then terminated) receives a benefit immediately after the merger, consolidation, or transfer that is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if this Plan had then terminated); (b) resolutions of the Board, and of any new or successor employer of the affected Employees, authorize such transfer of assets, and, in the case of the new or successor employer of the affected Participants, its resolutions shall include an assumption of liabilities with respect to such Participants' inclusion in the new employer's plan; and (c) such other plan and trust are qualified under Code Sections 401(a) and 501(a). Section 14.2 Special Rules When Plan Is Survivor The Company may approve the merger of other qualified plans with and into the Plan as the survivor, and may also approve the acceptance of assets under other forms of plan-to-plan transfers in appropriate cases. The assets received from the merger or other transfer may be accounted for as part of the Participant's existing Accounts to the extent appropriate and consistent with the character of the former accounts under the merged or transferor plan, or may be accounted for separately in order to giv effect to special matters, including, but not limited to, the following: (a) Vesting. A merger shall not be deemed to be a termination or partial termination of the merging plan. The accounts of the merging plan shall not become fully vested solely as a result of the merger. Unless the terms of the merger provide otherwise, the transferred assets shall remain subject to the former plan's vesting schedule subject to such modifications as may be required by law. (b) Survivor Annuity Requirements. If, through a plan merger or other type of transfer, assets subject to the survivor annuity requirements of Code Sections 401(a)(11) and 417 are received by the Plan, such assets shall 57 remain subject to such requirements in the same manner and to the same extent as they were prior to the transfer. (c) Code Section 411(d)(6) Protected Benefits. As provided by the Treasury regulations under Code Section 411(d)(6), the prohibition against the reduction or elimination of already-accrued "Code Section 411(d)(6) protected benefits" applies to a plan merger or other type of transfer. Accordingly, any Code Section 411(d)(6) protected benefits shall continue to be available with respect to the transferred assets (and amounts attributable thereto), but not to any contributions (other than the transferred amounts) made to a Participants' Accounts under the Plan. (d) Withdrawals. No withdrawals may be made from an Account attributable to a transfer to the Plan from a money purchase pension plan. Withdrawals from an Account attributable to Code Section 401(k) elective deferrals must meet the requirements of Code Section 401(k)(2)(B). Section 14.3 Affiliate Participation Subject to the approval of the Board, any Affiliate desiring to become an Employer may elect to become a party to the Plan by adopting this Plan for the benefit of any specified group of its Employees, with such modification of the terms of the Plan with respect to such Employees as the Board and the Affiliate may approve, effective as of the date specified in such adoption. Such adoption shall be evidenced by such Participation Agreement, and/or such other documents or instruments, as the Administrative Committee may require. Section 14.4 Action Binding on Participating Affiliates As long as the Company is a party to the Plan or the Trust Agreement, it (and the Board) shall be empowered to act hereunder and/or thereunder for any Employer in all matters respecting the Plan and/or the Trust and any action taken by the Company or the Board with respect thereto shall automatically include, and be binding upon, any Employer. Section 14.5 Termination of Participation of Affiliate (a) Termination of Participation by Board. The Board reserves the right, in its sole discretion and at any time, to terminate the participation in the Plan of any or all Employers. Any such termination shall be effective immediately upon notice of such termination from the Board to the Trustee and the Employer being terminated or, if later, on the date specified in such notice. (b) Termination of Participation by Affiliate. Any Affiliate may withdraw from the Plan and end its status as an Employer hereunder, by action of its Board of Directors, subject to the Board's approval. Such termination shall be effective as soon as administratively practicable after approved by the Board or on such other date as the Board may specify. 58 (c) Post-Termination Treatment. If an Affiliate's participation in the Plan terminates under subsection (a) or (b) immediately above, the Plan shall not terminate, but the portion of the Plan that is attributable to the terminated Affiliate shall become a separate plan, and the Company shall inform the Trustee of the portion of the Trust Fund that is then attributable to the participation of the terminated Affiliate. Such portion shall, as soon as administratively practicable after such termination, be set apart by the Trustee as a separate trust which shall be a part of the separate plan of the terminated Affiliate. Following any such termination, the administration, control, and operation of the Plan with respect to the terminated Affiliate shall be on a separate basis in accordance with the terms hereof, or as such terms may be amended by appropriate action of the terminated Affiliate in accordance with the provisions of this Article 14. 59 ARTICLE 15 TOP-HEAVY PROVISIONS Section 15.1 Applicability Notwithstanding any other provision of the Plan to the contrary, the provisions of this Article 15 shall apply for a Plan Year in which the Plan is a Top-Heavy Plan, as defined in Code Section 416(g). Section 15.2 Definitions For purposes of this Article 15, the following terms shall be defined as follows: (a) "Aggregation Group" means each plan maintained by the Employers in which a Key Employee participates and each other plan maintained by the Employers that enables any plan in which a Key Employee participates to meet the requirements of Code Section 401(a)(4) or 410. In addition, the Employers may elect to include other plans in the Aggregation Group that satisfy the requirements of Code Sections 401(a)(4) and 410 when considered together with the plans that are required to be aggregated. However, a plan that is or may be included in the Aggregation Group only upon an election by the Employers shall not be subject to the provisions of this Article 15. (b) "Determination Date" means the last day of the preceding Plan Year; provided that, for a Plan's initial Plan Year, the last day of such year shall be the Determination Date. Where more than one plan is aggregated, the present value of accrued benefits is determined separately for each plan (as of each plan's determination date that falls in the same calendar year) and then added together. (c) "Key Employee" means, as of any Determination Date, any Employee or former Employee (or Beneficiary of such Employee) who, at any time during the Plan Year (which includes the Determination Date) or during the preceding four Plan Years, is an officer (having annual Compensation in excess of 50% of the Code Section 415(b)(1)(A) limitation in effect for any such Plan Years) of an Employer, one of the Employees (having annual Compensation in excess of the Code Section 415(c)(1)(A) limitation in effect for any such Plan Years) owning the ten largest interests in an Employer, a more-than-5% owner of an Employer, or a more-than-1% owner of an Employer who has annual Compensation in excess of $150,000. The constructive ownership rules of Code Section 318 (or the principles of that section, in the case of an unincorporated employer) will apply to determine ownership in an Employer. The Administrative Committee will 61 make the determination of who is a Key Employee in accordance with Code Section 416(i) and the regulations issued thereunder. (d) "Non-Key Employee" means an employee who is not a Key Employee. (e) "Top-Heavy Ratio" means the ratio determined in accordance with Section 416 of the Code for the plans in the Aggregation Group. Reasonable actuarial assumptions may be used for determining the present value of accrued benefits under a defined benefit plan maintained by the Employers. In determining the Top-Heavy Ratio: (1) reasonable actuarial assumptions may be used for determining the present value of accrued benefits under a defined benefit plan maintained by the Employers; (2) the Plan incorporates the rules of Code Section 416(g)(4)(A) (concerning rollovers); (3) the Plan incorporates the rules of Code Section 416(g)(4)(B) (concerning disregard of the accrued benefit of a Key Employee who is no longer a Key Employee); (4) the Plan incorporates the rules of Code Section 416(g)(4)(E) (concerning employees who have not performed services for an Employer during the five-year period ending on the Determination Date); and (5) The Plan incorporates the rules of Code Section 416(g)(3) (concerning distributions from terminated plans). (f) Top-Heavy. This Plan shall be considered to be Top-Heavy for a Plan Year if, on the Determination Date for such Plan Year, the Top-Heavy Ratio exceeds 60%. (g) Super Top-Heavy. This Plan shall be considered to be Super Top-Heavy for a Plan Year if, on the Determination Date for such Plan Year, the Top-Heavy Ratio exceeds 90%. Section 15.3 Minimum Allocation For a year in which this Plan is a Top-Heavy Plan, the Employer contribution allocated to a Participant who is a Non-Key Employee, who is employed on the last day of the Plan Year, and who does not accrue the minimum benefit under Code Section 416(c)(1)(B) or 416(h)(2)(A)(ii)(I) (whichever is applicable for such Plan Year for any defined benefit plan maintained by the Employers), whether or not such Employee (i) failed to complete 1,000 Hours of Service (or the equivalent); (ii) declined to make 61 mandatory contributions to the Plan; or (iii) was excluded from the Plan because such individual's compensation was less than a stated amount, shall be no less than the lesser of: (a) 3% of the Participant's Compensation; and (b) the percentage at which contributions are made under this Plan for the Key Employee for whom such percentage is the highest for the year. This percentage shall be determined for such Key Employee by dividing the contributions for such Participant by so much of his compensation (within the meaning of Code Section 415(c)(3)) for the year as does not exceed the maximum amount determined for that year pursuant to Code Section 401(a)(17). Section 15.4 Modifications to Code Section 415 Limitations In a Plan Year in which this Plan is Top-Heavy, paragraphs (2)(B) and (3)(B) of Code Section 415(e) shall be applied by substituting 1.0 for 1.25 unless the following conditions are met: (a) the Plan is not Super Top-Heavy; and (b) the accrued benefit of a Non-Key Employee is at least equal to the amount set forth in Section 15.3 hereof calculated by substituting 4% for 3% in Section 15.3(a). Section 15.5 Uniform Determination of Accrued Benefit Solely for the purpose of determining if the Plan, or any other plan included in a required Aggregation Group of which this Plan is a part, is Top-Heavy, the accrued benefit of an Employee other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Employers and their Affiliates, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Code Section 411(b)(1)(C). 62 ARTICLE 16 GENERAL PROVISIONS Section 16.1 Exclusive Benefit No part of the Trust shall be used for, or diverted to, purposes other than the exclusive benefit of Participants and their Beneficiaries under the Plan, and for defraying the reasonable expenses of administering the Plan. Section 16.2 No Rights Neither the establishment of the Plan, nor any modification thereof, nor any provisions hereof, nor any payment of benefits hereunder shall be deemed to give any Employee or any other person whomsoever any legal or equitable right against the Board, the Administrative Committee, the Trustee or any Employer, or to give any Employee or other person whomsoever the right to be retained in the service of any Employer or to interfere with the Employers' right to terminate any Employee at any time. No Employee prior to the time he becomes entitled to receive benefits in accordance with this Plan shall have any right or interest in or to any portion of the assets of the Plan, and no Employee or other individual shall have any right to benefits, except to the extent provided herein. Section 16.3 Fiduciary Liability None of the Employers, the Board, the Administrative Committee, the Trustee or any other person shall be liable for any act or failure to act unless such is a breach of duty under ERISA. No fiduciary shall be responsible for any act or failure to act of another fiduciary, except as otherwise specifically provided under ERISA. Section 16.4 Missing Participant or Beneficiary Each person eligible to receive benefits under this Plan must file with the Administrative Committee in writing his mailing address and each change of address until payment of his benefit is made. Any communication, statement, or notice addressed to such person at his last mailing address filed with the Administrative Committee or Trustee (or if no mailing address was filed with the Administrative Committee or Trustee, then his last mailing address shown by the Employers' payroll records) will be binding upon such person for all purposes of this Plan, and neither the Trustee nor the Administrative Committee shall be obligated to search for or ascertain the whereabouts of any such person. If the Administrative Committee sends notice to such address, addressed to such person, stating that he is entitled to payment under the Plan, and in such notice states the provisions of this subparagraph, and such person fails to claim his benefits or fails to make his whereabouts known in writing to the Administrative Committee within two years after the date such notice is sent, the amount held for such person shall be forfeited and applied as if such amount were an additional Matching Contribution for the Plan Year in which it is forfeited to be allocated among all Employees eligible to share in the Employers' Matching Contributions for such Plan Year. The benefit will be reinstated from forfeitures for the Plan Year in which 63 reinstatement occurs, or to the extent that such forfeitures are insufficient, from a special Employer contribution, if at any later date claim is made therefor by such person or his Beneficiary. Section 16.5 Antialienation Rule No Account or benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment (either at law or in equity), pledge, encumbrance, garnishment, levy, execution, charge, or other legal or equitable process and any attempt to do so shall be void, nor shall any such Accounts or benefits be in any way liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person entitled to such Accounts or benefits, except as provided in a qualified domestic relations order, as defined in Code Section 414(p). Section 16.6 Qualified Domestic Relations Orders (a) Notwithstanding Section 16.5 hereof, nothing contained herein shall prevent the Trustee, in accordance with the direction of the Administrative Committee, from complying with the provisions of a qualified domestic relations order (as defined in Code Section 414(p)). This Plan specifically permits distribution to an alternate payee under a qualified domestic relations order at any time, irrespective of whether the Participant has attained his earliest retirement age (as defined under Code Section 414(p)) under the Plan. A distribution to an alternate payee prior to the Participant's attainment of his earliest retirement age is available only if (1) the order specifies distribution at that time or permits an agreement between the Plan and the alternate payee to authorize an earlier distribution, and (2) if the present value of the alternate payee's benefits under the Plan exceeds $5,000, and if the order so requires, the alternate payee consents to any distribution occurring prior to the Participant's attainment of earliest retirement age. Nothing in this Section 16.6 gives a Participant a right to receive distribution at a time otherwise not permitted under the Plan nor does it permit the alternate payee to receive a form of payment not otherwise permitted under the Plan. (b) The Administrative Committee shall establish reasonable procedures to determine the qualified status of a domestic relations order. Within a reasonable period of time after receiving the domestic relations order, the Administrative Committee must determine the qualified status of the order and must notify the Participant and each alternate payee of its determination. If any portion of the Participant's Capital Accumulation is payable during the period the Administrative Committee is making its determination of the qualified status of the domestic relations order, the Administrative Committee must direct the Trustee to make a separate accounting of the amounts payable. If the Administrative Committee determines the order is a qualified domestic relations order within 18 months of the date amounts first are payable following receipt of the order, the Administrative Committee will direct the Trustee to distribute the payable amounts in accordance with the order. If the Administrative Committee does not make its determination of the qualified status of the order within the 18-month determination period, the Administrative Committee will direct the Trustee to distribute the payable amounts in the manner the Plan would 64 distribute if the order did not exist and will apply the order prospectively if the Administrative Committee later determines the order is a qualified domestic relations order. (c) The Trustee will make any payments or distributions required under this Section 16.6 by separate benefit checks or other separate distribution to the alternate payee(s). Section 16.7 Contribution Amounts Returnable to Employers (a) Mistake of Fact and Nondeductibility. The Employers contribute to the Plan on the condition that their contributions are not due to a mistake of fact and are deductible under Code Section 404. The Trustee, upon written request from the Company, will return to an Employer the amount of the Employer's contribution made by the Employer by mistake of fact or the amount of the Employer's contribution disallowed by the Internal Revenue Service as a deduction under Code Section 404; provided, however, that the Trustee will not return any portion of an Employer's contribution under the provisions of this Section 16.7 more than one year after the Employer made the contribution by mistake of fact or the deduction is disallowed, whichever is applicable. The Trustee will not increase the amount of an Employer's contribution returnable under subsection (a) immediately above for any earnings attributable to the contribution, but the Trustee will decrease an Employer's contribution returnable for any losses attributable to it. The Trustee may require the Company or the Employer to furnish it whatever evidence the Trustee deems necessary to enable the Trustee to confirm that the amount the Company has requested to be returned is properly returnable under ERISA. (b) IRS Approval. Notwithstanding any other provision herein to the contrary, the effectiveness of the ESOP is subject to the condition subsequent that the Company receive a determination from the Internal Revenue Service that the ESOP meets the requirements for qualification contained in Code Section 401(a) and constitutes an employee stock ownership plan within the meaning of Code Section 4975(e)(7) and that the Trust is exempt from federal income tax under Code Section 501(a). If the Internal Revenue Service fails to provide such a determination following the Company's request therefor, then upon written notice from the Company, the Trustee shall return all of the Trust Fund's assets held under the ESOP to the Employers; provided, however, that the Trustee must return such assets within one year of the final disposition of the Company's request for such determination. The ESOP will terminate upon the Trustee's return of the Employers' contributions. Section 16.8 Word Usage Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are used herein in the singular or plural, they shall be construed as though they were used in the plural or singular, as the case may be. The words "hereof," "herein," "hereunder" and other similar compounds of the word "here" shall mean and refer to this entire document and not to any particular article or section. Titles of articles and sections 65 hereof are for general information only, and this document is not to be construed by reference thereto. Section 16.9 Applicable Law The 401(k) Portion is intended to be a profit sharing plan with a cash or deferred arrangement qualified under Code Sections 401(a) and 401(k). The ESOP is intended to be a stock bonus plan qualified under Code Section 401(a) and an employee stock ownership plan within the meaning of Code Section 4975(e)(7). The Plan is also intended to be an individual account plan under ERISA Section 407(d)(3). The Plan shall be interpreted so as to be in compliance with the requirements of such sections. The Plan shall be construed, and its validity determined, in accordance with the laws of the State of Oregon to the extent such laws are not preempted by federal law. In case any provision of the Plan is held to be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein. * * * * * TO RECORD THE ADOPTION of this amendment and restatement of the Plan, the Company has caused it to be executed on this 1st day of July, 1999. CONCENTREX INCORPORATED By: /s/ Kurt W. Ruttum ------------------ Name: Kurt W. Ruttum Its: Vice President and Chief Financial Officer 66 CONCENTREX INCORPORATED EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN APPENDIX A SURVIVOR ANNUITY REQUIREMENTS Section A.1 Applicability This Appendix A shall apply to, and only to, a Participant whose Capital Accumulation exceeded $3,500 on April 1, 1996 (or as of the date of any distribution with respect to such Participant occurring under the Plan prior to April 1, 1996) and exceeds $5,000 on the date of distribution (or exceeded such amount on the date of any prior distribution under the Plan to such Participant), notwithstanding any provision of the Plan to the contrary. Section A.2 Definitions For purposes of this Appendix A the following terms shall have the respective meanings set forth below: (a) "Qualified Joint and Survivor Annuity" means the immediate and nontransferable annuity that is purchasable with the Participant's Capital Accumulation under the 401(k) Portion and that provides an annuity for the life of the Participant and a survivor annuity for the remaining life of the Participant's surviving spouse equal to 100% of the amount of the annuity payable during the life of the Participant; provided, however, that the Participant may elect a 50% survivor benefit in lieu o a 100% survivor benefit. (b) "Qualified Preretirement Survivor Annuity" means the immediate and nontransferable annuity that is purchasable with the Participant's Capital Accumulation under the 401(k) Portion and that provides an annuity payable for the life of the Participant's surviving spouse. (c) "Single Life Annuity" means the immediate and nontransferable annuity that is purchasable with the Participant's Capital Accumulation under the 401(k) Portion and that provides an annuity for the life of the Participant, with benefits ceasing upon the Participant's death. Section A.3 Retirement Annuity Payments (a) Requirement. If a Participant survives until his Annuity Starting Date, distribution of the Participant's Capital Accumulation under the 401(k) Portion will be made in the form of a Qualified Joint and Survivor Annuity, if the Participant is married as of his 67 Annuity Starting Date, or in the form of a Single Life Annuity, if the Participant is not married as of his Annuity Starting Date. (b) Waiver. Notwithstanding subsection (a) immediately above, a Participant may elect, at any time during the 90-day period ending on his Annuity Starting Date, to waive the Qualified Joint and Survivor Annuity or the Single Life Annuity form of payment, as applicable. The Participant may also revoke a prior waiver election at any time during such period. The number of elections and revocations will not be limited. However, an election to waive the Qualified Joint and Survivor Annuity by a Participant who is married on his Annuity Starting Date will be invalid unless: (1) (A) the Participant's spouse consents in writing to such election during the 90-day period ending on the Participant's Annuity Starting Date, (B) the election designates a specific Beneficiary (and optional form of benefit) that cannot be changed without the spouse's consent (or the spouse's consent expressly permits designations by the Participant without any requirement of further consent by the spouse), and (C) the spouse's consent acknowledges the effect of the election and is witnessed by a Plan representative or a notary public; or (2) the Participant establishes to the satisfaction of a Plan representative that the Participant has no spouse, the Participant's spouse cannot be located or the Participant is excused from obtaining such consent because of other circumstances approved in federal regulations. The spouse's consent may not be revoked. However, the consent of one spouse will not be valid with respect to any other spouse. (c) Notice. The Administrative Committee will provide to each Participant to whom this Appendix A applies, no less than 30 days and no more than 90 days before the Participant's Annuity Starting Date, a written explanation of: (1) The terms and conditions of the Qualified Joint and Survivor Annuity or the Single Life Annuity, as applicable; (2) The Participant's right to make, and the effect of, an election to waive the applicable annuity form of payment; (3) The rights of the Participant's spouse; and (4) The right to make, and the effect of, a revocation of previous election to waive the applicable annuity form of payment. (d) Annuity Starting Date. Notwithstanding the foregoing, a Participant's Annuity Starting Date can be less than 30 days after the notice described in Section A.3(c) hereof is provided to such Participant, if the following requirements are satisfied: 68 (1) the Administrative Committee clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider whether to waive the Qualified Joint and Survivor Annuity or the Single Life Annuity, as applicable, and to consent to a form of distribution other than a Qualified Joint and Survivor Annuity or Single Life Annuity; (2) the Participant, after receiving the notice, affirmatively elects a distribution in a form other than the Qualified Joint and Survivor Annuity (and the Participant's spouse consents to that form of distribution) or the Single Life Annuity, as applicable; (3) the Participant is permitted to revoke an affirmative distribution election at least until the Annuity Starting Date or, if later, at any time prior to the expiration of the 7-day period that begins the day after the notice is provided to the Participant; (4) the Annuity Starting Date is after the date that the notice is provided to the Participant; provided, however, that the Annuity Starting Date can be before the date that any affirmative distribution election is made by the Participant and before the date that distribution is permitted to commence under Section A.3(d)(5) hereof; and (5) distribution in accordance with the affirmative election does not commence before the expiration of the 7-day period that begins the day after the notice is provided to the Participant. Section A.4 Qualified Preretirement Survivor Annuity (a) Requirement. The Capital Accumulation under the 401(k) Portion of a married Participant who dies before his Annuity Starting Date will be distributed in the form of a Qualified Preretirement Survivor Annuity. (b) Waiver. Notwithstanding Section A.4(a) hereof, a Participant may elect to waive the Qualified Preretirement Survivor Annuity (and may revoke any such waiver) at any time during the period commencing on the first day of the Plan Year during which the Participant attains age 35 (or, if earlier, the date on which the Participant's Service terminates, but only with respect to benefits accrued at such date) and ending on the date of the Participant's death. The number of elections and revocations will not be limited. However, an election by a married Participant to waive the Qualified Survivor Preretirement Annuity will be invalid unless: (1) (A) the Participant's spouse consents in writing to such election, (B) the election designates a specific Beneficiary that cannot be changed without the spouse's consent (or the spouse's consent expressly permits designations by the Participant without any requirement of further consent by the spouse), 69 and (C) the spouse's consent acknowledges the effect of the election and is witnessed by a Plan representative or a notary public; or (2) the Participant establishes to the satisfaction of a Plan representative that the Participant has no spouse, the Participant's spouse cannot be located or the Participant is excused from obtaining such consent because of other circumstances approved in federal regulations. The spouse's consent may not be revoked. However, the consent of one spouse will not be valid with respect to any other spouse. (c) Notice. The Administrative Committee will provide to each Participant to whom this Appendix A applies, within the "applicable period" defined below, a written explanation with respect to the Qualified Preretirement Survivor Annuity comparable to that required under Section A.3(c) hereof with respect to the Qualified Joint and Survivor Annuity. For purposes of this Section A.4(c), the "applicable period" is the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; provided, however, that in the case of a Participant whose Service terminates prior to his attainment of age 35, the "applicable period" is the period commencing one year before and ending one year after the date of such termination. If an Employee first becomes a Participant after attaining age 34, the "applicable period" is the period ending one year after the date on which such Employee became a Participant. (d) Waiver by Surviving Spouse. Notwithstanding the foregoing, following the Participant's death, but before the commencement of the Qualified Preretirement Survivor Annuity, the Participant's surviving spouse may elect to waive the Qualified Preretirement Survivor Annuity and to have such benefit distributed in one of the forms set forth in Section 10.2(b) of the Plan. Section A.5 Optional Forms of Payment If payment in the form of the Qualified Joint and Survivor Annuity, Single Life Annuity or Qualified Preretirement Survivor Annuity is properly waived, payment of the Participant's Capital Accumulation under the 401(k) Portion may be made in any of the following forms, as elected by the Participant (or, in the case of a deceased Participant, the Participant's Beneficiary): (a) A single, lump sum distribution; (b) Substantially equal monthly, quarterly, semi-annual or annual installments over a fixed period of time designated by the Participant (or, in the case of a deceased Participant, the Participant's Beneficiary); provided, however, that such period may not extend beyond the joint life expectancy of the Participant and his Beneficiary (or, in the case of a deceased Participant, the life 70 expectancy of the Participant's Beneficiary). If this option is elected, then the Participant's Accounts will continue to be adjusted for net income (or loss) in accordance with Section 5.4 of the Plan through the Valuation Date coinciding with or immediately preceding the date on which the final installment payment is processed; (c) A Life Annuity with ten years certain (available only to Participants who were also participants in the Culverin Plan); (d) A 50% or 100% joint and survivor annuity for the Participant and his or her designated beneficiary (available only to Participants who were also participants in the Culverin Plan); or (e) A 50% or 100% joint and survivor annuity with period certain (available only to Participants who were also participants in the Culverin Plan). Section A.6 In-Service Withdrawals A Participant may elect to withdraw all or a portion of the balance in his or her Culverin After-Tax Account at any time. A Participant who was also a participant in the Culverin Plan may elect to withdraw all or any portion of his vested Accrued Benefit at any time after attaining age 59 1/2. Any such withdrawals are further subject to the provisions of this Appendix A. 71 EX-5 14 EXHIBIT 5.2 [Letterhead of ULTRADATA Corporation] October 17, 1996 Mr. Robert J. Majteles 2529 Irving Ave. South MINNEAPOLIS, MN 55404 - - --------------------- Dear Robert, On behalf of ULTRADATA Corporation, I am pleased to extend this offer of employment for the position of President/Chief Operating Officer. This position reports to the CEO/Chairman of the Board, as his only direct report. You will be appointed as a member of the Board of Directors, but shall receive no additional director-related compensation. This letter is to formally document the terms of your employment contract with ULTRADATA Corporation. If you accept this offer you will begin employment as of October 17, 1996. You will receive an initial base salary of $250,000 per annum, paid semi-monthly at a rate of $10,416.67. Your base salary will be reviewed January 1, 1998. Additionally, you will be eligible for cash bonus compensation up to 30% of base salary, according to the bonus plan approved by the compensation committee. This bonus plan will be established to commence at the start of the 1997 calendar year. No bonus shall be paid for 1996. Upon board approval, you will receive Non-Qualified stock options representing the right to purchase 600,000 shares of ULTRADATA Corporation common stock under ULTRADATA's 1994 Equity Incentive Plan or outside of the Plan as ULTRADATA deems appropriate. The options will be priced at Fair Market Value on the later of date of hire or board approval. The number of option shares will be equal to $150,000 divided by the fair market value per share on the date of grant. ULTRADATA Corporation agrees to pay $93,000 for relocation related expenses. Should you leave ULTRADATA prior to 3 years from date of hire, you will be asked to repay the amount according to the signed agreement. Please refer to the attached "General Terms and Conditions of Employment" for additional information. You will be eligible for health insurance and other ULTRADATA Corporation- provided benefits in accordance with the terms of these benefit plans. You will also be eligible for vacation and sick pay consistent with our policies for employees in your job classification. You may receive such other benefits that ULTRADATA Corporation may make available. Your employment with ULTRADATA Corporation will be subject to proof of your legal right to work in the United States, and to completing the Immigration and Naturalization Service Employment Eligibility Verification Form I-9. I am very pleased to extend this offer of employment to you, and am sure that your association with ULTRADATA Corporation will be successful and rewarding for us all. Please indicate your acceptance of this offer by signing this letter and the enclosed Confidentiality Agreement and returning them to me. Copies of this letter and the Confidentiality Agreement is enclosed for your records. This offer is good for 7 days, after which it will become null and void. Sincerely, ULTRADATA CORPORATION Read, Understood and Agreed: - - --------------------- /s/ Robert J. Majteles ---------------------- Robert J. Majteles Nigel P. Gallop 11/6/96 - ---------------- ------- CEO/Chairman of the Board Date -2- GENERAL TERMS AND CONDITIONS OF EMPLOYMENT ------------------------------------------ These General Terms and Conditions of Employment are applicable to, and are incorporated by reference into, that certain letter agreement between Ultradata Corporation, a Delaware Corporation (the "Company") and Robert Majteles ------- ("Employee") dated October 17, 1996. - - ---------- In consideration of the promises and the terms and conditions set forth in the letter agreement and these General Terms and Conditions of Employment (this "Agreement"), the parties agree as follows: --------- 1. DUTIES. Employee will have the duties specified in the letter ------ agreement. Employee will comply with and be bound by Company's operating policies, procedures, and practices from time to time in effect during Employee's employment. Employee will perform his duties under this Agreement at the offices of Company, provided, that Employee may be required to do extensive -------- traveling in connection with the performance of his duties hereunder. Employee hereby represents and warrants that he is free to enter into and fully perform this Agreement and the agreements referred to herein without breach of any agreement or contract to which he is a party or by which he is bound. 2. EXCLUSIVE SERVICE. Employee will devote his full time and efforts ----------------- exclusively to this employment and apply all his skill and experience to the performance of his duties and advancing the Company's interests in accordance with Employee's experience and skills. In addition, Employee will not engage in any consulting activity except with the prior written approval of Company, or at the direction of Company, and Employee will otherwise do nothing inconsistent with the performance of his duties hereunder. 3. EXPENSES. The Company will reimburse Employee for all reasonable and -------- necessary expenses incurred by Employee in connection with the Company's business, provided that such expenses are deductible to the Company, are in accordance with the Company's applicable policy and are properly documented and accounted for in accordance with the requirements of the Internal Revenue Service. 4. PROPRIETARY RIGHTS. Employee hereby agrees to execute the Company's ------------------ standard Employee Invention Assignment and Confidentiality Agreement with the Company. The provisions of such agreement will survive any termination or expiration of this Agreement. 5. TERM AND TERMINATION. -------------------- 5.1 TERM. This Agreement will remain in effect until the close of ---- business on October 17, 2000, unless terminated earlier as provided herein. 5.2 EVENTS OF TERMINATION. Employee's employment with the Company --------------------- and this Agreement shall terminate upon any one of the following: (a) the Company's determination made in good faith that it is terminating Employee for "cause" as defined under Section 5.2 below ("Termination for Cause"); or - - ----------------------- (b) the effective date of a written notice sent to Employee stating that the Company is terminating his employment, without cause, which notice can be given by the Company at any time after the Effective Date at the Company's sole discretion, for any reason or for no reason ("Termination Without ------------------- Cause"); - - ----- (c) the effective date of a written notice sent to the Company from Employee stating that Employee is electing to terminate his employment with the Company but not for Constructive Termination Event ("Voluntary --------- Termination"); or - - ----------- (d) the effective date of a written notice sent to the Company from Employee stating that Employee is terminating his employment with the Company as a result of a Constructive Termination Event. 5.3 "CAUSE" DEFINED. For purposes of this Agreement, "cause" for --------------- Employee's termination will exist at any time after the happening of one or more of the following events: (a) a failure or a refusal to comply in any material respect with the reasonable policies, standards or regulations of the Company; (b) a failure or a refusal in any material respect, faithfully or diligently, to perform his duties determined by the Company in accordance with this Agreement or the customary duties of Employee's employment (whether due to ill health, disability or otherwise); (c) unprofessional, unethical or fraudulent conduct or conduct that materially discredits the Company or is materially detrimental to the reputation, character or standing of the Company; (d) dishonest conduct or a deliberate attempt to do an injury to the Company; (e) Employee's material breach of a term of this Agreement or the Employee Invention Assignment and Confidentiality Agreement, including, without limitation, Employee's theft of the Company's proprietary information; (f) an unlawful or criminal act which would reflect badly on the Company in the Company's reasonable judgment; or (g) Employee's death. 5.4 CONSTRUCTIVE TERMINATION DEFINED. For purposes of this -------------------------------- Agreement, a "Constructive Termination Event" will be deemed to have occurred at ------------------------------ the Company's close of business on the fourteenth (14th) day after, and including, the first day, that any of the following actions is taken by the Company and such action is not reversed in full by the Company within such fourteen-day period unless prior to the expiration of such fourteen-day period Employee have otherwise agreed to the specific relevant event in writing: (i) Employee's duties and/or authority within the Company are materially decreased or increased from those in effect immediately prior to such Constructive Termination Event, in a way that is adverse to Employee, as such materiality and adverse nature is determined by customary practice within the software industry within the State of California and/or (ii) Employee's title is changed to a title that, under customary practice within the software industry within the State of California, would be considered to be a lower-level title than Employee's prior title. -2- 6. EFFECT OF TERMINATION. --------------------- 6.1 TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the event of ---------------------------------------------- any termination of this Agreement pursuant to Sections 5.2(a) or 5.2(c), the Company shall pay Employee the compensation and benefits otherwise payable to Employee under Section 5 through the date of termination. Employee's rights under the Company's benefit plans of general application shall be determined under the provisions of those plans. 6.2 TERMINATION WITHOUT CAUSE. In the event of any termination of ------------------------- this Agreement pursuant to Section 5.2(b) or 5.2(d), (a) the Company shall pay Employee the compensation and benefits otherwise payable to Employee under the letter agreement through the date of termination, (b) the Company shall pay Employee an amount equal to 100% of Employee's then-current base salary plus 30% of such base salary (which represents the full amount of the bonus to which Employee would be entitled upon satisfaction of all conditions precedent to such bonus in such year). (c) Employee's rights under the Company's benefit plans of general application shall be determined under the provisions of those plans. 7. ACCELERATION OF OPTIONS. ----------------------- 7.1 CORPORATE TRANSACTION. Immediately prior to the closing of a --------------------- Corporate Transaction, the exerciseability of each option granted to you to purchase shares of the Company's Common Stock that is outstanding immediately prior to the closing of such Corporate Transaction, will be automatically accelerated so that each such option will, immediately prior to the closing date for the Corporate Transaction, become fully exerciseable with respect to the total number of shares issuable upon exercise thereof and may be exercised prior to the closing of such Corporate Transaction for all or any portion of such shares. For purposes of this Section 7, a "Corporate Transaction" is defined as (i) a merger or acquisition in which the Company is not the surviving entity (except for a merger of the Company into a wholly-owned subsidiary, and except for a transaction the purpose of which is to change the State in which the Company is incorporated), (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company or (iii) any other corporate reorganization or business combination, and in which the beneficial ownership of 50% or more of the Company's outstanding voting stock is transferred. 7.2 PAYMENT. In the event of a Corporate Transaction, in addition to ------- the acceleration of options as set forth in Section 7.1, the Company shall pay Employee an amount equal to 290% of Employee's then-current "base amount" as calculated under Internal Revenue Code ("IRC") Section 280G (i.e., annual --- compensation including then-current salary and bonus actually received in the applicable tax year(s)), less applicable withholding taxes, payable within thirty (30) days following the date of the closing of such Corporate Transaction. 8. MISCELLANEOUS. ------------- 8.1 ARBITRATION. Employee and the Company shall submit to mandatory ----------- binding arbitration in any controversy or claim arising out of, or relating to, this Agreement or any breach hereof, -3- provided, however, that the Company retains its right to, and shall not be - - -------- ------- prohibited, limited or in any other way restricted from, seeking or obtaining equitable relief from a court having jurisdiction over the parties. Such arbitration shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association in effect at that time, and judgment upon the determination or award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 8.2 SEVERABILITY. If any provision of this Agreement shall be found ------------ by any arbitrator or court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable and to the extent that to do so would not deprive one of the parties of the substantial benefit of its bargain. Such provision shall, to the extent allowable by law and the preceding sentence, be modified by such arbitrator or court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all the other provisions continuing in full force and effect. 8.3 REMEDIES. The Company and Employee acknowledge that the service -------- to be provided by Employee is of a special, unique, unusual, extraordinary and intellectual character, which gives it peculiar value the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, Employee hereby consents and agrees that for any breach or violation by Employee of any of the provisions of this Agreement including, without limitation, Section 3), a restraining order and/or injunction may be issued against Employee, in addition to any other rights and remedies the Company may have, at law or equity, including without limitation the recovery of money damages. 8.4 NO WAIVER. The failure by either party at any time to require --------- performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced. 8.5 ASSIGNMENT. This Agreement and all rights hereunder are personal ---------- to Employee and may not be transferred or assigned by Employee at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, provided, however, that any such assignee assumes the Company's -------- ------- obligations hereunder. 8.6 WITHHOLDING. All sums payable to Employee hereunder shall be ----------- reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law. 8.7 ENTIRE AGREEMENT. This Agreement constitutes the entire and ---------------- only agreement between the parties relating to employment of Employee with the Company, and this Agreement supersedes and cancels any and all previous contracts, arrangements or understandings with respect thereto. 8.8 AMENDMENT. This Agreement may be amended, modified, superseded, --------- cancelled, renewed or extended only by an agreement in writing executed by both parties hereto. 8.9 NOTICES. All notices and other communications required or ------- permitted under this Agreement shall be in writing and hand delivered, sent by telecopier, sent by certified first class mail, -4- postage pre-paid, or sent by nationally recognized express courier service. Such notices and other communications shall be effective upon receipt if hand delivered or sent by telecopier, five (5) days after mailing if sent by mail, and one (l) day after dispatch if sent by express courier, to the addresses set forth in the letter agreement, or such other addresses as any party shall notify the other parties. 8.10 BINDING NATURE. This Agreement shall be binding upon, and inure -------------- to the benefit of, the successors and personal representatives of the respective parties hereto. 8.11 HEADINGS. The headings contained in this Agreement are for -------- reference purposes only and shall in no way affect the meaning or interpretation of this Agreement. In this Agreement, the singular includes the plural, the plural included the singular, the masculine gender includes both male and female referents, and the word "or" is used in the inclusive sense. 8.12 COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement. 8.13 GOVERNING LAW. This Agreement and the rights and obligations of ------------- the parties hereto shall be construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws. EX-5 15 EXHIBIT 5.3 November 6, 1998 Cindy Cooper 648 Vivian Drive Livermore, CA 94550 Re: Your Employment With ULTRADATA Corporation Dear Cindy: This letter will set forth the binding agreement of employment (the "Agreement"), effective as of November 6, 1998 (the "Effective Date"), between you and ULTRADATA Corporation, a Delaware corporation ("ULTRADATA"). 1. Employment and Duties. During the Employment Term, as defined in Section 3 below, you will serve as Vice President, Product Development of ULTRADATA. You will have such duties and authority as are customary for, and commensurate with such position, and such other reasonable duties and authority as the Board of Directors of ULTRADATA (the "Board") or the President of ULTRADATA prescribes from time to time. 2. COMPENSATION. (a) Salary. For your services hereunder, ULTRADATA will pay as salary to you the amount of $11,250.00 per month during the Employment Term, as defined in Section 3 below. Such salary will be paid in conformity with ULTRADATA's normal payroll period. Your salary will be reviewed by the Board from time to time at its discretion, and you will receive such salary increases, if any, as the Board in its sole discretion determines. For purposes of this Agreement, your salary shall include any increases approved by the Board. (b) Bonus. In addition to the salary set forth in Section 2(a) hereof, you will be eligible for an annual bonus pursuant to a formula, and determined in accordance with criteria, in each case to be established by the Board of Directors and/or its Compensation Committee, which formula and criteria will be communicated to you in writing reasonably in advance of the commencement of the performance period to which such bonus will relate. (c) Other Benefits. You will be entitled to participate in and receive benefits under ULTRADATA's standard ULTRADATA benefits plans as in effect from time to time, including medical insurance, sick leave, and vacation time, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and ULTRADATA policies. Cooper, Cindy November 6, 1998 (d) Expenses. During the term of your employment hereunder, you will be entitled to receive prompt reimbursement from the ULTRADATA for all reasonable business-related expenses incurred by you, in accordance with ULTRADATA's policies and procedures as in effect from time to time, provided that you will properly account for such business expenses in accordance with ULTRADATA's policy. (e) Deductions and Withholding. All amounts payable or which become payable under any provision of this Agreement will be subject to any deductions authorized in writing by you and any deductions and withholdings required by law. 3. TERM OF EMPLOYMENT. (a) Term. This Agreement will continue in full force and effect from and including the Effective Date unless sooner terminated as hereinafter provided (the "Employment Term") or replaced by another such agreement as may be mutually agreed upon in writing by all parties. (b) Early Termination. Your employment with ULTRADATA under this Agreement may be terminated by ULTRADATA at any time during the Employment Term by the President or the Board, for any reason and with or without cause, upon delivery of written notice by ULTRADATA. ULTRADATA is not required to give you any advance notice of termination which, in the sole discretion of ULTRADATA, may be effective immediately upon delivery of written notice to you. You may terminate this Agreement at any time by giving ULTRADATA written notice of your resignation at least 30 days in advance; provided, however, that the Board may determine upon receipt of such notice that the effective date of such resignation will be immediate or some time prior to the expiration of the notice period stated in your written notice to ULTRADATA. (c) Termination for Cause. Prior to the expiration of the Employment Term, your employment may be terminated for Cause by the Board, immediately upon delivery of termination notice thereof to you. For these purposes, termination for "Cause" will include, without limitation, termination because of your (a) failure or a refusal to comply in any material respect with the reasonable policies, standards or regulations of the Company; (b) failure or a refusal in any material respect, faithfully or diligently, to perform your duties determined by the Company in accordance with this Agreement or the customary duties of Employee's employment (whether due to ill health, disability or otherwise); (c) unprofessional, unethical or fraudulent conduct or conduct that materially discredits the Company or is materially detrimental to the reputation, character or standing of the Company; (d) dishonest conduct or a deliberate attempt to do an injury to the Company; (e) material breach of a term of this Agreement or the Employee Invention Assignment and Confidentiality Agreement, including, without limitation, Employee's 2 Cooper, Cindy November 6, 1998 theft of the Company's proprietary information; or (f) an unlawful or criminal act which would reflect badly on the Company in the Company's reasonable judgment. (d) Termination Due to Death or Disability. Your employment hereunder will terminate immediately upon your death. In the event that by reason of injury, illness or other physical or mental impairment you are (i) completely unable to perform your services hereunder for more than two consecutive months, or (ii) unable in the good faith judgment of the Board to perform your services hereunder for 50% or more of the normal working day throughout six consecutive months, then ULTRADATA may terminate your employment hereunder at the end of such two-month or six-month period, as applicable, by delivery to you of written notice of such termination. 4. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT IN THE ABSENCE OF A CORPORATE TRANSACTION (a) Termination For Cause, Death or Disability, or Voluntary Termination. Upon termination of your employment by ULTRADATA under Section 3(c) or Section 3(d) above, but subject to the provisions of Section 5 below, or upon your voluntary termination of employment pursuant to Section 3(b) above, all salary and benefits hereunder will cease immediately. (b) Involuntary Termination except for Cause, Death or Disability. Except as provided in Section 5 below, following involuntary termination of your employment by ULTRADATA under Section 3(b) above, you will receive: (i) Your salary (including any increases approved by the Board) continued at the rate specified in Section 2(a) above for six (6) months; (ii) Medical insurance and life insurance at the levels in effect at the time of termination for six (6) months; (iii) When otherwise payable, your bonus prorated up to the date of termination for the period during which you were eligible for any such bonus; (iv) Continued vesting of any stock options granted to you by ULTRADATA for six (6) months, followed by a 90 day period during which such options may be exercised. (v) No further continuance of other benefits such as vacation, sick leave, and employee stock purchase plan participation, unless specified herein. 3 Cooper, Cindy November 6, 1998 (vi) Any cellular phone and notebook computer as then currently provided by Company. Additionally, placement services will be provided as the Company customarily provides to other Executives leaving the Company. 5. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT FOLLOWING A CORPORATE TRANSACTION (a) Definitions. For purposes of this Section 5: (i) A "Corporate Transaction" is defined as (A) a merger or acquisition in which the Company is not the surviving entity (except for a merger of the Company into a wholly-owned subsidiary, and except for a transaction the purpose of which is to change the State in which the Company is incorporated), (B) the sale, transfer or other disposition of all or substantially all of the assets of the Company or (C) any other corporate reorganization or business combination, and in which the beneficial ownership of 50% or more of the Company's outstanding voting stock is transferred. (ii) The "Post-Transaction Period" is defined as the period commencing on the date of the closing or effectiveness of a Corporate Transaction. (iii) A "Constructive Termination Event" will be deemed to have occurred at ULTRADATA's close of business on the fourteenth (14th) day after any of the following action(s) are taken by ULTRADATA and such action(s) is not reversed in full by ULTRADATA within such fourteen-day period unless prior to the expiration of such fourteen-day period you have otherwise agreed to the specific relevant event in writing: (A) your aggregate benefits are materially reduced (as such reduction and materiality are determined by customary practice within the software industry within the State of California) below those in effect immediately prior to the effective date of such Constructive Termination Event, and/or (B) your duties and/or authority are materially decreased or increased from those in effect immediately prior to such Constructive Termination Event, in a way that is adverse to you, as determined by customary practice within the software industry within the State of California and/or (C) you are required to perform your employment obligations (other than routine travel consistent with that prior to the effective date of such Constructive Termination Event) at a location more than twenty-five (25) miles away from your principal place of work for ULTRADATA as such place of work was in effect immediately prior to the effective date of such Constructive Termination Event. (b) Severance Pay For Termination After Commencement of the Post Transaction Period. If at any time after the commencement of the Post Transaction Period your employment is terminated by ULTRADATA except for Cause, Death or Disability as stated in 4 Cooper, Cindy November 6, 1998 Sections 3(c) and 3(d) above, or if a Constructive Termination Event as defined above occurs and you voluntarily terminate your employment, then you will receive: (i) Your salary (including any increases approved by the Board) continued at the rate specified in Section 2(a) above for twelve (12) months; (ii) Medical insurance and life insurance at the levels in effect at the time of termination for twelve (12) months; (iii) When otherwise payable, your bonus prorated up to the date of termination for the period during which you were eligible for any such bonus; (iv) In addition to the accelerated vesting of existing stock options as provided in Section 6 below, continued vesting of any stock options granted to you after the commencement of the Post Transaction Period for twelve (12) months, followed by a 90 day period during which such options may be exercised. (v) No further continuance of other benefits such as vacation, sick leave, and employee stock purchase plan participation, unless specified herein. (vi) Any cellular phone and notebook computer as then currently provided by Company. Additionally, placement services will be provided as the Company customarily provides to other Executives leaving the Company. (c) Cooperation. After any such termination of your employment, except to the extent you are not able to do so by reason of your death or disability, you will cooperate with ULTRADATA in providing for the orderly transition of your duties and responsibilities to other individuals, as is reasonably requested by ULTRADATA. 6. ACCELERATION OF STOCK OPTIONS FOLLOWING A CORPORATE TRANSACTION. Immediately upon the occurrence of a Corporate Transaction as defined above, all stock options which have been granted to you as of the date of such occurrence shall become 100% vested and shall be exercisable pursuant to the terms of your stock option agreement. 7. PROPRIETARY RIGHTS. You hereby acknowledge and confirm that you have executed the Company's standard Employee Invention Assignment and Confidentiality Agreement with the Company, which agreement is in full force and effect. The provisions of such agreement will survive any termination or expiration of this Agreement. 5 Cooper, Cindy November 6, 1998 8. MISCELLANEOUS. This Agreement contains the entire understanding and sole and entire agreement between the parties with respect to the subject matter hereof, and supersedes any and all prior agreements, negotiations and discussions between the parties hereto with respect to the subject matter covered hereby and may only be modified by an agreement in writing signed by ULTRADATA and you, and which states the intent of the parties to amend this Agreement. If any provision of this Agreement is held to be invalid or otherwise unenforceable, in whole or in part, the remainder of such provision and the remainder of this Agreement will not be affected thereby and will be enforced to the fullest extent permitted by law. Neither this Agreement nor the rights or obligations hereunder will be assignable by you. ULTRADATA may assign this Agreement to any successor of ULTRADATA, and upon such assignment any such successor will be deemed substituted for ULTRADATA upon the terms and subject to the conditions hereof. This Agreement will be binding upon the successors and assigns of the parties hereof and upon your heirs, executors and administrators. This Agreement has been negotiated and executed in, and will be governed by and construed with the laws of, the State of California. Any notice, request, demand or other communication required or permitted hereunder will be deemed to be properly given when personally served in writing, or when deposited in the United States mail, postage pre-paid, addressed to ULTRADATA at the address shown at the beginning of this letter, or to you at the address shown below, or by facsimile upon confirmation of receipt. Each party hereto may change its address by written notice in accordance with this Section 8. Sincerely, /s/ Robert J. Majteles ---------------------- Robert J. Majteles President and Chief Executive Officer ACCEPTED AND AGREED: /s/ Cindy Cooper - ---------------- Cindy Cooper Date signed: November 11, 1998 EX-5 16 EXHIBIT 5.4 November 6, 1998 David J. Robbins 204 Chestnut Court San Ramon, CA 94583 Re: Your Employment With ULTRADATA Corporation Dear Dave: This letter will set forth the binding agreement of employment (the "Agreement"), effective as of November 6, 1998 (the "Effective Date"), between you and ULTRADATA Corporation, a Delaware corporation ("ULTRADATA"). 1. Employment and Duties. During the Employment Term, as defined in Section 3 below, you will serve as Vice President, Customer Services of ULTRADATA. You will have such duties and authority as are customary for, and commensurate with such position, and such other reasonable duties and authority as the Board of Directors of ULTRADATA (the "Board") or the President of ULTRADATA prescribes from time to time. 2. COMPENSATION. (a) Salary. For your services hereunder, ULTRADATA will pay as salary to you the amount of $11,250.00 per month during the Employment Term, as defined in Section 3 below. Such salary will be paid in conformity with ULTRADATA's normal payroll period. Your salary will be reviewed by the Board from time to time at its discretion, and you will receive such salary increases, if any, as the Board in its sole discretion determines. For purposes of this Agreement, your salary shall include any increases approved by the Board. (b) Bonus. In addition to the salary set forth in Section 2(a) hereof, you will be eligible for an annual bonus pursuant to a formula, and determined in accordance with criteria, in each case to be established by the Board of Directors and/or its Compensation Committee, which formula and criteria will be communicated to you in writing reasonably in advance of the commencement of the performance period to which such bonus will relate. (c) Other Benefits. You will be entitled to participate in and receive benefits under ULTRADATA's standard ULTRADATA benefits plans as in effect from time to time, including medical insurance, sick leave, and vacation time, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and ULTRADATA policies. Robbins, David November 6, 1998 (d) Expenses. During the term of your employment hereunder, you will be entitled to receive prompt reimbursement from the ULTRADATA for all reasonable business-related expenses incurred by you, in accordance with ULTRADATA's policies and procedures as in effect from time to time, provided that you will properly account for such business expenses in accordance with ULTRADATA's policy. (e) Deductions and Withholding. All amounts payable or which become payable under any provision of this Agreement will be subject to any deductions authorized in writing by you and any deductions and withholdings required by law. 3. TERM OF EMPLOYMENT. (a) Term. This Agreement will continue in full force and effect from and including the Effective Date unless sooner terminated as hereinafter provided (the "Employment Term") or replaced by another such agreement as may be mutually agreed upon in writing by all parties. (b) Early Termination. Your employment with ULTRADATA under this Agreement may be terminated by ULTRADATA at any time during the Employment Term by the President or the Board, for any reason and with or without cause, upon delivery of written notice by ULTRADATA. ULTRADATA is not required to give you any advance notice of termination which, in the sole discretion of ULTRADATA, may be effective immediately upon delivery of written notice to you. You may terminate this Agreement at any time by giving ULTRADATA written notice of your resignation at least 30 days in advance; provided, however, that the Board may determine upon receipt of such notice that the effective date of such resignation will be immediate or some time prior to the expiration of the notice period stated in your written notice to ULTRADATA. (c) Termination for Cause. Prior to the expiration of the Employment Term, your employment may be terminated for Cause by the Board, immediately upon delivery of termination notice thereof to you. For these purposes, termination for "Cause" will include, without limitation, termination because of your (a) failure or a refusal to comply in any material respect with the reasonable policies, standards or regulations of the Company; (b) failure or a refusal in any material respect, faithfully or diligently, to perform your duties determined by the Company in accordance with this Agreement or the customary duties of Employee's employment (whether due to ill health, disability or otherwise); (c) unprofessional, unethical or fraudulent conduct or conduct that materially discredits the Company or is materially detrimental to the reputation, character or standing of the Company; (d) dishonest conduct or a deliberate attempt to do an injury to the Company; (e) material breach of a term of this Agreement or the Employee Invention Assignment and Confidentiality Agreement, including, without limitation, Employee's 2 Robbins, David November 6, 1998 theft of the Company's proprietary information; or (f) an unlawful or criminal act which would reflect badly on the Company in the Company's reasonable judgment. (d) Termination Due to Death or Disability. Your employment hereunder will terminate immediately upon your death. In the event that by reason of injury, illness or other physical or mental impairment you are (i) completely unable to perform your services hereunder for more than two consecutive months, or (ii) unable in the good faith judgment of the Board to perform your services hereunder for 50% or more of the normal working day throughout six consecutive months, then ULTRADATA may terminate your employment hereunder at the end of such two-month or six-month period, as applicable, by delivery to you of written notice of such termination. 4. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT IN THE ABSENCE OF A CORPORATE TRANSACTION (a) Termination For Cause, Death or Disability, or Voluntary Termination. Upon termination of your employment by ULTRADATA under Section 3(c) or Section 3(d) above, but subject to the provisions of Section 5 below, or upon your voluntary termination of employment pursuant to Section 3(b) above, all salary and benefits hereunder will cease immediately. (b) Involuntary Termination except for Cause, Death or Disability. Except as provided in Section 5 below, following involuntary termination of your employment by ULTRADATA under Section 3(b) above, you will receive: (i) Your salary (including any increases approved by the Board) continued at the rate specified in Section 2(a) above for six (6) months; (ii) Medical insurance and life insurance at the levels in effect at the time of termination for six (6) months; (iii) When otherwise payable, your bonus prorated up to the date of termination for the period during which you were eligible for any such bonus; (iv) Continued vesting of any stock options granted to you by ULTRADATA for six (6) months, followed by a 90 day period during which such options may be exercised. (v) No further continuance of other benefits such as vacation, sick leave, and employee stock purchase plan participation, unless specified herein. 3 Robbins, David November 6, 1998 (vi) Any cellular phone and notebook computer as then currently provided by Company. Additionally, placement services will be provided as the Company customarily provides to other Executives leaving the Company. 5. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT FOLLOWING A CORPORATE TRANSACTION (a) Definitions. For purposes of this Section 5: (i) A "Corporate Transaction" is defined as (A) a merger or acquisition in which the Company is not the surviving entity (except for a merger of the Company into a wholly-owned subsidiary, and except for a transaction the purpose of which is to change the State in which the Company is incorporated), (B) the sale, transfer or other disposition of all or substantially all of the assets of the Company or (C) any other corporate reorganization or business combination, and in which the beneficial ownership of 50% or more of the Company's outstanding voting stock is transferred. (ii) The "Post-Transaction Period" is defined as the period commencing on the date of the closing or effectiveness of a Corporate Transaction. (iii) A "Constructive Termination Event" will be deemed to have occurred at ULTRADATA's close of business on the fourteenth (14th) day after any of the following action(s) are taken by ULTRADATA and such action(s) is not reversed in full by ULTRADATA within such fourteen-day period unless prior to the expiration of such fourteen-day period you have otherwise agreed to the specific relevant event in writing: (A) your aggregate benefits are materially reduced (as such reduction and materiality are determined by customary practice within the software industry within the State of California) below those in effect immediately prior to the effective date of such Constructive Termination Event, and/or (B) your duties and/or authority are materially decreased or increased from those in effect immediately prior to such Constructive Termination Event, in a way that is adverse to you, as determined by customary practice within the software industry within the State of California and/or (C) you are required to perform your employment obligations (other than routine travel consistent with that prior to the effective date of such Constructive Termination Event) at a location more than twenty-five (25) miles away from your principal place of work for ULTRADATA as such place of work was in effect immediately prior to the effective date of such Constructive Termination Event. (b) Severance Pay For Termination After Commencement of the Post Transaction Period. If at any time after the commencement of the Post Transaction Period your employment is terminated by ULTRADATA except for Cause, Death or Disability as stated in 4 Robbins, David November 6, 1998 Sections 3(c) and 3(d) above, or if a Constructive Termination Event as defined above occurs and you voluntarily terminate your employment, then you will receive: (i) Your salary (including any increases approved by the Board) continued at the rate specified in Section 2(a) above for twelve (12) months; (ii) Medical insurance and life insurance at the levels in effect at the time of termination for twelve (12) months; (iii) When otherwise payable, your bonus prorated up to the date of termination for the period during which you were eligible for any such bonus; (iv) In addition to the accelerated vesting of existing stock options as provided in Section 6 below, continued vesting of any stock options granted to you after the commencement of the Post Transaction Period for twelve (12) months, followed by a 90 day period during which such options may be exercised. (v) No further continuance of other benefits such as vacation, sick leave, and employee stock purchase plan participation, unless specified herein. (vi) Any cellular phone and notebook computer as then currently provided by Company. Additionally, placement services will be provided as the Company customarily provides to other Executives leaving the Company. (c) Cooperation. After any such termination of your employment, except to the extent you are not able to do so by reason of your death or disability, you will cooperate with ULTRADATA in providing for the orderly transition of your duties and responsibilities to other individuals, as is reasonably requested by ULTRADATA. 6. ACCELERATION OF STOCK OPTIONS FOLLOWING A CORPORATE TRANSACTION. Immediately upon the occurrence of a Corporate Transaction as defined above, all stock options which have been granted to you as of the date of such occurrence shall become 100% vested and shall be exercisable pursuant to the terms of your stock option agreement. 7. PROPRIETARY RIGHTS. You hereby acknowledge and confirm that you have executed the Company's standard Employee Invention Assignment and Confidentiality Agreement with the Company, which agreement is in full force and effect. The provisions of such agreement will survive any termination or expiration of this Agreement. 5 Robbins, David November 6, 1998 8. MISCELLANEOUS. This Agreement contains the entire understanding and sole and entire agreement between the parties with respect to the subject matter hereof, and supersedes any and all prior agreements, negotiations and discussions between the parties hereto with respect to the subject matter covered hereby and may only be modified by an agreement in writing signed by ULTRADATA and you, and which states the intent of the parties to amend this Agreement. If any provision of this Agreement is held to be invalid or otherwise unenforceable, in whole or in part, the remainder of such provision and the remainder of this Agreement will not be affected thereby and will be enforced to the fullest extent permitted by law. Neither this Agreement nor the rights or obligations hereunder will be assignable by you. ULTRADATA may assign this Agreement to any successor of ULTRADATA, and upon such assignment any such successor will be deemed substituted for ULTRADATA upon the terms and subject to the conditions hereof. This Agreement will be binding upon the successors and assigns of the parties hereof and upon your heirs, executors and administrators. This Agreement has been negotiated and executed in, and will be governed by and construed with the laws of, the State of California. Any notice, request, demand or other communication required or permitted hereunder will be deemed to be properly given when personally served in writing, or when deposited in the United States mail, postage pre-paid, addressed to ULTRADATA at the address shown at the beginning of this letter, or to you at the address shown below, or by facsimile upon confirmation of receipt. Each party hereto may change its address by written notice in accordance with this Section 8. Sincerely, /s/ Robert J. Majteles ---------------------- Robert J. Majteles President and Chief Executive Officer ACCEPTED AND AGREED: /s/ David J. Robbins - -------------------- David J. Robbins Date signed: November 11, 1998 6 EX-5 17 EXHIBIT 5.5 November 6, 1998 James R. Berthelsen 30 De Sabla Road San Mateo, CA 94402 Re: Your Employment With ULTRADATA Corporation Dear Jim: This letter will set forth the binding agreement of employment (the "Agreement"), effective as of November 6, 1998 (the "Effective Date"), between you and ULTRADATA Corporation, a Delaware corporation ("ULTRADATA"). 1. Employment and Duties. During the Employment Term, as defined in Section 3 below, you will serve as Vice President, Business Development of ULTRADATA. You will have such duties and authority as are customary for, and commensurate with such position, and such other reasonable duties and authority as the Board of Directors of ULTRADATA (the "Board") or the President of ULTRADATA prescribes from time to time. 2. COMPENSATION. (a) Salary. For your services hereunder, ULTRADATA will pay as salary to you the amount of $11,250.00 per month during the Employment Term, as defined in Section 3 below. Such salary will be paid in conformity with ULTRADATA's normal payroll period. Your salary will be reviewed by the Board from time to time at its discretion, and you will receive such salary increases, if any, as the Board in its sole discretion determines. For purposes of this Agreement, your salary shall include any increases approved by the Board. (b) Bonus. In addition to the salary set forth in Section 2(a) hereof, you will be eligible for an annual bonus pursuant to a formula, and determined in accordance with criteria, in each case to be established by the Board of Directors and/or its Compensation Committee, which formula and criteria will be communicated to you in writing reasonably in advance of the commencement of the performance period to which such bonus will relate. (c) Other Benefits. You will be entitled to participate in and receive benefits under ULTRADATA's standard ULTRADATA benefits plans as in effect from time to time, including medical insurance, sick leave, and vacation time, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and ULTRADATA policies. Berthelsen, James November 6, 1998 (d) Expenses. During the term of your employment hereunder, you will be entitled to receive prompt reimbursement from the ULTRADATA for all reasonable business-related expenses incurred by you, in accordance with ULTRADATA's policies and procedures as in effect from time to time, provided that you will properly account for such business expenses in accordance with ULTRADATA's policy. (e) Deductions and Withholding. All amounts payable or which become payable under any provision of this Agreement will be subject to any deductions authorized in writing by you and any deductions and withholdings required by law. 3. TERM OF EMPLOYMENT. (a) Term. This Agreement will continue in full force and effect from and including the Effective Date unless sooner terminated as hereinafter provided (the "Employment Term") or replaced by another such agreement as may be mutually agreed upon in writing by all parties. (b) Early Termination. Your employment with ULTRADATA under this Agreement may be terminated by ULTRADATA at any time during the Employment Term by the President or the Board, for any reason and with or without cause, upon delivery of written notice by ULTRADATA. ULTRADATA is not required to give you any advance notice of termination which, in the sole discretion of ULTRADATA, may be effective immediately upon delivery of written notice to you. You may terminate this Agreement at any time by giving ULTRADATA written notice of your resignation at least 30 days in advance; provided, however, that the Board may determine upon receipt of such notice that the effective date of such resignation will be immediate or some time prior to the expiration of the notice period stated in your written notice to ULTRADATA. (c) Termination for Cause. Prior to the expiration of the Employment Term, your employment may be terminated for Cause by the Board, immediately upon delivery of termination notice thereof to you. For these purposes, termination for "Cause" will include, without limitation, termination because of your (a) failure or a refusal to comply in any material respect with the reasonable policies, standards or regulations of the Company; (b) failure or a refusal in any material respect, faithfully or diligently, to perform your duties determined by the Company in accordance with this Agreement or the customary duties of Employee's employment (whether due to ill health, disability or otherwise); (c) unprofessional, unethical or fraudulent conduct or conduct that materially discredits the Company or is materially detrimental to the reputation, character or standing of the Company; (d) dishonest conduct or a deliberate attempt to do an injury to the Company; (e) material breach of a term of this Agreement or the Employee Invention Assignment and Confidentiality Agreement, including, without limitation, Employee's 2 Berthelsen, James November 6, 1998 theft of the Company's proprietary information; or (f) an unlawful or criminal act which would reflect badly on the Company in the Company's reasonable judgment. (d) Termination Due to Death or Disability. Your employment hereunder will terminate immediately upon your death. In the event that by reason of injury, illness or other physical or mental impairment you are (i) completely unable to perform your services hereunder for more than two consecutive months, or (ii) unable in the good faith judgment of the Board to perform your services hereunder for 50% or more of the normal working day throughout six consecutive months, then ULTRADATA may terminate your employment hereunder at the end of such two-month or six-month period, as applicable, by delivery to you of written notice of such termination. 4. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT IN THE ABSENCE OF A CORPORATE TRANSACTION (a) Termination For Cause, Death or Disability, or Voluntary Termination. Upon termination of your employment by ULTRADATA under Section 3(c) or Section 3(d) above, but subject to the provisions of Section 5 below, or upon your voluntary termination of employment pursuant to Section 3(b) above, all salary and benefits hereunder will cease immediately. (b) Involuntary Termination except for Cause, Death or Disability. Except as provided in Section 5 below, following involuntary termination of your employment by ULTRADATA under Section 3(b) above, you will receive: (i) Your salary (including any increases approved by the Board) continued at the rate specified in Section 2(a) above for six (6) months; (ii) Medical insurance and life insurance at the levels in effect at the time of termination for six (6) months; (iii) When otherwise payable, your bonus prorated up to the date of termination for the period during which you were eligible for any such bonus; (iv) Continued vesting of any stock options granted to you by ULTRADATA for six (6) months, followed by a 90 day period during which such options may be exercised. (v) No further continuance of other benefits such as vacation, sick leave, and employee stock purchase plan participation, unless specified herein. 3 Berthelsen, James November 6, 1998 (vi) Any cellular phone and notebook computer as then currently provided by Company. Additionally, placement services will be provided as the Company customarily provides to other Executives leaving the Company. 5. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT FOLLOWING A CORPORATE TRANSACTION (a) Definitions. For purposes of this Section 5: (i) A "Corporate Transaction" is defined as (A) a merger or acquisition in which the Company is not the surviving entity (except for a merger of the Company into a wholly-owned subsidiary, and except for a transaction the purpose of which is to change the State in which the Company is incorporated), (B) the sale, transfer or other disposition of all or substantially all of the assets of the Company or (C) any other corporate reorganization or business combination, and in which the beneficial ownership of 50% or more of the Company's outstanding voting stock is transferred. (ii) The "Post-Transaction Period" is defined as the period commencing on the date of the closing or effectiveness of a Corporate Transaction. (iii) A "Constructive Termination Event" will be deemed to have occurred at ULTRADATA's close of business on the fourteenth (14th) day after any of the following action(s) are taken by ULTRADATA and such action(s) is not reversed in full by ULTRADATA within such fourteen-day period unless prior to the expiration of such fourteen-day period you have otherwise agreed to the specific relevant event in writing: (A) your aggregate benefits are materially reduced (as such reduction and materiality are determined by customary practice within the software industry within the State of California) below those in effect immediately prior to the effective date of such Constructive Termination Event, and/or (B) your duties and/or authority are materially decreased or increased from those in effect immediately prior to such Constructive Termination Event, in a way that is adverse to you, as determined by customary practice within the software industry within the State of California and/or (C) you are required to perform your employment obligations (other than routine travel consistent with that prior to the effective date of such Constructive Termination Event) at a location more than twenty-five (25) miles away from your principal place of work for ULTRADATA as such place of work was in effect immediately prior to the effective date of such Constructive Termination Event. (b) Severance Pay For Termination After Commencement of the Post Transaction Period. If at any time after the commencement of the Post Transaction Period your employment is terminated by ULTRADATA except for Cause, Death or Disability as stated in 4 Berthelsen, James November 6, 1998 Sections 3(c) and 3(d) above, or if a Constructive Termination Event as defined above occurs and you voluntarily terminate your employment, then you will receive: (i) Your salary (including any increases approved by the Board) continued at the rate specified in Section 2(a) above for twelve (12) months; (ii) Medical insurance and life insurance at the levels in effect at the time of termination for twelve (12) months; (iii) When otherwise payable, your bonus prorated up to the date of termination for the period during which you were eligible for any such bonus; (iv) In addition to the accelerated vesting of existing stock options as provided in Section 6 below, continued vesting of any stock options granted to you after the commencement of the Post Transaction Period for twelve (12) months, followed by a 90 day period during which such options may be exercised. (v) No further continuance of other benefits such as vacation, sick leave, and employee stock purchase plan participation, unless specified herein. (vi) Any cellular phone and notebook computer as then currently provided by Company. Additionally, placement services will be provided as the Company customarily provides to other Executives leaving the Company. (c) Cooperation. After any such termination of your employment, except to the extent you are not able to do so by reason of your death or disability, you will cooperate with ULTRADATA in providing for the orderly transition of your duties and responsibilities to other individuals, as is reasonably requested by ULTRADATA. 6. ACCELERATION OF STOCK OPTIONS FOLLOWING A CORPORATE TRANSACTION. Immediately upon the occurrence of a Corporate Transaction as defined above, all stock options which have been granted to you as of the date of such occurrence shall become 100% vested and shall be exercisable pursuant to the terms of your stock option agreement. 7. PROPRIETARY RIGHTS. You hereby acknowledge and confirm that you have executed the Company's standard Employee Invention Assignment and Confidentiality Agreement with the Company, which agreement is in full force and effect. The provisions of such agreement will survive any termination or expiration of this Agreement. 5 Berthelsen, James November 6, 1998 8. MISCELLANEOUS. This Agreement contains the entire understanding and sole and entire agreement between the parties with respect to the subject matter hereof, and supersedes any and all prior agreements, negotiations and discussions between the parties hereto with respect to the subject matter covered hereby and may only be modified by an agreement in writing signed by ULTRADATA and you, and which states the intent of the parties to amend this Agreement. If any provision of this Agreement is held to be invalid or otherwise unenforceable, in whole or in part, the remainder of such provision and the remainder of this Agreement will not be affected thereby and will be enforced to the fullest extent permitted by law. Neither this Agreement nor the rights or obligations hereunder will be assignable by you. ULTRADATA may assign this Agreement to any successor of ULTRADATA, and upon such assignment any such successor will be deemed substituted for ULTRADATA upon the terms and subject to the conditions hereof. This Agreement will be binding upon the successors and assigns of the parties hereof and upon your heirs, executors and administrators. This Agreement has been negotiated and executed in, and will be governed by and construed with the laws of, the State of California. Any notice, request, demand or other communication required or permitted hereunder will be deemed to be properly given when personally served in writing, or when deposited in the United States mail, postage pre-paid, addressed to ULTRADATA at the address shown at the beginning of this letter, or to you at the address shown below, or by facsimile upon confirmation of receipt. Each party hereto may change its address by written notice in accordance with this Section 8. Sincerely, /s/ Robert J. Majteles ---------------------- Robert J. Majteles President and Chief Executive Officer ACCEPTED AND AGREED: /s/ James R. Berthelsen - ----------------------- James R. Berthelsen Date signed: November 11, 1998 6 EX-5 18 EXHIBIT 5.6 November 6, 1998 Ronald H. Bissinger 1142 Mataro Court Pleasanton, CA 94566 Re: Your Employment With ULTRADATA Corporation Dear Ron: This letter will set forth the binding agreement of employment (the "Agreement"), effective as of November 6, 1998 (the "Effective Date"), between you and ULTRADATA Corporation, a Delaware corporation ("ULTRADATA"). 1. Employment and Duties. During the Employment Term, as defined in Section 3 below, you will serve as Vice President, Chief Financial Officer of ULTRADATA. You will have such duties and authority as are customary for, and commensurate with such position, and such other reasonable duties and authority as the Board of Directors of ULTRADATA (the "Board") or the President of ULTRADATA prescribes from time to time. 2. COMPENSATION. (a) Salary. For your services hereunder, ULTRADATA will pay as salary to you the amount of $11,250.00 per month during the Employment Term, as defined in Section 3 below. Such salary will be paid in conformity with ULTRADATA's normal payroll period. Your salary will be reviewed by the Board from time to time at its discretion, and you will receive such salary increases, if any, as the Board in its sole discretion determines. For purposes of this Agreement, your salary shall include any increases approved by the Board. (b) Bonus. In addition to the salary set forth in Section 2(a) hereof, you will be eligible for an annual bonus pursuant to a formula, and determined in accordance with criteria, in each case to be established by the Board of Directors and/or its Compensation Committee, which formula and criteria will be communicated to you in writing reasonably in advance of the commencement of the performance period to which such bonus will relate. (c) Other Benefits. You will be entitled to participate in and receive benefits under ULTRADATA's standard ULTRADATA benefits plans as in effect from time to time, including medical insurance, sick leave, and vacation time, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and ULTRADATA policies. Bissinger, Ronald November 6, 1998 (d) Expenses. During the term of your employment hereunder, you will be entitled to receive prompt reimbursement from the ULTRADATA for all reasonable business-related expenses incurred by you, in accordance with ULTRADATA's policies and procedures as in effect from time to time, provided that you will properly account for such business expenses in accordance with ULTRADATA's policy. (e) Deductions and Withholding. All amounts payable or which become payable under any provision of this Agreement will be subject to any deductions authorized in writing by you and any deductions and withholdings required by law. 3. TERM OF EMPLOYMENT. (a) Term. This Agreement will continue in full force and effect from and including the Effective Date unless sooner terminated as hereinafter provided (the "Employment Term") or replaced by another such agreement as may be mutually agreed upon in writing by all parties. (b) Early Termination. Your employment with ULTRADATA under this Agreement may be terminated by ULTRADATA at any time during the Employment Term by the President or the Board, for any reason and with or without cause, upon delivery of written notice by ULTRADATA. ULTRADATA is not required to give you any advance notice of termination which, in the sole discretion of ULTRADATA, may be effective immediately upon delivery of written notice to you. You may terminate this Agreement at any time by giving ULTRADATA written notice of your resignation at least 30 days in advance; provided, however, that the Board may determine upon receipt of such notice that the effective date of such resignation will be immediate or some time prior to the expiration of the notice period stated in your written notice to ULTRADATA. (c) Termination for Cause. Prior to the expiration of the Employment Term, your employment may be terminated for Cause by the Board, immediately upon delivery of termination notice thereof to you. For these purposes, termination for "Cause" will include, without limitation, termination because of your (a) failure or a refusal to comply in any material respect with the reasonable policies, standards or regulations of the Company; (b) failure or a refusal in any material respect, faithfully or diligently, to perform your duties determined by the Company in accordance with this Agreement or the customary duties of Employee's employment (whether due to ill health, disability or otherwise); (c) unprofessional, unethical or fraudulent conduct or conduct that materially discredits the Company or is materially detrimental to the reputation, character or standing of the Company; (d) dishonest conduct or a deliberate attempt to do an injury to the Company; (e) material breach of a term of this Agreement or the Employee Invention Assignment and Confidentiality Agreement, including, without limitation, Employee's 2 Bissinger, Ronald November 6, 1998 theft of the Company's proprietary information; or (f) an unlawful or criminal act which would reflect badly on the Company in the Company's reasonable judgment. (d) Termination Due to Death or Disability. Your employment hereunder will terminate immediately upon your death. In the event that by reason of injury, illness or other physical or mental impairment you are (i) completely unable to perform your services hereunder for more than two consecutive months, or (ii) unable in the good faith judgment of the Board to perform your services hereunder for 50% or more of the normal working day throughout six consecutive months, then ULTRADATA may terminate your employment hereunder at the end of such two-month or six-month period, as applicable, by delivery to you of written notice of such termination. 4. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT IN THE ABSENCE OF A CORPORATE TRANSACTION (a) Termination For Cause, Death or Disability, or Voluntary Termination. Upon termination of your employment by ULTRADATA under Section 3(c) or Section 3(d) above, but subject to the provisions of Section 5 below, or upon your voluntary termination of employment pursuant to Section 3(b) above, all salary and benefits hereunder will cease immediately. (b) Involuntary Termination except for Cause, Death or Disability. Except as provided in Section 5 below, following involuntary termination of your employment by ULTRADATA under Section 3(b) above, you will receive: (i) Your salary (including any increases approved by the Board) continued at the rate specified in Section 2(a) above for six (6) months; (ii) Medical insurance and life insurance at the levels in effect at the time of termination for six (6) months; (iii) When otherwise payable, your bonus prorated up to the date of termination for the period during which you were eligible for any such bonus; (iv) Continued vesting of any stock options granted to you by ULTRADATA for six (6) months, followed by a 90 day period during which such options may be exercised. (v) No further continuance of other benefits such as vacation, sick leave, and employee stock purchase plan participation, unless specified herein. 3 Bissinger, Ronald November 6, 1998 (vi) Any cellular phone and notebook computer as then currently provided by Company. Additionally, placement services will be provided as the Company customarily provides to other Executives leaving the Company. 5. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT FOLLOWING A CORPORATE TRANSACTION (a) Definitions. For purposes of this Section 5: (i) A "Corporate Transaction" is defined as (A) a merger or acquisition in which the Company is not the surviving entity (except for a merger of the Company into a wholly-owned subsidiary, and except for a transaction the purpose of which is to change the State in which the Company is incorporated), (B) the sale, transfer or other disposition of all or substantially all of the assets of the Company or (C) any other corporate reorganization or business combination, and in which the beneficial ownership of 50% or more of the Company's outstanding voting stock is transferred. (ii) The "Post-Transaction Period" is defined as the period commencing on the date of the closing or effectiveness of a Corporate Transaction. (iii) A "Constructive Termination Event" will be deemed to have occurred at ULTRADATA's close of business on the fourteenth (14th) day after any of the following action(s) are taken by ULTRADATA and such action(s) is not reversed in full by ULTRADATA within such fourteen-day period unless prior to the expiration of such fourteen-day period you have otherwise agreed to the specific relevant event in writing: (A) your aggregate benefits are materially reduced (as such reduction and materiality are determined by customary practice within the software industry within the State of California) below those in effect immediately prior to the effective date of such Constructive Termination Event, and/or (B) your duties and/or authority are materially decreased or increased from those in effect immediately prior to such Constructive Termination Event, in a way that is adverse to you, as determined by customary practice within the software industry within the State of California and/or (C) you are required to perform your employment obligations (other than routine travel consistent with that prior to the effective date of such Constructive Termination Event) at a location more than twenty-five (25) miles away from your principal place of work for ULTRADATA as such place of work was in effect immediately prior to the effective date of such Constructive Termination Event. (b) Severance Pay For Termination After Commencement of the Post Transaction Period. If at any time after the commencement of the Post Transaction Period your employment is terminated by ULTRADATA except for Cause, Death or Disability as stated in 4 Bissinger, Ronald November 6, 1998 Sections 3(c) and 3(d) above, or if a Constructive Termination Event as defined above occurs and you voluntarily terminate your employment, then you will receive: (i) Your salary (including any increases approved by the Board) continued at the rate specified in Section 2(a) above for twelve (12) months; (ii) Medical insurance and life insurance at the levels in effect at the time of termination for twelve (12) months; (iii) When otherwise payable, your bonus prorated up to the date of termination for the period during which you were eligible for any such bonus; (iv) In addition to the accelerated vesting of existing stock options as provided in Section 6 below, continued vesting of any stock options granted to you after the commencement of the Post Transaction Period for twelve (12) months, followed by a 90 day period during which such options may be exercised. (v) No further continuance of other benefits such as vacation, sick leave, and employee stock purchase plan participation, unless specified herein. (vi) Any cellular phone and notebook computer as then currently provided by Company. Additionally, placement services will be provided as the Company customarily provides to other Executives leaving the Company. (c) Cooperation. After any such termination of your employment, except to the extent you are not able to do so by reason of your death or disability, you will cooperate with ULTRADATA in providing for the orderly transition of your duties and responsibilities to other individuals, as is reasonably requested by ULTRADATA. 6. ACCELERATION OF STOCK OPTIONS FOLLOWING A CORPORATE TRANSACTION. Immediately upon the occurrence of a Corporate Transaction as defined above, all stock options which have been granted to you as of the date of such occurrence shall become 100% vested and shall be exercisable pursuant to the terms of your stock option agreement. 7. PROPRIETARY RIGHTS. You hereby acknowledge and confirm that you have executed the Company's standard Employee Invention Assignment and Confidentiality Agreement with the Company, which agreement is in full force and effect. The provisions of such agreement will survive any termination or expiration of this Agreement. 5 Bissinger, Ronald November 6, 1998 8. MISCELLANEOUS. This Agreement contains the entire understanding and sole and entire agreement between the parties with respect to the subject matter hereof, and supersedes any and all prior agreements, negotiations and discussions between the parties hereto with respect to the subject matter covered hereby and may only be modified by an agreement in writing signed by ULTRADATA and you, and which states the intent of the parties to amend this Agreement. If any provision of this Agreement is held to be invalid or otherwise unenforceable, in whole or in part, the remainder of such provision and the remainder of this Agreement will not be affected thereby and will be enforced to the fullest extent permitted by law. Neither this Agreement nor the rights or obligations hereunder will be assignable by you. ULTRADATA may assign this Agreement to any successor of ULTRADATA, and upon such assignment any such successor will be deemed substituted for ULTRADATA upon the terms and subject to the conditions hereof. This Agreement will be binding upon the successors and assigns of the parties hereof and upon your heirs, executors and administrators. This Agreement has been negotiated and executed in, and will be governed by and construed with the laws of, the State of California. Any notice, request, demand or other communication required or permitted hereunder will be deemed to be properly given when personally served in writing, or when deposited in the United States mail, postage pre-paid, addressed to ULTRADATA at the address shown at the beginning of this letter, or to you at the address shown below, or by facsimile upon confirmation of receipt. Each party hereto may change its address by written notice in accordance with this Section 8. Sincerely, /s/ Robert J. Majteles ---------------------- Robert J. Majteles President and Chief Executive Officer ACCEPTED AND AGREED: /s/ Ronald H. Bissinger - ----------------------- Ronald H. Bissinger Date signed: November 11, 1998 6 -----END PRIVACY-ENHANCED MESSAGE-----