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TABLE OF CONTENTS
Q2 HOLDINGS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
As filed with the Securities and Exchange Commission on February 12, 2014
Registration No. 333-          

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549

FORM S-1
 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Q2 Holdings, Inc.
 (Exact name of Registrant as Specified in Its Charter)

Delaware 
(State or Other Jurisdiction of
Incorporation or Organization)	 	7372 
(Primary Standard Industrial
Classification Code Number)	 	20-2706637 
(IRS Employer
Identification No.)	

13785 Research Blvd, Suite 150
Austin, Texas 78750
(512) 275-0072 
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

Matthew P. Flake
President and Chief Executive Officer
Q2 Holdings, Inc.
13785 Research Blvd, Suite 150
Austin, Texas 78750
(512) 275-0072 
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

					
Copies to:	

John J. Gilluly III, P.C.
Ariane A. Chan, P.C.
DLA Piper LLP (US)
401 Congress Avenue, Suite 2500
Austin, Texas 78701
(512) 457-7000	
 	
Barry G. Benton
Senior Vice President, General Counsel
Q2 Holdings, Inc.
13785 Research Blvd, Suite 150
Austin, Texas 78750
(512) 275-0072	
 	
J. Robert Suffoletta
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
900 South Capital of Texas Highway
Las Cimas IV, Fifth Floor
Austin, Texas 78746
(512) 338-5400	

Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
           If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o
           If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
           If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
           If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
           Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one):

							
o     Large accelerated filer,	 	o     Accelerated filer,	 	ý     Non-accelerated filer
 (do not check if a
smaller reporting company)	 	or                 o     Smaller reporting company.	

CALCULATION OF REGISTRATION FEE

					

Title of Each Class of Securities
To Be Registered	 	Proposed Maximum
Aggregate Offering
Price(1)	 	Amount of
Registration Fee(2)	
 	
Common Stock, par value $0.0001	 	$138,000,000	 	$17,774.40	
 	
(1)
Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act. Includes offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any.

(2)
Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
            The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the securities and exchange commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS 
Subject to Completion, dated February 12, 2014
             Shares

Common Stock
         This is an initial public offering of our common stock. We are selling         shares of common stock and the selling stockholders are selling         shares of common stock. We will not receive any proceeds from the sale of our common stock by the selling stockholders. Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $        and $        per share. We intend to apply to list our common stock on the            under the symbol "QTWO."
         Investing in our common stock involves risks. See "Risk Factors" beginning on page 13.

					
 	 	Per Share	 	Total	
Initial public offering price	 	$        	 	$         	
Underwriting discounts and commissions(1)	 	$        	 	$        	
Proceeds to us, before expenses	 	$        	 	$        	
Proceeds to selling stockholders, before expenses	 	$        	 	$        	

(1)
We have agreed to reimburse the underwriters for certain FINRA-related expenses. See "Underwriting."
         The underwriters have an option to purchase a maximum of        additional shares at the initial public offering price less the underwriting discount to cover over-allotments.
         We are an "emerging growth company" as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, will be subject to reduced public company reporting requirements.
         Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
         The underwriters expect to deliver shares to purchasers on or about                        , 2014.

			
J.P. Morgan	 	Stifel	

							
RBC Capital Markets	 	Raymond James	 	Canaccord Genuity	 	Needham & Company	
The date of this prospectus is                        , 2014.

         [ARTWORK TO COME]

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 TABLE OF CONTENTS

					
 	 	Page	 	
Prospectus Summary	 	 	1	 	
Risk Factors	 	 	13	 	
Special Note Regarding Forward-Looking Statements and Industry Data	 	 	39	 	
Use of Proceeds	 	 	40	 	
Dividend Policy	 	 	40	 	
Capitalization	 	 	41	 	
Dilution	 	 	42	 	
Selected Consolidated Financial and Other Data	 	 	43	 	
Management's Discussion and Analysis of Financial Condition and Results of Operations	 	 	46	 	
Business	 	 	71	 	
Management	 	 	88	 	
Executive Compensation	 	 	97	 	
Certain Relationships and Related Party Transactions	 	 	108	 	
Principal and Selling Stockholders	 	 	116	 	
Description of Capital Stock	 	 	119	 	
Shares Eligible for Future Sale	 	 	124	 	
Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of Common Stock	 	 	127	 	
Underwriting	 	 	131	 	
Legal Matters	 	 	138	 	
Experts	 	 	138	 	
Where You Can Find Additional Information	 	 	138	 	
Index to Consolidated Financial Statements	 	 	F-1	 	
        You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We and the selling stockholders are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.

 Dealer Prospectus Delivery Obligation
         Until            (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.
        For investors outside the U.S.: None of we, the selling stockholders or any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the U.S. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

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 PROSPECTUS SUMMARY
         This summary highlights information contained elsewhere in this prospectus and is a brief overview of key aspects of the offering. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes and the information set forth in the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Some of the statements in this prospectus constitute forward-looking statements. See the section titled "Special Note Regarding Forward-Looking Statements and Industry Data" for more information. In this prospectus "Company," "Q2," "we," "us," and "our" refer to Q2 Holdings, Inc. and its subsidiaries.
Overview
        Q2 is a leading provider of secure, cloud-based virtual banking solutions. We enable regional and community financial institutions, or RCFIs, to deliver a robust suite of integrated virtual banking services and engage more effectively with their retail and commercial account holders who expect to bank anytime, anywhere and on any device. Our solutions are often the most frequent point of interaction between our RCFI customers and their account holders. As such, we purpose-built our solutions to deliver a compelling, consistent user experience across digital channels and drive the success of our customers by extending their local brands, enabling improved account holder retention and creating incremental sales opportunities.
        Our founding team has provided software solutions to the RCFI market for over 20 years, and they started Q2 with the mission of using technology to help RCFIs succeed and strengthen the communities they serve. We leverage our deep domain expertise to develop highly-secure virtual banking solutions designed to help our customers compete in the complex and heavily-regulated financial services industry. We internally design and develop our solutions around a common platform that tightly integrates our solutions with each other and with our customers' internal and third-party systems. This integrated approach delivers to account holders a unified and robust virtual banking experience across online, mobile, voice and tablet channels and allows for close, lasting relationships. We designed our solutions and data center infrastructure to comply with the stringent security and technical regulations applicable to financial institutions and to safeguard our customers and their account holders.
        The RCFI market includes over 13,500 banks and credit unions that compete to provide financial services in the U.S. RCFIs have historically sought to differentiate themselves and build account holder loyalty by providing localized, in-branch banking services and serving as centers of commerce and influence in their communities. However, account holders increasingly engage with their financial services providers across digital channels rather than in physical branches, making it easier for account holders to access competitive financial services and harder for RCFIs to maintain account holder loyalty. Innovation in financial services technologies, the proliferation of mobile and tablet devices and evolving consumer expectations for modern and intuitive user experiences are pressuring RCFIs to deliver advanced virtual banking services to successfully compete and grow.
        RCFIs, unlike larger national banks, typically operate without all of the resources and personnel required to effectively deploy, manage and enhance their own internally-developed virtual banking offerings. In addition, RCFIs are required to spend increasing amounts of time and money complying with rapidly changing federal and state rules and regulations and frequent examinations by regulatory agencies. As a result, RCFIs are challenged to satisfy account holder expectations and compete effectively in what has become a complex and dynamic environment. These challenges often cause RCFIs to rely on disparate, third-party and internally-developed point systems to deliver virtual banking services. However, many of these systems provide limited features and functionality or can be expensive and time-intensive to implement, maintain and upgrade.
 
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        According to a January 2013 report published by Celent entitled " IT Spending in Banking, A North American Perspective ," U.S. financial institutions are expected to spend $48.9 billion in 2013 on information technology, or IT. Of this amount, the report forecasts that these institutions will spend approximately $11.4 billion on new initiatives, most heavily focused on enhancing their online, mobile, tablet and other self-service banking capabilities. Based on our current prices and virtual banking solutions, we believe that the RCFI market is greater than $3.5 billion annually. Our current RCFI customers represent less than 3% of the 13,570 federally-insured RCFIs in the U.S. We believe we can capture an increasing portion of the IT spend among RCFIs as we continue to grow our customer base and introduce new solutions.
        Our software-as-a-service, or SaaS, delivery model is designed to scale with our customers as they add account holders on our solutions and expand the breadth of virtual banking services they offer. Our SaaS delivery model is also designed to reduce the cost and complexity of implementing, maintaining and enhancing the virtual banking services our RCFI customers provide to their account holders. RCFIs can configure our solutions to function in a manner that is consistent with their specific workflows, processes and controls and personalize the experiences they deliver to their account holders by extending the services and local character of their branches across digital channels.
        We primarily sell subscriptions to our cloud-based solutions through our direct sales organization and recognize the related revenues over the terms of our customer agreements. The initial term of our customer agreements averages over five years, although it varies by customer. Our revenues increase as we add new customers and sell additional solutions to existing customers and as our customers increase the number of account holders on our solutions. We earn additional revenues based on the number of bill-pay and certain other transactions that account holders perform on our virtual banking solutions in excess of the levels included in our standard subscription fee. We support the efforts of our sales organization through a network of key referral partners, such as the American Bankers Association and Western Independent Bankers.
        As of September 30, 2013, we had over 300 customers with more than 2.9 million retail and commercial users on our solutions, and these registered users executed over $145 billion in financial transactions with our solutions during the first nine months of 2013. Our current RCFI customers are in 47 states and include Camden National Bank, Community Bank (Los Angeles, CA), Eli Lilly Federal Credit Union, First Financial Bank (Cincinnati, OH), Peoples Bank of Alabama, Rockland Trust Company, United Heritage Credit Union and Urban Partnership Bank.
        We have achieved significant growth since our inception. We had total revenues of $27.0 million and $41.1 million in 2011 and 2012, respectively, and $29.2 million and $41.2 million for the nine months ended September 30, 2012 and 2013, respectively. We seek to deepen and grow our customer relationships by providing consistent, high-quality implementation and customer support services which we believe drives higher customer retention and incremental sales opportunities within our existing customer base.
        We have invested, and intend to continue to invest, to grow our business by expanding our sales and marketing activities, developing new solutions, enhancing our existing solutions and technical infrastructure and scaling our operations. We incurred net losses of $3.0 million and $8.8 million, in 2011 and 2012, respectively, and $6.0 million and $11.4 million for the nine months ended September 30, 2012 and 2013, respectively.
Industry Background
RCFIs are a substantial and critical part of the economy
        Regional and community banks and credit unions with less than $50 billion in assets comprised 13,570 of the 13,607 federally-insured financial institutions in the U.S., as of September 30, 2013,
 
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according to data compiled by BauerFinancial, Inc., or BauerFinancial. Further, banking institutions and credit unions with less than $50 billion in assets had assets of $4.3 trillion and $1.0 trillion, respectively, as of September 30, 2013, according to BauerFinancial.
        The U.S. financial services market is intensely competitive, and RCFIs have historically sought to differentiate themselves by obtaining deposits and making lending decisions on a local basis and providing local, personalized banking services that are responsive to the changing needs and circumstances of their communities. As a result, RCFIs often develop strong, lasting relationships with their account holders and serve as centers of commerce and influence in their communities. According to a 2012 report from the Small Business Administration, small businesses (typically those with fewer than 500 employees) generated 67% of all net new jobs in the U.S. between mid-2009 and 2011, and according to FDIC data as of September 30, 2013, RCFIs underwrote approximately 75% of all loans to these businesses during the first nine months of 2013.
RCFIs must respond to innovations in banking
        According to a 2012 survey conducted by the Independent Community Bankers of America and a 2012 report from the National Credit Union Administration, approximately 96% of U.S. banks and 71% of U.S. credit unions offer online banking services to their retail and commercial account holders. Additionally, four of the top banking activities—paying bills, viewing balances and transactions, viewing statements and transferring money—are conducted online 60% of the time or more often according to a 2013 report published by Forrester. To appeal to, better engage with and sell more products and services to the growing number of account holders who utilize virtual banking services, RCFIs must deliver robust virtual banking capabilities that allow account holders to seamlessly transition between physical branches and digital channels.
The proliferation of mobile and tablet devices and evolving consumer expectations for modern and intuitive user experiences increase the challenges of offering virtual banking solutions
        The proliferation of smart mobile and tablet devices expands the channels through which account holders can perform virtual banking activities, decreasing the need to visit physical bank branches. The accelerating adoption of these devices and the extension of virtual banking services into these devices are making it increasingly difficult to provide a consistent, intuitive and personalized user experience and driving the need for virtual banking solutions that support new and rapidly changing mobile operating systems and device types.
        Prominent consumer brands such as Amazon, Google and Netflix are continually innovating and shaping consumer expectations by delivering modern, intuitive user experiences across digital channels. As a result, RCFIs must deliver compelling user experiences to satisfy account holder expectations and increase account holder loyalty.
Security is of paramount importance in virtual banking
        As the adoption and use of virtual banking services has increased, the incidence of fraud and theft in digital channels has grown substantially. For example, according to a 2013 report by Javelin Strategy & Research, or Javelin, fraud resulting from account takeover attacks exceeded $4.9 billion in 2012, a 69% increase over 2011. Safeguarding RCFI and account holder funds and information becomes increasingly complex as virtual banking services grow and extend across new channels and devices.
Market dynamics are driving demand for third-party solutions
        RCFIs, unlike larger national banks, typically operate without all of the resources and personnel required to effectively deploy, manage and enhance their own internally-developed virtual banking
 
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service offerings. In addition, RCFIs are having to commit additional time and resources to comply with rapidly changing federal and state rules and regulations and frequent regulatory examinations. These market dynamics are driving greater demand among RCFIs for modern, intuitive virtual banking solutions from leading third-party providers.
Organizations are increasingly transitioning to SaaS providers
        SaaS solutions can provide a number of benefits to RCFIs, such as lower costs of ownership and operation, improved performance and integration, greater flexibility and scalability, easier deployment of upgrades and enhancements and efficient compliance with regulatory requirements.
Traditional virtual banking systems have limitations
        Many traditional virtual banking systems were originally developed over a decade ago to address a single type of account holder or specific digital channel, such as voice banking. These systems can create challenges for RCFIs, such as increased implementation costs and delayed time-to-market due to the need to integrate applications and digital channels from multiple vendors and incremental time and expense to train account holders and internal personnel on the use of different point systems.
        We believe innovation in financial services technologies, the proliferation of mobile and tablet devices and evolving consumer expectations for modern and intuitive user experiences, combined with the limitations of traditional systems, create a significant opportunity for a SaaS provider to address the challenges RCFIs face as they seek to increase their level of engagement with account holders across digital channels and drive account holder loyalty. We believe this opportunity creates a substantial and growing market for cloud-based virtual banking solutions that deliver modern, intuitive self-service banking capabilities with a compelling and personalized user experience across digital channels and devices, while complying with regulatory requirements and safeguarding RCFIs and their account holders from fraud and theft.
Our Solutions
        We provide secure, compliant cloud-based software solutions designed to enable RCFIs to grow their account holder bases and increase their profitability and market share by leveraging the power of virtual banking. Our solutions are often the most frequent point of interaction between our RCFI customers and their account holders. As such, we purpose-built our solutions to deliver a compelling, consistent user experience across digital channels and devices, promoting account holder acquisition and retention and creating incremental sales opportunities.
        Key Attributes —Our virtual banking solutions include the following key attributes:
•
Common platform:   Our solutions all operate on a common platform that supports the delivery of unified virtual banking services across online, mobile, voice and tablet channels. 

•
Tablet-first design:   We initially design the features and user experience of our solutions to be optimized for touch-based tablet devices and then extend that design to other digital channels, enabling our solutions to deliver a modern, unified user experience across digital channels. 

•
Comprehensive view of account holders:   Our cloud-based solutions and common platform provide our customers with a comprehensive view of account holder access and activity across devices and channels. 

•
Flexible integration:   We have developed a highly flexible set of integration tools, enabling the rapid integration of third-party applications and data sources. 

•
SaaS delivery model:   We developed our solutions to be cloud-based, and we host our solutions for substantially all of our RCFI customers.
 
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•
Regulatory compliance:   Our solutions leverage our deep domain expertise and the significant investments we have made in the design and development of our data center architecture and other technical infrastructure to meet the stringent security and technical regulations applicable to financial institutions.
        Key Benefits —We believe our solutions provide the following key benefits to our RCFI customers and their account holders:
•
Delivery of robust virtual banking services across digital channels:   Our cloud-based solutions enable our RCFI customers to deliver robust and integrated virtual banking services to their account holders who increasingly expect and appreciate the freedom to bank anytime, anywhere and on any device. 

•
Improved and more frequent engagement with account holders:   The breadth of our virtual banking solutions and quality of the user experience they provide enable our RCFI customers to increase the frequency and effectiveness of their interactions with account holders. 

•
Drive account holder loyalty:   We believe our RCFI customers are able to drive account holder loyalty by increasing their level of engagement with account holders and consolidating their virtual banking activities on a single platform across devices and digital channels. 

•
More effective marketing of products and services:   Our customers' marketing of their new and existing products and services through our solutions can be more frequent, timely and targeted than through traditional advertising. 

•
Real-time security:   Our customers are better able to identify suspect activities and protect against fraud and theft by monitoring and understanding the behavior and activities of their account holders across channels. 

•
Lower total cost of ownership:   Our SaaS delivery model can reduce the total cost of ownership of our customers by providing on a subscription basis the development, implementation, integration, maintenance, monitoring and support of our cloud-based solutions. 

•
Facilitate regulatory compliance:   Customers who use our cloud-based solutions are able to satisfy security and technical compliance obligations by relying on the security programs and regulatory certification of our data centers and other technical infrastructure.
Our Business Strengths
        We believe our position as a leading provider of virtual banking solutions to our RCFI customers stems from the following strengths:
•
Our purpose-built solutions lead the RCFI virtual banking market:   Our common platform was created to support the proliferation of mobile and tablet devices, tightly integrate with the disparate systems within RCFIs and provide a compelling, unified user experience to retail and commercial account holders using a single login anywhere, anytime and on any device. 

•
We have a proven track record in the markets we serve:   Our founders, management and employees have the deep industry-specific experience needed to drive our continued growth and expansion. 

•
Our customer acquisition model is focused and efficient:   We focus our customer acquisition efforts exclusively on the well-defined RCFI market which allows us to effectively direct our sales and marketing efforts. 

•
We grow our customer relationships over time:   We employ a structured strategy designed to inform, educate and enhance customer confidence and help our customers identify and implement additional solutions designed to benefit and grow their account holder bases.
 
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•
Our revenues are highly predictable:   Our long-term agreements and high customer retention, as well as the growth over time in the number of account holders using our solutions, drive the recurring nature of our revenues and provide us with significant visibility into future revenues. 

•
Our award-winning culture drives innovation and customer success:   We believe our award-winning, innovation-focused culture and the location of our operations in Austin, Texas facilitate recruiting and retaining top development, integration and design talent.
Our Growth Strategy
        We are pursuing the following growth strategies:
•
Further penetrate our large market opportunity:   Our current customers represent less than 3% of the 13,570 federally-insured RCFIs in the U.S. We intend to further penetrate our large market opportunity and increase our number of RCFI customers through investments in our sales and marketing organizations and related activities. 

•
Grow revenues by expanding our relationships with existing customers:   We believe there is significant opportunity to expand our relationships with existing customers by selling additional solutions such as mobility applications, remote check deposit, and mobile bill payment and to grow our revenues as these customers increase the number of account holders on our solutions. 

•
Continue to expand our solutions and enhance our platform:   We intend to continue to invest in our software development efforts and introduce new solutions that are largely informed by and aligned with the business objectives of our existing and new customers. 

•
Further develop our partner relationships:   We plan to leverage our partner ecosystem and cultivate new partner relationships to increase the awareness of our solutions. 

•
Selectively pursue acquisitions and strategic investments:   We may selectively pursue acquisitions of and strategic investments in businesses and technologies that will strengthen and expand the features and functionality of our solutions or provide access to new customers.
Risks Affecting Our Business
        Our business is subject to a number of risks that you should understand before making an investment decision. These risks are discussed more fully in the section titled "Risk Factors" following this prospectus summary. Some of our most significant risks are:
•
we have experienced rapid growth in recent periods, and if we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and customer satisfaction or adequately address competitive challenges, and our financial performance may be adversely affected; 

•
if the market for our cloud-based virtual banking solutions develops more slowly than we expect or changes in a way that we fail to anticipate, our growth may slow and our operating results would be harmed; 

•
our business could be adversely affected if our customers are not satisfied with our virtual banking solutions or our systems and infrastructure fail to meet their needs; 

•
our limited operating history makes it difficult to evaluate our current business and future prospects; 

•
the markets in which we participate are intensely competitive, and pricing pressure, new technologies or other competitive dynamics could adversely affect our business and operating results;
 
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•
if we are unable to effectively integrate our solutions with other systems used by our customers and prospective customers, or if there are performance issues with such third-party systems, our solutions will not operate effectively and our operations will be adversely affected; 

•
our customers are highly regulated and subject to a number of challenges and risks, and our failure to comply with laws and regulations applicable to us as a technology provider to financial institutions and to enable our RCFI customers to comply with the laws and regulations applicable to them could adversely affect our business and results of operations, increase costs and impose constraints on the way we conduct our business; 

•
if our or our customers' security measures are compromised or unauthorized access to customer data is otherwise obtained, our solutions may be perceived as not being secure, customers may curtail or cease their use of our solutions, our reputation may be harmed, and we may incur significant liabilities; and 

•
we may experience quarterly fluctuations in our operating results due to a number of factors, which makes our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.
        Upon completion of this offering, our directors, executive officers and holders of more than 5% of our common stock, together with their respective affiliates, will beneficially own, in the aggregate, approximately            % of our outstanding common stock. See "Risk Factors—Insiders will continue to have substantial control over us after this offering, which may limit our stockholders' ability to influence corporate matters and delay or prevent a third party from acquiring control over us."
Corporate Information
        We were incorporated in March 2005 in the state of Delaware under the name CBG Holdings, Inc. We changed our name to Q2 Holdings, Inc. in March 2013. We are headquartered in Austin, Texas, and our principal executive offices are located at 13785 Research Blvd, Suite 150, Austin, Texas 78750. Our telephone number is (512) 275-0072.
        Our website address is www.q2ebanking.com. The information contained in, or that can be accessed through, our website is not part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our common stock. Investors, the media and others should note that, following the completion of this offering, we intend to announce material information to the public through filings with the Securities and Exchange Commission, or the SEC, the investor relations page on our website, press releases, public conference calls and webcasts.
        We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we have elected to take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an "emerging growth company."
        "Q2" and its respective logos are our trademarks. Solely for convenience, we refer to our trademarks in this prospectus without the ™ and ® symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to our trademarks. Other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners. As indicated in this prospectus, we have included market data and industry forecasts that we obtained from industry publications and other sources.
 
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 The Offering

			
Common stock offered by us	 	            shares	
Common stock offered by selling stockholders	 	            shares	
Common stock to be outstanding after this offering	 	            shares	
Over-allotment option	 	            shares	
Use of proceeds	 	We estimate that the net proceeds to us from this offering will be approximately $            million, based upon an assumed initial public offering price of $            per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use $            million of the net proceeds we receive from this offering to repay outstanding indebtedness under our credit facility. We intend to use the remaining portion of our net proceeds from this offering primarily for working capital and other general corporate purposes, including to finance our expected growth, develop new technologies, fund capital expenditures, or expand our existing business through investments in or acquisitions of other businesses or technologies. We will not receive any of the proceeds from the sale of shares by the selling stockholders. See "Use of Proceeds."	
Risk Factors	 	See "Risk Factors" for a discussion of factors that you should consider carefully before deciding whether to purchase shares of our common stock.	
Proposed                  symbol	 	QTWO	
        Our fiscal year ends on December 31. Except as otherwise indicated, all information in this prospectus (i) is based upon 25,630,261 shares of common stock outstanding as of September 30, 2013 and (ii) excludes:
•
5,361,390 shares issuable upon the exercise of options outstanding as of September 30, 2013, having a weighted average exercise price of $2.50 per share; 

•
336,708 shares available for future awards under our 2007 Stock Plan as of September 30, 2013, which shall be added to the number of shares reserved for awards under our 2014 Equity Incentive Plan described in the section titled "Executive Compensation—Benefit Plans;" 

•
shares, subject to increase on an annual basis, reserved for future issuance under our 2014 Equity Incentive Plan; and 

•
shares, subject to increase on an annual basis, reserved for future issuance under our 2014 Employee Stock Purchase Plan.
 
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        Unless otherwise noted, the information in this prospectus assumes:
•
the underwriters do not exercise their over-allotment option; 

•
the conversion of all of our outstanding shares of preferred stock into 13,582,685 shares of common stock prior to or upon the closing of this offering; and 

•
the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, which will occur immediately prior to the completion of this offering.
 
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 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
         The following tables summarize the consolidated financial and operating data for the periods indicated. The summary consolidated statements of operations data for the years ended December 31, 2011 and 2012 and for the nine months ended September 30, 2013 and the summary consolidated balance sheet data as of December 31, 2011 and 2012 and as of September 30, 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data presented below for the nine months ended September 30, 2012 have been derived from the unaudited interim consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the summary financial data presented below in conjunction with our consolidated financial statements and related notes and the sections titled "Selected Consolidated Financial and Other Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
 	 	(in thousands, except per share data)	 	
Consolidated Statements of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	 	$	26,982	 	$	41,101	 	$	29,151	 	$	41,203	 	
Cost of revenues(1)(2)	 	 	14,795	 	 	25,170	 	 	17,478	 	 	25,382	 	
 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	12,187	 	 	15,931	 	 	11,673	 	 	15,821	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing(2)	 	 	5,589	 	 	8,962	 	 	6,298	 	 	11,797	 	
Research and development(2)	 	 	3,428	 	 	5,317	 	 	3,804	 	 	6,277	 	
General and administrative(2)	 	 	4,857	 	 	8,780	 	 	6,366	 	 	8,318	 	
Unoccupied lease charges(3)	 	 	—	 	 	—	 	 	—	 	 	236	 	
 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	13,874	 	 	23,059	 	 	16,468	 	 	26,628	 	
 	 	 	 	 	 	 	 	 	 	
Loss from operations	 	 	(1,687	)	 	(7,128	)	 	(4,795	)	 	(10,807	)	
Total other expense, net	 	 	(76	)	 	(228	)	 	(160	)	 	(337	)	
 	 	 	 	 	 	 	 	 	 	
Loss before income taxes	 	 	(1,763	)	 	(7,356	)	 	(4,955	)	 	(11,144	)	
Provision for income taxes	 	 	(132	)	 	(164	)	 	(112	)	 	(33	)	
 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations	 	 	(1,895	)	 	(7,520	)	 	(5,067	)	 	(11,177	)	
 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations, net of tax(4)	 	 	(1,132	)	 	(1,259	)	 	(918	)	 	(199	)	
 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(3,027	)	$	(8,779	)	$	(5,985	)	$	(11,376	)	
 	 	 	 	 	 	 	 	 	 	
Net loss per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations per common share, basic and diluted	 	$	(0.17	)	$	(0.66	)	$	(0.45	)	$	(0.95	)	
 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations per common share, basic and diluted	 	$	(0.10	)	$	(0.11	)	$	(0.08	)	$	(0.01	)	
 	 	 	 	 	 	 	 	 	 	
Net loss per common share, basic and diluted          	 	$	(0.27	)	$	(0.77	)	$	(0.53	)	$	(0.96	)	
 	 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted	 	 	11,326	 	 	11,345	 	 	11,341	 	 	11,794	 	
Pro forma net loss per common share (unaudited)(5):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted	 	 	 	 	$	(0.39	)	 	 	 	$	(0.46	)	
 	 	 	 	 	 	 	 	 	 	 	 	
Pro forma weighted average common shares outstanding (unaudited)(5):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted	 	 	 	 	 	22,323	 	 	 	 	 	24,814	 	
Other Financial Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA(6)	 	$	(277	)	$	(4,400	)	$	(3,082	)	$	(7,334	)	

 
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(1)
Includes reclassified costs of research and development personnel who performed certain implementation and customer support services as follows:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012 	 	2012	 	2013 	 	
Research and development costs reclassified into cost of revenues	 	$	434	 	$	1,390	 	$	929	 	$	1,249	 	
(2)
Includes stock-based compensation expenses as follows:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012 	 	2012	 	2013 	 	
Cost of revenues	 	$	52	 	$	187	 	$	127	 	$	192	 	
Sales and marketing	 	 	52	 	 	123	 	 	82	 	 	180	 	
Research and development	 	 	57	 	 	195	 	 	132	 	 	189	 	
General and administrative	 	 	236	 	 	526	 	 	343	 	 	561	 	
 	 	 	 	 	 	 	 	 	 	
Total stock-based compensation expenses	 	$	397	 	$	1,031	 	$	684	 	$	1,122	 	
 	 	 	 	 	 	 	 	 	 	
(3)
Unoccupied lease charges include costs related to our early exit from our previous headquarters, partially offset by anticipated sublease income from that facility.

(4)
We previously had a subsidiary which we fully divested in March 2013. Loss from discontinued operations, net of tax reflects the financial results of this divested subsidiary.

(5)
Pro forma basic and diluted net loss per common share have been calculated assuming the conversion of all outstanding shares of preferred stock at the later of January 1, 2012 or the date of issuance of preferred stock.

(6)
We define adjusted EBITDA as net loss before depreciation, amortization, loss from discontinued operations, stock-based compensation, provision for income taxes, total other expense, net, unoccupied lease charges and loss on disposal of long-lived assets. See "Selected Consolidated Financial and Other Data" for more information and a reconciliation of adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP.
 
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 	 	September 30, 2013	 	
 	 	Actual	 	Pro Forma(1)	 	Pro Forma As
Adjusted(2)	 	
 	 	(in thousands)	 	
Consolidated Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	21,173	 	$	21,173	 	 	 	 	
Total current assets	 	 	32,973	 	 	32,973	 	 	 	 	
Deferred solution and other costs, total	 	 	6,671	 	 	6,671	 	 	 	 	
Deferred implementation costs, total	 	 	6,320	 	 	6,320	 	 	 	 	
Total current liabilities	 	 	20,401	 	 	20,401	 	 	 	 	
Deferred revenues, total	 	 	23,456	 	 	23,456	 	 	 	 	
Total redeemable preferred and common stock	 	 	42,052	 	 	—	 	 	 	 	
Total junior preferred stock	 	 	1,740	 	 	—	 	 	 	 	
Total common stock	 	 	1	 	 	3	 	 	 	 	
Additional paid-in capital	 	 	6,099	 	 	49,889	 	 	 	 	
Total stockholders' equity (deficit)	 	 	(30,393	)	 	11,659	 	 	 	 	

(1)
The pro forma balance sheet data gives effect to the conversion of all outstanding shares of preferred stock into 13,583 shares of common stock.

(2)
The pro forma as adjusted balance sheet data (i) gives effect to the pro forma adjustments set forth in footnote (1) above, and (ii) also gives effect to our issuance of and sale of            shares of common stock in this offering at an assumed initial public offering price of $            per share, the midpoint of the price range listed on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
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 RISK FACTORS
         An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below and all other information contained in this prospectus before deciding whether to purchase shares of our common stock. Our business, prospects, financial condition or operating results could be materially adversely affected by any of these risks, which we believe are the material risks currently facing us, as well as other risks not currently known to us or that are currently considered immaterial. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and related notes, before deciding to purchase any shares of our common stock.
         We have experienced rapid growth in recent periods, and if we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and customer satisfaction or adequately address competitive challenges, and our financial performance may be adversely affected.
        Since our inception, our business has rapidly grown, which has resulted in large increases in our number of employees, expansion of our infrastructure, enhancement of our internal systems and other significant changes and additional complexities. Our revenues increased from $27.0 million for the year ended December 31, 2011 to $41.1 million for the year ended December 31, 2012 and from $29.2 million for the nine months ended September 30, 2012 to $41.2 million for the nine months ended September 30, 2013. We also increased our total number of full-time employees from 203 as of December 31, 2011 to 400 as of September 30, 2013. While we intend to further expand our overall business, customer base, and number of employees, our recent growth rate is not necessarily indicative of the growth that we will achieve in the future. The growth in our business generally and our management of a growing workforce and customer base geographically-dispersed across the U.S. will require substantial management effort, infrastructure and operational capabilities. To support our growth, we must continue to improve our management resources and our operational and financial controls and systems, and these improvements may increase our expenses more than anticipated and result in a more complex business. We will also have to anticipate the necessary expansion of our relationship management, implementation, customer service and other personnel to support our growth and achieve high levels of customer service and satisfaction. Our success will depend on our ability to plan for and manage this growth effectively. If we fail to anticipate and manage our growth or are unable to provide high levels of customer service, our reputation, as well as our business, results of operations and financial condition, could be harmed.
         If the market for our cloud-based virtual banking solutions develops more slowly than we expect or changes in a way that we fail to anticipate, our sales would suffer and our operating results would be harmed.
        Use of and reliance on cloud-based virtual banking solutions is at an early stage, and we do not know whether RCFIs will continue to adopt virtual banking solutions such as ours in the future, or whether the market will change in ways that we do not anticipate. Many RCFIs have invested substantial personnel and financial resources in legacy software, and these institutions may be reluctant or unwilling to convert from their existing systems to our solutions. Furthermore, some RCFIs may be reluctant or unwilling to use a cloud-based solution over concerns such as the security of their data and reliability of the delivery model. These concerns or other considerations may cause RCFIs to choose not to adopt cloud-based solutions such as ours or to adopt alternative solutions, either of which would harm our operating results. If RCFIs are unwilling to transition from their legacy systems, the demand for our virtual banking solutions and related services could decline and adversely affect our business, operating results and financial condition.
        Our future success also depends on our ability to sell additional solutions and enhanced solutions to our current customers. As we create new solutions and enhance our existing solutions to support new technologies and devices, these solutions and related services may not be attractive to customers.
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In addition, promoting and selling these new and enhanced solutions may require increasingly costly sales and marketing efforts, and if customers choose not to adopt these solutions, our business could suffer.
         Our business could be adversely affected if our customers are not satisfied with our virtual banking solutions or our systems and infrastructure fail to meet their needs.
        Our business depends on our ability to satisfy our customers and meet their virtual banking needs. Our customers use a variety of network infrastructure, hardware and software and our virtual banking solutions must support the specific configuration of our customers' existing systems, including in many cases the solutions of third-party providers. If our solutions do not currently support a customer's required data format or appropriately integrate with a customer's applications and infrastructure, then we must configure our solutions to do so, which could negatively affect the performance of our systems and increase our expenses and the time it takes to implement our solutions. Any failure of or delays in our systems could cause service interruptions or impaired system performance. Some of our customer agreements require us to issue credits for downtime in excess of certain thresholds, and in some instances give our customers the ability to terminate the agreements in the event of significant amounts of downtime. If sustained or repeated, these performance issues could reduce the attractiveness of our solutions to new and existing customers, cause us to lose customers, and lower renewal rates by existing customers, each of which could adversely affect our revenue and reputation. In addition, negative publicity resulting from issues related to our customer relationships, regardless of accuracy, may damage our business by adversely affecting our ability to attract new customers and maintain and expand our relationships with existing customers.
        If the use of our virtual banking solutions increases, or if our customers demand more advanced features from our solutions, we will need to devote additional resources to improving our solutions, and we also may need to expand our technical infrastructure at a more rapid pace than we have in the past. This would involve spending substantial amounts to purchase or lease data center capacity and equipment, upgrade our technology and infrastructure and introduce new or enhanced solutions. It takes a significant amount of time to plan, develop and test changes to our infrastructure, and we may not be able to accurately forecast demand or predict the results we will realize from such improvements. There are inherent risks associated with changing, upgrading, improving and expanding our technical infrastructure. Any failure of our solutions to operate effectively with future infrastructure and technologies could reduce the demand for our solutions, resulting in customer dissatisfaction and harm to our business. Also, any expansion of our infrastructure would likely require that we appropriately scale our internal business systems and services organization, including implementation and customer support services, to serve our growing customer base. If we are unable to respond to these changes or fully and effectively implement them in a cost-effective and timely manner, our service may become ineffective, we may lose customers, and our operating results may be negatively impacted.
         Our limited operating history makes it difficult to evaluate our current business and future prospects.
        We began our operations in March 2005. Our limited operating history makes it difficult to evaluate our current business and future prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly developing and changing industries, including challenges in forecasting the future growth of our customer base, the number of our customers' account holders and the number of users registered to use our solutions as well as the number of transactions that registered users perform on our solutions. In addition, we have and may continue to face challenges with our infrastructure, services organization and related expenses, market acceptance of our existing and future solutions, competition from established companies with greater financial and technical resources as well as new competitive entrants, acquiring and retaining customers, managing customer implementations and developing new solutions. We cannot assure you
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that we will be successful in addressing these difficulties and other challenges we may face in the future.
         The markets in which we participate are intensely competitive, and pricing pressure, new technologies or other competitive dynamics could adversely affect our business and operating results.
        We currently compete with providers of technology and services in the financial services industry, including point system vendors and core processing vendors, as well as systems internally-developed by RCFIs. We have a number of point system competitors, including Digital Insight Corporation (currently being acquired by NCR Corporation), First Data Corporation and ACI Worldwide, Inc. in the online, consumer and small business banking space and Fundtech Ltd., ACI Worldwide, Inc., Clear2Pay NV/SA and Bottomline Technologies (de), Inc. in the commercial banking space. We also compete with core processing vendors that provide systems and services such as Fiserv, Inc., Jack Henry and Associates, Inc. and Fidelity National Information Services, Inc. Many of our competitors have significantly more financial, technical, marketing and other resources than we have, may devote greater resources to the promotion, sale and support of their systems than we can, have more extensive customer bases and broader customer relationships than we have and have longer operating histories and greater name recognition than we have. In addition, many of our competitors expend a greater amount of funds on research and development.
        We may also face competition from new companies entering our markets, which may include large established businesses that decide to develop, market or resell virtual banking solutions, acquire one of our competitors or form a strategic alliance with one of our competitors. In addition, new companies entering our markets may choose to offer virtual banking applications at little or no additional cost to the customer by bundling them with their existing applications, including adjacent banking technologies and core processing software. New entrants to the market might also include non-banking providers of payment solutions and other technologies. Competition from these new entrants may make our business more difficult and adversely affect our results.
        If we are unable to compete in this environment, sales and renewals of our virtual banking solutions could decline and adversely affect our business, operating results and financial condition. With the introduction of new technologies and potential new entrants into the virtual banking solutions market, we expect competition to intensify in the future, which could harm our ability to increase sales and achieve profitability. Our industry has experienced consolidation. For example, in December 2013, NCR Corporation announced its acquisition of Digital Insight Corporation, which is expected to close in the first quarter of 2014. We believe that our industry could experience further consolidation, which could lead to increased competition and result in pricing pressure or loss of market share, either of which could have a material adverse effect on our business, limit our growth prospects or reduce our revenues.
         If we are unable to effectively integrate our solutions with other systems used by our customers and prospective customers, or if there are performance issues with such third-party systems, our solutions will not operate effectively and our operations will be adversely affected.
        The functionality of our solutions depends on our ability to integrate with other third-party systems used by our customers, including core processing software. Certain providers of these third-party systems also offer solutions that are competitive with our solutions and may have an advantage over us with customers using their software by having better ability to integrate with their software and by being able to bundle their competitive products with other applications used by our customers and prospective customers at favorable pricing. We do not have formal arrangements with many of these third-party providers regarding our access to their application program interfaces, or APIs, to enable these customer integrations.
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        Our business may be harmed if any of our third-party providers:
•
change the features or functionality of their applications and platforms in a manner adverse to us; 

•
discontinue or limit our solutions' access to their systems; 

•
terminate or do not allow us to renew or replace our existing contractual relationships on the same or better terms; 

•
modify their terms of service or other policies, including fees charged to, or other restrictions on, us or our customers; 

•
establish more favorable relationships with one or more of our competitors, or acquire one or more of our competitors and offer competing services; or 

•
otherwise have or develop their own competitive offerings.
        Such changes could limit or prevent us from integrating our solutions with these third-party systems, which could impair the functionality of our solutions, prohibit the use of our solutions or limit our ability to sell our solutions to customers, each of which could harm our business. If we are unable to integrate with such third-party software as a result of changes to or restricted access to the software by such third parties during the terms of existing agreements with customers using such third-party software, we may not be able to meet our contractual obligations to customers, which may result in disputes with customers and harm to our business. In addition, if any third-party software providers experience an outage, our virtual banking solutions integrated with such software will not function properly or at all, and our customers may be dissatisfied with our virtual banking solutions. If the software of such third-party providers have performance or other problems, such issues may reflect poorly on us and the adoption and renewal of our virtual banking solutions and our business may be harmed. Although our customers may be able to switch to alternative technologies if a provider's services was unreliable or if a provider were to limit such customer's access and utilization of its data or the provider's functionality, our business could nevertheless be harmed due to the risk that our customers could reduce their use of our solutions.
         Our customers are highly regulated and subject to a number of challenges and risks. Our failure to comply with laws and regulations applicable to us as a technology provider to financial institutions and to enable our RCFI customers to comply with the laws and regulations applicable to them could adversely affect our business and results of operations, increase costs and impose constraints on the way we conduct our business.
        Our customers and prospective customers are highly regulated and may be required to comply with stringent regulations in connection with subscribing to and implementing our virtual banking solutions. As a provider of technology to RCFIs, we are examined on a periodic basis by various regulatory agencies and required to review certain of our suppliers and partners. The examination handbook and other guidance issued by the Federal Financial Institutions Examination Council govern the examination of our operations and include a review of our systems and data center and technical infrastructure, management, financial condition, development activities and our support and delivery capabilities. If deficiencies are identified, customers may choose to terminate or reduce their relationships with us. In addition, while much of our operations are not directly subject to the same regulations applicable to RCFIs, we are generally obligated to our customers to provide software solutions and maintain internal systems and processes that comply with federal and state regulations applicable to them. In particular, as a result of obligations under our customer agreements, we are required to comply with certain provisions of the Gramm-Leach-Bliley Act related to the privacy of consumer information and may be subject to other privacy and data security laws because of the solutions we provide to RCFIs. In addition, numerous regulations have been proposed and are still being written to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
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including requirements for enhanced due diligence of the internal systems and processes of companies like ours by their financial institution customers. If we have to make changes to our internal processes and solutions as result of this heightened scrutiny, we could be required to invest substantial additional time and funds and divert time and resources from other corporate purposes to remedy any identified deficiency.
        This evolving, complex and often unpredictable regulatory environment could result in our failure to provide compliant solutions, which could result in customers' not purchasing our solutions or terminating their agreements with us or the imposition of fines or other liabilities for which we may be responsible. In addition, federal, state and/or foreign agencies may attempt to further regulate our activities in the future. For example, Congress could enact legislation to regulate providers of electronic commerce services as retail financial services providers or under another regulatory framework. If enacted or deemed applicable to us, such laws, rules or regulations could be imposed on our activities or our business thereby rendering our business or operations more costly, burdensome, less efficient or impossible, any of which could have a material adverse effect on our business, financial condition and operating results.
         If our or our customers' security measures are compromised or unauthorized access to customer data is otherwise obtained, our solutions may be perceived as not being secure, customers may curtail or cease their use of our solutions, our reputation may be harmed, and we may incur significant liabilities.
        Our operations involve access to and transmission of proprietary information and data and transaction details of our customers and their account holders. Our security measures and the security measures of our customers may not be sufficient to prevent our systems from being compromised. Security incidents could result in unauthorized access to, loss of or unauthorized disclosure of this information, litigation, indemnity obligations and other possible liabilities, as well as negative publicity, which could damage our reputation, impair our sales and harm our business. Cyber-attacks, account take-over attacks, fraudulent representations and other malicious Internet-based activity continue to increase and financial institutions, their account holders and virtual banking providers are often targets of such attacks. In addition, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information to gain access to our confidential or proprietary information or the data of our customers and their account holders. A party who is able to compromise the security of our facilities could cause interruptions or malfunctions in our operations. If security measures are compromised as a result of third-party action, the error or intentional misconduct of employees, customers or their account holders, malfeasance or stolen or fraudulently obtained log-in credentials, our reputation could be damaged, our business may be harmed and we could incur significant liability. We may be unable to anticipate or prevent techniques used to obtain unauthorized access or sabotage systems because they change frequently and generally are not detected until after an incident has occurred. As we increase our customer base and our brand becomes more widely known and recognized, we may become more of a target for third parties seeking to compromise our security systems or gain unauthorized access to the data of our customers and their account holders. A failure or inability to meet our customers' expectations with respect to security and confidentiality could seriously damage our reputation and affect our ability to retain customers and attract new business.
        Federal and state regulations may require us to notify individuals of data security incidents involving certain types of personal data. Security compromises experienced by our competitors, by our customers or by us may lead to public disclosures and widespread negative publicity. Any security compromise in our industry, whether actual or perceived, could erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, cause existing customers to elect not to renew their subscriptions or subject us to third-party lawsuits, regulatory fines or other action or liability, which could materially and adversely affect our business and operating results.
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        In addition, some of our customers contractually require notification of any data security compromise and include representations and warranties that our solutions comply with certain regulations related to data security and privacy. Although our customer agreements typically include limitations on our potential liability, there can be no assurance that such limitations of liability would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. We also cannot be sure that our existing general liability insurance coverage and coverage for errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more claims, or that our insurers will not deny or attempt to deny coverage as to any future claim. The successful assertion of one or more claims against us, the inadequacy of or denial of coverage under our insurance policies, litigation to pursue claims under our policies or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition and results of operations.
         We may experience quarterly fluctuations in our operating results due to a number of factors, which makes our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.
        Our quarterly operating results have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Our past results may not be indicative of our future performance. In addition to the other risks described in this prospectus, factors that may affect our quarterly operating results include the following:
•
the addition or loss of customers, including through acquisitions, consolidations or failures; 

•
the amount of use of our solutions in a period and the amount of any associated revenues and expenses; 

•
budgeting cycles of our customers and changes in spending on virtual banking solutions by our current or prospective customers; 

•
seasonal variations in sales of our solutions, which may be lowest in the first quarter of the calendar year; 

•
changes in the competitive dynamics of our industry, including consolidation among competitors, changes to pricing or the introduction of new products and services that limit demand for our virtual banking solutions or cause customers to delay purchasing decisions; 

•
the amount and timing of cash collections from our customers; 

•
long or delayed implementation times for new customers or other changes in the levels of customer support we provide; 

•
the timing of customer payments and payment defaults by customers, including any buyouts by customers of the remaining term of their contracts with us in a lump sum payment that we would have otherwise recognized over the term of those contracts; 

•
the amount and timing of our operating costs and capital expenditures; 

•
changes in tax rules or the impact of new accounting pronouncements; 

•
general economic conditions that may adversely affect our customers' ability or willingness to purchase solutions, delay a prospective customer's purchasing decision, reduce our revenues from customers or affect renewal rates; 

•
unexpected expenses such as those related to litigation or other disputes;
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•
the timing of stock awards to employees and related adverse financial statement impact of having to expense those stock awards over their vesting schedules; and 

•
the amount and timing of costs associated with recruiting, hiring, training and integrating new employees, many of whom we hire in advance of anticipated needs.
        Moreover, our stock price might be based on expectations of investors or securities analysts of future performance that are inconsistent with our actual growth opportunities or that we might fail to meet and, if our revenues or operating results fall below expectations, the price of our common stock could decline substantially.
         We have a history of losses, and we do not expect to be profitable for the foreseeable future.
        We have incurred losses from operations in each period since our inception in 2005, except for 2010 when we recognized a gain on the sale of a subsidiary. We incurred net losses of $11.4 million for the nine months ended September 30, 2013 and $8.8 million and $3.0 million for the years ended December 31, 2012 and December 31, 2011, respectively. As of September 30, 2013, we had an accumulated deficit of $38.2 million. These losses and accumulated deficit reflect the substantial investments we have made to develop our solutions and acquire customers. As we seek to continue to grow our number of customers, we expect to incur significant sales, marketing, implementation and other related expenses. Our ability to achieve or sustain profitability will depend on our obtaining sufficient scale and productivity so that the cost of adding and supporting new customers does not adversely impact our margins. We also expect to make other significant expenditures to develop and expand our solutions and our business, including continuing to increase our marketing, services and sales operations and continuing our significant investment in research and development and our technical infrastructure. We expect to incur losses for the foreseeable future as we continue to focus on adding new customers, and we cannot predict whether or when we will achieve or sustain profitability. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenues enough to offset our higher operating expenses. In addition, as a public company, we will incur significant legal, accounting and other expenses that we do not incur as a private company. These increased expenditures will make it harder for us to achieve and maintain profitability. While our revenues have grown in recent periods, it may not be sustainable, and our revenues could decline or grow more slowly than we expect. We also may incur additional losses in the future for a number of reasons, including due to litigation and other unforeseen reasons and the risks described in this prospectus. Accordingly, we cannot assure you that we will achieve profitability in the future, nor that, if we do become profitable, we will be able to sustain profitability. If we are unable to achieve and sustain profitability, our customers may lose confidence in us and slow or cease their purchases of our solutions and we may be unable to attract new customers, which would adversely impact our operating results.
         Our sales cycle can be unpredictable, time-consuming and costly, which could harm our business and operating results.
        Our sales process involves educating prospective customers and existing customers about the use, technical capabilities and benefits of our solutions. Prospective customers often undertake a prolonged evaluation process, which typically involves not only our solutions, but also those of our competitors and lasts from six to nine months or longer. We may spend substantial time, effort and money on our sales and marketing efforts without any assurance that our efforts will produce any sales. It is also difficult to predict the level and timing of sales opportunities that come from our referral partners. Events affecting our customers' businesses may occur during the sales cycle that could affect the size or timing of a purchase, contributing to more unpredictability in our business and operating results. As a result of these factors, we may face greater costs, longer sales cycles and less predictability in the future.
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         We do not have an adequate history with our subscription or pricing models to accurately predict the long-term rate of customer subscription renewals or adoption, or the impact these renewals and adoption will have on our revenues or operating results.
        We have limited experience with respect to determining the optimal prices for our solutions. As the markets for our existing solutions develop, we may be unable to attract new customers at the same price or based on the same pricing model as we have used historically. Moreover, large or influential RCFIs may demand more favorable pricing or other contract terms. As a result, in the future we may be required to reduce our prices or accept other unfavorable contract terms, each of which could adversely affect our revenues, gross margin, profitability, financial position and cash flow.
        Our customers have no obligation to renew their subscriptions for our solutions after the expiration of the initial subscription term, and our customers may renew for fewer solutions or on different pricing terms, if at all. Since the average initial term of our customer agreements is over five years and we only began selling our solutions in 2005, we have limited historical data with respect to rates of customer subscription renewals, so we cannot be certain of our pricing model for renewals or the accuracy of our anticipated renewal rates. Our renewal rates may decline or fluctuate as a result of a number of factors, including our customers' satisfaction with our pricing or our solutions or their ability to continue their operations and spending levels. If our customers do not renew their subscriptions for our solutions on similar pricing terms, our revenues may decline and our business could suffer. As we create new solutions or enhance our existing solutions to support new technologies and devices, our pricing of these solutions and related services may be unattractive to customers or fail to cover our costs.
         Defects or errors in our virtual banking solutions could harm our reputation, result in significant costs to us, impair our ability to sell our solutions and subject us to substantial liability.
        Our virtual banking solutions are inherently complex and may contain defects or errors, particularly when first introduced or as new versions are released. Despite extensive testing, from time-to-time we have discovered defects or errors in our solutions. In addition, due to changes in regulatory requirements relating to our customers or to technology providers to financial institutions like us, we may discover deficiencies in our software processes related to those requirements. Material performance problems or defects in our solutions might arise in the future.
        Any such errors, defects, other performance problems or disruptions in service to provide bug fixes or upgrades, whether in connection with day-to-day operations or otherwise, could be costly for us to remedy, damage our customers' businesses and harm our reputation. In addition, if we have any such errors, defects or other performance problems, our customers could seek to terminate their agreements, elect not to renew their subscriptions, delay or withhold payment or make claims against us. Any of these actions could result in lost business, increased insurance costs, difficulty in collecting our accounts receivable, costly litigation and adverse publicity. Such errors, defects or other problems could also result in reduced sales or a loss of, or delay in, the market acceptance of our solutions.
        Moreover, software development is time-consuming, expensive, complex and requires regular maintenance. Unforeseen difficulties can arise. If we do not complete our periodic maintenance according to schedule or if customers are otherwise dissatisfied with the frequency and/or duration of our maintenance services, customers could elect not to renew, or delay or withhold payment to us or cause us to issue credits, make refunds or pay penalties. Because our solutions are often customized and deployed on a customer-by-customer basis, rather than through a multi-tenant SaaS method of distribution, applying bug fixes, upgrades or other maintenance services may require updating each instance of our software, which could be time consuming and cause us to incur significant expense. We might also encounter technical obstacles, and it is possible that we discover problems that prevent our solutions from operating properly. If our solutions do not function reliably or fail to achieve customer expectations in terms of performance, customers could seek to cancel their agreements with us and
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assert liability claims against us, which could damage our reputation, impair our ability to attract or maintain customers and harm our results of operations.
         Failures or reduced accessibility of third-party hardware and software on which we rely could impair the delivery of our solutions and adversely affect our business.
        We rely on hardware that we purchase or lease and software that we develop or license from, or that is hosted by third parties, to offer our virtual banking solutions. In addition, we obtain licenses from third parties to use intellectual property associated with the development of our solutions. These licenses might not continue to be available to us on acceptable terms, or at all. While we are not substantially dependent upon any third party hardware or software, the loss of the right to use all or a significant portion of our third party hardware or software required for the development, maintenance and delivery of our solutions could result in delays in the provision of our solutions until we develop or identify, obtain and integrate equivalent technology, which could harm our business.
        Any errors or defects in the hardware or software we use could result in errors, interruptions or a failure of our solutions. Although we believe that there are alternatives, any significant interruption in the availability of all or a significant portion of such hardware or software could have an adverse impact on our business unless and until we can replace the functionality provided by these products at a similar cost. Furthermore, this hardware and software may not be available on commercially reasonable terms, or at all. The loss of the right to use all or a significant portion of this hardware or software could limit access to our solutions. Additionally, we rely upon third parties' abilities to enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. We may be unable to effect changes to such third-party technologies, which may prevent us from rapidly responding to evolving customer requirements. We also may be unable to replace the functionality provided by the third-party software currently offered in conjunction with our solutions in the event that such software becomes obsolete or incompatible with future versions of our solutions or is otherwise not adequately maintained or updated.
         We depend on data centers operated by third parties and third-party Internet hosting providers, and any disruption in the operation of these facilities or access to the Internet could adversely affect our business.
        We currently serve our customers from two third-party data center hosting facilities located in Austin, Texas and Las Vegas, Nevada. We plan on migrating our data center operations in Nevada to a new data center hosting facility in Dallas, Texas in the first half of 2014. The owners and operators of these current and future facilities do not guarantee that our customers' access to our solutions will be uninterrupted, error-free or secure. We may experience website disruptions, outages and other performance problems, including problems resulting from our anticipated data center migration. These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in customer usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. We do not control the operation of these data center facilities, and such facilities are vulnerable to damage or interruption from human error, intentional bad acts, power loss, hardware failures, telecommunications failures, fires, wars, terrorist attacks, floods, earthquakes, hurricanes, tornadoes or similar catastrophic events. They also could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. The occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or terminate our hosting arrangement or other unanticipated problems could result in lengthy interruptions in the delivery of our solutions, cause system interruptions, prevent our customers' account holders from accessing their accounts online, reputational harm and loss of critical data, prevent us from supporting our solutions or cause us to incur additional expense in arranging for new facilities and support.
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        We also depend on third-party Internet-hosting providers and continuous and uninterrupted access to the Internet through third-party bandwidth providers to operate our business. If we lose the services of one or more of our Internet-hosting or bandwidth providers for any reason or if their services are disrupted, for example due to viruses or denial of service or other attacks on their systems, or due to human error, intentional bad acts, power loss, hardware failures, telecommunications failures, fires, wars, terrorist attacks, floods, earthquakes, hurricanes, tornadoes or similar catastrophic events, we could experience disruption in our ability to offer our solutions and adverse perception of our solutions' reliability, or we could be required to retain the services of replacement providers, which could increase our operating costs and harm our business and reputation.
         We derive all of our revenues from customers in the financial services industry, and any downturn or consolidation in the financial services industry could harm our business.
        All of our revenues are derived from RCFIs. RCFIs have experienced significant pressure in recent years due to economic uncertainty, liquidity concerns and increased regulation. In the recent past, many RCFIs have failed, merged or been acquired. Failures and consolidations may continue, and there are very few new RCFIs being created. Further, if our customers merge with or are acquired by other entities such as financial institutions that have in-house developed virtual banking solutions or that are not our customers or use fewer of our solutions, our customers may discontinue, reduce or change the terms of their use of our solutions. It is also possible that the larger RCFIs that result from mergers or consolidations could have greater leverage in negotiating terms with us or could decide to replace some or all of our solutions. In addition, any downturn in the financial services industry may cause our customers to reduce their spending on virtual banking solutions or to seek to terminate or renegotiate their contracts with us. Any of these developments could have an adverse effect on our business, results of operations and financial condition.
         Because we recognize revenues from our virtual banking solutions over the terms of our customer agreements, the impact of changes in the subscriptions for our solutions will not be immediately reflected in our operating results, and rapid growth in our customer base may adversely affect our operating results in the short term since we expense a substantial portion of implementation costs as incurred.
        We generally recognize revenues monthly over the terms of our customer agreements. The initial term of our customer agreements averages over five years, although it varies by customer. As a result, the substantial majority of the revenues we report in each quarter are related to agreements entered into during previous quarters. Consequently, a change in the level of new customer agreements or implementations in any quarter may have a small impact on our revenues in that quarter but will affect our revenues in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our solutions, or changes in our rate of renewals may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenues through additional sales in any period.
        Additionally, we recognize our expenses over varying periods based on the nature of the expense. In particular, we recognize a portion of implementation expenses as incurred even though we recognize the related revenues over extended periods. As a result, we may report poor operating results in periods in which we are incurring higher implementation expenses related to revenues which we will recognize in future periods. Alternatively, we may report better operating results in periods due to lower implementation expenses, but such lower expenses may be indicative of slower revenue growth in future periods. As a result, our expenses may fluctuate as a percentage of revenues and changes in our business generally may not be immediately reflected in our results of operations.
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         As the number of customers that we serve increases, we may encounter implementation challenges, and we may have to delay revenue recognition for some complex engagements, which would harm our business and operating results.
        We may face unexpected implementation challenges related to the complexity of our customers' implementation and integration requirements. Our implementation expenses increase when customers have unexpected data, hardware or software technology challenges, or complex or unanticipated business requirements. In addition, our customers typically require complex acceptance testing related to the implementation of our solutions. Implementation delays may also require us to delay revenue recognition under the related customer agreement longer than expected. Further, because we do not fully control our customers' implementation schedules, if our customers do not allocate the internal resources necessary to meet implementation timelines or if there are unanticipated implementation delays or difficulties, our revenue recognition may be delayed. Losses of registered users or any difficulties or delays in implementation processes could cause customers to delay or forego future purchases of our solutions, which would adversely affect our business, operating results and financial condition.
         Shifts over time in the number of account holders and registered users of our solutions, their use of our solutions and our customers' implementation and customer support needs could negatively affect our profit margins.
        Our profit margins can vary depending on numerous factors, including the scope and complexity of our implementation efforts, the number of account holders and registered users on our solutions, the frequency and volume of their use of our solutions and the level of customer support services required by our customers. For example, our services offerings typically have a much higher cost of revenues than subscriptions to our solutions, so any increase in sales of services as a proportion of our subscriptions would have an adverse effect on our overall gross margin and operating results. If we are unable to increase the number of registered users and the number of transactions they perform on our solutions, the types of RCFIs that purchase our solutions changes, or the mix of solutions purchased by our customers changes, our profit margins could decrease and our operating results could be adversely affected.
         If we fail to provide effective customer training on our virtual banking solutions and high-quality customer support, our business and reputation would suffer.
        Effective customer training on our virtual banking solutions and high-quality, ongoing customer support are important to the successful marketing and sale of our solutions and for the renewal of existing customer agreements. Providing this training and support requires that our customer training and support personnel have financial services knowledge and expertise, making it difficult for us to hire qualified personnel and scale our training and support operations. The demand on our customer support organization will increase as we expand our business and pursue new customers, and such increased support could require us to devote significant development services and support personnel, which could strain our team and infrastructure and reduce our profit margins. If we do not help our customers quickly resolve any post-implementation issues and provide effective ongoing customer support, our ability to sell additional solutions to existing and future customers could suffer and our reputation would be harmed.
         If we fail to respond to evolving technological requirements or introduce adequate enhancements and new features, our virtual banking solutions could become obsolete or less competitive.
        The market for our solutions is characterized by rapid technological advancements, changes in customer requirements and technologies, frequent new product introductions and enhancements and changing regulatory requirements. The life cycles of our solutions are difficult to estimate. Rapid
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technological changes and the introduction of new products and enhancements by new or existing competitors or large financial institutions could undermine our current market position. Other means of digital or virtual banking may be developed or adopted in the future, and our solutions may not be compatible with these new technologies. In addition, the technological needs of, and services provided by, RCFIs may change if they or their competitors offer new services to account holders. Maintaining adequate research and development resources to meet the demands of the market is essential. The process of developing new technologies and solutions is complex and expensive. The introduction of new solutions by our competitors, the market acceptance of competitive solutions based on new or alternative technologies or the emergence of new technologies or solutions in the broader financial services industry could render our solutions obsolete or less effective.
        The success of any enhanced or new solution depends on several factors, including timely completion, adequate testing and market release and acceptance of the solution. Any new solutions that we develop or acquire may not be introduced in a timely or cost-effective manner, may contain defects or may not achieve the broad market acceptance necessary to generate significant revenues. If we are unable to anticipate customer requirements or work with our customers successfully on implementing new solutions or features in a timely manner or enhance our existing solutions to meet our customers' requirements, our business and operating results may be adversely affected.
         If we fail to effectively expand our sales and marketing capabilities and teams, including through partner relationships, we may not be able to increase our customer base and achieve broader market acceptance of our solutions.
        Increasing our customer base and achieving broader market acceptance of our virtual banking solutions will depend on our ability to expand our sales and marketing organizations and their abilities to obtain new customers and sell additional solutions and services to existing customers. We believe there is significant competition for direct sales professionals with the skills and knowledge that we require, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future. Our ability to achieve significant future revenue growth will depend on our success in recruiting, training and retaining a sufficient number of direct sales professionals. New hires require significant training and time before they become fully productive and may not become as productive as quickly as we anticipate. As a result, the cost of hiring and carrying new representatives cannot be offset by the revenues they produce for a significant period of time. Our growth prospects will be harmed if our efforts to expand, train and retain our direct sales team do not generate a corresponding significant increase in revenues. Additionally, if we fail to sufficiently invest in our marketing programs or they are unsuccessful in creating market awareness of our company and solutions, our business may be harmed and our sales opportunities limited.
        In addition to our direct sales team, we also extend our sales distribution through formal and informal relationships with referral partners. While we are not substantially dependent upon referrals from any partner, our ability to achieve significant revenue growth in the future will depend upon continued referrals from our partners and growth of the network of our referral partners. These partners are under no contractual obligation to continue to refer business to us, nor do these partners have exclusive relationships with us and may choose to instead refer potential customers to our competitors. We cannot be certain that these partners will prioritize or provide adequate resources for promoting our solutions or that we will be successful in maintaining, expanding or developing our relationships with referral partners. Our competitors may be effective in providing incentives to third parties, including our partners, to favor their solutions or prevent or reduce subscriptions to our solutions either by disrupting our relationship with existing customers or limiting our ability to win new customers. Establishing and retaining qualified partners and training them with respect to our solutions requires significant time and resources. If we are unable to devote sufficient time and resources to
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establish and train these partners, or if we are unable to maintain successful relationships with them, we may lose sales opportunities and our revenues could suffer.
         We rely on our management team and other key employees, and the loss of one or more key employees could harm our business.
        Our success and future growth depend upon the continued services of our management team, in particular our Chief Executive Officer, and other key employees, including in the areas of research and development, marketing, sales, services and general and administrative functions. From time to time, there may be changes in our management team resulting from the hiring or departure of executives, which could disrupt our business. We also are dependent on the continued service of our existing development professionals because of the complexity of our solutions, including complexity arising as a result of the regulatory requirements that are applicable to our customers and the pace of technology changes impacting our customers and their account holders. We may terminate any employee's employment at any time, with or without cause, and any employee may resign at any time, with or without cause; however, as described in "Executive Compensation—Agreements with Named Executive Officers—Employment Agreement," our employment agreement with our Chief Executive Officer provides for the payment of severance under certain circumstances. The loss of one or more of our key employees could harm our business.
         Because competition for key employees is intense, we may not be able to attract and retain the highly-skilled employees we need to support our operations and future growth.
        Competition for executive officers, software developers and other key employees in our industry is intense. In particular, we compete with many other companies for executive officers, for software developers with high levels of experience in designing, developing and managing software, as well as for skilled sales and operations professionals and knowledgeable customer support professionals, and we may not be successful in attracting the professionals we need. Our research and development organization is principally located in Austin, Texas, where competition for software development and engineering personnel is intense. We may have difficulty hiring and retaining suitably skilled personnel or expanding our research and development organization. In addition, job candidates and existing employees often consider the actual and potential value of the equity awards they receive as part of their overall compensation. Thus, if the perceived value or future value of our stock declines, our ability to attract and retain highly skilled employees may be adversely affected. In addition, upon the expiration of the lock-up period related to our initial public offering, many of our existing employees may exercise vested options and sell our stock, which may make it more difficult for us to retain key employees. If we fail to attract and retain new employees, our business and future growth prospects could be harmed.
         Our failure to comply with laws and regulations related to the Internet and mobile usage could adversely affect our business and results of operations, increase costs and impose constraints on the way we conduct our business.
        We and our customers are subject to laws and regulations applicable to doing business over the Internet and through the use of mobile devices. It is often not clear how existing laws governing issues such as property ownership, sales and other taxes apply to the Internet and mobile usage, as these laws have in some cases failed to keep pace with technological change. Laws governing the Internet could also impact our business or the business of our customers. For instance, existing and future regulations on taxing Internet use, pricing, characterizing the types and quality of services and products or restricting the exchange of information over the Internet or mobile devices could result in reduced growth of our business, a general decline in the use of the Internet by financial service institutions or their account holders, diminished viability of our solutions and could significantly restrict our
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customers' ability to use our solutions. Changing federal and state laws and regulations, industry standards and industry self-regulation regarding the collection, use and disclosure of certain data may have similar effects on our and our customers' businesses. Any such constraint on the growth in Internet and mobile usage could decrease its acceptance as a medium of communication and commerce or result in increased adoption of new modes of communication and commerce that may not be supported by our solutions. Any such adverse legal or regulatory developments could substantially harm our operating results and our business.
         Legislation relating to consumer privacy may affect our ability to collect data that we use in providing our customers' account holder information, which, among other things, could negatively affect our ability to satisfy our customers' needs.
        We collect and store personal and identifying information regarding our customer's account holders to enable certain functionality of our solutions and provide our customers with data about their account holders. The enactment of new or amended legislation or industry regulations pertaining to consumer or private sector privacy issues could have a material adverse impact on our collection, storage and sharing of such information. Legislation or industry regulations regarding consumer or private sector privacy issues could place restrictions upon the collection, sharing and use of information that is currently legally available, which could materially increase our cost of collecting some data. These types of legislation or industry regulations could also prohibit us from collecting or disseminating certain types of data, which could adversely affect our ability to meet our customers' requirements and our profitability and cash flow targets. While 46 states and the District of Columbia have enacted data breach notification laws, there is no such federal law generally applicable to our businesses. These legislative measures impose strict requirements on reporting time frames for providing notice, as well as the contents of such notices. The costs of compliance with, and other burdens imposed by, such laws and regulations may lead to significant fines, penalties or liabilities for any noncompliance with such privacy laws. Even the perception of privacy concerns, whether or not valid, may inhibit market adoption of our solutions.
        In addition to government activity, privacy advocacy groups and the technology and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on us. If the collecting, storing and processing of personal information were to be curtailed, our solutions would be less effective, which may reduce demand for our solutions and adversely affect our business.
         Any use of our virtual banking solutions by our customers in violation of regulatory requirements could damage our reputation and subject us to additional liability.
        If our customers or their account holders use our virtual banking solutions in violation of regulatory requirements and applicable laws, we could suffer damage to our reputation and could become subject to claims. We rely on contractual obligations made to us by our customers that their use and their account holders' use of our solutions will comply applicable laws. However, we do not audit our customers or their account holders to confirm compliance. We may become subject to or involved with claims for violations by our customers or their account holders of applicable laws in connection with their use of our solutions. Even if claims asserted against us do not result in liability, we may incur costs in investigating and defending against such claims. If we are found liable in connection with our customers' or their account holders' activities, we could incur liabilities and be required to redesign our solutions or otherwise expend resources to remedy any damages caused by such actions and to avoid future liability.
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         Any future litigation against us could be costly and time-consuming to defend.
        We may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of business such as claims brought by our customers in connection with commercial disputes or employment claims made by our current or former employees. Litigation might result in substantial costs and may divert management's attention and resources, which might seriously harm our business, overall financial condition and operating results. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby reducing our operating results and leading analysts or potential investors to reduce their expectations of our performance, which could reduce the trading price of our stock. We currently are not aware of any material pending or threatened litigation against us.
         Lawsuits by third parties against us and our customers for alleged infringement of the third parties' proprietary rights or for other intellectual property related claims could results in significant expenses and harm our operating results.
        Our industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets and other intellectual property and proprietary rights. Companies in our industry are often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Furthermore, our customer agreements typically require us to indemnify our customers against liabilities incurred in connection with claims alleging our solutions infringe the intellectual property rights of a third party. From time to time, we have been involved in disputes related to patent and other intellectual property rights of third parties, none of which have resulted in material liabilities. We expect these types of disputes to continue to arise in the future. Our business could be adversely affected by any significant disputes between us and our customers as to the applicability or scope of our indemnification obligations to them. There can be no assurances that any existing limitations of liability provisions in our contracts would be enforceable or adequate, or would otherwise protect us from any such liabilities or damages with respect to any particular claim. If such claims are successful, or if we are required to indemnify or defend our customers from these or other claims, these matters could be disruptive to our business and management and have an adverse effect on our business, operating results and financial condition.
        Furthermore, our technologies may not be able to withstand any third-party claims or rights against their use. As a result, our success depends upon our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. We have a very limited patent portfolio, which will likely prevent us from deterring patent infringement claims, and our competitors and others may now and in the future have significantly larger patent portfolios than we have. From time to time, we have received and may continue to receive threatening letters or notices or in the future may be the subject of claims that our solutions and underlying technology infringe or violate the intellectual property rights of others, and we may be found to be infringing upon such rights. The risk of patent litigation has been amplified by the increase in the number of non-practicing patent asserting entities, or patent trolls. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us or our customers whom we indemnify, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our solutions or require that we comply with other unfavorable terms. Even if the claims do not result in litigation or are resolved in our favor, these claims and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.
        The frequency of these types of claims may increase as we continue to add new customers and as a result of our becoming a public company.
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         If we are unable to protect our intellectual property, our business could be adversely affected.
        Our success depends upon our ability to protect our intellectual property, which may require us to incur significant costs. We have developed much of our intellectual property internally, and we rely on a combination of confidentiality obligations in contracts, patents, copyrights, trademarks, service marks, trade secret laws and other contractual restrictions to establish and protect our intellectual property and other proprietary rights. In particular, we enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have business relationships in which they will have access to our confidential information. We also rely upon licenses to intellectual property from third parties. No assurance can be given that these agreements or other steps we take to protect our intellectual property or the third party intellectual property used in our solutions will be effective in controlling access to and distribution of our solutions and our confidential and proprietary information. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized uses of our intellectual property.
        Despite our precautions, it may be possible for third parties to copy our solutions and use information that we regard as proprietary to create solutions and services that compete with ours. Third parties may also independently develop technologies that are substantially equivalent to our solutions. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our solutions may be unenforceable under the laws of certain jurisdictions.
        In some cases, litigation may be necessary to enforce our intellectual property rights or to protect our trade secrets. Litigation could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights and exposing us to significant damages or injunctions. Our inability to protect our intellectual property against unauthorized copying or use, as well as any costly litigation or diversion of our management's attention and resources, could delay sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting less-advanced or more-costly technologies into our solutions or harm our reputation. In addition, we may be required to license additional intellectual property from third parties to develop and market new solutions, and we cannot assure you that we could license that intellectual property on commercially reasonable terms or at all.
         We cannot be certain that any patents will be issued with respect to our current or future patent applications.
        As of September 30, 2013, we had one U.S. patent application pending and one issued U.S. patent. We do not know whether our pending patent application will result in the issuance of a patent or whether the examination process will require us to narrow the scope of our claims. To the extent that our pending patent application or any portion of such application proceeds to issuance as a patent, any such future patent may be opposed, contested, circumvented, designed around by a third party or found to be invalid or unenforceable. In addition, our existing and any future issued patents may be opposed, contested, circumvented, designed around by a third party or found to be invalid or unenforceable. The process of seeking patent protection can be lengthy and expensive. We rely on a combination of patent, copyright, trade secret, trademark and other intellectual property laws to protect our intellectual property, and much of our technology is not covered by any patent or patent application.
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         We use "open source" software in our solutions, which may restrict how we use or distribute our solutions, require that we release the source code of certain software subject to open source licenses or subject us to litigation or other actions that could adversely affect our business.
        We currently use in our solutions, and may use in the future, software that is licensed under "open source," "free" or other similar licenses where the licensed software is made available to the general public on an "as-is" basis under the terms of a specific non-negotiable license. Some open source software licenses require that software subject to the license be made available to the public and that any modifications or derivative works based on the open source code be licensed in source code form under the same open source licenses. Although we monitor our use of open source software, we cannot assure you that all open source software is reviewed prior to use in our solutions, that our programmers have not incorporated open source software into our solutions, or that they will not do so in the future. In addition, some of our products may incorporate third-party software under commercial licenses. We cannot be certain whether such third-party software incorporates open source software without our knowledge. In the past, companies that incorporate open source software into their products have faced claims alleging noncompliance with open source license terms or infringement or misappropriation of proprietary software. Therefore, we could be subject to suits by parties claiming noncompliance with open source licensing terms or infringement or misappropriation of proprietary software. Because few courts have interpreted open source licenses, the manner in which these licenses may be interpreted and enforced is subject to some uncertainty. There is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market or provide our solutions. As a result of using open source software subject to such licenses, we could be required to release our proprietary source code, pay damages, re-engineer our products, limit or discontinue sales or take other remedial action, any of which could adversely affect our business.
         The market data and forecasts included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you that our business will grow at similar rates, or at all.
        The market data and forecasts included in this prospectus, including the data and forecasts published by BauerFinancial, Celent, Forrester, Gartner, Javelin, among others, and our internal estimates and research are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. If the forecasts of market growth or anticipated spending prove to be inaccurate, our business and growth prospects could be adversely affected. Even if the forecasted growth occurs, our business may not grow at a similar rate, or at all. Our future growth is subject to many factors, including our ability to successfully implement our business strategy, which itself is subject to many risks and uncertainties. The reports described in this prospectus speak as of their respective publication dates and the opinions expressed in such reports are subject to change. Accordingly, potential investors in our common stock are urged not to put undue reliance on such forecasts and market data.
         Uncertain or weakened economic conditions may adversely affect our industry, business and results of operations.
        Our overall performance depends on economic conditions, which may remain challenging or uncertain for the foreseeable future. Financial developments seemingly unrelated to us or our industry may adversely affect us. Domestic and international economies have been impacted by threatened sovereign defaults and ratings downgrades, falling demand for a variety of goods and services, restricted credit, threats to major multinational companies, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty. These conditions affect the rate of technology spending and could adversely affect our customers' ability or
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willingness to purchase our virtual banking solutions, delay prospective customers' purchasing decisions, reduce the value or duration of their subscriptions or affect renewal rates, any of which could adversely affect our operating results. We cannot predict the timing, strength or duration of the economic recovery or any subsequent economic slowdown in the U.S. or in our industry.
         We may not be able to utilize a significant portion of our net operating loss carryforwards, which could adversely affect our operating results and cash flows.
        As of September 30, 2013, we had approximately $42.1 million of U.S. federal net operating loss carryforwards. Utilization of these net operating loss carryforwards depends on many factors, including our future income, which cannot be assured. Our loss carryforwards begin to expire in 2026. In addition, Section 382 of the Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone an ownership change. An ownership change is generally defined as a greater than 50% change in equity ownership by value over a 3-year period. We have undergone one or more ownership changes as a result of prior financings, and any such change in ownership and the corresponding annual limitation may prevent us from using our current net operating losses prior to their expiration. Future ownership changes, including as a result of this offering, or future regulatory changes could further limit our ability to utilize our net operating loss carryforwards. To the extent we are not be able to offset our future income against our net operating loss carryforwards, this would adversely affect our operating results and cash flows if we attain profitability.
         Our business may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past sales. Any successful action by state, local or other authorities to collect additional or past sales tax could adversely harm our business.
        We file sales tax returns in certain states within the U.S. as required by law and certain customer contracts for a portion of the solutions that we provide. Our sales tax liabilities with respect to sales and use taxes in various states and local jurisdictions were $0.4 million as of September 30, 2013. It is possible that we could face sales tax audits and our liability for these taxes could exceed our estimates as state tax authorities could still assert that we are obligated to collect additional amounts as taxes from our customers and remit those taxes to those authorities.
        We do not collect sales or other similar taxes in other states and many of the states do not apply sales or similar taxes to certain of our solutions. State and local taxing jurisdictions have differing rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of sales taxes to our virtual banking solutions in various jurisdictions is unclear. We review these rules and regulations periodically and, when we believe we are subject to sales and use taxes in a particular state, we may voluntarily engage state tax authorities to determine how to comply with their rules and regulations. A successful assertion by one or more states, including states for which we have not accrued tax liability, requiring us to collect sales or other taxes with respect to sales of our solutions or customer support could result in substantial tax liabilities for past transactions, including interest and penalties, discourage customers from purchasing our solutions or otherwise harm our business and operating results.
         Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported results of operations.
        Financial accounting standards may change or their interpretation may change. A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change becomes effective. Changes to existing rules or the re-examining of current practices may adversely affect our reported financial results or the way we conduct our business. Accounting for revenues from sales of our solutions is particularly
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complex, is often the subject of intense scrutiny by the Securities and Exchange Commission, or SEC, and will evolve as the Financial Accounting Standards Board, or FASB, continues to consider applicable accounting standards in this area.
         We may acquire or invest in companies, or pursue business partnerships, which may divert our management's attention, result in ownership dilution to our stockholders, and we may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions or investments.
        We may evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets in the future. We also may enter into relationships with other businesses to expand our solutions, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these transactions may be subject to approvals that are beyond our control. In addition, we have limited experience in acquiring other businesses. We may not be able to find and identify desirable acquisition targets, we may incorrectly estimate the value of an acquisition target, and we may not be successful in entering into an agreement with any particular target. Consequently, these transactions, even if undertaken and announced, may not close.
        If we acquire additional businesses, we may not achieve the anticipated benefits from the acquired business due to a number of factors, including:
•
our inability to integrate or benefit from acquired technologies or services; 

•
unanticipated costs or liabilities associated with the acquisition; 

•
incurrence of acquisition-related costs; 

•
difficulty integrating the accounting systems, operations and personnel of the acquired business; 

•
difficulties and additional expenses associated with supporting legacy solutions and hosting infrastructure of the acquired business; 

•
difficulty converting the customers of the acquired business to our solutions and contract terms, including disparities in the revenues, licensing, support or professional services model of the acquired company; 

•
diversion of management's attention from other business concerns; 

•
adverse effects to our existing business relationships with business partners and customers as a result of the acquisition; 

•
use of resources that are needed in other parts of our business; 

•
the issuance of additional equity securities that would dilute the ownership interests of our stockholders; 

•
the use of a substantial portion of our cash that we may need to operate our business; 

•
incurrence of debt on terms unfavorable to us or that we are unable to repay; 

•
incurrence of large charges or substantial liabilities; 

•
difficulties retaining key employees of the acquired company or integrating diverse software codes or business culture; and 

•
become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.
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        In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.
         We may not be able to secure sufficient additional financing on favorable terms, or at all, to meet our future capital needs.
        We may require additional capital in the future to pursue business opportunities or acquisitions or respond to challenges and unforeseen circumstances. We may also decide to engage in equity or debt financings or enter into credit facilities for other reasons. We may not be able to secure additional debt or equity financing in a timely manner, on favorable terms, or at all. Any debt financing we obtain in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and pursue business opportunities, including potential acquisitions.
Risks Related to this Offering and Ownership of Our Common Stock
         Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future sale.
        Sales of substantial amounts of our common stock in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Upon completion of this offering, we will have                shares of common stock outstanding, excluding shares issuable upon the exercise of our outstanding stock options and shares otherwise issuable pursuant to our stock plans. The shares sold in this offering will be immediately tradable without restriction. Of the remaining shares,                  shares, or approximately                of our outstanding shares after this offering, are currently restricted as a result of securities laws or lock-up agreements but will be able to be sold in the future as set forth below:

			
Number of shares and
percentage of total outstanding 	 	Date available for sale into public market	
          shares, or    %	 	Immediately after this offering.	

          shares, or    %	
 	
Generally, 180 days after the date of this prospectus due to lock-up agreements between certain of the holders of these shares and the underwriters and to contractual arrangements between the other holders of these shares and us, subject to certain exceptions and also to potential extensions under certain circumstances, of which          will be subject to volume and other sale restrictions.	
        In addition,                shares that are subject to outstanding options will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements and Rules 144 and 701 under the Securities Act. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
        We also intend to register all shares of common stock that we may issue under our stock plans. Effective upon the completion of this offering, an aggregate of          shares of our common stock will be reserved for future issuance under these plans (assuming no exercise of outstanding options after September 30, 2013). Once we register these shares, which we plan to do shortly after the completion
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of this offering, they can be freely sold in the public market upon issuance, subject to the lock-up agreements referred to above. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our common stock. See "Shares Eligible for Future Sale" for a more detailed description of sales that may occur in the future.
        Following this offering, holders of approximately          % of our common stock will be entitled to rights with respect to the registration of these shares under the Securities Act. Please see the section titled "Description of Capital Stock—Registration Rights." If we register their shares of common stock following the expiration of the lock-up agreements, these stockholders could sell those shares in the public market without being subject to the volume and other restrictions of Rule 144 and Rule 701.
        We, substantially all of our securityholders, each of the selling stockholders and each of our directors and executive officers have agreed to lock-up agreements that restrict us, these securityholders and our directors and executive officers, subject to specified exceptions, from selling or otherwise disposing of any shares of our stock for a period of 180 days after the date of this prospectus. The underwriters may, in their sole discretion, release all or any portion of the shares from the restrictions of any lock-up agreements described above. In addition, these lock-up agreements are subject to the exceptions described in the section of this prospectus entitled "Underwriting." Also, in the future, we may issue securities in connection with investments and acquisitions. The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding stock. Due to these factors, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
         Our securities have no prior market and our stock price may decline after the offering.
        Prior to this offering, there has been no public market for shares of our common stock. Although we intend to apply to list our common stock on the                , an active public trading market for our common stock may not develop or, if it develops, may not be maintained after this offering. We and the representatives of the underwriters will negotiate to determine the initial public offering price. The initial public offering price may be higher than the trading price of our common stock following this offering. As a result, you could lose all or part of your investment.
         If securities or industry analysts do not publish research or publish unfavorable or misleading research about our business, our stock price and trading volume could decline.
        The trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our stock or publishes unfavorable or misleading research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose visibility in the market for our stock, and demand for our stock could decrease, which could cause our stock price or trading volume to decline.
         We will incur significant increased expenses and administrative burdens as a public company, which could have a material adverse effect on our operations and financial results.
        We will face increased legal, accounting, administrative and other costs and expenses as a public company that we do not incur as a private company. The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, including the requirements of Section 404, as well as rules and regulations subsequently
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implemented by the SEC, the Public Company Accounting Oversight Board and the          , impose additional reporting and other obligations on public companies. We expect that compliance with public company requirements will increase our costs and make some activities more time-consuming. A number of those requirements will require us to carry out activities we have not done previously. For example, we have created new board committees and will adopt new internal controls and disclosure controls and procedures. In addition, we will incur additional expenses associated with our SEC reporting requirements. We recently appointed a new chief financial officer and hired several finance and accounting personnel and such individuals have only worked for us for a limited period of time and have limited experience in managing public companies. Furthermore, if we identify any issues in complying with those requirements (for example, if we or our auditors identify a material weakness or significant deficiency in our internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect us, our reputation or investor perceptions of us. We also expect that it will be more expensive to obtain director and officer liability insurance as we become a public company. Risks associated with our status as a public company may make it more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We expect that the additional reporting and other obligations imposed on us by these rules and regulations will increase our legal and financial compliance costs and the costs of our related legal, accounting and administrative activities. These increased costs will require us to divert a significant amount of money that we could otherwise use to expand our business and achieve our strategic objectives. Proposals submitted by stockholders at our annual meeting or other advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase our costs.
        In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This situation could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate investigations, inquiries, administrative proceedings or legal proceedings against us and our business may be adversely affected.
         Insiders will continue to have substantial control over us after this offering, which may limit our stockholders' ability to influence corporate matters and delay or prevent a third party from acquiring control over us.
        Upon completion of this offering, we anticipate that our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, will beneficially own, in the aggregate, approximately          % of our outstanding common stock, or          % if the underwriters exercise their over-allotment option in full. This significant concentration of ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with one or more large stockholders. In addition, these stockholders will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a change in control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquirer from making a tender
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offer or otherwise attempting to obtain control, even if that change in control would benefit our other stockholders. For information regarding the ownership of our outstanding stock by our executive officers and directors and their affiliates, please see the section titled "Principal and Selling Stockholders."
         Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply those proceeds in ways that increase the value of your investment.
        Our management will have broad discretion to use the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply the net proceeds of this offering in ways that increase the value of your investment. We expect to use approximately $          million of our net proceeds to repay outstanding indebtedness under our credit facility with Wells Fargo Bank Association, N.A., and the balance for general corporate purposes, including working capital and capital expenditures, which may in the future include investments in, or acquisitions of, complementary businesses, services or technologies. Our management might not be able to yield a significant return, if any, on any use of these net proceeds. You will not have the opportunity to influence our decisions on how the net proceeds from this offering are used. For more information, please see the section titled "Use of Proceeds."
         If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors' views of us.
        Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements in accordance with GAAP. We are in the process of documenting, reviewing and improving our internal controls and procedures for compliance with Section 404(a) of the Sarbanes-Oxley Act, which requires annual management assessment of the effectiveness of our internal control over financial reporting. If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, harm our ability to operate our business and reduce the trading price of our stock.
         Our stock price may be volatile, and you may be unable to sell your shares at or above the offering price.
        The trading price of our common stock following this offering may be highly volatile and could be subject to wide fluctuations in response to various factors, including the risk factors described in this section of the prospectus, and other factors beyond our control. Furthermore, our common stock has no prior trading history. Factors affecting the trading price of our common stock will include:
•
variations in our operating results or the operating results of similar companies; 

•
announcements of technological innovations, new solutions or enhancements or strategic partnerships or agreements by us or by our competitors; 

•
changes in the estimates of our operating results, our financial guidance or changes in recommendations by any securities analysts that follow our common stock; 

•
the gain or loss of customers; 

•
adoption or modification of regulations, policies, procedures or programs applicable to our business and our customers' business;
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•
marketing and advertising initiatives by us or our competitors; 

•
threatened or actual litigation; 

•
changes in our senior management; 

•
recruitment or departure of key personnel; 

•
market conditions in our industry, the industries of our customers and the economy as a whole; 

•
the overall performance of the equity markets; 

•
sales of shares of our common stock by existing stockholders; 

•
volatility in our stock price, which may lead to higher stock-based compensation expenses under applicable accounting standards; and 

•
the market's reaction to our reduced disclosure as a result of being an emerging growth company under the JOBS Act.
        In addition, the stock market in general and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may harm the market price of our common stock regardless of our actual operating performance. These fluctuations may even be more pronounced in the trading market for our stock shortly following this offering. Each of these factors, among others, could adversely affect your investment in our common stock. Some companies that have had volatile market prices for their securities have had securities class action lawsuits filed against them. If a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and divert management's attention.
         We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.
        We have never declared nor paid cash dividends on our capital stock. We currently do not plan to declare dividends on shares of our common stock in the foreseeable future. We currently intend to retain any future earnings to finance the operation and expansion of our business. Any payment of future dividends will be at the discretion of our board of directors, subject to compliance with certain covenants contained in our credit facility, which limit our ability to pay dividends, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant. For more information, see the section titled "Dividend Policy." Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our common stock appreciates and you sell your shares at a profit. There is no guarantee that the price of our common stock that will prevail in the market after this offering will ever exceed the price that you pay.
         Because our initial public offering price is substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding common stock, new investors will incur immediate and substantial dilution as a result of this offering and future equity issuances.
        If you purchase shares of our common stock in our initial public offering, you will experience substantial and immediate dilution in the pro forma net tangible book value per share of $          per share as of September 30, 2013, based on the assumed initial public offering price of our common stock of $         per share, the midpoint of the price range on the cover of this prospectus, because the price you will pay will be substantially higher than the pro forma as adjusted net tangible book value per share of our common stock immediately following this offering. The adjusted net tangible book value per share of our common stock is based on the total value of our tangible assets less our total
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liabilities. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. Any issuance of shares in connection with the exercise of stock options or otherwise would dilute the percentage ownership held by the investors who purchase our shares in this offering.
         As an "emerging growth company" under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, which could make our common stock less attractive to investors.
        As an "emerging growth company" under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. In particular, we have not included all of the executive compensation related information that would be required in this prospectus if we were not an emerging growth company. We are also only providing two years of audited financial statements, interim financials and selected financial data instead of three years of audited financial statements and interim financials and five years of selected financial data required for companies that do not qualify for emerging growth company status. In addition, for so long as we are an emerging growth company, we will not be required to:
•
have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; 

•
comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis); and 

•
submit certain executive compensation matters to stockholder advisory votes, such as "say on pay" and "say on frequency."
        Because of these exemptions and the other reduced disclosure obligations for emerging growth companies set forth elsewhere in this prospectus, our stock may appear less attractive to investors and could cause our stock price to decline.
        Although we intend to rely on certain of the exemptions provided in the JOBS Act, the exact implications of the JOBS Act for us are still subject to interpretations and guidance by the SEC and other regulatory agencies. Also, as our business grows, we may no longer satisfy the conditions of an emerging growth company. We will remain an "emerging growth company" until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of this offering; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and (iv) the date on which we are deemed to be a "large accelerated filer" under the Exchange Act. We will be deemed a large accelerated filer on the first day of the fiscal year after the market value of our common equity held by non-affiliates exceeds $700 million, measured on June 30. If investors find our common stock less attractive as a result of our reliance on certain of the JOBS Act exemptions, there may be a less active trading market for our common stock, and our stock price may be more volatile.
        Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides
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that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
         Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.
        We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law, which apply to us, may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the stockholder becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. For more information, see the section titled "Description of Capital Stock—Anti-Takeover Effects of Our Charter and Bylaws and Delaware Law." In addition, our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our amended and restated certificate of incorporation and amended and restated bylaws, which will be in effect immediately prior to the completion of this offering:
•
authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to help defend against a takeover attempt; 

•
require that directors only be removed from office for cause and only upon a supermajority stockholder vote; 

•
provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders; 

•
prevent stockholders from calling special meetings; 

•
include advance notice procedures for stockholders to nominate candidates for election as directors or bring matters before an annual meeting of stockholders; 

•
prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders; and 

•
provide that certain litigation against us can only be brought in Delaware.
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 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
        This prospectus, including the sections titled "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business," contains forward-looking statements. Forward-looking statements convey our current expectations or forecasts of future events. All statements contained in this prospectus, other than statements of historical fact or statements related to present facts or current conditions, are forward-looking. You can identify forward-looking statements by terminology such as "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "seeks," "should," "will," or "would" or the negative of these terms or similar expressions.
        There are a number of important factors that could cause our actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include those that we discuss in this prospectus in the section titled "Risk Factors." You should read these factors and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. The forward-looking statements contained in this prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act which do not extend to initial public offerings. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
        Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets for our solutions, including our general expectations and market position, market opportunity and market share, is based on information from various sources, surveys and forecasts, and our internal research, on assumptions that we have made, which we believe are reasonable, based on those data and other similar sources and on our knowledge of the markets for our solutions. Sources we refer to in this prospectus include BauerFinancial, Inc., Coral Gables, Florida, or BauerFinancial, Celent, Forrester Research, Inc., or Forrester, Gartner, Inc., or Gartner, and Javelin Strategy & Research, or Javelin. The reports described in this prospectus represent data, research opinion or viewpoints published, as part of a syndicated or other subscription service, by such publishers. These reports speak as of their original publication date (and not as of the date of this prospectus) and the opinions expressed in such reports are subject to change without notice. Our internal research has not been verified by any independent source, and we have not independently verified any third-party information and cannot assure you of its accuracy or completeness. We believe the market position, market opportunity, and market share information included in this prospectus is generally reliable. In addition, projections, assumptions, and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors" and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates included in this prospectus.
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 USE OF PROCEEDS
        We estimate that the net proceeds to us from this offering will be approximately $            , based upon an assumed initial public offering price of $            per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, the net proceeds to us will be approximately $            . A $1.00 increase (decrease) in the assumed initial public offering price of $            per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering by approximately $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriter discounts and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. The principal reasons for this offering are to increase our available cash resources, increase awareness of our company in the marketplace and create a public market for our common stock.
        We intend to use approximately $1.3 million of our net proceeds to repay outstanding principal and accrued interest under our credit facility with Wells Fargo Bank Association, N.A., or Wells Fargo. As of September 30, 2013, the interest rate applicable to the credit facility, which matures on April 11, 2017, was 4.682%.
        Although we do not have current specific plans for the remaining portion of the net proceeds from this offering, we generally intend to use the balance of the net proceeds of this offering for working capital and other general corporate purposes, including to finance our growth, develop new or enhanced solutions, fund capital expenditures. We may also seek to expand our business through investments in or acquisitions of other businesses, solutions, or technologies. However, we do not have agreements or commitments for any investments or acquisitions at this time.
        Pending the uses mentioned above, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. Our management will have broad discretion in the application of the net proceeds to us from this offering, and investors will be relying on the judgment of our management regarding the application of the proceeds.

 DIVIDEND POLICY
        We have never declared or paid any cash dividends on our common stock. Any future determination to declare cash dividends on our common stock will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant. We do not anticipate paying cash dividends on our common stock for the foreseeable future.
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 CAPITALIZATION
        The following table sets forth our capitalization as of September 30, 2013:
•
on an actual basis; 

•
on a pro forma basis to give effect to the automatic conversion of all of our outstanding preferred stock into 13,582,685 shares of common stock upon the completion of this offering; and 

•
on a pro forma as adjusted basis to give effect to the (i) automatic conversion of all of our outstanding preferred stock into 13,582,685 shares of common stock upon the completion of this offering, (ii) filing of our amended and restated certificate of incorporation to be effective upon completion of this offering, (iii) sale of            shares of common stock by us in this offering at an assumed initial public offering price of $            per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus), and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (iv) repayment of $1.3 million of outstanding principal and accrued interest under our credit facility with Wells Fargo.
        The pro forma as adjusted information set forth in the table below is for illustrative purposes only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.
        This table should be read in conjunction with "Selected Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Capital Stock" and our financial statements and the related notes thereto included elsewhere in this prospectus.

											
 	 	As of September 30, 2013	 	
 	 	Actuals	 	Pro Forma	 	Pro Forma
As Adjusted	 	
 	 	(in thousands except shares)	 	
Cash and cash equivalents	 	$	21,173	 	$	 	 	$	 	 	
 	 	 	 	 	 	 	 	
Long-term debt	 	$	6,256	 	$	 	 	$	 	 	
Redeemable convertible preferred stock, $0.0001 par value, 12,331,718 shares authorized and issuable in series and 12,331,718 shares outstanding, actual; no shares authorized and outstanding, pro forma and pro forma as adjusted	 	 	40,725	 	 	—	 	 	—	 	
Redeemable common stock, $0.0001 par value, 3,829,221 shares outstanding, actual; no shares authorized and outstanding, pro forma and pro forma as adjusted	 	 	1,327	 	 	 	 	 	 	 	
Stockholders' Equity (Deficit):	 	 	 	 	 	 	 	 	 	 	
Preferred stock: $0.0001 par value, no shares authorized and outstanding, actual and pro forma;          shares authorized and issuable in series and no shares outstanding, pro forma as adjusted	 	 	—	 	 	—	 	 	—	 	
Junior preferred stock: $0.0001 par value, 1,250,967 shares authorized and outstanding, actual and no shares authorized and outstanding, pro forma and pro forma as adjusted	 	 	1,740	 	 	 	 	 	 	 	
Common stock: $0.0001 par value, 35,000,000 shares authorized, 8,218,355 shares issued and outstanding, actual; 35,000,000 shares authorized, 25,630,261 shares issued and outstanding, pro forma;          shares authorized and          shares issued and outstanding, adjusted pro forma	 	 	1	 	 	 	 	 	 	 	
Additional paid-in capital	 	 	6,099	 	 	 	 	 	 	 	
Accumulated deficit	 	 	(38,233	)	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	
Total stockholders' equity (deficit)	 	$	(30,393	)	$	 	 	$	 	 	
 	 	 	 	 	 	 	 	
Total capitalization	 	$	17,915	 	$	 	 	$	 	 	
 	 	 	 	 	 	 	 	
        A $1.00 increase (decrease) in the assumed initial public offering price of $            per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus) would increase (decrease) the pro forma as adjusted amount of each of additional paid-in capital, total stockholders' equity and total capitalization by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
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 DILUTION
        As of          , 2013, we had a pro forma net tangible book value of $             million, or $            per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of common stock outstanding after giving effect to the conversion of our convertible preferred stock into shares of common stock upon the completion of this offering. Dilution in net tangible book value per share to new investors in this offering represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma net tangible book value per share of common stock immediately after the completion of this offering. After giving effect to the sale of the            shares of common stock offered by us in this offering at an assumed initial public offering price of $            per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of            , 2013 would have been $             million, or $            per share of common stock. This represents an immediate increase in net tangible book value of $            per share to existing stockholders and an immediate dilution of $            per share to new investors in our common stock. The following table illustrates this dilution on a per share basis:

								
Assumed initial public offering price per share	 	 	 	 	$	            	 	
 	 	 	 	 	 	 	
Pro forma net tangible book value per share as of          , 2013 before giving effect to this offering	 	$	            	 	 	 	 	
 	 	 	 	 	 	 	
Increase in net tangible book value per share attributable to new investors	 	$	            	 	 	 	 	
 	 	 	 	 	 	 	
Pro forma as adjusted net tangible book value per share after giving effect to this offering	 	 	 	 	$	            	 	
 	 	 	 	 	 	 	
Dilution per share to new investors in this offering	 	 	 	 	$	            	 	
 	 	 	 	 	 	 	
        If the underwriters exercise their option to purchase additional shares of our common stock in full, the pro forma as adjusted net tangible book value per share after this offering would be $            per share, and the dilution in pro forma as adjusted net tangible book value per share to new investors in this offering would be $            per share.
        The following table summarizes, on a pro forma basis as of            , 2013 and after giving effect to the offering, based on an assumed initial public offering price of $            per share, the differences between existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid.

																	
 	 	 	 	 	 	Total
Consideration	 	 	 	
 	 	Shares Purchased			 	 	 	
 					 	Average
Price
Per Share	 	
 	 	Number	 	Percent	 	Amount	 	Percent			 	
Existing stockholders	 	 	          	 	 	 	%	$	          	 	 	 	%	$	          	 	
New investors	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	          	 	 	100	%	$	          	 	 	100	%	$	          	 	
 	 	 	 	 	 	 	 	 	 	 	 	
        If the underwriters exercise their over-allotment option in full, our existing stockholders would own        % and our new investors would own        % of the total number of shares of our common stock outstanding after this offering.
        If all our outstanding options had been exercised, as of                        , 2013, we would have had net tangible book value of $             million, or $            per share, and the pro forma net tangible book value after this offering would have been $             million, or $            per share, causing dilution to new investors of $            per share.
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 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
         The following selected consolidated statements of operations data for the years ended December 31, 2011, and 2012 and the nine months ended September 30, 2013, and the selected consolidated balance sheet data as of December 31, 2011, and 2012 and September 30, 2013 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statement of operations data for the nine months ended September 30, 2012 are derived from unaudited interim consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of future results, and our operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2013. The selected consolidated financial data should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements, related notes, and other financial information included elsewhere in this prospectus.

														
 	 	Year Ended
December 31,	 	Nine Months
Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
 	 	(in thousands, except per share data)	 	
Consolidated Statements of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	 	$	26,982	 	$	41,101	 	$	29,151	 	$	41,203	 	
Cost of revenues(1)(2)	 	 	14,795	 	 	25,170	 	 	17,478	 	 	25,382	 	
 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	12,187	 	 	15,931	 	 	11,673	 	 	15,821	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing(2)	 	 	5,589	 	 	8,962	 	 	6,298	 	 	11,797	 	
Research and development(2)	 	 	3,428	 	 	5,317	 	 	3,804	 	 	6,277	 	
General and administrative(2)	 	 	4,857	 	 	8,780	 	 	6,366	 	 	8,318	 	
Unoccupied lease charges(3)	 	 	—	 	 	—	 	 	—	 	 	236	 	
 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	13,874	 	 	23,059	 	 	16,468	 	 	26,628	 	
 	 	 	 	 	 	 	 	 	 	
Loss from operations	 	 	(1,687	)	 	(7,128	)	 	(4,795	)	 	(10,807	)	
Total other expense, net	 	 	(76	)	 	(228	)	 	(160	)	 	(337	)	
 	 	 	 	 	 	 	 	 	 	
Loss before income taxes	 	 	(1,763	)	 	(7,356	)	 	(4,955	)	 	(11,144	)	
Provision for income taxes	 	 	(132	)	 	(164	)	 	(112	)	 	(33	)	
 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations	 	 	(1,895	)	 	(7,520	)	 	(5,067	)	 	(11,177	)	
 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations, net of tax(4)	 	 	(1,132	)	 	(1,259	)	 	(918	)	 	(199	)	
 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(3,027	)	$	(8,779	)	$	(5,985	)	$	(11,376	)	
 	 	 	 	 	 	 	 	 	 	
Net loss per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations per common share, basic and diluted	 	$	(0.17	)	$	(0.66	)	$	(0.45	)	$	(0.95	)	
 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations per common share, basic and diluted	 	$	(0.10	)	$	(0.11	)	$	(0.08	)	$	(0.01	)	
 	 	 	 	 	 	 	 	 	 	
Net loss per common share, basic and diluted	 	$	(0.27	)	$	(0.77	)	$	(0.53	)	$	(0.96	)	
 	 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted	 	 	11,326	 	 	11,345	 	 	11,341	 	 	11,794	 	
Pro forma net loss per common share (unaudited)(5):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted	 	 	 	 	$	(0.39	)	 	 	 	$	(0.46	)	
 	 	 	 	 	 	 	 	 	 	 	 	
Pro forma weighted average common shares outstanding (unaudited)(5):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted	 	 	 	 	 	22,323	 	 	 	 	 	24,814	 	
Other Financial Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA(6)	 	$	(227	)	$	(4,400	)	$	(3,082	)	$	(7,334	)	

(1)
Includes reclassified costs of research and development personnel who performed certain implementation and customer support services as follows:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
          Research and development costs reclassified into cost of revenues	 	$	434	 	$	1,390	 	$	929	 	$	1,249	 	

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(2)
Includes stock-based compensation expenses as follows:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
Cost of revenues	 	$	52	 	$	187	 	$	127	 	$	192	 	
Sales and marketing	 	 	52	 	 	123	 	 	82	 	 	180	 	
Research and development	 	 	57	 	 	195	 	 	132	 	 	189	 	
General and administrative	 	 	236	 	 	526	 	 	343	 	 	561	 	
 	 	 	 	 	 	 	 	 	 	
Total stock-based compensation expenses	 	$	397	 	$	1,031	 	$	684	 	$	1,122	 	
 	 	 	 	 	 	 	 	 	 	
(3)
Unoccupied lease charges include costs related to our early exit from our previous headquarters, partially offset by anticipated sublease income from that facility.

(4)
We previously had a subsidiary which we fully divested in March 2013. Loss from discontinued operations, net of tax reflects the financial results of this divested subsidiary.

(5)
Pro forma basic and diluted net loss per common share have been calculated assuming the conversion of all outstanding shares of preferred stock at the later of January 1, 2012 or the date of issuance of preferred stock. The impact of repayment of the outstanding principal and accrued interest on the Company's line of credit has not been reflected in the pro forma weighted average shares used to compute net loss per share because the number of shares which would have to be sold to pay the outstanding principal and accrued interest cannot currently be estimated.

(6)
We define adjusted EBITDA as net loss before depreciation, amortization, loss from discontinued operations, stock-based compensation, provision for income taxes, total other expense, net, unoccupied lease charges and loss on disposal of long-lived assets.
We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results for the following reasons:
•
adjusted EBITDA is widely used by investors and securities analysts to measure a company's operating performance without regard to items that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired; 

•
our management uses adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, in the preparation of our annual operating budget, as a measure of our operating performance, to assess the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance; 

•
adjusted EBITDA provides more consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our operations and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and 

•
we anticipate that, after consummating this offering, our investor and analyst presentations will include adjusted EBITDA as a supplemental measure of our overall operating performance.
Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP. The use of adjusted EBITDA as an analytical tool has limitations such as:
•
depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future and adjusted EBITDA does not reflect cash requirements for such replacements; 

•
adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments; 

•
adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation; 

•
adjusted EBITDA does not reflect interest or tax payments that could reduce cash available for use; and 

•
other companies, including companies in our industry, might calculate adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures.
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Because of these and other limitations, you should consider adjusted EBITDA together with our GAAP financial measures including cash flow from operations and net loss. The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
Reconciliation of Net Loss to Adjusted EBITDA:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(3,027	)	$	(8,779	)	$	(5,985	)	$	(11,376	)	
Depreciation and amortization	 	 	1,013	 	 	1,697	 	 	1,029	 	 	2,115	 	
Stock-based compensation expense	 	 	397	 	 	1,031	 	 	684	 	 	1,122	 	
Loss from discontinued operations, net of tax	 	 	1,132	 	 	1,259	 	 	918	 	 	199	 	
Provision for income taxes	 	 	132	 	 	164	 	 	112	 	 	33	 	
Total other expense, net	 	 	76	 	 	228	 	 	160	 	 	337	 	
Unoccupied lease charges	 	 	—	 	 	—	 	 	—	 	 	236	 	
 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	 	$	(277	)	$	(4,400	)	$	(3,082	)	$	(7,334	)	

											
 	 	As of December 31,	 	 	 	
 			 	As of
September 30,
2013	 	
 	 	2011	 	2012			 	
Consolidated Balance Sheet Data:	 	(in thousands)	 	
Cash and cash equivalents	 	$	15,363	 	$	9,111	 	$	21,173	 	
Total current assets	 	 	22,724	 	 	19,134	 	 	32,973	 	
Deferred solution and other costs, total	 	 	4,328	 	 	5,394	 	 	6,671	 	
Deferred implementation costs, total	 	 	3,716	 	 	5,133	 	 	6,320	 	
Total current liabilities	 	 	12,562	 	 	19,082	 	 	20,401	 	
Deferred revenues, total	 	 	13,505	 	 	17,840	 	 	23,456	 	
Total redeemable preferred and common stock	 	 	21,730	 	 	21,730	 	 	42,052	 	
Total stockholders' deficit	 	 	(11,250	)	 	(18,981	)	 	(30,393	)	

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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
         You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
        We are a leading provider of secure, cloud-based virtual banking solutions. We enable regional and community financial institutions to deliver a robust suite of integrated virtual banking services and engage more effectively with their retail and commercial account holders who expect to bank anytime, anywhere and on any device. Our solutions are often the most frequent point of interaction between our RCFI customers and their account holders. As such, we purpose-built our solutions to deliver a compelling, consistent user experience across digital channels and drive the success of our customers by extending their local brands, enabling improved account holder retention and creating incremental sales opportunities.
        The effective delivery and management of secure and advanced virtual banking solutions in the complex and heavily-regulated financial services industry require significant resources, personnel and expertise. We provide virtual banking solutions that are designed to be highly configurable, scalable and adaptable to the specific needs of our RCFI customers. Our solutions deliver to account holders a unified virtual banking experience across online, mobile, voice and tablet channels by leveraging a common platform that integrates our solutions with each other and with our customers' other internal and third-party systems. In addition, we design our solutions and our data center infrastructure to comply with stringent security and technical regulations applicable to financial institutions and to safeguard our customers and their account holders through features such as real-time risk and fraud analytics.
        We deliver our solutions to the substantial majority of our customers using a software-as-a-service, or SaaS, model under which our customers pay subscription fees for the use of our solutions. A small portion of our customers host our solutions in their own data centers under term license and maintenance agreements. Our customers have numerous account holders, and those account holders can represent one or more registered users on our solutions. We price our solutions based on the number of solutions purchased by our customers and the number of registered users utilizing our solutions. We earn additional revenues based on the number of bill-pay and certain other transactions that registered users perform on our virtual banking solutions in excess of the levels included in our standard subscription fee. As a result, our revenues grow as our customers buy more solutions from us and increase the number of registered users utilizing our solutions and as those users increase their number of transactions on our solutions.
        We have achieved significant growth since our inception. During each of the past three years, our average number of registered users per installed customer has grown, and we have been able to sell additional solutions to existing customers. Our revenues per installed customer and per registered user vary period-to-period based on the length and timing of customer implementations, changes in the average number of registered users per customer, sales of additional solutions to existing customers, changes in the number of transactions on our solutions by registered users and variations among existing customers and new customers with respect to the mix of purchased solutions and related pricing.
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        We believe we have a significant opportunity to continue to grow our business, and we intend to invest across our organization to increase our revenues and improve our operating efficiencies. These investments will increase our costs on an absolute dollar basis, but the timing and amount of these investments will vary based on the rate at which we expect to add new customers, the implementation and support needs of our customers, our software development plans, our technology infrastructure requirements and the internal needs of our organization. Many of these investments will occur in advance of our realizing any resultant benefit which may make it difficult to determine if we are effectively allocating our resources.
        If we are successful in growing our revenues by increasing the number and scope of our customer relationships, we anticipate that greater economies of scale and increased operating leverage will improve our margins over the long term. We also anticipate that increases in the number of registered users for existing customers will improve our margins. However, we do not have any control or influence over whether account holders elect to become registered users of our customers' virtual banking services.
        We sell our solutions primarily through our professional sales organization. Our target market of over 13,500 RCFIs is well-defined as a result of applicable governmental regulations. As a result, we are able to effectively concentrate our sales and marketing efforts on these readily-identifiable financial institutions. We intend to add sales representatives for both banks and credit unions across the U.S. We also expect to increase our number of sales support and marketing personnel as well as our investment in marketing initiatives designed to increase awareness of our solutions and generate new customer opportunities.
        We seek to help our RCFI customers succeed by providing advanced virtual banking solutions that allow our customers to distinguish themselves from competing financial institutions and better engage with their account holders. We believe that we successfully compete in our market due to our deep domain expertise, reputation for innovation and the quality, breadth and integration of our solutions and common platform. We have made significant investments, and intend to increase investments, in technology innovation and software development as we enhance our solutions and platform and increase or expand the number of solutions that we offer to RCFIs and their account holders.
        We believe that delivery of consistent, high-quality customer support is a significant driver of RCFI purchasing and renewal decisions. To develop and maintain a reputation for high-quality service, we seek to build deep relationships with our customers through our customer service organization which we staff with personnel who are motivated by our common mission of using technology to help RCFIs succeed and who are knowledgeable with respect to the regulated and complex nature of the financial services industry. As we grow our business, we must continue to invest in and grow our services organization to support our customers' needs and maintain our reputation.
Key Operating Measures
        In addition to the GAAP measures described below in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Components of Operating Results," we monitor the following operating measures to evaluate growth trends, plan investments and measure the effectiveness of our sales and marketing efforts:
Installed Customers
        We define installed customers as the number of customers from which we are currently recognizing revenues. The average size of our installed customers, measured in both registered users per installed customer and revenues per installed customer, has increased over time as our existing installed customers continue to add registered users and buy more solutions from us, and as we add larger RCFIs to our installed customer base. The rate at which we add installed customers varies based on our implementation capacity, the size and unique needs of our customers and the readiness of our
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customers to implement our solutions. We had 249 and 299 installed customers as of December 31, 2011 and 2012, respectively.
Registered Users
        We define a registered user as an individual related to an account holder of an installed customer who has registered to use one or more of our solutions and has current access to use those solutions as of the last day of the reporting period presented. We price our solutions based on the number of registered users, so as the number of registered users of our solutions increases, our revenues grow. Our average number of registered users per installed customer grows as our existing customers add more registered users and as we add larger RCFIs to our installed customer base. We anticipate that the number of registered users will grow at a faster rate than our number of installed customers. The rate at which our customers add registered users and the incremental revenues we recognize from new registered users vary significantly period-to-period based on the timing of our implementations of new customers and the timing of registration of new users. Our installed customers had approximately 1.1 million and 2.4 million registered users as of December 31, 2011 and 2012, respectively, and 2.1 million and 2.9 million registered users as of September 30, 2012 and 2013, respectively.
Revenue Retention Rate
        We believe that our ability to retain our installed customers and expand their use of our products and services over time is an indicator of the stability of our revenue base and the long-term value of our customer relationships. We assess our performance in this area using a metric we refer to as our revenue retention rate. We calculate our revenue retention rate as the total revenues in a calendar year from customers who were installed customers as of December 31st of the prior year, expressed as a percentage of the total revenues during the prior year from those installed customers. Our revenue retention rate provides insight into the impact on current year revenues of the number of new customers implemented during the prior year, the timing of our implementation of those new customers in the prior year, growth in the number of registered users and changes in their usage of our solutions, sales of new products and services to our existing installed customers during the current year and customer attrition. The most significant drivers of changes in our revenue retention rate each year have historically been the number of new customers in the prior year and the timing of our implementation of those new customers. The timing of our implementation of new customers in the prior year is significant because we do not start recognizing revenues from new customers until they become installed customers. If implementations are weighted more heavily in the first or second half of the prior year, our revenue retention rate will be lower or higher, respectively. Our revenue retention rate was 126% and 136% for the years ended December 31, 2011 and 2012, respectively.
Components of Operating Results
Revenues
        All of our revenue-generating activities directly relate to the sale, implementation and support of our solutions within a single operating segment. We derive the substantial majority of our revenues from subscription fees for the use of our solutions hosted in our data centers as well as revenues for implementation and customer support services related to our solutions. A small portion of our customers host our solutions in their own data centers under term license and maintenance agreements, and we recognize the corresponding revenues over the term of those customer agreements.
        Subscription fees are based on the number of solutions purchased by our customers, the number of registered users and the number of bill-pay and certain other transactions those users conduct using our solutions in excess of the levels included in our standard subscription fee. Subscription fees are billed and recognized monthly over the term of our customer agreements. The initial term of our customer agreements averages over five years, although it varies by customer. We begin recognizing subscription fees on the date a solution is implemented and made available to the customer. The timing of our
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implementations vary period-to-period based on our implementation capacity, the number of solutions purchased by our customers, the size and unique needs of our customers and the readiness of our customers to implement our solutions. We recognize any related implementation services revenues ratably over the initial agreement term beginning on the date we commence recognizing subscription fees. Amounts that have been invoiced but not paid are recorded in accounts receivable and in revenues or deferred revenues, depending on whether our revenue recognition criteria have been met.
        We consider subscription fees to be fixed or determinable unless the fees are subject to refund or adjustment or are not payable within our standard payment terms. In determining whether collection of subscription fees is reasonably assured, we consider financial and other information about customers, such as a customer's current credit-worthiness and payment history over time. Historically, our bad debt expenses have not been significant.
Cost of Revenues
        Cost of revenues is comprised primarily of salaries and other personnel-related costs, including employee benefits, bonuses and stock-based compensation, for employees providing services to our customers. This includes the costs of our implementation, customer support, data center and customer training personnel as well as a reclassification of costs related to research and development personnel who perform implementation and customer support services. Cost of revenues also includes the direct costs of bill-pay and other third-party intellectual property included in our solutions, the amortization of deferred solution and services costs, co-location facility costs and depreciation of our data center assets, an allocation of general overhead costs and referral fees. We allocate general overhead expenses to all departments based on the number of employees in each department, which we consider to be a fair and representative means of allocation.
        The amount of research and development costs reclassified to cost of revenues were $0.4 million and $1.4 million for the years ended December 31, 2011 and 2012, respectively, and $0.9 million and $1.2 million for the nine months ended September 30, 2012 and 2013, respectively.
        We capitalize certain personnel costs directly related to the implementation of our solution to the extent those costs are considered to be recoverable from future revenues. We amortize the costs for a particular implementation once revenue recognition commences, and we amortize those implementation costs over the remaining term of the customer agreement. Other costs not directly recoverable from future revenues are expensed in the period incurred. For the years ended December 31, 2011 and 2012, we capitalized implementations costs in the amount of $2.0 million and $2.6 million, respectively, and $1.9 million and $2.6 million for the nine months ended September 30, 2012 and 2013, respectively.
        We intend to continue to increase our investments in our implementation and customer support teams and technology infrastructure to serve our customers and support our growth. We expect cost of revenues to continue to grow in absolute dollars as we grow our business but to fluctuate as a percentage of revenues based principally on the level and timing of implementation and support activities and other related costs.
Operating Expenses
        Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. We intend to continue to hire new employees and make other investments to support our anticipated growth. As a result, we expect our operating expenses to increase in absolute dollars but to decrease as a percentage of revenues over the long term as we grow our business.
Sales and Marketing
        Sales and marketing expenses consist primarily of salaries and other personnel-related costs, including commissions, benefits, bonuses and stock-based compensation. Additional expenses relate to
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advertising, lead generation, promotional event programs, corporate communications, travel and allocated overhead.
        Sales and marketing expenses as a percentage of total revenues will change in any given period based on several factors including the addition of newly-hired sales professionals, the number and timing of newly-installed customers and the amount of sales commissions expense amortized related to those customers. Commissions are generally capitalized and then amortized over the life of the customer agreement.
        Sales and marketing expenses are also impacted by the timing of significant marketing programs such as our annual user conference which we typically hold during the second quarter. We plan to continue investing in sales and marketing by increasing our number of sales and marketing personnel and expanding our sales and marketing activities. We believe these investments will help us build brand awareness, add new customers and expand sales to our existing customers as they continue to buy more solutions from us, the number of registered users utilizing our solutions grows, and those users increase the number of transactions on our solutions.
Research and Development
        We believe that continuing to improve and enhance our solutions is essential to maintaining our reputation for innovation and growing our customer base and revenues. Research and development expenses include salaries and personnel-related costs, including benefits, bonuses and stock-based compensation, third-party contractor expenses, software development costs, allocated overhead and other related expenses incurred in developing new solutions and enhancing existing solutions. Research and development expenses are expensed as incurred. To date, software development costs eligible for capitalization have not been significant. Accordingly, we have not capitalized any software development costs, and we do not anticipate capitalizing any such costs in the foreseeable future.
General and Administrative
        General and administrative expenses consist primarily of salaries and other personnel-related costs, including benefits, bonuses and stock-based compensation, of our administrative, finance and accounting, information systems, legal and human resources employees. Additional expenses include consulting and professional fees, insurance and travel. We expect our general and administrative expenses to increase as a result of our preparation to become and operate as a public company. After the completion of this offering, these expenses will also include costs to comply with Section 404 of the Sarbanes-Oxley Act and other regulations governing public companies, increased costs of directors' and officers' liability insurance, increased professional services expenses and costs associated with enhanced investor relations activities.
Total Other Expense, Net
        Total other expense, net, consists primarily of interest income and expense. We earn interest income on our cash and cash equivalents and expect interest income to increase following this offering due to the increase in our cash and cash equivalents. Interest expense consists primarily of the interest incurred on outstanding borrowings under our credit facility. We expect interest expense to decrease following this offering as we anticipate utilizing a portion of the proceeds of this offering to pay down a portion of our credit facility. See "Use of Proceeds" for a discussion of our intended use of proceeds from this offering.
Provision for Income Taxes
        As a result of our current net operating loss position, income tax expenses consist primarily of state income taxes. We incurred minimal state income tax expense for the years ended December 31, 2011 and 2012, and the nine months ended September 30, 2012 and 2013. Our net operating loss carryforwards for federal income tax purposes were $42.1 million at September 30, 2013 and will expire
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at various dates beginning in 2026 if not utilized. We also held state tax credits of $0.2 million and federal alternative minimum tax credits of $0.1 million at September 30, 2013. The state tax credits will expire in 2027 if not utilized, and the federal alternative minimum tax credits have an indefinite carryforward period.
Results of Operations
Consolidated Statements of Operations Data
        The following table sets forth our consolidated statements of operations data for each of the periods indicated:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
 	 	(in thousands)	 	
Revenues	 	$	26,982	 	$	41,101	 	$	29,151	 	$	41,203	 	
Cost of revenues(1)(2)	 	 	14,795	 	 	25,170	 	 	17,478	 	 	25,382	 	
 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	12,187	 	 	15,931	 	 	11,673	 	 	15,821	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing(2)	 	 	5,589	 	 	8,962	 	 	6,298	 	 	11,797	 	
Research and development(2)	 	 	3,428	 	 	5,317	 	 	3,804	 	 	6,277	 	
General and administrative(2)	 	 	4,857	 	 	8,780	 	 	6,366	 	 	8,318	 	
Unoccupied lease charges(3)	 	 	—	 	 	—	 	 	—	 	 	236	 	
 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	13,874	 	 	23,059	 	 	16,468	 	 	26,628	 	
 	 	 	 	 	 	 	 	 	 	
Loss from operations	 	 	(1,687	)	 	(7,128	)	 	(4,795	)	 	(10,807	)	
Total other expense, net	 	 	(76	)	 	(228	)	 	(160	)	 	(337	)	
 	 	 	 	 	 	 	 	 	 	
Loss before income taxes	 	 	(1,763	)	 	(7,356	)	 	(4,955	)	 	(11,144	)	
Provision for income taxes	 	 	(132	)	 	(164	)	 	(112	)	 	(33	)	
 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations	 	 	(1,895	)	 	(7,520	)	 	(5,067	)	 	(11,177	)	
 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations, net of tax(4)	 	 	(1,132	)	 	(1,259	)	 	(918	)	 	(199	)	
 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(3,027	)	$	(8,779	)	$	(5,985	)	$	(11,376	)	

(1)
Includes reclassified costs of research and development personnel who performed certain implementation and customer support services as follows:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
Research and development costs reclassified into cost of revenues	 	$	434	 	$	1,390	 	$	929	 	$	1,249	 	
(2)
Includes stock-based compensation expenses as follows:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
Cost of revenues	 	$	52	 	$	187	 	$	127	 	$	192	 	
Sales and marketing	 	 	52	 	 	123	 	 	82	 	 	180	 	
Research and development	 	 	57	 	 	195	 	 	132	 	 	189	 	
General and administrative	 	 	236	 	 	526	 	 	343	 	 	561	 	
 	 	 	 	 	 	 	 	 	 	
Total stock-based compensation expenses	 	$	397	 	$	1,031	 	$	684	 	$	1,122	 	

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(3)
Unoccupied lease charges include costs related to our early exit from our previous headquarters, partially offset by anticipated sublease income from that facility.

(4)
We previously had a subsidiary which we fully divested in March 2013. Loss from discontinued operations, net of tax reflects the financial results of this divested subsidiary.
        The following table sets forth our consolidated statements of operations data as a percentage of revenues for each of the periods indicated:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
Revenues	 	 	100.0	%	 	100.0	%	 	100.0	%	 	100.0	%	
Cost of revenues(1)(2)	 	 	54.8	 	 	61.2	 	 	60.0	 	 	61.6	 	
 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	45.2	 	 	38.8	 	 	40.0	 	 	38.4	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing(2)	 	 	20.7	 	 	21.8	 	 	21.6	 	 	28.6	 	
Research and development(2)	 	 	12.7	 	 	12.9	 	 	13.0	 	 	15.2	 	
General and administrative(2)	 	 	18.0	 	 	21.4	 	 	21.9	 	 	20.2	 	
Unoccupied lease charges(3)	 	 	—	 	 	—	 	 	—	 	 	0.6	 	
 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	51.4	 	 	56.1	 	 	56.5	 	 	64.6	 	
 	 	 	 	 	 	 	 	 	 	
Loss from operations	 	 	(6.2	)	 	(17.3	)	 	(16.5	)	 	(26.2	)	
Total other expense, net	 	 	(0.3	)	 	(0.6	)	 	(0.5	)	 	(0.8	)	
 	 	 	 	 	 	 	 	 	 	
Loss before income taxes	 	 	(6.5	)	 	(17.9	)	 	(17.0	)	 	(27.0	)	
Provision for income taxes	 	 	(0.5	)	 	(0.4	)	 	(0.4	)	 	(0.1	)	
 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations	 	 	(7.0	)	 	(18.3	)	 	(17.4	)	 	(27.1	)	
 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations, net of tax(4)	 	 	(4.2	)	 	(3.1	)	 	(3.1	)	 	(0.5	)	
 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	(11.2	)%	 	(21.4	)%	 	(20.5	)%	 	(27.6	)%	

(1)
Includes reclassified costs of research and development personnel who performed certain implementation and customer support services as follows:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
Research and development costs reclassified into cost of revenues	 	 	1.6	%	 	3.4	%	 	3.2	%	 	3.0	%	
(2)
Includes stock-based compensation expenses as follows:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
Cost of revenues	 	 	0.2	%	 	0.5	%	 	0.4	%	 	0.5	%	
Sales and marketing	 	 	0.2	 	 	0.3	 	 	0.3	 	 	0.4	 	
Research and development	 	 	0.2	 	 	0.5	 	 	0.5	 	 	0.5	 	
General and administrative	 	 	0.9	 	 	1.3	 	 	1.2	 	 	1.4	 	
 	 	 	 	 	 	 	 	 	 	
Total stock-based compensation expenses	 	 	1.5	%	 	2.6	%	 	2.4	%	 	2.8	%	
 	 	 	 	 	 	 	 	 	 	
(3)
Unoccupied lease charges include costs related to our early exit from our previous headquarters, partially offset by anticipated sublease income from that facility.

(4)
We previously had a subsidiary which we fully divested in March 2013. Loss from discontinued operations, net of tax reflects the financial results of this divested subsidiary.
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Comparison of Nine Months Ended September 30, 2012 and 2013
Revenues

																				
 	 	Nine Months Ended September 30,	 	 	 	 	 	
 	 	2012	 	2013	 	 	 	 	 	
 	 	Amount	 	% of
Revenues	 	Amount	 	% of
Revenues	 	Change	 	
Revenues	 	$	29,151	 	 	100.0	%	$	41,203	 	 	100.0	%	$	12,052	 	 	41.3	%	
        Revenues increased by $12.1 million, or 41.3%, from $29.2 million for the nine months ended September 30, 2012 to $41.2 million for the nine months ended September 30, 2013. Of this increase, $9.3 million was generated from the growth in new registered users from a combination of strong client retention and growth from existing customers and the addition of registered users from new installed customers. The remaining $2.8 million increase was generated from increases in the number of transactions made using our solutions. In particular, we had 2.1 million and 2.9 million registered users as of September 30, 2012 and 2013, respectively.
Cost of Revenues

																				
 	 	Nine Months Ended September 30,	 	 	 	 	 	
 	 	2012	 	2013	 	 	 	 	 	
 	 	Amount	 	% of
Revenues	 	Amount	 	% of
Revenues	 	Change	 	
Cost of revenues	 	$	17,478	 	 	60.0	%	$	25,382	 	 	61.6	%	$	7,904	 	 	45.2	%	
        Cost of revenues increased by $7.9 million, or 45.2%, from $17.5 million for the nine months ended September 30, 2012 to $25.4 million for the nine months ended September 30, 2013. This increase was primarily attributable to a $3.1 million increase in personnel costs due to our growth in the number of personnel who provide implementation and customer support and maintain our data centers and other technical infrastructure, including a $0.3 million increase in reclassified research and development costs. Also, direct costs related to bill-pay transaction processing and other third-party intellectual property included in our solutions represented $2.9 million of this increase as the number of new registered users and transactions processed on our solutions increased, co-location facility costs and depreciation of our data center assets increased by $1.1 million as we expanded our data centers and other technical infrastructure to support our expanding customer base, and we incurred an additional $0.8 million in facilities and other overhead costs.
        The increase in cost of revenues as a percentage of revenues and resulting decrease in gross margin is primarily attributable to our investment in personnel to implement our solutions for new customers, and in personnel to provide support to these new customers. We defer certain payroll costs directly related to the implementation of our solutions to the extent those costs are considered to be recoverable from future revenues. However, a substantial portion of our implementation costs are not eligible for deferral and, as a result, are expensed in the period incurred. Costs related to implementations that have been deferred are amortized over the same period in which the related revenue is recognized. Additionally, we invested in personnel, business processes and systems infrastructure to standardize our business processes and drive future efficiency in our implementations, customer support and data center operations. We expect these investments in capacity and process improvement to provide opportunities for future expansion of our gross margin as we begin to achieve economies of scale.
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Operating Expenses

																				
 	 	Nine Months Ended September 30,	 	 	 	 	 	
 	 	2012	 	2013	 	 	 	 	 	
 	 	Amount	 	% of
Revenues	 	Amount	 	% of
Revenues	 	Change	 	
Sales and marketing	 	$	6,298	 	 	21.6	%	$	11,797	 	 	28.6	%	$	5,499	 	 	87.3	%	
Research and development	 	 	3,804	 	 	13.0	 	 	6,277	 	 	15.2	 	 	2,473	 	 	65.0	 	
General and administrative	 	 	6,366	 	 	21.9	 	 	8,318	 	 	20.2	 	 	1,952	 	 	30.7	 	
Unoccupied lease charges	 	 	—	 	 	—	 	 	236	 	 	0.6	 	 	236	 	 	N/A	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	$	16,468	 	 	56.5	%	$	26,628	 	 	64.6	%	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and Marketing
        Sales and marketing expenses increased by $5.5 million, or 87.3%, from $6.3 million for the nine months ended September 30, 2012, to $11.8 million for the nine months ended September 30, 2013. This increase was primarily attributable to a $3.8 million increase in personnel costs due to the growth of our sales and marketing organizations. Also, discretionary marketing spend increased by $0.8 million as a result of increased advertising to drive brand awareness and expanded marketing efforts to attract new customers and retain and grow existing customers, travel and other miscellaneous expenses increased by $0.5 million as a result of these activities, and we incurred a $0.4 million increase in facilities and other overhead costs.
Research and Development
        Research and development expenses increased by $2.5 million, or 65.0%, from $3.8 million for the nine months ended September 30, 2012, to $6.3 million for the nine months ended September 30, 2013. This increase was attributable to a $1.9 million increase in personnel costs as a result of the growth in our research and development organization for continued enhancements to our solutions, a $0.4 million increase in facilities and other overhead costs and a $0.2 million increase in travel and other development costs. We reclassified to cost of revenues an additional $0.3 million of costs related to research and development personnel who perform services related to implementation and customer support.
General and Administrative
        General and administrative expenses increased by $2.0 million, or 30.7%, from $6.4 million for the nine months ended September 30, 2012, to $8.3 million for the nine months ended September 30, 2013. The increase in general and administrative expenses was attributable to a $0.9 million increase in personnel costs to support the growth of our business and preparation for our initial public offering process, a $0.8 million increase in professional services costs related to accounting and tax services, legal services and other professional services related to internal systems implementations and a $0.3 million increase in facilities and other overhead costs.
Comparison of Years Ended December 31, 2011 and 2012
Revenues

																				
 	 	Year Ended December 31,	 	 	 	 	 	
 	 	2011	 	2012	 	 	 	 	 	
 	 	Amount	 	% of
Revenues	 	Amount	 	% of
Revenues	 	Change	 	
Revenues	 	$	26,982	 	 	100.0	%	$	41,101	 	 	100.0	%	$	14,119	 	 	52.3	%	
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        Revenues increased by $14.1 million, or 52.3%, from $27.0 million for the year ended December 31, 2011 to $41.1 million for the year ended December 31, 2012. Of this increase, $10.7 million was generated from the growth in new registered users from a combination of strong client retention and growth from existing customers and the addition of registered users from new installed customers. The remaining $3.4 million increase was generated from increases in the number of transactions made using our solutions. In particular, we had 1.1 million and 2.4 million registered users as of December 31, 2011 and 2012, respectively. We had 249 installed customers at December 31, 2011 and 299 installed customers at December 31, 2012.
Cost of Revenues

																				
 	 	Year Ended December 31,	 	 	 	 	 	
 	 	2011	 	2012	 	 	 	 	 	
 	 	Amount	 	% of
Revenues	 	Amount	 	% of
Revenues	 	Change	 	
Cost of revenues	 	$	14,795	 	 	54.8	%	$	25,170	 	 	61.2	%	$	10,375	 	 	70.1	%	
        Cost of revenues increased by $10.4 million, or 70.1%, from $14.8 million for the year ended December 31, 2011 to $25.2 million for the year ended December 31, 2012. This increase was primarily attributable to a $5.4 million increase in personnel costs due to our growth in the number of personnel who provide implementation and customer support and maintain our data centers and other technical infrastructure, including a $1.0 million increase in reclassified research and development costs. Also, direct costs related to bill-pay transaction processing and other third-party intellectual property included in our solutions represented $3.1 million of this increase as the number of new registered users and transactions processed on our solutions increased, co-location facility costs and depreciation of our data center assets increased by $1.2 million as we expanded our data centers and other technical infrastructure to support our expanding customer base, and we incurred an additional $0.7 million in facilities and other overhead costs.
        The increase in cost of revenues as a percentage of revenues and resulting decrease in gross margin is primarily attributable to our investment in personnel to implement our solutions for new customers, and in personnel to provide support to these new customers. We defer certain payroll costs directly related to the implementation of our solutions to the extent those costs are considered to be recoverable from future revenues. However, a substantial portion of our implementation costs are not eligible for deferral and, as a result, are expensed in the period incurred. Costs related to implementations that have been deferred are amortized over the same period in which the related revenue is recognized. Additionally, we invested in personnel, business processes and systems infrastructure to standardize our business processes and to drive future efficiency in our implementations, customer support and data center operations. We expect these investments in capacity and process improvement to provide opportunities for future expansion of our gross margin as we begin to achieve economies of scale.
Operating Expenses

																				
 	 	Year Ended December 31,	 	 	 	 	 	
 	 	2011	 	2012	 	 	 	 	 	
 	 	Amount	 	% of
Revenues	 	Amount	 	% of
Revenues	 	Change	 	
Sales and marketing	 	$	5,589	 	 	20.7	%	$	8,962	 	 	21.8	%	$	3,373	 	 	60.4	%	
Research and development          	 	 	3,428	 	 	12.7	 	 	5,317	 	 	12.9	 	 	1,889	 	 	55.1	 	
General and administrative          	 	 	4,857	 	 	18.0	 	 	8,780	 	 	21.4	 	 	3,923	 	 	80.8	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	$	13,874	 	 	51.4	%	$	23,059	 	 	56.1	%	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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Sales and Marketing
        Sales and marketing expenses increased by $3.4 million, or 60.4%, from $5.6 million for the year ended December 31, 2011, to $9.0 million for the year ended December 31, 2012. This increase was primarily attributable to a $2.5 million increase in personnel costs due to the growth of our sales and marketing organizations. Also, discretionary marketing spend increased by $0.4 million primarily as a result of increased marketing efforts to attract new customers and retain and grow existing customers, specifically the expansion of our annual customer conference which is usually held during the second quarter, travel and other miscellaneous expenses increased by $0.3 million, and a $0.2 million increase in facilities and other overhead costs.
Research and Development
        Research and development expenses increased by $1.9 million, or 55.1%, from $3.4 million for the year ended December 31, 2011, to $5.3 million for the year ended December 31, 2012. This increase was attributable to a $1.6 million increase in personnel costs as a result of the growth in our research and development organization for continued enhancements to our solutions and a $0.3 million increase in facilities and other overhead costs. We reclassified to cost of revenues an additional $1.0 million of costs related to research and development personnel who perform services related to implementation and customer support.
General and Administrative
        General and administrative expenses increased by $3.9 million, or 80.8%, from $4.9 million for the year ended December 31, 2011, to $8.8 million for the year ended December 31, 2012. The increase in general and administrative expenses was attributable to a $3.2 million increase in personnel costs to support the growth of our business, a $0.4 million increase in professional services costs related to accounting and tax services, and a $0.3 million increase in facilities and other overhead costs.
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Quarterly Results of Operations
        The following tables show our unaudited consolidated quarterly statement of operations data for each of the seven quarters ended September 30, 2013, as well as the percentage of revenues for each line item shown. This information, other than with respect to the number of registered users, has been derived from our unaudited consolidated financial statements. Historical results are not necessarily indicative of future results, and operating results for a quarterly period are not necessarily indicative of the operating results for a full year. This information should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus.

																							
 	 	Three months ended,	 	
 	 	Mar. 31,
2012	 	Jun. 30,
2012	 	Sep. 30,
2012	 	Dec. 31,
2012	 	Mar. 31,
2013	 	Jun. 30,
2013	 	Sep. 30,
2013	 	
 	 	(in thousands)	 	
Revenues	 	$	9,063	 	$	9,454	 	$	10,634	 	$	11,950	 	$	12,834	 	$	14,044	 	$	14,325	 	
Cost of revenues	 	 	4,994	 	 	5,708	 	 	6,776	 	 	7,692	 	 	7,807	 	 	8,408	 	 	9,167	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	4,069	 	 	3,746	 	 	3,858	 	 	4,258	 	 	5,027	 	 	5,636	 	 	5,158	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing	 	 	1,966	 	 	2,263	 	 	2,069	 	 	2,664	 	 	3,060	 	 	4,138	 	 	4,599	 	
Research and development	 	 	1,148	 	 	1,296	 	 	1,360	 	 	1,513	 	 	1,866	 	 	2,152	 	 	2,259	 	
General and administrative	 	 	1,909	 	 	2,132	 	 	2,325	 	 	2,414	 	 	2,335	 	 	2,776	 	 	3,207	 	
Unoccupied lease charges	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	148	 	 	88	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	5,023	 	 	5,691	 	 	5,754	 	 	6,591	 	 	7,261	 	 	9,214	 	 	10,153	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from operations	 	 	(954	)	 	(1,945	)	 	(1,896	)	 	(2,333	)	 	(2,234	)	 	(3,578	)	 	(4,995	)	
Total other expense, net	 	 	(39	)	 	(54	)	 	(67	)	 	(68	)	 	(51	)	 	(116	)	 	(170	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss before income taxes	 	 	(993	)	 	(1,999	)	 	(1,963	)	 	(2,401	)	 	(2,285	)	 	(3,694	)	 	(5,165	)	
Provision for income taxes	 	 	(25	)	 	(43	)	 	(44	)	 	(52	)	 	(5	)	 	(14	)	 	(14	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations	 	 	(1,018	)	 	(2,042	)	 	(2,007	)	 	(2,453	)	 	(2,290	)	 	(3,708	)	 	(5,179	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations, net of tax	 	 	(286	)	 	(282	)	 	(350	)	 	(341	)	 	(199	)	 	—	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(1,304	)	$	(2,324	)	$	(2,357	)	$	(2,794	)	$	(2,489	)	$	(3,708	)	$	(5,179	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	288	 	 	363	 	 	378	 	 	668	 	 	638	 	 	644	 	 	833	 	
Loss from discontinued operations, net of tax	 	 	286	 	 	282	 	 	350	 	 	341	 	 	199	 	 	—	 	 	—	 	
Stock-based compensation expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of revenues	 	 	40	 	 	41	 	 	46	 	 	60	 	 	61	 	 	61	 	 	70	 	
Sales and marketing	 	 	27	 	 	25	 	 	30	 	 	41	 	 	39	 	 	60	 	 	81	 	
Research and development	 	 	33	 	 	43	 	 	56	 	 	63	 	 	59	 	 	66	 	 	64	 	
General and administrative	 	 	91	 	 	121	 	 	131	 	 	183	 	 	175	 	 	189	 	 	197	 	
Provision for income taxes	 	 	25	 	 	43	 	 	44	 	 	52	 	 	5	 	 	14	 	 	14	 	
Other expense, net	 	 	39	 	 	54	 	 	67	 	 	68	 	 	51	 	 	116	 	 	170	 	
Unoccupied lease charges	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	148	 	 	88	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	 	$	(475	)	$	(1,352	)	$	(1,255	)	$	(1,318	)	$	(1,262	)	$	(2,410	)	$	(3,662	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Registered users(1)	 	 	
1,723	 	 	
1,866	 	 	
2,054	 	 	
2,409	 	 	
2,609	 	 	
2,900	 	 	
2,956	 	

(1)
Represents registered users at the end of the period.
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 	 	Three months ended,	 	
 	 	Mar. 31,
2012	 	Jun. 30,
2012	 	Sep. 30,
2012	 	Dec. 31,
2012	 	Mar. 31,
2013	 	Jun. 30,
2013	 	Sep. 30,
2013	 	
Revenues	 	 	100.0	%	 	100.0	%	 	100.0	%	 	100.0	%	 	100.0	%	 	100.0	%	 	100.0	%	
Cost of revenues	 	 	55.1	 	 	60.4	 	 	63.7	 	 	64.4	 	 	60.8	 	 	59.9	 	 	64.0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	44.9	 	 	39.6	 	 	36.3	 	 	35.6	 	 	39.2	 	 	40.1	 	 	36.0	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing	 	 	21.7	 	 	23.9	 	 	19.5	 	 	22.2	 	 	23.9	 	 	29.5	 	 	32.1	 	
Research and development	 	 	12.7	 	 	13.7	 	 	12.8	 	 	12.7	 	 	14.5	 	 	15.3	 	 	15.8	 	
General and administrative	 	 	21.1	 	 	22.6	 	 	21.8	 	 	20.1	 	 	18.2	 	 	19.8	 	 	22.4	 	
Unoccupied lease charges	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	1.0	 	 	0.6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	55.5	 	 	60.2	 	 	54.1	 	 	55.1	 	 	56.6	 	 	65.6	 	 	70.9	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from operations	 	 	(10.6	)	 	(20.6	)	 	(17.8	)	 	(19.5	)	 	(17.4	)	 	(25.5	)	 	(34.9	)	
Total other expense, net	 	 	(0.4	)	 	(0.5	)	 	(0.7	)	 	(0.6	)	 	(0.4	)	 	(0.8	)	 	(1.2	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss before income taxes	 	 	(11.0	)	 	(21.1	)	 	(18.5	)	 	(20.1	)	 	(17.8	)	 	(26.3	)	 	(36.1	)	
Provision for income taxes	 	 	(0.2	)	 	(0.5	)	 	(0.4	)	 	(0.4	)	 	(0.1	)	 	(0.1	)	 	(0.1	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations	 	 	(11.2	)	 	(21.6	)	 	(18.9	)	 	(20.5	)	 	(17.9	)	 	(26.4	)	 	(36.2	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations, net of tax	 	 	(3.2	)	 	(3.0	)	 	(3.3	)	 	(2.9	)	 	(1.5	)	 	—	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	(14.4	)	 	(24.6	)	 	(22.2	)	 	(23.4	)	 	(19.4	)	 	(26.4	)	 	(36.2	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	3.2	 	 	3.7	 	 	3.6	 	 	5.6	 	 	5.0	 	 	4.6	 	 	5.8	 	
Loss from discontinued operations, net of tax	 	 	3.2	 	 	3.0	 	 	3.3	 	 	2.9	 	 	1.5	 	 	—	 	 	—	 	
Stock-based compensation expenses:	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	
Cost of revenues	 	 	0.4	 	 	0.4	 	 	0.4	 	 	0.5	 	 	0.5	 	 	0.4	 	 	0.5	 	
Sales and marketing	 	 	0.3	 	 	0.3	 	 	0.3	 	 	0.4	 	 	0.3	 	 	0.4	 	 	0.6	 	
Research and development	 	 	0.4	 	 	0.5	 	 	0.5	 	 	0.5	 	 	0.5	 	 	0.5	 	 	0.4	 	
General and administrative	 	 	1.0	 	 	1.3	 	 	1.3	 	 	1.5	 	 	1.3	 	 	1.3	 	 	1.4	 	
Provision for income taxes	 	 	0.3	 	 	0.5	 	 	0.4	 	 	0.4	 	 	0.1	 	 	0.1	 	 	0.1	 	
Other expense, net	 	 	0.4	 	 	0.6	 	 	0.6	 	 	0.6	 	 	0.4	 	 	0.8	 	 	1.2	 	
Unoccupied lease charges	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	1.1	 	 	0.6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	 	 	(5.2	)%	 	(14.3	)%	 	(11.8	)%	 	(11.0	)%	 	(9.8	)%	 	(17.2	)%	 	(25.6	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
        Revenues increased sequentially in each of the quarters presented, primarily due to growth in the number and timing of new registered users, increases in the number of transactions using our solutions and sales of new solutions to our installed customers. Our number of installed customers increased from 249 as of December 31, 2011 to 299 as of December 31, 2012.
        Throughout the periods presented, we significantly increased our hiring to facilitate our growth, increasing our number of employees from 203 at December 31, 2011 to 400 at September 30, 2013. We generally increase our capacity, particularly in the areas of sales and implementation and customer support, ahead of anticipated growth in new customers, which can result in lower margins in periods prior to realized revenue growth. Cost of revenues grew in absolute dollars over the periods shown, but fluctuated as a percentage of revenues based principally on the level and timing of implementation and support activities and other related costs.
        Total expenses increased in each of the quarters presented due primarily to increased personnel-related expenses from additional headcount and related expenses and overhead. Our sales and marketing expenses fluctuated period-to-period as a percentage of revenues due to the hiring of new sales and marketing personnel, the number and timing of newly-installed customers in a period and the timing of significant marketing programs. We have historically held our annual client conference in the quarter ended June 30 and expensed the costs associated with the event during that quarter. Research and development expenses increased sequentially during the periods presented primarily as a result of increased personnel costs associated with our continued investments in new and enhanced solutions.
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General and administrative expenses also increased during the periods presented as we added personnel to support the growth in our business and prepare for our initial public offering.
        The timing of our implementation activities and corresponding revenues from new customers are subject to fluctuation based on the timing of our sales. Sales may tend to be lower in the first quarter of each year than in subsequent quarters but any resulting impact on our results of operation has been difficult to measure due to the timing of our implementations and overall growth in our business. The timing of our implementations also vary period-to-period based on our implementation capacity, the number of solutions purchased by our customers, the size and unique needs of our customers and the readiness of our customers to implement our solutions. Our solutions are often the most frequent point of interaction between our customers and their account holders. As a result, we and our customers are very deliberate and careful in our implementation activities to help ensure a successful roll-out of the solutions to account holders and increase the registration of new users. Unusually long or short implementations, for even a small number of customers, may result in short-term quarterly variability in our results of operations.
        Our quarterly results of operations may vary significantly in the future, and period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future results.
Liquidity and Capital Resources
Sources of Liquidity
        Since our inception, we have financed our operations primarily through the proceeds from the issuance of our preferred stock, borrowings under credit facilities and cash flows from operations. At September 30, 2013, our principal sources of liquidity were cash and cash equivalents of $21.2 million and outstanding borrowings of $6.3 million on our line of credit.
Cash Flows
        The following table summarizes our cash flows for the periods indicated:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
 	 	(in thousands)	 	
Net cash provided by (used in):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating activities	 	$	(1,120	)	$	(3,009	)	$	(1,160	)	$	(201	)	
Investing activities	 	 	(1,389	)	 	(2,606	)	 	(2,731	)	 	(10,229	)	
Financing activities	 	 	12,966	 	 	(637	)	 	(514	)	 	22,492	 	
 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	 	$	10,457	 	$	(6,252	)	$	(4,405	)	$	12,062	 	
 	 	 	 	 	 	 	 	 	 	
Cash Flows from Operating Activities
        Cash used in operating activities is primarily influenced by the amount and timing of customer receipts and vendor payments and by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business and increase the number of installed customers.
        For the nine months ended September 30, 2012, our net cash and cash equivalents used by operating activities of $1.2 million primarily consisted of a net loss of $6.0 million, partially offset by $1.7 million of cash provided by changes in operating assets and liabilities and $4.0 million attributable to non-cash items. Increases in deferred revenues of $4.1 million, offset by a $1.5 million increase in accounts receivable, are the result of increases in customer prepayments and also growth in the number
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of registered users and transactions processed on our solutions. Increases in deferred implementation costs and deferred solutions and other costs of $1.9 million and $1.6 million, respectively, are due to an increase in the number of new customers undergoing implementations during the period. Net increases in accounts payable of $2.1 million are attributable to increased spending in support of our expanding customer base. Non-cash items consisted primarily of $1.0 million of depreciation and amortization expense due to growth in our fixed asset base and data center and other technical infrastructure to support our customer growth, $1.3 million of amortization of deferred implementation and deferred solution and other costs and $0.7 million of stock-based compensation expenses attributable to staffing increases and the related increase in option grants.
        For the nine months ended September 30, 2013, our net cash and cash equivalents used by operating activities of $0.2 million primarily consisted of a net loss of $11.4 million, partially offset by $5.6 million of cash provided by changes in operating assets and liabilities and $5.8 million attributable to non-cash items. Increases in deferred revenues of $5.7 million, offset by a $1.1 million increase in accounts receivable, are the result of increases in customer prepayments and growth in the number of registered users and transactions processed on our solutions. Increases in deferred implementation costs and deferred solution and other costs of $2.6 million and $1.9 million, respectively, are due to an increase in the number of new customers for whom solutions were being implemented during the period. Net increases in accrued liabilities of $1.8 million are attributable to increased spending in support of our expanding customer base and related growth in our technical infrastructure. Non-cash items consisted primarily of $2.1 million of depreciation and amortization expense due to growth in our fixed asset base and data center and other technical infrastructure to support our customer growth, $2.0 million of amortization of deferred implementation and deferred solution and other costs and $1.1 million of stock based compensation expense attributable to staffing increases and the related increase in option grants.
        For the year ended December 31, 2011, our net cash and cash equivalents used by operating activities of $1.1 million consisted of a net loss of $3.0 million plus $0.6 million of cash used by changes in operating assets and liabilities, partially offset by $3.7 million attributable to non-cash items. Increases in deferred revenues of $4.4 million, offset by a $2.2 million increase in accounts receivable, are the result of increases in customer prepayments and growth in the number of registered users and transactions processed on our solutions. Increases in deferred implementation costs and deferred solution and other costs of $2.0 million and $1.6 million, respectively are due to an increase in the number of new customers undergoing implementation during the period. Net increases in accrued liabilities of $1.1 million are attributable to increased spending in support of our expanding customer base and infrastructure growth. Non-cash items consisted primarily of $1.0 million of depreciation and amortization expense due to growth in our fixed asset base and increased customer activity, $1.2 million of amortization of deferred implementation and deferred solution and other costs and $1.1 million from loss from discontinued operations offset by $1.2 million cash used in discontinued operations.
        For the year ended December 31, 2012, our net cash and cash equivalents used by operating activities of $3.0 million consisted of a net loss of $8.8 million, partially offset by $1.0 million of cash provided by changes in operating assets and liabilities and $5.9 million in adjustments for non-cash items. Increases in deferred revenues of $4.3 million, offset by a $2.0 million increase in accounts receivable, are the result of increases in customer prepayments and growth in the number of registered users and transactions processed on our solutions. Increases in deferred implementation costs and deferred solution and other costs of $2.6 million and $1.7 million, respectively are due to an increase in the number of new customers undergoing implementation during the period. Net increases in accounts payable and accrued liabilities of $1.9 million and $1.1 million, respectively, are attributable to increased spending in support of our expanding customer base and infrastructure growth. Non-cash items consisted primarily of $1.7 million of depreciation and amortization expense due to growth in our fixed asset base and increased customer activity, $1.9 million of amortization of deferred
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implementation and deferred solution and other costs and $1.0 million of stock based compensation expense attributable to staffing increases and the related increase in option grants. We also incurred a non-cash charge of $1.3 million from loss from discontinued operations offset by $1.1 million in cash used in discontinued operations.
Cash Flows from Investing Activities
        Our investing activities have consisted primarily of purchases of property and equipment to support our growth. Purchases of property and equipment may vary from period to period due to the timing of the expansion of our operations and data center and other technical infrastructure.
        For the nine months ended September 30, 2012, net cash used in investing activities was $2.7 million, of which $1.9 million was for the purchase of property and equipment, and $0.4 million was for acquired technology and related intangible assets.
        For the nine months ended September 30, 2013, net cash used in investing activities was $10.2 million, of which $10.1 million was for the purchase of property and equipment, and $0.1 million was for acquired technology and related intangible assets. During the second quarter, we incurred capital expenditures related to the move to our new corporate offices. During the third quarter, we made significant investments in our data center and other technical infrastructure.
        For the year ended December 31, 2011, net cash used in investing activities was $1.4 million, of which $1.1 million was for the purchase of property and equipment.
        For the year ended December 31, 2012, net cash used in investing activities was $2.6 million, of which $1.8 million was for equipment purchases and $0.4 million was for acquired technology and related intangible assets.
Cash Flows from Financing Activities
        Our financing activities have consisted primarily of net proceeds from the issuance of preferred stock, proceeds from the exercises of options to purchase common stock, and payments on capital lease obligations as well as proceeds from, and repayments on, our credit facility.
        For the nine months ended September 30, 2012, net cash used in financing activities was $0.5 million, consisting primarily of payments on capital lease obligations.
        For the nine months ended September 30, 2013, net cash provided by financing activities was $22.5 million, consisting primarily of proceeds from the issuance of preferred stock and borrowings on our line of credit. We raised $19.0 million, net of issuance costs, from the issuance of our Series C preferred stock, and increased our line of credit borrowings by $3.7 million. We also received $0.3 million from the exercise of stock options and made payments of $0.5 million on capital lease obligations.
        For the year ended December 31, 2011, net cash provided by financing activities was $13.0 million, consisting of net proceeds of $10.9 million, net of issuance costs, from the issuance of our Series B preferred stock and $2.5 million drawn on our line of credit, partially offset by $0.5 million of payments on capital lease obligations.
        For the year ended December 31, 2012, net cash used by financing activities was $0.6 million, consisting primarily of $0.7 million for payments on capital lease obligations.
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Contractual Obligations and Commitments
        Our principal commitments consist of obligations under our outstanding credit agreement, non-cancelable capital and operating leases related to our facilities and equipment and minimum purchase commitments for third-party products, co-location fees and other product costs. The following table summarizes our contractual obligations and commitments at September 30, 2013:

																	
 	 	Payment due by period	 	
 	 	Less Than
1 Year	 	1 to 3 Years	 	3 to 5 Years	 	More Than
5 Years	 	Total	 	
 	 	(in thousands)	 	
Principal payments—line of credit	 	$	—	 	$	—	 	$	6,256	 	$	—	 	$	6,256	 	
Interest payments—line of credit	 	 	293	 	 	586	 	 	146	 	 	—	 	 	1,025	 	
Operating lease obligations	 	 	523	 	 	3,619	 	 	3,511	 	 	4,784	 	 	12,437	 	
Capital lease obligations	 	 	827	 	 	709	 	 	7	 	 	—	 	 	1,543	 	
Purchase commitments	 	 	4,030	 	 	7,245	 	 	4,926	 	 	3,425	 	 	19,626	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	5,673	 	$	12,159	 	$	14,846	 	$	8,209	 	$	40,887	 	
 	 	 	 	 	 	 	 	 	 	 	 	
        In April 2013, we entered into a secured credit facility with Wells Fargo which provides a line of credit of up to $25.0 million and is described in Note 6 to our consolidated financial statements appearing elsewhere in this prospectus. The amount that can be borrowed under the line of credit is limited to the lesser of $25.0 million or 75% of our trailing twelve-month recurring revenues. Access to the total borrowings available under the line of credit is restricted based on covenants related to our minimum liquidity, trailing twelve months recurring revenues and adjusted EBITDA. Amounts borrowed under the line of credit accrue interest, on our election, at either: (i) the per annum rate equal to the LIBOR rate plus an applicable margin, or (ii) the current base rate plus the greater of the U.S. Federal Funds rate plus one percentage point, the one month LIBOR plus one percentage point, or the lending financial institution's prime rate. Interest is payable monthly on the line of credit. The terms of our line of credit require that we maintain advances of at least $5.0 million at all times. We pay a monthly fee based on the total unused borrowings balance, an annual administrative fee and the initial closing fee, which is paid in three equal annual installments over the first three years of the credit facility. The credit facility matures in April 2017, at which time any outstanding borrowings and accrued interest become payable. As of September 30, 2013, we had advances and secured letters of credit against the line of credit totaling $9.3 million, leaving an available balance of up to $15.7 million. The line of credit is collateralized by substantially all of our assets and requires that we maintain certain financial covenants as defined in the credit facility agreement. As of September 30, 2013, we were in compliance with all such covenants.
Off-Balance Sheet Arrangements
        During the years ended December 31, 2011 and 2012, and the nine months ended September 30, 2013, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.
Critical Accounting Policies and Significant Judgments and Estimates
        Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses. In accordance with GAAP, we base our estimates on historical experience and
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on various other assumptions that we believe are reasonable under the circumstances. Actual results might differ from these estimates under different assumptions or conditions.
        Our significant accounting policies are described in Note 2 to our consolidated financial statements appearing elsewhere in this prospectus, and we believe that the accounting policies discussed below involve the greatest degree of complexity and exercise of significant judgments and estimates by our management. The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results of operations and, accordingly, we believe the policies described below are the most critical for understanding and evaluating our financial condition and results of operations.
Revenue Recognition
        All of our revenue-generating activities directly relate to the sale, implementation and support of our solutions within a single operating segment. We derive the substantial majority of our revenues from subscription fees for the use of our solutions hosted in our data centers as well as revenues for implementation and customer support services related to our solutions. A small portion of our customers host our solutions in their own data centers under term license and maintenance agreements, and we recognize the corresponding revenues monthly over the term of those customer agreements.
        Revenues are recognized net of sales credits and allowances. We begin to recognize revenue for a customer when all of the following conditions are satisfied:
•
there is persuasive evidence of an arrangement; 

•
the service has been or is being provided to the customer; 

•
the collection of the fees is reasonably assured; and 

•
the amount of fees to be paid by the customer is fixed or determinable.
        Determining whether and when these criteria have been met can require significant judgment and estimates. In general, revenue recognition is commenced when our solutions are implemented and made available to the customers.
        Subscription fees are billed and recognized monthly over the agreement term. The initial term of our customer agreements averages over five years, although it varies by customer. We begin recognizing subscription fees on the date a solution is implemented and made available to the customer. The timing of our implementations vary period-to-period based on our implementation capacity, the number of solutions purchased by our customers, the size and unique needs of our customers and the readiness of our customers to implement our solutions. We recognize any related implementation services revenues ratably over the initial agreement term beginning on the date we commence recognizing subscription fees. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on whether our revenue recognition criteria have been met.
        We enter into arrangements with multiple-deliverables that generally include multiple subscriptions and implementation services. We consider subscription fees to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within our standard payment terms. In determining whether collection of the subscription fees is reasonably assured, we consider financial and other information about customers, such as a customer's current credit-worthiness and payment history over time. Historically, our bad debt expenses have not been significant.
        For multiple-deliverable arrangements, arrangement consideration is allocated to deliverables based on their relative selling price. In order to treat deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, each deliverable must be accounted for separately.
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Subscription services have standalone value as such services are often sold separately. In determining whether implementation services have standalone value apart from the subscription services, we consider factors including the availability of the services from other vendors. To date, we have concluded that the implementation services included in our multiple-deliverable arrangements do not have standalone value. As a result, when implementation services are sold in a multiple-deliverable arrangement we capitalize any fees for implementation services and recognize such amounts ratably over the period of performance for the initial customer agreement term.
        When multiple-deliverables included in an arrangement are separated into different units of accounting, the consideration is allocated to the identified separate units based on a relative selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence of selling price, or VSOE, if available, third-party evidence of selling price, or TPE, if VSOE is not available or best estimate of selling price, or BESP, if neither VSOE nor TPE is available. We have not established VSOE for our subscription services due to lack of pricing consistency, the introduction of new services and other factors. We have determined that TPE is not a practical alternative due to differences in our service offerings compared to other parties and the lack of availability of relevant third-party pricing information. Accordingly, we use BESP to determine the relative selling price. The amount of revenues allocated to delivered items is limited to revenues that are not contingent.
        We determined BESP by considering our overall pricing objectives and market conditions. Significant pricing practices taken into consideration include our discounting practices, the size and number of our transactions, customer demographics, price lists, go-to-market strategy, historical standalone sales and agreement prices. As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes in relative selling prices, and include both VSOE and BESP.
Deferred Revenues
        Deferred revenues consist primarily of amounts that have been billed to customers for implementation, maintenance and other services in advance of revenue recognition and prepayments received from customers in advance for implementation, maintenance and other services, as well as initial subscription fees. We recognize deferred revenues as revenues when our corresponding revenue recognition criteria are met. Customer prepayments are generally applied against invoices issued to customers when services are performed and billed. Deferred revenues that are expected to be recognized as revenues during the succeeding twelve month period are recorded in current liabilities as deferred revenues, current portion and the remaining portion is recorded in long-term liabilities as deferred revenues, net of current portion.
Deferred Implementation Costs
        We capitalize certain personnel and other costs related to the implementation of our solutions. We amortize the costs for a particular implementation once revenue recognition commences, and we amortize those implementation costs over the remaining term of the customer agreement. We analyze implementation costs that may be capitalized to assess their recoverability, and we only capitalize costs that we anticipate to be recoverable. The portion of capitalized implementation costs expected to be amortized during the succeeding twelve-month period is recorded in current assets as deferred implementation costs, current portion, and the remainder is recorded in long-term assets as deferred implementation costs, net of current portion.
Deferred Solution and Other Costs
        We capitalize sales commissions and certain third-party costs related to our customer agreements. These costs are amortized over the term of the related customer agreements. We analyze solutions and
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other costs that may be capitalized to assess their recoverability, and we only capitalize costs that we anticipate to be recoverable. The portion of capitalized costs expected to be amortized during the succeeding twelve-month period is recorded in current assets as deferred solution and other costs, current portion, and the remainder is recorded in long-term assets as deferred solution and other costs, net of current portion. Deferred commissions were $2.4 million, $2.9 million and $3.8 million as of December 31, 2011 and 2012 and as of September 30, 2013, respectively.
Accounts Receivable, Net
        Accounts receivable are stated at net realizable value, including both billed and unbilled receivables to customers. Unbilled receivable balances arise primarily when we perform services related to subscription fee agreements in advance of billing. Billing for such services typically occurs one month in arrears.
        We assess the collectability of outstanding accounts receivable on an ongoing basis and maintain an allowance if accounts receivable are deemed uncollectable. This allowance is recorded as a reduction of accounts receivable. At December 31, 2011 and 2012 and September 30, 2013, we did not provide for an allowance for doubtful accounts, as all amounts outstanding were deemed collectable. Historically, our collection experience has not varied significantly and bad debt expenses have been insignificant.
Stock-Based Compensation
        Stock-based awards are measured at fair value at each grant date. We recognize stock-based compensation expenses ratably over the requisite service period of the option award.
Determination of the Fair Value of Stock-Based Compensation Grants
        The determination of the fair value of stock-based compensation arrangements is affected by a number of variables, including estimates of the fair value of our common stock, expected stock price volatility, risk-free interest rate and the expected life of the award. We value stock options using the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of traded options that are fully transferable and have no vesting restrictions. Black-Scholes and other option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. If we made different assumptions, our stock-based compensation expenses, net loss, and net loss per common share could be significantly different.
        The following summarizes the assumptions used for estimating the fair value of stock options granted during the periods indicated:

							
 	 	Year Ended December 31,	 	 	
 			 	Nine Months Ended
September 30,
2013	
 	 	2011	 	2012			
Risk-free interest rate	 	1.2 - 2.2%	 	0.7 - 1.1%	 	0.7 - 1.3%	
Expected life (in years)	 	6.25	 	4.75 - 6.25	 	4.75	
Expected volatility	 	43.8 - 44.6%	 	52.0 - 52.5%	 	46.8 - 49.4%	
Dividend yield	 	—	 	—	 	—	
Weighted-average grant date fair value per share	 	$1.79	 	$2.65	 	$3.09	
        We have assumed no dividend yield because we do not expect to pay dividends in the foreseeable future, which is consistent with our past practice. The risk-free interest rate assumption is based on observed interest rates for U.S. Treasury securities with maturities consistent with the expected life of our stock options. The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method. Under the simplified method, the expected life of an option is presumed to be the midpoint between the vesting date and the end of the agreement term.
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We used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options. The list of comparable companies we used to determine expected volatility was consistent with those used to determine the corresponding fair value of our common stock at each grant date.
        We based our estimate of pre-vesting forfeitures, or forfeiture rate, on historical forfeiture rates. We apply the estimated forfeiture rate to the total estimated fair value of the awards, as derived from the Black-Scholes model, to compute the stock-based compensation expenses, net of pre-vesting forfeitures, to be recognized in our consolidated statements of operations.
        Based upon an assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover of this prospectus, the aggregate intrinsic value of outstanding options to purchase shares of our common stock as of September 30, 2013 was $             million, of which $             million related to vested options and $             million to unvested options.
Determination of the Fair Value of Common Stock on Grant Dates
        Prior to this offering, we have been a private company with no active public market for our common stock. Our board of directors periodically determined for financial reporting purposes the estimated per share fair value of our common stock at various dates using independent third-party valuations.
        In conducting the valuations, our board of directors considered all objective and subjective factors that they believed to be relevant for each valuation conducted, including management's estimate of our business condition, prospects and operating performance at each valuation date. Within the valuations performed by our management, a range of factors, assumptions and methodologies were used. Significant factors considered were:
•
independent third-party valuations performed contemporaneously or shortly before the grant date, as applicable; 

•
the fact that we are a privately held technology company and our common stock is illiquid; 

•
the nature and history of our business; 

•
our discounted future cash flows, based on our projections of future operating results at the time; 

•
valuations of comparable public companies; 

•
the potential impact on common stock of preferential liquidation and redemption rights of our redeemable convertible preferred stock under different valuation scenarios; 

•
current and forecasted economic conditions, both generally and specific to our industry; 

•
the estimated likelihood of achieving a liquidity event for shares of our common stock such as an IPO or a sale of our company, given prevailing market conditions, or remaining a private company; and 

•
the state of the initial public offering market for similarly situated privately held technology companies.
        There are significant judgments and estimates inherent in these contemporaneous valuations. These judgments and estimates include assumptions regarding our future operating performance, the timing of an IPO or other liquidity event and the determinations of the appropriate valuation methods.
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If we made different assumptions, our stock-based compensation expenses, net loss and net loss per common share could be significantly different.
Common Stock Valuation Methodology
        We utilize the Probability Weighted Expected Return Method, or PWERM, approach to allocate our equity value to our common shares. The PWERM approach employs various market, income or cost approach calculations depending on the likelihood of an initial public offering, sale or merger. For each of the various scenarios, an equity value is estimated and the rights and preferences of each class and series of stock are considered to allocate the equity value to common shares. The value of our common stock is then multiplied by a discount factor reflecting the calculated discount rate and timing of the event. Lastly, the value of our common stock is multiplied by an estimated probability for each scenario. The probability and timing of each scenario are determined by our board of directors based on discussions with management.
        We began using PWERM during the quarter ended December 31, 2011 and initially assessed an 85% probability to the initial public offering scenario at each valuation date. A higher probability of an initial public offering was assumed because of our belief that technology businesses with many of the same characteristics as ours, including expectations of consistent future revenue growth are good candidates for an initial public offering. The estimates of future equity value in the initial public offering scenario have also consistently been the highest future equity values for purposes of the valuation inputs in PWERM.
        The following table summarizes by grant date the number of shares of our common stock subject to issuance under stock options granted from January 1, 2011 through September 30, 2013, as well as the associated per share exercise price and the final estimated fair value per share of our common stock at the date of grant:

																	
Grant Dates 	 	Number of Shares
Underlying
Options Granted	 	Exercise Price
per Share	 	Estimated
Fair Value
per Share	 	Aggregate
Grant Date
Fair Value	 	Total
Exercise
Cost	 	
 	 	(in thousands except share and per share data)	 	
July 13, 2011	 	 	639,962	 	$	1.74	 	$	1.74	 	 	$499	 	 	$1,114	 	
December 7, 2011	 	 	966,875	 	 	3.10	 	 	4.48	 	 	2,378	 	 	2,997	 	
February 8, 2012	 	 	144,250	 	 	4.00	 	 	4.48	 	 	345	 	 	577	 	
May 9, 2012	 	 	151,250	 	 	5.05	 	 	5.05	 	 	386	 	 	764	 	
August 8, 2012	 	 	173,750	 	 	5.93	 	 	5.93	 	 	452	 	 	1,030	 	
September 21, 2012	 	 	286,560	 	 	5.93	 	 	5.93	 	 	745	 	 	1,700	 	
November 7, 2012	 	 	308,000	 	 	6.57	 	 	6.57	 	 	890	 	 	2,024	 	
February 6, 2013	 	 	12,500	 	 	6.98	 	 	6.98	 	 	37	 	 	87	 	
May 8, 2013	 	 	250,750	 	 	7.48	 	 	7.48	 	 	765	 	 	1,876	 	
August 7, 2013	 	 	148,100	 	 	7.75	 	 	7.75	 	 	478	 	 	1,148	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	$6,975	 	 	$13,317	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
        The practice of our board of directors has been to grant options once a quarter, except in special circumstances, such as the grant of options on September 21, 2012 which was made in connection with the hiring of a new executive officer. We generally obtain an independent valuation report as of the end of each fiscal quarter to assist our board of directors in determining the exercise price for our stock options. Because our board of directors grants options during a quarter, it reviews and considers the most current valuation report which is dated as of the end of the immediately preceding quarter. As a result of a lag between the date of grant and the date of the valuation report, our board of directors also considers any intervening changes that may cause an increase or decrease in the per
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share valuation of our common stock when determining the fair value of our common stock on the date of grant. A discussion of the determination of the fair value of our common stock on our option grant dates from January 2011 to August 2013 is provided below.
        On July 13, 2011, the board of directors granted options to purchase 639,962 shares of common stock with an exercise price of $1.74 per share. In estimating the fair value of the common stock to set the exercise price of such options, the board of directors reviewed and considered the aforementioned independent valuation report for the common stock as of March 31, 2011. The report reflected a fair value for the common stock of $1.74 per share. On the date of grant, our board considered this valuation together with a variety of other factors and determined there had not been any intervening changes that would cause an increase or decrease in the fair value of our common stock compared to the fair value reflected in such report.
        On December 7, 2011, the board of directors granted options to purchase 966,875 shares of common stock with an exercise price of $3.10 per share. In estimating the fair value of the common stock to set the exercise price of such options, the board of directors reviewed and considered an independent valuation report for the common stock as of September 30, 2011. The report reflected a fair value for the common stock of $2.77 per share. On the date of grant, the board of directors reviewed the intervening changes, including our anticipated Series B preferred stock financing, and concluded that it was appropriate to increase the fair value of our common stock to $3.10 per share. On December 29, 2011, we raised approximately $11.0 million through the sale of Series B preferred stock at a price per share of $6.05. In connection with our 2011 and 2012 audit of our financial statements and upon further consideration of the terms, rights and privileges and per share price of the Series B preferred stock, we later determined that $4.48 per share reflected the fair value of our common stock on the date of grant.
        On February 8, 2012, the board of directors granted options to purchase 144,250 shares of common stock with an exercise price of $4.00 per share. In estimating the fair value of the common stock to set the exercise price of such options, the board of directors reviewed and considered an independent valuation report for the common stock as of December 31, 2011. The report reflected a fair value for the common stock of $3.06 per share. On the date of grant, board of directors reviewed the intervening changes, including the closing of our Series B preferred stock financing on December 29, 2011, and concluded that it was appropriate to increase the fair value of the common stock to $4.00 per share. In connection with our 2011 and 2012 audit of our financial statements and upon further consideration of the terms, rights and privileges and per share price of the Series B preferred stock, we later determined that $4.48 per share reflected the fair value of our common stock on the date of grant.
        On May 9, 2012, the board of directors granted options to purchase 151,250 shares of common stock with an exercise price of $5.05 per share. In estimating the fair value of the common stock to set the exercise price of such options, the board of directors reviewed and considered an independent valuation report for the common stock as of March 31, 2012. The report reflected a fair value for the common stock of $5.05 per share. On the date of grant, our board of directors reviewed the intervening changes since the date of the report and concluded that there had been no significant changes to cause an increase or decrease in the per share valuation for our common stock and that $5.05 per share reflected the fair value of our common stock on the date of grant.
        On August 8 and September 21, 2012, the board of directors granted options to purchase 173,750 and 286,560, respectively, shares of common stock with an exercise price of $5.93 per share. In estimating the fair value of the common stock to set the exercise price of such options, the board of directors reviewed and considered an independent valuation report for the common stock as of June 30, 2012. The report reflected a fair value for the common stock of $5.93 per share. On each grant date, our board of directors reviewed the intervening changes since the date of the report and
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concluded that there had been no significant changes to cause an increase or decrease in the per share valuation for our common stock and that $5.93 per share reflected the fair value of our common stock on these dates of grant.
        On November 7, 2012, the board of directors granted options to purchase 308,000 shares of common stock with an exercise price of $6.57 per share. In estimating the fair value of the common stock to set the exercise price of such options, the board of directors reviewed and considered an independent valuation report for the common stock as of September 30, 2012. The report reflected a fair value for the common stock of $6.57 per share. On the date of grant, our board of directors reviewed the intervening changes since the date of the report and concluded that there had been no significant changes to cause an increase or decrease in the per share valuation for our common stock and that $6.57 per share reflected the fair value of our common stock on the date of grant.
        On February 6, 2013, the board of directors granted options to purchase 12,500 shares of common stock with an exercise price of $6.98 per share. In estimating the fair value of the common stock, to set the exercise price of such options, the board of directors reviewed and considered an independent valuation report for the common stock as of December 31, 2012. The report reflected a fair value for the common stock of $6.36 per share. On the date of grant, our board of directors reviewed the intervening changes, including our anticipated Series C preferred stock financing and concluded that it was appropriate to increase the fair value of our common stock to $6.98 per share. On March 1, 2013, we raised approximately $20.0 million through the sale of Series C preferred stock at a price per share of $7.69, and certain of our stockholders sold shares of our common stock to a third-party investor and certain existing stockholders at a price of $6.98 per share. Based primarily on the terms, rights and privileges and per share price of the Series C preferred stock, we further determined that $6.98 per share reflected the fair value of our common stock on the date of grant.
        On May 8, 2013, the board of directors granted options to purchase 250,750 shares of common stock with an exercise price of $7.48 per share. In estimating the fair value of the common stock, to set the exercise price of such options, the board of directors reviewed and considered an independent valuation report for the common stock as of March 31, 2013. The report reflected a fair value for the common stock of $7.48 per share. On the date of grant, our board of directors reviewed the intervening changes since the date of the report and concluded that there had been no significant changes to cause an increase or decrease in the per share valuation for our common stock and that $7.48 per share reflected the fair value of our common stock on the date of grant.
        On August 7, 2013, the board of directors granted options to purchase 148,100 shares of common stock with an exercise price of $7.75 per share. In estimating the fair value of the common stock, to set the exercise price of such options, the board of directors reviewed and considered an independent valuation report for the common stock as of June 30, 2013. The report reflected a fair value for the common stock of $7.75 per share. On the date of grant, our board of directors reviewed the intervening changes since the date of the report and concluded that there had been no significant changes to cause an increase or decrease in the per share valuation for our common stock and that $7.75 per share reflected the fair value of our common stock on the date of grant.
Income Taxes
        We account for income taxes under the asset and liability method. We record deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. We assess the
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likelihood that deferred tax assets will be realized, and we recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction. To date, we have provided a valuation allowance against our deferred tax assets as we believes the objective and verifiable evidence of our historical pretax net losses outweighs any positive evidence of our forecasted future results. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment. We will continue to monitor the positive and negative evidence and will adjust the valuation allowance as sufficient objective positive evidence becomes available. At September 30, 2013, our valuation allowance was $11.6 million.
        We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more likely than not that the position will be sustained upon examination. We recognize potential accrued interest and penalties associated with unrecognized tax positions within our global operations in income tax expense.
Recent Accounting Pronouncements
        Based upon our review of new accounting standards released during the nine months ended September 30, 2013, we did not identify any standard requiring adoption that would have a significant impact on our consolidated financial statements for the period.
Quantitative and Qualitative Disclosures about Market Risk
        Market risk is the risk of loss to future earnings, values or future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument might change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We do not use derivative financial instruments for speculative, hedging or trading purposes, although in the future we might enter into exchange rate hedging arrangements to manage the risks described below.
Interest Rate Risk
        We are exposed to market risk related to changes in interest rates. Borrowings under our credit facility bear interest at rates that are variable. Increases in the LIBOR or prime rate would increase the amount of interest payable on outstanding borrowings on our line of credit. For the years ended December 31, 2011 and 2012 and the nine months ended September 30, 2013, a 10% change in either the LIBOR or prime rate would not have had a material impact on our consolidated balance sheets or statements of operations.
Foreign Currency Risk
        Our results of operations and cash flows are not subject to fluctuations due to changes in foreign currency exchange rates. We bill our customers in U.S. dollars and receive payment in U.S. dollars, and substantially all of our operating expenses are denominated in U.S. dollars. If we grow sales of our solutions outside the U.S., our agreements with foreign customers may not be denominated in dollars and we may become subject to changes in currency exchange rates.
Inflation Risk
        We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. We continue to monitor the impact of inflation in order to reduce its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.
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 BUSINESS
Overview
        Q2 is a leading provider of secure, cloud-based virtual banking solutions. We enable regional and community financial institutions, or RCFIs, to deliver a robust suite of integrated virtual banking services and engage more effectively with their retail and commercial account holders who expect to bank anytime, anywhere and on any device. Our solutions are often the most frequent point of interaction between our RCFI customers and their account holders. As such, we purpose-built our solutions to deliver a compelling, consistent user experience across digital channels and drive the success of our customers by extending their local brands, enabling improved account holder retention and creating incremental sales opportunities.
        Our founding team has provided software solutions to the RCFI market for over 20 years, and they started Q2 with the mission of using technology to help RCFIs succeed and strengthen the communities they serve. We leverage our deep domain expertise to develop highly-secure virtual banking solutions designed to help our customers compete in the complex and heavily-regulated financial services industry. We internally design and develop our solutions around a common platform that tightly integrates our solutions with each other and with our customers' internal and third-party systems. This integrated approach delivers to account holders a unified and robust virtual banking experience across online, mobile, voice and tablet channels and allows for close, lasting relationships. We designed our solutions and data center infrastructure to comply with the stringent security and technical regulations applicable to financial institutions and safeguard our customers and their account holders.
        The RCFI market includes over 13,500 banks and credit unions that compete to provide financial services in the U.S. RCFIs have historically sought to differentiate themselves and create account holder loyalty by providing localized, in-branch banking services and serving as centers of commerce and influence in their communities. However, account holders increasingly engage with their financial services providers across digital channels rather than in physical branches, making it easier for account holders to access competitive financial services and harder for RCFIs to maintain account holder loyalty. Innovation in financial services technologies, the proliferation of mobile and tablet devices and evolving consumer expectations for modern and intuitive user experiences are pressuring RCFIs to deliver advanced virtual banking services to successfully compete and grow.
        RCFIs, unlike larger national banks, typically operate without all of the resources and personnel required to effectively deploy, manage and enhance their own internally-developed virtual banking offerings. In addition, RCFIs are required to spend increasing amounts of time and money complying with rapidly changing federal and state rules and regulations and frequent examinations by regulatory agencies. As a result, RCFIs are challenged to satisfy account holder expectations and compete effectively in what has become a complex and dynamic environment. These challenges often cause RCFIs to rely on disparate, third-party and internally-developed point solutions to deliver virtual banking services. However, many of these solutions provide limited features and functionality or can be expensive and time-intensive to implement, maintain and upgrade.
        According to a January 2013 report published by Celent entitled " IT Spending in Banking, A North American Perspective ," U.S. financial institutions are expected to spend $48.9 billion in 2013 on information technology, or IT. Of this amount, the report forecasts that these institutions will spend approximately $11.4 billion on new initiatives, most heavily focused on enhancing their online, mobile, tablet and other self-service banking capabilities. Based on our current prices and virtual banking solutions, we believe that the RCFI market is greater than $3.5 billion annually. Our current RCFI customers represent less than 3% of the 13,570 federally-insured RCFIs in the U.S. with less than $50 billion in assets. We believe we can capture an increasing portion of the IT spend among RCFIs as we continue to grow our customer base and introduce new solutions.
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        Our software-as-a-service, or SaaS, delivery model is designed to scale with our customers as they add account holders on our solutions and expand the breadth of virtual banking services they offer. Our SaaS delivery model is also designed to reduce the cost and complexity of implementing, maintaining and enhancing the virtual banking services our RCFI customers provide to their account holders. RCFIs can configure our solutions to function in a manner that is consistent with their specific workflows, processes and controls and personalize the experiences they deliver to their account holders by extending the services and local character of their branches across digital channels.
        We primarily sell subscriptions to our cloud-based solutions through our direct sales organization and recognize the related revenues over the terms of our customer agreements. The initial term of our customer agreements averages over five years, although it varies by customer. Our revenues increase as we add new customers and sell additional solutions to existing customers and as our customers increase the number of account holders on our solutions. We earn additional revenues based on the number of transactions that account holders perform on our virtual banking solutions. We support the efforts of our sales organization through a network of key referral partners, such as the American Bankers Association and Western Independent Bankers.
        As of September 30, 2013, we had over 300 customers with more than 2.9 million retail and commercial users registered on our solutions, and these registered users executed over $145 billion in financial transactions using our solutions during the first nine months of 2013. Our current RCFI customers are in 47 states and include Camden National Bank, Community Bank (Los Angeles, CA), Eli Lilly Federal Credit Union, First Financial Bank (Cincinnati, OH), Peoples Bank of Alabama, Rockland Trust Company, United Heritage Credit Union and Urban Partnership Bank.
        We have achieved significant growth since our inception. We had total revenues of $27.0 million and $41.1 million in 2011 and 2012, respectively, and $29.2 million and $41.2 million for the nine months ended September 30, 2012 and 2013, respectively. We seek to deepen and grow our customer relationships by providing consistent, high-quality implementation and customer support services which we believe drives higher customer retention and incremental sales opportunities within our existing customer base.
        We have invested, and intend to continue to invest, to grow our business by expanding our sales and marketing activities, developing new solutions, enhancing our existing solutions and technical infrastructure and scaling our operations. We incurred net losses of $3.0 million and $8.8 million, in 2011 and 2012, respectively, and $6.0 million and $11.4 million during the nine months ended September 30, 2012 and 2013, respectively.
Industry Background
RCFIs are a substantial and critical part of the economy
        Regional and community banks and credit unions with less than $50 billion in assets comprised 13,570 of the 13,607 federally-insured financial institutions in the U.S., as of September 30, 2013, according to data compiled by BauerFinancial. Further, banking institutions and credit unions with less than $50 billion in assets had assets of $4.3 trillion and $1.0 trillion, respectively, as of September 30, 2013, according to BauerFinancial.
        The U.S. financial services market is intensely competitive, and RCFIs have historically sought to differentiate themselves by providing local, personalized banking services that are responsive to the changing needs and circumstances of their communities. Many RCFIs are locally-owned and obtain deposits and make lending decisions on a local basis. As a result, RCFIs often develop strong, lasting relationships with their account holders and serve as centers of commerce and influence in their communities. According to a 2012 report from the Small Business Administration, small businesses (typically those with fewer than 500 employees) generated 67% of all net new jobs in the U.S. between
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mid-2009 and 2011 and according to FDIC data as of September 30, 2013, RCFIs underwrote approximately 75% of all loans to these businesses during the first nine months of 2013.
RCFIs must respond to innovations in banking
        According to a 2012 survey conducted by the Independent Community Bankers of America and a 2012 report from the National Credit Union Administration, approximately 96% of U.S. banks and 71% of U.S. credit unions offer online banking services to their retail and commercial account holders. Account holders have increasingly come to expect and rely upon a wider range of online banking services to meet their banking needs. For example, four of the top banking activities—paying bills, viewing balances and transactions, viewing statements and transferring money—are conducted online 60% of the time or more often, according to a 2013 report published by Forrester. By providing online account access and other virtual banking services, financial institutions are able to better engage with and sell more products and services to their account holders through digital channels. To appeal to those account holders who utilize virtual banking services, RCFIs must deliver robust virtual banking capabilities that allow account holders to seamlessly transition between physical branches and digital channels.
        Financial service providers are innovating and expanding the virtual banking services they offer. In recent years, virtual banking services have grown beyond simple account access to view balances and pay bills, to more advanced self-service features such as remote check deposit, peer-to-peer payments and online loan application and approval. To remain competitive, RCFIs must keep pace with the innovation in the financial services industry by frequently enhancing the quality and scope of the virtual banking services they offer.
The proliferation of mobile and tablet devices and evolving consumer expectations for modern and intuitive user experiences increase the challenges of offering virtual banking solutions
        The proliferation of smart mobile and tablet devices expands the channels through which account holders can perform virtual banking activities, decreasing the need to visit physical bank branches. The accelerating adoption of these devices and the extension of virtual banking services to new devices are making it increasingly difficult to provide a consistent, intuitive and personalized user experience and driving the need to provide virtual banking solutions that support new and rapidly changing mobile operating systems and device types. The technical and operational complexities of delivering integrated virtual banking services across multiple operating systems and devices increases the difficulty of providing a consistent, intuitive and personalized user experience.
        Prominent consumer brands such as Amazon, Google and Netflix are continually innovating and shaping consumer expectations by delivering modern, intuitive user experiences across digital channels. We believe the frequency and duration with which consumers visit a website or mobile application is heavily influenced by the quality and ease-of-use of the user experience. As a result, RCFIs must deliver compelling user experiences to satisfy account holder expectations and increase account holder loyalty.
Security is of paramount importance in virtual banking
        The risks of theft and fraud have always existed in banking. However, as the adoption and use of virtual banking services has increased, the incidence of fraud and theft in digital channels has grown substantially. For example, according to a February 2013 report by Javelin, fraud resulting from account takeover attacks exceeded $4.9 billion in 2012, a 69% increase over 2011. In addition, according to the Anti-Phishing Working Group, 291 banking institutions globally were targeted by phishing attacks during the first half of 2013.
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        The methods by which criminals seek to commit fraud are constantly changing, requiring financial institutions to continually modify their security strategies. In addition, safeguarding RCFI and account holder funds and information becomes increasingly complex as virtual banking services grow and extend across new channels and devices.
Market dynamics are driving demand for third-party solutions
        RCFIs, unlike larger national banks, typically operate without all of the resources and personnel required to effectively deploy, manage, and enhance their own internally-developed virtual banking service offerings. Following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the increased rule-making and examination efforts imposed by federal and state regulatory officials, RCFIs are having to commit additional time and resources to compliance matters. As a result, RCFIs are challenged to operate successfully in what has become a complex and dynamic environment.
        These market dynamics are driving greater demand among RCFIs for modern, intuitive virtual banking solutions from leading third-party providers. According to a January 2013 report published by Celent entitled " IT Spending in Banking, A North American Perspective ," U.S. financial institutions are expected to spend $48.9 billion in 2013 on IT. Of this amount, the report forecasts that these institutions will spend approximately $11.4 billion on new initiatives, most heavily focused on enhancing their online, mobile, tablet and other self-service banking capabilities. Based on our current prices and virtual banking solutions, we believe that the RCFI market is greater than $3.5 billion annually. As RCFIs continue to embrace virtual banking, they will need partners who can help them maintain and enhance the level of personalization they can deliver to their account holders in an effort to continue to differentiate themselves. We believe we can capture an increasing portion of the market for RCFI spend on IT, and in particular their spend on new initiatives, as we continue to broaden the scope of our virtual banking solutions by identifying additional solutions that will further benefit and grow our RCFI customers' account holder bases.
Organizations are increasingly transitioning to SaaS providers
        Many organizations are transitioning from solutions which are deployed on-premises under a traditional enterprise license arrangement to cloud-based solutions offered under a SaaS model. In a November 2013 study conducted by Gartner, 44% of organizations stated that they are currently using SaaS in some form and another 44% of organizations indicated they would be using SaaS by the end of 2013. SaaS solutions can provide a number of benefits to RCFIs, such as lower costs of ownership and operation, improved performance and integration, greater flexibility and scalability, easier deployment of upgrades and enhancements and efficient compliance with regulatory requirements. In addition, legacy systems cannot easily handle the introduction of new channels and devices, resulting in ongoing costly and time consuming work to keep pace with rapid technology innovation.
Traditional virtual banking systems have limitations
        Many traditional virtual banking systems were originally developed over a decade ago to address a single type of account holder or specific digital channel such as voice banking. These systems can create the following challenges for RCFIs:
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integrating applications and digital channels from multiple vendors may increase an RCFI's implementation costs, time-to-market or both; 

•
managing relationships with multiple vendors may be more time consuming and require greater management infrastructure;
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operating, supporting and upgrading systems from multiple vendors can be difficult, costly and less secure and generally do not provide for a unified user experience or a comprehensive view of an account holder; and 

•
training account holders and internal personnel on the use of different point systems can be challenging, time-consuming and costly.
        The use of multiple point systems for virtual banking can require account holders to maintain different login credentials for their retail and commercial accounts across digital channels and learn and understand different systems. Additionally, the disjointed nature of the underlying workflows, data and terminology caused by the implementation of multiple solutions can lead to decreased account holder adoption, retention and satisfaction. Account holders' adoption, retention and satisfaction can be adversely impacted by the dated user interfaces of older legacy systems.
        We believe innovation in financial services technologies, the proliferation of mobile and tablet devices and evolving consumer expectations for modern and intuitive user experiences, combined with the limitations of traditional systems, create a significant opportunity for a SaaS provider to address the challenges RCFIs face as they seek to increase their level of engagement with account holders across digital channels and drive account holder loyalty. We believe this opportunity creates a substantial and growing market for cloud-based virtual banking solutions that deliver modern, intuitive self-service banking capabilities with a compelling and personalized user experience across digital channels and devices, while complying with regulatory requirements and safeguarding RCFIs and their account holders from fraud and theft.
Our Solutions
        We provide secure, compliant cloud-based software solutions designed to enable RCFIs to grow their account holder bases and increase their profitability and market share by leveraging the power of virtual banking. Our solutions are often the most frequent point of interaction between our RCFI customers and their account holders. As such, we purpose-built our solutions to deliver a compelling, consistent user experience across digital channels and devices, promoting account holder acquisition and retention and creating incremental sales opportunities.
Key Attributes
        Our virtual banking solutions include the following key attributes:
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Common platform: Our solutions all operate on a common platform that supports the delivery of unified virtual banking services across online, mobile, voice and tablet channels. Our platform provides a single point of management enabling RCFIs to deliver targeted experiences including tailored rights, features and branding to account holders. 

•
Tablet-first design: We initially design the features and user experience of our solutions to be optimized for touch-based tablet devices and then extend that design to other digital channels. This design process and the broad feature set available in our common platform enable our solutions to deliver a modern, unified user experience across digital channels. 

•
Comprehensive view of account holders: Our cloud-based solutions and common platform provide our RCFI customers with a comprehensive view of account holder access and activity across devices and channels. The understanding and analysis made possible by this comprehensive view enable an enhanced, personalized user experience, real-time risk and fraud assessment and other analytic features that improve the utility of our solutions. 

•
Flexible integration: We have developed a highly flexible set of integration tools, enabling the rapid integration of third-party applications and data sources. This large set of internally-
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developed integration tools connects with over 190 third-party applications, allowing us to seamlessly integrate with RCFIs' internal and third-party systems such as account services, payments and imaging.
•
SaaS delivery model: We developed our solutions to be cloud-based, and we host our solutions for substantially all of our RCFI customers. Our customers subscribe and pay for their use of our solutions over time, and our solutions do not require our customers to install any significant technical infrastructure. 

•
Regulatory compliance: Our solutions leverage our deep domain expertise and the significant investments we have made in the design and development of our data center architecture and other technical infrastructure to meet the stringent security and technical regulations applicable to financial institutions.
Key Benefits
        We believe our solutions provide the following key benefits to our RCFI customers and their account holders:
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Delivery of robust virtual banking services across digital channels: Our cloud-based solutions enable our RCFI customers to deliver robust and integrated virtual banking services to their account holders who increasingly expect and appreciate the freedom to bank anytime, anywhere and on any device. Through a single log-in and consistent workflow, users are able to seamlessly conduct retail and commercial transactions across digital channels and devices. 

•
Improved and more frequent engagement with account holders: The breadth of our virtual banking solutions and quality of the user experience they provide enable our RCFI customers to increase the frequency and effectiveness of their interactions with account holders. Our customers interact significantly more on average with account holders through our solutions than in physical branches. The frequency of these interactions can strengthen the relationships between account holders and our RCFI customers and help our customers gain a better understanding of the behavior and activities of their account holders to better serve them. 

•
Drive account holder loyalty: We believe our RCFI customers are able to drive account holder loyalty by increasing their level of engagement with account holders and consolidating their virtual banking activities on a single platform across devices and digital channels. Our customers are also able to tailor our solutions by offering individually relevant functionality as well as branded, localized user experiences. We believe this further strengthens loyalty by extending account holders' emotional ties to local branches into digital channels. 

•
More effective marketing of products and services: Our customers' marketing of their new and existing products and services through our solutions can be more frequent, timely and targeted than through traditional advertising. The ease and availability of communications within these virtual channels also make it easier for account holders to find information about products and services whenever needed. 

•
Real-time security: Our customers are better able to identify suspect activities and protect against fraud and theft by monitoring and understanding the behavior and activities of their account holders across channels. Customers leveraging our Risk & Fraud Analytics solution are blocking suspected fraudulent activity in real-time and notifying operations staff and account holders of suspect transactions. By approaching security in this and other ways, our customers can better safeguard their account holders and themselves, reducing risk and protecting their reputations. 

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Lower total cost of ownership: Our SaaS delivery model can reduce the total cost of ownership of our customers by providing on a subscription basis the development, implementation,
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integration, maintenance, monitoring and support of our cloud-based solutions. Our common platform is designed to support the rapid addition of new services as well as the introduction of new devices and digital channels. As a result, our customers can easily and cost-effectively scale the use of our solutions with their needs as they add account holders and registered users and expand the virtual banking services they offer.
•
Facilitate regulatory compliance: Customers who use our cloud-based solutions are able to satisfy security and technical compliance obligations by relying on the security programs and regulatory certification of our data centers and other technical infrastructure. By doing so, our customers eliminate significant cost and effort associated with building, maintaining and upgrading a regulatory-compliant environment on their own.
Our Business Strengths
        Since our inception, our mission has been to help our RCFI customers succeed and strengthen the communities they serve. As a result, we have remained focused on designing and developing solutions that help them respond to the unique challenges they face. We believe our position as a leading provider of virtual banking solutions to our RCFI customers stems from the following strengths:
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Our purpose-built solutions lead the RCFI virtual banking market: We built our solutions to address the unique challenges that RCFIs face in providing virtual banking services. Our common platform was created to support the proliferation of mobile and tablet devices and the speed at which their use has become a common part of daily life. Our platform reduces the inefficiencies of traditional point-to-point integration strategies and replaces multiple management consoles with a single unified view of the rules, rights and security involved with operating seamlessly across digital channels. Our solutions enable our RCFI customers to provide a compelling, unified user experience to retail and commercial account holders using a single login anywhere, anytime and on any device. 

•
We have a proven track record in the markets we serve: Our founders and management have a track record of successfully building banking technology companies. In addition, our employees have deep domain expertise in financial services and community banking. We utilize this deep industry-specific experience to drive our continued growth and success. 

•
Our customer acquisition model is focused and efficient: We focus our customer acquisition efforts exclusively on RCFIs. This market opportunity drives our targeted go-to-market strategy which allows us to effectively direct our sales and marketing efforts. Utilizing the deep industry experience of our management and sales teams, we are able to leverage our relationships with leaders and influencers at many RCFIs as valuable sources of reference and promotion. As a result, our sales professionals are typically able to identify opportunities early and often reduce sales cycle time. 

•
We grow our customer relationships over time: Throughout our long-term customer relationships, we employ a structured strategy designed to inform, educate and enhance customer confidence and help our customers identify and implement additional solutions designed to benefit and grow their account holder bases. 

•
Our revenues are highly predictable: We generally recognize our revenues over the terms of our customer agreements. The initial term of our customer agreements averages over five years, although it varies by customer. Our long-term agreements and our high customer retention, as well as the growth over time in the number of account holders using our solutions, drive the recurring nature of our revenues and provide us with significant visibility into future revenues. Furthermore, we believe our customer services model drives high retention rates and incremental sales of our solutions.
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•
Our award-winning culture drives innovation and customer success: We believe our award-winning, innovation-focused culture and the location of our operations facilitate recruiting and retaining top development, integration and design talent. We are headquartered in Austin, Texas which is a vibrant city that continues to attract an increasing number of young professionals and has close ties to leading research institutions. In each of the past three years, the Austin American Statesman recognized us as one of Austin's "Top Places to Work." Our mission, combined with our focus on delivering cloud-based virtual banking solutions to RCFIs, continue to enable us to attract and retain top talent.
Our Growth Strategy
        We intend to continue to expand our position as a leading provider of cloud-based virtual banking solutions to RCFIs. To accomplish this goal, we are pursuing the following growth strategies:
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Further penetrate our large market opportunity: We believe RCFIs are increasingly adopting cloud-based virtual banking solutions. Our current customers represent less than 3% of the 13,570 federally-insured RCFIs in the U.S. with less than $50 billion in assets. We intend to further penetrate our large market opportunity and increase our number of RCFI customers through investments in our sales and marketing organization and related activities. 

•
Grow revenues by expanding our relationships with existing customers: We believe there is significant opportunity to expand our relationships with existing customers by selling additional solutions such as mobility applications, remote check deposit and mobile bill payment. In addition, our revenues from existing customers continues to grow as these customers increase the number of account holders on our solutions and as the number of transactions these account holders perform on our solutions increases. 

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Continue to expand our solutions and enhance our platform: We believe our history of innovation distinguishes us in the market, and we intend to continue to invest in our software development efforts and introduce new solutions that are largely informed by and aligned with the business objectives of our existing and new customers. For example, based on industry feedback, we recently introduced Q2clarity which provides financial institutions with visibility into when and how their customers are utilizing their virtual banking services. Additionally, we successfully leveraged our common platform and integration capabilities which enabled us to derive rich analytics and build our Risk & Fraud Analytics offering. We plan to continue to expand our analytics capabilities and leverage the data generated on our common platform to further support the strategic initiatives of our existing and new customers. 

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Further develop our partner relationships: We establish key partner relationships with industry-leading providers to optimize our go-to-market strategy and enhance the value of our platform. Our partners typically inform, educate and connect RCFIs with the services and solutions required to deliver new and innovative technology to their account holders. We plan to leverage our partner ecosystem and cultivate new partner relationships, such as our partnerships with the American Banking Association and Western Independent Bankers, to increase the awareness of our solutions. 

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Selectively pursue acquisitions and strategic investments: In addition to continuing to develop our solutions organically, we may selectively pursue acquisitions of and strategic investments in businesses and technologies that will strengthen and expand the features and functionality of our solutions or provide access to new customers.
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The Q2 Solutions
        Our solutions allow RCFIs to offer a comprehensive and unified suite of virtual banking services to their account holders. We internally designed and developed our solutions around a common platform that integrates our solutions with each other and RCFIs' other internal and third-party systems and enables virtual banking services to extend across online, mobile, voice and tablet channels. Our common platform architecture, deep integration with other systems and the multi-tenant aspects of our infrastructure, enable us to develop solutions that allow our customers to harness the power of the information within their other systems to gain greater insights and to improve the overall security of their account holders and themselves.
        Our common platform is deployed with the initial installation of our solutions and provides our customers with the following benefits:
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single-login and multi-layered security across channels and devices; 

•
deep integration with numerous other internal and third-party systems within RCFIs; 

•
single interface to an RCFI's core transaction processing system; 

•
unified user experience and consistent workflows, languages and data; 

•
more rapid configurability, development and deployment of new features and functionality; and 

•
comprehensive view of account holder activity across channels and devices.
        We leverage the benefits of our common platform to provide our customers the following solutions:
        Q2online:  Q2online is our browser-based virtual banking solution. Q2online leverages the integration and other benefits of our common platform to securely deliver comprehensive RCFI-branded virtual banking capabilities such as account access, check balancing, funds transfers, bill pay, processing recurring payments, statement viewing and new products and service applications. Q2online also supports single and batch ACH processing, payroll, state and federal tax payments and domestic and international wires. Q2online also provides our customers with management functionality such as account holder enrollment, password management, permissions, rights management, reports, integrated security as well as feature assignment for online, mobile, voice and tablet banking.
        Q2themes:  Q2themes is a personalization solution for Q2online customers. RCFIs can use Q2themes to customize their virtual banking services through personal, local, loyalty- and audience-specific themes, such as language preferences, font styles and designs specific to our customers' account holders.
        Q2mobility App:  Q2mobility App is our mobile and tablet virtual banking solution. With Q2mobility App, retail and commercial account holders can access, engage and complete banking transactions such as adding and managing payees, transferring funds, executing single or recurring payments for multiple bank accounts, viewing e-statements or check images and managing other general banking services from their Apple iOS or Android-enabled mobile or tablet device. Q2mobility App uses the native functionality of mobile and tablet devices, such as touch, camera and geo-location to enhance the virtual banking experience of account holders.
        Q2mobile Remote Deposit Capture:  Q2mobile Remote Deposit Capture is a partnered solution that allows remote check deposit capture utilizing account holders' camera-ready mobile and tablet devices.
        Q2text:  Q2text is our mobile solution designed to enable specific virtual banking activities through the text messaging function of the device. Q2text provides self-service banking to account holders without the use of an app. Q2text enables account holders to check account balances, review
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transaction histories, transfer funds between accounts and manage alert and notification messaging to their mobile device.
        Q2voice:  Q2voice is our voice-based solution for telephones. With Q2voice account holders can use their traditional telephone or mobile phones to conduct voice banking such as checking account balances and transfers. Q2voice also enables our customers to provide alerts, notification, security and completion of an online initiated transaction to their account holders.
        Q2clarity:  Q2clarity is our analytics solution for our Q2online customers. Q2clarity leverages cross-channel data and security analysis to provide our customers' executives with a view of key performance indicators, such as solution performance, utilization and account holder interactions.
        Q2 Risk & Fraud Analytics:  Q2 Risk & Fraud Analytics is our real-time security analytics solution designed to help our customers detect and block suspect transactions within our virtual banking solutions. Q2 Risk & Fraud Analytics provides both behavioral analytics and policy-based decision prompts for RCFI administrators. Our solution continuously learns account holder behaviors while providing an analysis of transaction activity via easy-to-use case management tools supporting either the authorization or interruption of transactions.
Implementation and Customer Support
        We seek to deepen and grow our customer relationships by providing consistent, high-quality implementation and customer support services which we believe drive higher customer retention and incremental sales opportunities within our existing customer base. We structure our implementation teams to effectively collaborate with the management and technology teams of our customers ensuring the rapid deployment and effective utilization of our solutions. Our implementation teams develop and execute a coordinated implementation plan for our customers centered around five key phases: initiation, configuration, application testing, limited production and production.
        Our customer support personnel serve the comprehensive support-related needs of our customers. Due to the highly-regulated and complex nature of the financial services industry, our implementation and customer support service teams are aided by highly-trained, in-house resources who are knowledgeable about our solutions and the regulatory environment in which our customers operate.
Partner Offerings
        The flexible nature of our common platform allows us to build rapid integrations with RCFIs' internal and third-party systems to support account holder activities and RCFI processes. Our ability to integrate with these systems enables our customers to offer a comprehensive set of retail and commercial functionality to their account holders such as bill payment, personal finance management, online account opening and secure browsing while providing the RCFI a single view of the RCFI's activities and processes such as risk management, fraud detection and account reconciliation. This level of visibility enables our RCFI customers to evaluate the overall efficiency of their virtual banking offerings.
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Our Customers
        Our customers represent over 300 of the 13,570 RCFIs in the U.S. with less than $50 billion in assets. Following is a list of some of our current representative customers. These customers are representative of our bank and credit union customers and the geographies in which our customers are located. We also selected these customers since they vary based on the solutions they purchase from us, the types of account holders they have, the amount of assets under management and the number of registered users they have on our solutions. Our customer base is diverse, and no single customer accounted for more than 5% of our revenues in any of the last three years.

			
AimBank (Levelland, TX)	 	Horizon Bank (Austin, TX)	

Bank of Yazoo City (Yazoo City, MS)	
 	
Independent Bank (McKinney, TX)	

Broadway Bank (San Antonio, TX)	
 	
Pacific Western Bank (San Diego, CA)	

Camden National Bank (Camden, ME)	
 	
Paragon Bank (Raleigh, NC)	

Canandaigua National Bank and Trust (Canandaigua, NY)	
 	
Peoples Bank of Alabama (Decatur, AL)	

Community Bank (Los Angeles, CA)	
 	
Rockland Trust Company (Plymouth, MA)	

Eli Lilly Federal Credit Union (Indianapolis, IN)	
 	
St. Martin Bank and Trust Company (St. Martinville, LA)	

Enterprise Bank and Trust (Clayton, MO)	
 	
United Heritage Credit Union (Austin, TX)	

First Financial Bank (Cincinnati, OH)	
 	
Urban Partnership Bank (Chicago, IL)	
Sales and Marketing
        Our sales and marketing organization is responsible for growing our customer base and maintaining and expanding relationships with our existing customers. We sell our virtual banking solutions mainly through our direct sales organization. Our direct sales organization consists of experienced sales professionals who are organized based on several different criteria including geography, account size, type of financial institution and whether a prospect is a new or existing customer. Our sales representatives are supported by our solutions consulting and sales operations teams.
        Our marketing team complements our sales organization through lead generation, brand building, analyst relations and industry research. Our target market is well-defined due to the regulatory classifications of financial institutions. As a result we are able to target our marketing efforts on RCFIs. We focus our marketing efforts on industry-specific tradeshows, publications and digital newsletters as well as referral agreements with strategic industry partners. Our marketing team also conducts primary research to support our industry thought leadership and to identify emerging trends in account holder behavior and virtual banking activities. Our marketing programs target RCFI technology, finance, operations and marketing executives as well as senior business leaders.
Research and Development
        Our focus on innovation has fueled our growth and enables us to provide our customers unified cloud-based virtual banking solutions built on a common platform. We allocate significant resources to developing and improving our platform and virtual banking solutions to meet our customers' evolving virtual banking needs. We monitor and test our solutions regularly, and we maintain a disciplined release process to enhance our existing solutions and introduce new capabilities without interrupting service delivery. We follow state-of-the-art practices in software development and design, including
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using modern programming languages, data storage systems and other tools. Our multi-tiered architecture enables us to scale, add and modify features quickly in response to changing market dynamics, customer needs and regulatory requirements. Our platform was engineered to support rapid development and deployment of new features to address RCFI needs in the market. We also enable RCFIs to address their market-specific needs via our extension and integration frameworks which is a key aspect of our technology strategy. Workflows and features that we deliver include automated enrollment, product specific payment workflows, loan origination, "save-the-change" programs, targeted marketing and new account opening.
        Our research and development expenses were $3.4 million and $5.3 million for the years ended December 31, 2011, and 2012, respectively, and $3.8 million and $6.3 million for the nine months ended September 30, 2012 and 2013, respectively.
Technology and Operations
        Due to the highly regulated nature of the financial services industry, our platform combines both multi-tenant and single instance aspects. This structure is designed to maximize account holder data security and minimize compliance cost and risks. Our solutions utilize a multi-tiered architecture that allows for scalability, operational simplicity, security and disaster recovery. We have also developed an internal operations and analytics platform that aggregates and leverages customer instance and account holder experience captured within our solutions to drive future innovation and scale.
        We serve our customers from two secure, third-party, American National Standards Institute Tier 3 data center facilities, one located in Nevada and the other located in Texas. We plan on migrating our data center operations in Nevada to a new data center hosting facility in Dallas, Texas by the first half of 2014. Our agreement with the data center provider in Nevada expires in April 2014 and we have the ability to further extend the term of such agreement if necessary to accommodate the planned migration. The anticipated data hosting center in Dallas, Texas is operated by the same third party data center provider as our current Texas data center. Our agreement with the Texas data center provider has a five-year term expiring in May 2018 with respect to the Dallas, Texas-based services and a five-year term expiring May 2017 for our other Texas-based data center services. We believe that our current data centers and the anticipated post-migration data centers have sufficient capacity to meet our anticipated growth for the foreseeable future. Although we utilize third-parties to provide our data center infrastructure, we manage the hardware on which our solutions operate. We utilize industry standard hardware in redundant configurations to minimize service interruptions. We have also purchased a private block of IP address space to simplify and expedite our disaster recovery management operations for our customers.
        Our solutions have had monthly uptimes in excess of 99.9% continuously since January 2012. We continually monitor our infrastructure for any sign of failure, and we seek to take preemptive action to minimize and prevent downtime. Our data centers employ advanced measures to ensure physical integrity and security, including redundant power from multiple substations and cooling systems, fire and flood prevention mechanisms, continual security coverage and biometric readers at entry points as well as perimeter boundary security measures. We have also implemented extensive disaster recovery measures and continue to invest in data center and other technical infrastructure.
        All users are authenticated, authorized and validated before they can access our solutions. Users must have at a minimum, a valid user ID and associated password. Many of our customers also employ other authentication methods such as out-of-band one-time password delivery to log on to our solutions and hardware cryptographic tokens to authorize transactions. Our layered security model allows different groups of users to have different levels of access to our solutions. Our solutions' vulnerability is tested using internal tools prior to release, and an independent third party performs penetration and vulnerability tests on our solutions periodically.
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Intellectual Property
        We rely on a combination of patent, trademark, trade secrets and copyright laws, as well as confidentiality procedures and contractual restrictions, to establish, maintain and protect our proprietary rights. As of September 30, 2013, we had one issued patent and one patent application pending in the U.S. Our issued patent, which expires in March 2028, relates to our intellectual property created to address technology integration challenges for community banks and credit unions. We use the software components and methods claimed in this patent to access the data from several different types of RCFIs and to allow us to deliver our online, mobile, tablet, voice and text solutions to their account holders without having to individually integrate each solution with each RCFI's data. Despite substantial investment in research and development activities, we have not focused on patents and patent applications historically. We license third-party technologies, such as bill pay technologies, that are incorporated into some of our solutions.
        The efforts we have taken to protect our intellectual property rights may not be sufficient or effective. It may be possible for other parties to copy or otherwise obtain and use the content of our solutions without authorization. Failure to protect our proprietary rights adequately could significantly harm our competitive position and operating results.
        Companies in the Internet and technology industries, and other patent and trademark holders seeking to profit from royalties in connection with grants of licenses, own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. We have received in the past, and will likely in the future, receive notices that claim we have misappropriated or misused other parties' intellectual property rights. There may be intellectual property rights held by others, including issued or pending patents and trademarks, that cover significant aspects of our solutions. Any intellectual property claim against us, regardless of merit, could be time consuming and expensive to settle or litigate and could divert our management's attention and other resources. These claims could also subject us to significant liability for damages and could result in our having to stop using solutions found to be in violation of another party's rights. We might be required or may opt to seek a license for rights to intellectual property held by others, which may not be available on commercially reasonable terms, or at all. Even if a license is available, we could be required to pay significant royalties, which would increase our operating expenses. We may also be required to develop alternative non-infringing solutions, which could require significant effort and expense and which we may not be able to perform efficiently or at all. If we cannot license the intellectual property at issue or develop non-infringing solutions for any allegedly infringing aspect of our business, we may be unable to compete effectively.
Our Competition
        The market for virtual banking solutions is highly competitive. We compete with point solution vendors and core processing vendors, as well as internally-developed solutions. We believe that our deep industry expertise, reputation for consistent, high-quality customer support and our comprehensive and unified cloud-based virtual banking solutions that extend across online, mobile, voice and tablet channels and devices in a secure compliant manner distinguish us from the competition.
        We currently compete with providers of technology and services in the financial services industry, including point system vendors and core processing vendors, as well as systems internally developed by RCFIs. We have a number of point system competitors, including Digital Insight Corporation (currently being acquired by NCR Corporation), First Data Corporation and ACI Worldwide, Inc. in the online, consumer and small business banking space and Fundtech Ltd., ACI Worldwide, Inc., Clear2Pay NV/SA and Bottomline Technologies (de), Inc. in the commercial banking space. We also compete with core processing vendors that provide systems and services such as Fiserv, Inc., Jack Henry and Associates,
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Inc. and Fidelity National Information Services, Inc. Many of our competitors have significantly more financial, technical, marketing and other resources than we have, may devote greater resources to the promotion, sale and support of their systems than we can, have more extensive customer bases and broader customer relationships than we have and have longer operating histories and greater name recognition than we have. In addition, many of our competitors expend a greater amount of funds on research and development.
        Although we compete with point system vendors and core processing vendors, we also partner with some of these vendors for certain data and services utilized in our solutions and receive referrals from them. In addition, certain RCFIs have or can obtain the ability to create their own in-house systems, and while many of these systems have difficulties scaling and providing an integrated platform, we still face challenges displacing in-house systems and retaining customers that choose to develop an in-house system.
        We believe the principal competitive factors in our market include the following:
•
alignment with the mission of the RCFIs; 

•
ability to provide a single platform for retail and commercial account holders; 

•
functionality across online, mobile, voice and tablet channels; 

•
cloud-based technology platform and pricing model; 

•
ability to quickly integrate with third-party applications and systems; 

•
ease of use of the interface, view and login to virtual banking services across channels; 

•
design of the account holder experience, including modern, intuitive and touch-centric features; 

•
configurability and RCFI branding capabilities; 

•
familiarity of workflows and terminology and feature-on-demand functionality; 

•
integrated multi-layered security and compliance of solutions with regulatory requirements; 

•
quality of implementation, integration and support services; 

•
domain expertise and innovation in banking technology; 

•
ability to innovate and respond to customer needs rapidly; and 

•
rate of development, deployment and enhancement of software.
        We believe that we compete favorably with respect to these factors within the RCFI market for virtual banking solutions, but we expect competition to continue and increase as existing competitors continue to evolve their offerings and as new companies enter our market. Many of our competitors have substantially greater financial, technical and other resources and have greater flexibility in bundling and pricing competing solutions. To remain competitive, we believe we must continue to invest in research and development, sales and marketing, customer support and our business operations generally.
Employees
        As of September 30, 2013, we had 400 employees, all of which are located in the U.S. We consider our current relationship with our employees to be good. None of our employees are represented by a labor union or are a party to a collective bargaining agreement.
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Culture
        Since our inception, our culture has been rooted in our mission to help our RCFI customers be more successful and better serve their communities. We believe our passion, dedication and commitment towards this mission is a significant differentiator for us with RCFIs and our employees. We share our culture through our customer interactions, employee functions and collaborative and educational customer events like our client conference, user groups and collaboration focus groups. In each of the past three years, the Austin American Statesman recognized us as one of Austin's "Top Places to Work," and approximately 50% of our newly-hired employees in 2013 were referred by existing employees.
        Presented with regular opportunities to help RCFIs more successfully compete and grow, we seek out ways to enhance our culture and our ability to make a difference for our customers and their account holders. Our culture is visible across our organization and highlighted through a host of initiatives, programs and committees including the following:
•
our employee led committees of culture, wellness, green, cares and communications help create opportunities for employees to come together around important causes to make a difference in the work place and local communities; 

•
our project renaissance and project base camp initiatives promote the hiring of broad and non-traditional engineering and project management talent; 

•
our emerging leaders management training program identifies and cultivates new and emerging leadership talent within our organization; and 

•
our flexible work spaces promote a collaborative, high-energy work environment and help facilitate team-based problem solving and cross-departmental learning.
Government Regulation
        As a technology service provider to banks and credit unions, we are not required to be chartered by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration or other federal or state agencies that regulate or supervise our customers and other providers of financial services.
        Our customers and prospects are subject to extensive and complex regulations and oversight by federal and state regulatory authorities. These laws and regulations are constantly evolving and affect the conduct of our customers' operations and, as a result, our business. For instance, in 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. The Dodd-Frank Act introduced substantial reforms to the supervision and operation of the financial services industry, including introducing changes that:
•
affect the oversight and supervision of financial institutions; 

•
introduce more stringent regulatory capital requirements; 

•
implement changes to corporate governance and executive compensation practices; and 

•
require significant rule-making.
        The Dodd-Frank Act also established a new federal interagency council called the Financial Stability Oversight Council, or FSOC, and a new federal bureau called the Consumer Financial Protection Bureau, or CFPB. The FSOC monitors and assesses systemic risk to the safety of the U.S. financial system and coordinates the actions of the various regulatory agencies on those issues. The CFPB is empowered to conduct rule-making and supervision related to, and enforcement of, federal
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consumer financial protection laws. The Dodd-Frank Act has generated, and will continue to generate, numerous new regulations that will impact the financial services industry. It is difficult to predict the extent to which the Dodd-Frank Act, the FSOC, the CFPB or the resulting regulations will impact our business or the businesses of our current and potential customers.
        Our solutions must enable our customers to comply with other applicable requirements such as the following:
•
the Electronic Funds Transfer Act; 

•
the Electronic Signatures in Global and National Commerce Act; 

•
federal and state usury laws; 

•
the Gramm-Leach-Bliley Act; 

•
laws against unfair, deceptive, or abusive acts or practices; 

•
the Privacy of Consumer Financial Information regulations; 

•
the Guidance on Supervision of Technology Services Providers promulgated by the Federal Financial Institutions Examination Council, or FFIEC; 

•
the Guidance on Outsourcing Technology Services promulgated by the FFIEC; and 

•
other state and local laws and regulations.
        We are subject to periodic examination by banking regulators under the authority of the FFIEC under its Guidance on the Supervision of Technology Services Providers and the Gramm-Leach-Bliley Act of 1999, and other federal and state laws that apply to technology service providers as a result of the services we provide to the institutions they regulate. As an independent technology service provider, we are examined by federal financial regulators on a rotating basis. These examinations are based on guidance from the FFIEC, which is a formal interagency body empowered to prescribe uniform principles, standards and report forms for the examination of financial institutions and to make recommendations to promote uniformity in the supervision of financial institutions. The examinations cover a wide variety of subjects, including our management, acquisition and development activities, support and delivery, IT audits, as well as our disaster preparedness and business recovery planning. The banking regulators that make up the FFIEC have broad supervisory authority to remedy any shortcomings identified in an examination. Following an examination, our financial institutions customers may request an executive summary of the examination through their lead examination agency.
        The Dodd-Frank Act granted the CFPB authority to promulgate rules and interpret certain federal consumer financial protection laws, some of which apply to the solutions we offer. In certain circumstances, the CFPB also has examination and supervision powers with respect to service providers who provide a material service to a financial institution offering consumer financial products and services.
        The compliance of our solutions with these requirements depends on a variety of factors, including the functionality and design of our solutions, the classification of our customers, and the manner in which our customers and their account holders utilize our solutions. For example, we are subject to the privacy and confidentiality provisions of the Gramm-Leach-Bliley Act and its implementing regulations. In order to comply with our obligations under these laws, we are required to implement operating policies and procedures to protect the privacy and security of our customers' and their account holders' information and to undergo periodic audits and examinations.
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Facilities
        Our principal executive offices are located in Austin, Texas, where we lease approximately 86,000 square feet of office space under a lease with an initial term that expires on April 30, 2021, with the option to extend the lease for an additional five year term. We also lease office space near Atlanta, Georgia. We believe our current facilities will be adequate for our needs for the foreseeable future.
Legal Proceedings
        From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would have a material adverse effect on us.
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 MANAGEMENT
Executive Officers and Directors
        The following table sets forth information regarding our executive officers and directors.

						
Name 	 	Age	 	Position	
Matthew P. Flake	 	 	42	 	Chief Executive Officer, President and Director	
Jennifer N. Harris	 	 	46	 	Chief Financial Officer	
Adam D. Anderson	 	 	42	 	Executive Vice President and Chief Technology Officer	
John E. Breeden	 	 	41	 	Executive Vice President of Operations	
Barry G. Benton	 	 	51	 	Senior Vice President, General Counsel and Secretary	
William M. Furrer	 	 	46	 	Senior Vice President of Product and Marketing	
Stephen C. Soukup	 	 	46	 	Senior Vice President of Sales	
R. H. "Hank" Seale, III(1)	 	 	51	 	Founder and Executive Chairman	
Michael M. Brown(1)(2)(3)	 	 	41	 	Director	
Jeffrey T. Diehl(2)(3)	 	 	43	 	Director	
Charles T. Doyle(1)(3)	 	 	79	 	Director	
Michael J. Maples, Sr.(1)	 	 	71	 	Director	
James R. Offerdahl(3)	 	 	57	 	Director	
Carl James Schaper(2)(4)	 	 	62	 	Director	

(1)
Member of Information Systems Audit Committee

(2)
Member of Compensation Committee

(3)
Member of Financial Audit Committee

(4)
Lead Independent Director
Executive Officers
         Matthew P. Flake has served as our President since March 2008, the Chief Executive Officer of Q2 Software, Inc., our sole operating subsidiary, since December 2011 and Q2 Holdings' Chief Executive Officer and a member of our board of directors since October 2013. From June 2005 until March 2008, Mr. Flake served as our Vice President of Sales. Mr. Flake previously served as a Regional Sales Director at S1 Corporation, a provider of Internet-based financial services solutions from 2002 until May 2005. Prior to that, Mr. Flake was a Regional Sales Manager for Q-Up Systems, Inc., a provider of interactive web-based solutions for community banks and credit unions from August 1999 until 2002. Mr. Flake holds a B.A. in Business from Baylor University. Mr. Flake's extensive experience in the community banking industry and his perspective as our head of sales for multiple years and current Chief Executive Officer make him a valuable member of our board of directors.
         Jennifer N. Harris has served as our Chief Financial Officer since December 2013. From March 2013 to December 2013, Ms. Harris served as our Vice President and Corporate Controller. Prior to joining us, Ms. Harris was the Interim Corporate Controller for Blackbaud, Inc., a provider of software solutions to nonprofit organizations and educational institutions, from May 2012 until November 2012. From April 2005 until May 2012, Ms. Harris held various financial positions with Convio, Inc., a provider of SaaS constituent engagement solutions, most recently as Vice President, Controller and Principal Accounting Officer, from October 2010 until May 2012, when Convio was acquired by Blackbaud. From November 1998 until April 2005, Ms. Harris held a variety of financial positions with Motive, Inc., a provider of service management software for broadband and mobile data services, most recently as Director of Finance and Administration and Corporate Treasurer from April 2003 until April 2005. Ms. Harris holds a B.S. in Business from Indiana University.
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         Adam D. Anderson has served as our Executive Vice President since November 2011 and Chief Technology Officer since December 2010. From May 2006 until December 2010, Mr. Anderson served as our Chief Information Officer. Prior to joining us, Mr. Anderson held the position of Vice President, Engineering and Support of CipherTrust, Inc., a provider of security solutions for inbound and outbound messaging threats, from November 2003 until May 2006. From July 2001 until November 2003, Mr. Anderson served as Senior Director, Technology Services for S1 Corporation. From November 2000 until July 2001, Mr. Anderson was Vice President, Internet Operations for Q-Up Systems, Inc. Mr. Anderson holds a B.A. in Economics from Indiana University. He has also completed graduate work in Computational Economics at The University of Texas at Austin.
         John E. Breeden has served as our Executive Vice President of Operations since February 2013. From November 2011 until February 2013, he served as our Senior Vice President of Implementations. Prior to joining us, Mr. Breeden was Vice President of Corporate Services for Activant Solutions Inc., a provider of business management solutions, from October 2007 until July 2011. Mr. Breeden also served as Activant Solutions' Vice President of Information Technology from June 2005 until October 2007, and its Director of Corporate Planning from October 2002 until June 2005. From January 2002 until October 2002, Mr. Breeden was an enterprise software and process optimization consultant for The North Highland Company, a consulting firm. From January 2001 until January 2002, Mr. Breeden held the position of Product Manager for Claria Corporation, an advertising software company. Mr. Breeden holds a B.B.A. in Finance from The University of Texas at Austin.
         Barry G. Benton has served as our Senior Vice President, General Counsel and Secretary since October 2013 and as our General Counsel since January 2011. Prior to joining us, Mr. Benton was in private practice representing us, as well as a number of other large and small business owners and financial institutions in a variety of aspects of their operations, including debt and equity financings, commercial real estate and mergers and acquisitions from January 2009 until October 2010. From September 1995 until January 2009, Mr. Benton was a partner in private practice with various law firms, most recently with Glast, Phillips & Murray, PC from August 2003 until January 2009. Mr. Benton is a past committee member of the Commercial Financial Services Committee of the Business Section of the State Bar of Texas and prior member of the Texas Association of Bank Counsel. Mr. Benton holds a J.D. from St. Mary's University School of Law and a B.A. in Political Science from Texas Tech University.
         William M. Furrer has served as our Senior Vice President of Product and Marketing since July 2013 and served as our Senior Vice President of Marketing from February 2013 until July 2013. Prior to joining us, Mr. Furrer was President of IF Marketing and Advertising, a full service interactive marketing and advertising agency specializing in brand development and integrated marketing campaigns, from July 2001 until January 2013. From September 1999 until December 2001, Mr. Furrer held a number leadership positions with Q-Up Systems, Inc., including sales engineer, relationship management and web technologies product management. From April 2000 until December 2001, Mr. Furrer was Director of Web Technologies for S1 Corporation. Mr. Furrer holds a B.A. in English from Virginia Tech.
         Stephen C. Soukup has served as our Senior Vice President of Sales since April 2013 and served as our Vice President of Direct Sales from October 2012 until April 2013. Prior to joining us, Mr. Soukup held a number of sales leadership positions at Intuit Inc., a provider of business and financial management solutions, including roles in direct sales, relationship management and alliances from April 2007 to October 2012. From April 2002 until April 2007, Mr. Soukup served as Senior Director of Relationship Management for S1 Corporation. From June 2000 until April 2002, Mr. Soukup was Business Development Manager for Getronics NV, a provider of branch automation systems and managed desktop and network technology services. Mr. Soukup holds an M.B.A. from Boston University and a B.S. in Finance from Boston College.
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Board of Directors
         R. H. "Hank" Seale, III is our founder and Executive Chairman of our board of directors and has overseen our growth from inception. Mr. Seale served as our President and Chief Executive Officer from March 2005 until October 2013. Mr. Seale previously founded Q-Up Systems, Inc. in 1997, serving as Chairman and Chief Executive Officer until its sale in April 2000 to S1 Corporation. Mr. Seale served as Chief Executive Officer of S1 Corporation's Community and Regional Solutions Group from April 2000 until August 2001. In February 1991, Mr. Seale co-founded Regency Voice Systems, a provider of voice banking solutions to community banks, which was acquired by Transaction System Architects in May 1997. Mr. Seale currently serves on the board of directors of CoreTrac, Inc. and RealMassive, Inc. and is President of Seale, Inc., the general partner of R.H.S. Investments-I, L.P. Mr. Seale holds a B.S. in Agricultural Economics from Texas Tech University. Mr. Seale's perspective as our founder, former Chief Executive Officer, and a successful entrepreneur in the community banking and credit union industries make him a valuable member of our board of directors and our Information Systems Audit Committee, or IS Audit Committee.
         Michael M. Brown has been a member of our board of directors since March 2013. Mr. Brown is a General Partner at Battery Ventures, a private equity and venture capital firm focused on technology companies, which he joined in December 1998. Mr. Brown serves on a number of private company boards. Mr. Brown was previously a member of the High Technology Group at Goldman, Sachs & Co. from 1996 until 1998 and worked as a Financial Analyst within Goldman's Financial Institutions Group from 1994 until 1996. Mr. Brown holds a B.S. in Finance and International Business from Georgetown University. Mr. Brown's extensive experience advising growth-stage Internet and software companies, and his financial expertise, make him a valuable member of our board of directors and Compensation, Financial Audit and IS Audit Committees.
         Jeffrey T. Diehl has been a member of our board of directors since July 2007. Mr. Diehl is a Partner at Adams Street Partners, LLC, a private equity firm, which he joined in November 2000. Mr. Diehl serves on a number of private company boards. From 1997 until 2000, Mr. Diehl served as a Principal for the Parthenon Group, a strategy consulting and principal investing firm. Mr. Diehl holds an M.B.A. from Harvard Business School and a B.S. in Finance from Cornell University. Mr. Diehl's extensive experience as an investor in, and board member of, a variety of venture and growth-oriented companies in the software, IT-enabled business services and consumer Internet/media sectors brings valuable insight to our board of directors and Compensation and Financial Audit Committees.
         Charles T. Doyle has been a member of our board of directors since May 2011. Mr. Doyle is a former member of the board of directors of Visa Inc., Visa U.S.A., and Visa International. He also previously served on the boards of directors of a number of private companies in the payments industry. Among his many banking affiliations over the years, Mr. Doyle served as the first community banker on the Federal Advisory Council to the Board of Governors of the Federal Reserve and as a Director of the Federal Reserve Bank in Dallas, Texas. He is a past president and former member of the board of directors of Independent Community Bankers Association of America, served on the Advisory Board of the Southwestern School of Banking at Southern Methodist University, and is a former board member of the Texas Tech University School of Banking. Mr. Doyle co-founded and served six years as Chairman of ICBA Bancard, Inc., a national credit card network of community banks. He is currently the chairman of the board of directors of Texas First Bank and Texas Independent Bancshares, Inc. He is also a member of the board of directors of the Independent Bankers Association of Texas Education Foundation. Mr. Doyle holds an M.B.A. from the University of Houston and a B.B.A. from the University of Oklahoma. Mr. Doyle's distinguished career in government and in the payments and banking industries makes him a valuable member of our board of directors and Financial Audit and IS Audit Committees.
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         Michael J. Maples, Sr. has been a member of our board of directors since February 2012. Mr. Maples held various management positions at Microsoft Corporation, a software products and services company, from April 1988 to July 1995, including Executive Vice President of the Worldwide Products Group. As a member of the Office of the President at Microsoft from 1991 to his retirement in July 1995, Mr. Maples reported directly to the Chairman. Previously, Mr. Maples served as Director of Software Strategy for International Business Machines Corp., a technology and consulting corporation. Mr. Maples currently serves on the boards of directors of Lexmark International, Inc., a laser printer and enterprise software company, Sonic Corp., an operator and franchisor of drive-in restaurants, and Multimedia Games Holding Company, Inc., a gaming technology company. Mr. Maples holds an M.B.A. from Oklahoma City University and a B.S. in Electrical Engineering from the University of Oklahoma. Mr. Maples' extensive management and financial experience in technology companies and corporate governance experience through service on other boards of directors make him a valuable member of our board of directors and IS Audit Committee.
         James R. Offerdahl has been a member of our board of directors since December 2010. Mr. Offerdahl currently serves as Chief Financial Officer of Bazaarvoice, Inc., a provider of online rating and review solutions to brands and retailers worldwide, which he joined in January 2013. Mr. Offerdahl served as the Chief Financial Officer and Vice President of Administration of Convio, Inc., a provider of on-demand constituent engagement solutions, from February 2005 until it was acquired by Blackbaud, Inc. in May 2012. From August 2001 to April 2004, Mr. Offerdahl was President and Chief Executive Officer of Traq-Wireless, Inc., a provider of on-demand mobile resource management software and services. From 1998 to 2001, Mr. Offerdahl served as Chief Operating Officer and Chief Financial Officer of Pervasive Software, Inc., a developer and marketer of data management solutions, and as Chief Financial Officer from 1996 to 1998. From 1993 to 1996, Mr. Offerdahl was the Chief Financial Officer and Vice President of Administration of Tivoli Systems, Inc., a developer and marketer of systems management software, which was acquired by International Business Machines Corp. in March 1996. Mr. Offerdahl holds an M.B.A. in Management and Finance from the University of Texas at Austin and a B.S. in Accounting from Illinois State University. Mr. Offerdahl's extensive experience managing technology and software companies, and his financial expertise, make him a valuable member of our board of directors and Financial Audit Committee.
         Carl James Schaper has been a member of our board of directors since December 2011. Mr. Schaper currently serves on the board of directors of BMC Software, Inc., an IT management solutions company. Since December 2010, Mr. Schaper has served as Chairman of the board of directors of Infor Global Solutions, a provider of business software and solutions, which he founded in February 2002. Prior to that, Mr. Schaper served as Chairman, President and Chief Executive Officer of Infor from February 2002 to December 2010. Since January 2000, Mr. Schaper has been an Operating Partner of Golden Gate Capital, a private equity firm. Mr. Schaper also serves on the boards of directors of Attachment Corp., the University of South Carolina (USC) Garnet Way Council and the USC Educational Foundation. Mr. Schaper also held the roles of Chairman and Chief Executive Officer of Primis Corporation, Chief Operating Officer of Medaphis Corporation, and Chief Operating Officer of Dun and Bradstreet Software Services, Inc. Mr. Schaper holds a B.A. in Journalism from the University of South Carolina. Mr. Schaper's extensive management experience in the software and technology marketplace provides valuable industry knowledge and management experience to our board of directors and Compensation Committee.
        Our executive officers are elected by, and serve at the discretion of, our board of directors. There are no family relationships among any of our directors or executive officers.
        In addition to the information presented above regarding each director's specific experience, qualifications, attributes and skills, we also believe that all of our directors have demonstrated business acumen, ethical integrity and an ability to exercise sound judgment, as well as a commitment of service to us and our board of directors.
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Board Composition and Selection Arrangements
        Our board of directors currently consists of eight members. Each of our current directors will continue to serve until the election and qualification of his successor, or his earlier death, resignation or removal. Each of Messrs. Brown, Diehl, Doyle, Flake, Maples, Offerdahl, Schaper and Seale was elected to our board of directors according to the provisions of our current voting agreement, which entitles certain holders of our capital stock to elect directors. This right and the voting agreement will terminate upon the completion of this offering, and there will be no further obligation to which we are a party regarding the election of our directors.
Director Independence
        In October 2013, our board of directors undertook a review of the independence of the directors and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, our board of directors determined that Messrs. Brown, Diehl, Doyle, Maples, Offerdahl and Schaper are "independent directors" as defined under SEC rules and regulations.
Lead Independent Director
        In December 2013, our board of directors designated Mr. Schaper as our lead independent director. As our lead independent director, Mr. Schaper will preside over periodic meetings of our independent directors, serve as a liaison between our Executive Chairman and the independent directors and perform such additional duties as our board of directors may otherwise determine and delegate.
Committees of Our Board of Directors
        Our board of directors has a Financial Audit Committee, a Compensation Committee and an Information Systems Audit Committee, which have the composition and responsibilities described below. We will establish a Nominating and Corporate Governance Committee in connection with the completion of this offering.
Financial Audit Committee
        Our Financial Audit Committee is responsible for, among other things:
•
appointing, compensating, retaining and overseeing our independent auditors; 

•
approving the audit and non-audit services to be performed by our independent auditors; 

•
reviewing, with our independent auditors, all critical accounting policies and procedures; 

•
reviewing and discussing with management and the independent auditor our annual audited financial statements and any certification, report, opinion or review rendered by the independent auditor; 

•
reviewing with management and the independent auditor the adequacy and effectiveness of our internal control structure and procedures for financial reports; 

•
reviewing and investigating conduct alleged to be in violation of our code of conduct and establishing procedures for our receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; 

•
preparing the Financial Audit Committee report required in our annual proxy statement;
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•
reviewing the appointment, organization, budget, staffing and charter of the internal audit function, and the annual internal audit plan, and reviewing with management any reports of the internal audit function; and 

•
reviewing and evaluating, at least annually, its own performance and the adequacy of its charter.
        Our Financial Audit Committee is currently composed of Messrs. Brown, Diehl, Doyle and Offerdahl. Mr. Offerdahl has been appointed to serve as the chairperson of our Financial Audit Committee. In October 2013, our board of directors determined that each of Messrs. Brown, Diehl, Doyle and Offerdahl is independent under the applicable requirements of the SEC rules and regulations. Our board of directors also determined that each of Messrs. Brown, Diehl, Doyle and Offerdahl meet the requirements for financial literacy and sophistication under the applicable requirements of the SEC rules and regulations, and that Mr. Offerdahl qualifies as an "audit committee financial expert," under the applicable requirements of the SEC rules and regulations.
        Our Financial Audit Committee has adopted a Financial Audit Committee charter to be effective upon the completion of this offering. We believe that the composition of our Financial Audit Committee, and our Financial Audit Committee's charter and responsibilities, will comply with the applicable requirements of the SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.
Compensation Committee
        Our Compensation Committee is responsible for, among other things:
•
reviewing and approving corporate goals and objectives relevant to compensation of our Chief Executive Officer and other executive officers; 

•
reviewing and approving the salaries, bonuses, incentive compensation, equity awards, benefits and perquisites of our Chief Executive Officer and our other executive officers; 

•
recommending the establishment and terms of our incentive compensation plans and equity compensation plans, and administering such plans; 

•
recommending compensation programs for directors; 

•
preparing disclosures regarding executive compensation and any related reports required by the rules of the SEC; 

•
making and approving grants of options and other equity awards to all executive officers, directors and all other eligible individuals; and 

•
reviewing and evaluating, at least annually, its own performance and the adequacy of its charter.
        Our Compensation Committee is currently composed of Messrs. Brown, Diehl and Schaper, each of whom is a non-employee member of our board of directors. Mr. Schaper has been appointed to serve as the chairperson of our Compensation Committee. In October 2013, our board of directors determined that each member of our Compensation Committee is independent under the applicable requirements of the SEC rules and regulations, is a non-employee director, as defined by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and is an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code.
        Our board of directors has adopted a Compensation Committee charter to be effective upon the completion of this offering. We believe that the composition of our Compensation Committee, and our Compensation Committee's charter and responsibilities, will comply with the applicable requirements of the SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.
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Nominating and Corporate Governance Committee
        Our Nominating and Corporate Governance Committee is responsible for, among other things:
•
assisting our board of directors in identifying qualified director nominees and recommending nominees for each annual meeting of stockholders; 

•
developing, recommending and reviewing corporate governance principles applicable to us; 

•
consult with our Financial Audit Committee regarding, and periodically review, our code of business conduct and ethics; 

•
assisting our board of directors in its evaluation of its performance and the performance of each of its committees; and 

•
reviewing and evaluating, at least annually, its own performance and the adequacy of its charter.
        Our Nominating and Corporate Governance Committee is currently composed of Messrs.             , and            . Mr.             has been appointed to serve as the chairperson of our Nominating and Corporate Governance Committee. In            , our board of directors determined that each of these individuals is independent under the applicable requirements of the SEC rules and regulations.
        Our board of directors has adopted a Nominating and Corporate Governance Committee charter to be effective upon the completion of this offering. We believe that the composition of our Nominating and Corporate Governance Committee and our Nominating and Corporate Governance Committee's charter and responsibilities will comply with the applicable requirements of the SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.
Information Systems Audit Committee
        Our Information Systems Audit Committee, or IS Audit Committee, is responsible for, among other things:
•
monitoring and oversight of response to, and compliance with, regulatory requirements, requests and orders; 

•
overseeing the adequacy, efficacy, and implementation of our compliance audit plan; 

•
approving and overseeing our major information systems projects that establish and prioritize information systems standards and overall performance; 

•
reviewing the adequacy and allocation of our information systems resources in terms of funding, personnel, equipment and service levels; 

•
reviewing, discussing with management and overseeing the implementation, monitoring and testing of our information systems security program and business continuity plan; and 

•
reviewing and evaluating, at least annually, its own performance and the adequacy of its charter.
        Our IS Audit Committee is currently composed of Messrs. Brown, Doyle, Maples and Seale. Mr. Doyle has been appointed to serve as the chairperson of our IS Audit Committee. Our IS Audit Committee has a charter which was adopted by our board of directors.
        Following the completion of this offering, the full text of our Financial Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and IS Audit Committee charters will be posted on the investor relations portion of our website at http://www.q2ebanking.com. We do not incorporate the information contained on, or accessible through, our corporate website into this prospectus, and you should not consider it part of this prospectus.
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Code of Business Conduct and Ethics
        Our board of directors has adopted a code of business conduct and ethics. The code applies to all of our employees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions), directors and consultants. Following the completion of this offering, the full text of this code will be posted on the investor relations portion of our website at http://www.q2ebanking.com. We do not incorporate the information contained on, or accessible through, our corporate website into this prospectus, and you should not consider it part of this prospectus.
Director Compensation
        The following table presents compensation information for fiscal 2013 paid to, or accrued for, each of the non-employee members of our board of directors. The table excludes Mr. Seale, who is a named executive officer and did not receive any compensation from us in his role as a director in 2013, and Mr. Flake, who is a named executive officer and who joined our board of directors in October 2013 and did not receive any compensation from us in his role as a director in 2013.

														
Name 	 	Fees Earned
or Paid in
Cash	 	Option
Awards(5)	 	All Other
Compensation	 	Total	 	
Michael M. Brown	 	$	—	 	$	—	 	$	—	 	$	—	 	
Jeffrey T. Diehl	 	 	—	 	 	—	 	 	—	 	 	—	 	
Charles T. Doyle(1)	 	 	5,000	 	 	—	 	 	—	 	 	5,000	 	
Michael J. Maples(2)	 	 	10,000	 	 	—	 	 	—	 	 	10,000	 	
James R. Offerdahl(3)	 	 	5,000	 	 	—	 	 	—	 	 	5,000	 	
Carl James Schaper(4)	 	 	100,000	 	 	492,063	 	 	—	 	 	592,063	 	

(1)
During 2013, Mr. Doyle was compensated $1,000 per meeting attended, with a cap of $5,000 per year. Mr. Doyle has directed us to contribute all of his board of director fees, including the $5,000 he earned during 2013 to a charity specified by him in his name. As of December 31, 2013, Mr. Doyle had 12,500 shares underlying option awards outstanding.

(2)
During 2013, Mr. Maples was compensated $2,500 per calendar quarter for his service on the board of directors. As of December 31, 2013, Mr. Maples had 68,000 shares underlying option awards outstanding.

(3)
During 2013, Mr. Offerdahl was compensated $1,000 per meeting attended, up to $5,000 per year. As of December 31, 2013, Mr. Offerdahl had 34,865 shares underlying option awards outstanding.

(4)
During 2013, Mr. Schaper was compensated $100,000 for his service on the board of directors, including providing advisory services to our executive officers. As of December 31, 2013, Mr. Schaper had 411,000 shares underlying option awards outstanding.

(5)
Amounts represent the aggregate grant date fair value of stock options granted during the year computed in accordance with FASB ASC Topic 718. Assumptions used in calculating these amounts are described in Note 2 to our consolidated financial statements included elsewhere in this prospectus. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.
        Prior to this offering, we have not compensated our non-employee directors who are affiliated with our stockholders for their service on our board of directors. We do, however, reimburse our directors for expenses associated with attending meetings of our board and meetings of committees of our board. In addition, we have entered into letter agreements with our non-employee directors who are not affiliated with our stockholders. Such letters set forth the terms of the cash compensation to be
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received for services as directors including members of committees of our board of directors and the terms of the stock options to purchase shares of our common stock. The shares subject to the options granted to our directors vest 1/4th on the one year anniversary of the commencement of service as a director with an additional 1/48th vesting monthly thereafter, subject to continued service of the director. Upon a change of control (as defined in our 2007 Plan), 100% of the unvested shares will immediately vest. In addition, Messrs. Maples and Schaper's letter agreements provide that part of their service as directors includes providing strategic advisory services to certain of our executive officers.
        We intend to adopt a policy pursuant to which, following the completion of this offering, each non-employee director who is not affiliated with any of our stockholders will receive an annual fee of $            . Independent non-employee directors will receive an additional $            annually for serving on our Financial Audit Committee, an additional $             annually for serving on our Compensation Committee, an additional $            annually for serving on our Nominating and Corporate Governance Committee and an additional $            annually for serving on the IS Audit Committee. The chairman of our Financial Audit Committee will receive an additional $            annually, the chairman of our Compensation Committee will receive an additional $            annually, the chairman of our Nominating and Corporate Governance Committee will receive an additional $            annually, the chairman of our IS Audit Committee will receive an additional $            annually and our lead independent director will receive an additional $            annually. We intend to adopt a program pursuant to which, following the completion of this offering, our independent non-employee directors will receive equity awards. Members of our board of directors will continue to be reimbursed for travel and other out-of-pocket expenses in connection with attending meetings.
Compensation Committee Interlocks and Insider Participation
        None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.
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 EXECUTIVE COMPENSATION
Summary Compensation Table
        The following table presents compensation information for fiscal 2013 and 2012 paid to or accrued for our principal executive officers and for fiscal 2013 paid to our two other most highly compensated persons serving as executive officers as of December 31, 2013. We refer to these executive officers as our "named executive officers."

																			
Name and Principal Position 	 	Year	 	Salary	 	Option
Awards(2)	 	Non-Equity
Incentive Plan
Compensation(3)	 	All Other
Compensation(4)	 	Total	 	
 R.H. "Hank" Seale, III(1)	 	2013	 	$	150,000	 	$	—	 	$	121,900	 	$	18,010	 	$	289,910	 	
 Founder, Executive Chairman and Former President and Chief Executive Officer	 	2012	 	 	154,167	 	 	—	 	 	99,100	 	 	19,666	 	 	272,933	 	
Matthew P. Flake	 	2013	 	 	300,000	 	 	—	 	 	182,850	 	 	10,042	 	 	492,892	 	
President and Chief Executive Officer	 	2012	 	 	272,115	 	 	—	 	 	139,979	 	 	11,043	 	 	423,137	 	
 William M. Furrer(5)	 	2013	 	 	193,333	 	 	264,800	 	 	73,040	 	 	2,297	 	 	533,470	 	
 Senior Vice President of Product and Marketing	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stephen C. Soukup(5)	 	2013	 	 	206,250	 	 	227,638	 	 	211,156	 	 	9,232	 	 	654,276	 	
Senior Vice President of Sales	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

(1)
Mr. Seale served as our President and Chief Executive Officer until his resignation from such roles in October 2013.

(2)
Amounts represent the aggregate grant date fair value of stock options granted during the year computed in accordance with FASB ASC Topic 718. Assumptions used in calculating these amounts are described in Note 2 to our consolidated financial statements included elsewhere in this prospectus.

(3)
Includes quarterly amounts earned under our 2013 Executive Bonus Plan, or the 2013 Bonus Plan, and paid during 2013 and in January 2014.

The 2013 Bonus Plan provided for the amounts earned to be based on the following metrics:

											
 	 	Weighting of Component as a % of
Bonus Payment	 	
Component 	 	Mr. Seale and
Mr. Flake	 	Mr. Furrer	 	Mr. Soukup	 	
Bookings	 	 	50	%	 	75	%	 	100	%	
Delivered Revenue	 	 	20	%	 	25	%	 	 	 	
Gross Margin	 	 	30	%	 	 	 	 	 	 	

The bookings component consisted of monthly recurring bookings revenue based on committed or contracted levels in our customer agreements, with an exclusion for one-time services. The delivered revenue component consisted of all revenue other than monthly recurring revenue that is delivered and recognized during 2013 and included subscription, implementation and one-time services fees, but excluded any customer termination payments and changes to revenue as a result of accounting policy changes or adjustments. The gross margin component consisted of our gross margin calculated in accordance with GAAP, but excluding capitalization and amortization. These
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components were measured against our 2013 annual budget approved by our board of directors. The 2013 Bonus Plan provided for a single annual payout opportunity for Messrs. Seale, Flake and Furrer, and for quarterly payout opportunities for Mr. Soukup.

The payouts under the 2013 Bonus Plan were based on our performance as a company within a range of each component's target. For Messrs. Seale, Flake and Furrer, no incentive payment was earned for performance below the target minimum and the maximum bonus was to be earned at the target maximum. The range and target for each component applicable to Messrs. Seale, Flake and Furrer are set forth in the following table:

											
Achievement Level 	 	Percentage of
Bookings and
Delivered Revenue
Component
Attained	 	Percentage of
Gross Margin
Component
Attained	 	Corresponding
Weighted
Payout Percentage
Per Component	 	
Minimum	 	 	85	%	 	90	%	 	50	%	
At target	 	 	100	%	 	100	%	 	100	%	
Maximum	 	 	120	%	 	120	%	 	150	%	

In January 2014, our Compensation Committee modified the gross margin component of the 2013 Bonus Plan to exclude certain costs we had incurred in connection with this offering and one-time investments in our business. Such modification applied to Messrs. Seale and Flake.

For Mr. Soukup, the 2013 Bonus Plan provided that, for any quarter, Mr. Soukup became eligible for a payment of 50% of quarterly target at 85% attainment of the applicable quarterly bookings metric, with increasing payout eligibility, including overachievement, depending upon the level of attainment of the applicable quarterly bookings metric, with payment of 100% of the quarterly target at 100% attainment of the applicable quarterly bookings metric. Mr. Soukup was eligible for overachievement payments of up to 2.5% of quarterly target for every additional 1% of attainment above 100% of the applicable quarterly bookings metric. Overachievement for any quarter was not payable on the payment date for such quarter, but required that it first be used to offset any underachievement in the subsequent quarter. If after the payout determination for such subsequent quarter, there remained any overachievement from the prior quarter not used to offset any underachievement, then the remaining overachievement balance was applied toward the quarterly target for the quarter when achieved to determine the applicable overachievement payout.

The bonus payment as a percentage of the base salary at target of each of our named executive officers established by our Compensation Committee, are set forth in the following table:

					
 	 	% Base Salary at Target	 	
Mr. Seale	 	 	67	%	
Mr. Flake	 	 	50	%	
Mr. Furrer	 	 	28	%	
Mr. Soukup	 	 	56	%	

Each of our executive officers was also eligible to participate in an additional $200,000 discretionary bonus pool in the event that we achieved the target bookings, delivered revenue and gross margin metrics. Mr. Soukup was also eligible to receive an additional $40,000 incentive payment in the event that we achieved a specified stretch annual bookings target. Our Compensation Committee determined these additional bonus amounts had not been earned for 2013.

(4)
Consists of the employer's portion of premiums paid for medical, dental, vision, short-term disability, long term disability, life and accidental death and dismemberment insurance and health
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savings account contributions. We pay the full amount of premiums for Mr. Seale's medical, dental and other health benefits.
(5)
Compensation information provided for only fiscal 2013 because Messrs. Furrer and Soukup became executive officers during fiscal 2013.
Outstanding Equity Awards at December 31, 2013
        The following table sets forth information regarding outstanding option awards held by our named executive officers at December 31, 2013.

														
Name 	 	Number of
Shares
Underlying
Unexercised
Options
Exercisable(1)	 	Number of
Shares
Underlying
Unexercised
Options
Unexercisable(1)	 	Option
Exercise
Price	 	Option
Expiration
Date	 	
 R.H. "Hank" Seale, III	 	 	189,255	(2)	 	—	 	$	0.29	 	 	03/06/18	 	
	 	 	18,925	(3)	 	—	 	 	0.29	 	 	03/06/18	 	
	 	 	159,090	(4)	 	—	 	 	0.35	 	 	02/15/18	 	
	 	 	172,548	(5)	 	—	 	 	0.54	 	 	12/12/18	 	
Matthew P. Flake	 	 	85,165	(6)	 	—	 	 	0.29	 	 	03/06/18	 	
	 	 	2,181	(7)	 	—	 	 	0.29	 	 	03/06/18	 	
	 	 	67,130	(8)	 	—	 	 	0.35	 	 	02/15/18	 	
	 	 	132,548	(9)	 	—	 	 	0.54	 	 	05/05/20	 	
	 	 	48,750	(10)	 	3,250	(10)	 	0.84	 	 	12/06/21	 	
	 	 	100,000	(11)	 	100,000	(11)	 	3.10	 	 	12/07/21	 	
 William M. Furrer	 	 	—	 	 	80,000	(12)	 	7.48	 	 	05/08/20	 	
Stephen C. Soukup	 	 	8,750	(13)	 	21,250	(13)	 	6.57	 	 	11/07/19	 	
	 	 	—	 	 	40,000	(14)	 	7.48	 	 	05/08/20	 	
	 	 	—	 	 	30,000	(15)	 	7.82	 	 	11/21/20	 	

(1)
Shares of common stock.

(2)
This option was fully vested as of August 1, 2008 and is fully exercisable.

(3)
This option was fully vested as of December 22, 2010 and is fully exercisable.

(4)
This option grant was fully vested as of February 15, 2012 and is fully exercisable.

(5)
This option grant was fully vested as of December 12, 2012 and is fully exercisable.

(6)
This option grant was fully vested as of March 1, 2010 and is fully exercisable.

(7)
This option grant was fully vested as of March 1, 2010 and is fully exercisable.

(8)
This option grant was fully vested as of February 15, 2012 and is fully exercisable.

(9)
This option grant was fully vested as of December 12, 2012 and is fully exercisable.

(10)
This option grant vested as to 1/4 of the total option grant on March 1, 2011, and thereafter as to 1/48 of the total option grant monthly.

(11)
This option grant vested as to 1/4 of the total option grant on December 7, 2012, and thereafter as to 1/48 of the total option grant monthly.

(12)
This option grant vests as to 1/4 of the total option grant on February 1, 2014 and thereafter as to 1/48 of the total option grant monthly.
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(13)
This option grant vested as to 1/4 of the total option grant on October 9, 2013, and thereafter as to 1/48 of the total option grant monthly.

(14)
This option grant vests as to 1/4 of the total option grant on May 8, 2014, and thereafter as to 1/48 of the total option grant monthly.

(15)
This option grant vests as to 1/4 of the total option grant on November 21, 2014, and thereafter as to 1/48 of the total option grant monthly.
Agreements with Named Executive Officers
        Each of our named executive officers is subject to certain obligations relating to non-competition, non-solicitation, proprietary information and assignment of inventions. Pursuant to these obligations, each named executive officer has agreed (i) not to solicit our employees during employment and for a period of 12 months after the termination of employment, (ii) not to compete with us or assist any other person to compete with us during employment and for a period of 12 months after the termination of employment and (iii) to protect our confidential and proprietary information and to assign to us intellectual property developed during the course of employment.
Employment Agreements
        We entered into offer letters with each of William M. Furrer, our Senior Vice President of Product and Marketing, dated February 11, 2013 and Stephen C. Soukup, our Senior Vice President of Sales, dated September 21, 2012. These agreements provide for at-will employment and generally include the named executive officer's initial base salary, an indication of eligibility for an annual cash incentive award opportunity and equity awards. In addition, each of our named executive officers' option agreements provide for potential benefits due upon a termination of employment upon a change in control as described below under "—Change in Control Acceleration."
        We have entered into an employment agreement with Matthew P. Flake, our Chief Executive Officer and President, effective February 4, 2013. This employment agreement has no specific term and provides for at-will employment. Mr. Flake's current annual base salary is $300,000. Mr. Flake is also eligible to receive benefits that are substantially similar to the benefits received by our other employees. His employment agreement sets forth his maximum annual bonus, which is set at $150,000. Payment of any bonus to Mr. Flake is subject to approval by our board of directors.
        Pursuant to this agreement, in the event Mr. Flake is terminated for any reason (other than for cause), we will be obligated to continue paying him his then current monthly base salary for 12 months. The payment of this severance amount is contingent on Mr. Flake's (i) executing a mutual release of claims and (ii) continuing to protect our confidential and proprietary information.
        In the event Mr. Flake voluntarily terminates his employment with us for good reason, or is terminated without cause, in either case within 12 months following a change in control, or if an acquiring company does not assume or substitute for any options held by him, he will be entitled to acceleration of the vesting of all unvested stock options held by him at the time of termination.
        "Cause" is defined in his employment agreement as his: (i) acts or omissions constituting gross negligence, recklessness or willful misconduct, (ii) material breach of the employment agreement or of his non-competition, non-solicitation, confidentiality and intellectual property assignment obligations to us, (iii) conviction or entry of a plea of nolo contendere for fraud, misappropriation, or embezzlement or any felony or crime of moral turpitude, (iv) willful neglect of duties, (v) unsatisfactory performance as determined by the board of directors, (vi) failure to perform essential functions due to mental or physical disability or (vii) death.
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        "Good reason" is defined in his employment agreement as: (i) a material reduction in his title or position or an assignment to him of operational authority or duties which are materially inconsistent with his duties prior to the change in control, (ii) a material reduction in base compensation or (iii) required relocation to any place outside of a 50-mile radius of our current headquarters. Mr. Flake's agreement requires him to provide us with 30 days prior notice of any alleged event of good reason and give us 30 days to cure any such event.
        We anticipate entering into new employment agreements with our current named executive officers in connection with this offering.
Change in Control Acceleration
        Under our 2007 Plan, the stock option agreements applicable to our executive officers and certain other management-level employees provide that if any executive officer, within 12 months of a change of control, (i) is terminated without cause or (ii) resigns for good reason, or if the acquiring company does not assume or substitute for any options held by such executive officer, then all of the unvested stock options shall become immediately vested and exercisable in full. Good reason has the same definition in these stock option agreements as in Mr. Flake's employment agreement described above.
        "Cause" is defined in the option agreement as an optionee's: (i) theft, dishonesty, or falsification of our documents or records, (ii) improper use or disclosure of our confidential or proprietary information, (iii) any action which has a material detrimental effect on our reputation or business, (iv) the failure or inability to perform any reasonable assigned duties after written notice from us of, and a reasonable opportunity to cure, such failure or inability, (v) any material breach of any employment agreement with us, which breach is not cured pursuant to the terms of such agreement or (vi) the conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the participant's ability to perform his or her duties with us.
Limitations of Liability; Indemnification of Directors and Officers
        Section 145 of the Delaware General Corporation Law, or Delaware law, authorizes a corporation's board of directors to grant, and authorizes a court to award, indemnity to officers, directors and other corporate agents. As permitted by Delaware law, our amended and restated certificate of incorporation to be effective immediately prior to the completion of this offering provides that, to the fullest extent permitted by Delaware law, no director will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. Pursuant to Delaware law such protection would be not available for liability:
•
for any breach of a duty of loyalty to us or our stockholders; 

•
for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; 

•
for any transaction from which the director derived an improper benefit; or 

•
for an act or omission for which the liability of a director is expressly provided by an applicable statute, including unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware law.
        Our amended and restated certificate of incorporation to be effective immediately prior to the completion of this offering also provides that if Delaware law is amended after the approval by our stockholders of the amended and restated certificate of incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law.
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        Our amended and restated certificate of incorporation and amended and restated bylaws to be effective immediately prior to the completion of this offering further provide that we must indemnify our directors and officers to the fullest extent permitted by Delaware law. Our amended and restated bylaws also authorize us to indemnify any of our employees or agents and authorize us to secure insurance on behalf of any officer, director, employee or agent for any liability arising out of his or her action in that capacity, whether or not Delaware law would otherwise permit indemnification.
        In addition, our amended and restated bylaws to be effective immediately prior to the completion of this offering provide that we are required to advance expenses to our directors and officers as incurred in connection with legal proceedings against them for which they may be indemnified and that the rights conferred in the amended and restated bylaws are not exclusive.
        The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and bylaws to be effective immediately prior to the completion of this offering may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.
        We have also entered into indemnity agreements with each of our directors and executive officers. These agreements, among other things, require us to indemnify each director and officer to the fullest extent permitted by Delaware law and our amended and restated certificate of incorporation and bylaws to be effective immediately prior to the completion of this offering for expenses such as, among other things, attorneys' fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action by or in our right, arising out of the person's services as our director or executive officer or as the director or executive officer of any subsidiary of ours or any other company or enterprise to which the person provides services at our request. We also maintain directors' and officers' liability insurance.
        At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in material claims for indemnification. We believe that our indemnity agreements and our amended and restated certificate of incorporation and bylaw provisions to be effective immediately prior to the completion of this offering are necessary to attract and retain qualified persons as directors and executive officers.
Benefit Plans
2007 Stock Plan
        Our 2007 Stock Plan, as amended, or 2007 Plan, was adopted by our board of directors and approved by our stockholders on July 27, 2007. Our 2007 Plan provides for the grant of incentive stock options, nonstatutory stock options and stock purchase rights to our employees, directors and consultants who provide services to us. As of September 30, 2013, options to purchase 5,361,390 shares of common stock were outstanding and 336,708 shares of common stock were reserved for future grant under this plan. As of September 30, 2013, no awards have been granted under the 2007 Plan other than incentive stock options and nonqualified stock options.
        We will not grant any additional awards under our 2007 Plan following this offering. Instead, we will grant equity awards under our 2014 Equity Incentive Plan. However, our 2007 Plan will continue to govern the terms and conditions of all outstanding equity awards granted under the 2007 Plan.
        Our standard form of option agreement under the 2007 Plan provides that options will vest 25% on the first anniversary of the vesting commencement date with the remainder vesting ratably over the
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next 36 months, subject to continued service through each applicable date. Under our 2007 Plan, our board of directors, or its designated committee, has the authority to grant options with early exercise rights and to provide for accelerated vesting. Our standard form of option agreement provides that in the event of a change in control, if the options are (i) not assumed or continued by the successor corporation, (ii) not exercised by the holder prior to the transaction or (iii) not cashed out at the time of the transaction, then the options will vest in full effective as of the time of the change in control. In addition, our standard form of option agreement provides that if a participant, within 12 months of a change of control, (i) is terminated without cause or (ii) resigns for good reason, or if the acquiring company does not assume or substitute for any options held by such participant, then all of then unvested stock options shall become immediately vested and exercisable in full. Stock options granted prior to August 8, 2012 had a maximum term of 10 years. Options granted on August 8, 2012 and later have a maximum term of seven years.
        For purposes of the standard form of stock option agreement, the following definitions apply:
        "Cause" is defined in the option agreement as: (i) theft, dishonesty, or falsification of our documents or records, (ii) improper use or disclosure of our confidential or proprietary information, (iii) any action which has a material detrimental effect on our reputation or business, (iv) the failure or inability to perform any reasonable assigned duties after written notice from us of, and a reasonable opportunity to cure, such failure or inability, (v) any material breach of any employment agreement with us, which breach is not cured pursuant to the terms of such agreement or (vi) the conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the participant's ability to perform his or her duties with us.
        "Good reason" is defined in the option agreement (i) any failure to pay, or any material reduction of, base salary and (ii) any failure to (a) continue to provide the opportunity to participate, on terms no less favorable than those in effect, in any benefit or compensation plan in effect prior to the change in control or (b) provide all other fringe benefits then held.
        Our 2007 Plan provides that our board of directors, or its designated committee, may equitably and proportionally adjust or substitute outstanding options upon certain events, including, without limitation, changes in our capitalization through stock splits, recapitalizations, mergers or consolidations. The standard form of option agreement under our 2007 Plan provides that the participants will not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of our stock or any rights to acquire our stock for 180 days following this offering.
2014 Equity Incentive Plan
        Our 2014 Equity Incentive Plan, or 2014 Plan, was approved by our board of directors and our stockholders in                    , 2014. It is intended to make available incentives that will assist us to attract, retain and motivate employees (including officers), consultants and directors. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units and other cash-based or stock-based awards.
        A total of             shares of our common stock was initially authorized and reserved for issuance under the 2014 Plan. This reserve will automatically increase on January 1, 2015 and each subsequent anniversary through 2024, by an amount equal to the smaller of (a)         % of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our board of directors. This reserve will be increased to include any shares remaining available under our 2007 Plan at the time of its termination or issuable upon exercise of options granted under our 2007 Plan that expire or terminate without having been exercised in full.
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        Appropriate adjustments will be made in the number of authorized shares and other numerical limits in the 2014 Plan and in outstanding awards to prevent dilution or enlargement of participants' rights in the event of a stock split or other change in our capital structure. Shares subject to awards which expire or are cancelled or forfeited will again become available for issuance under the 2014 Plan. The shares available will not be reduced by awards settled in cash or by shares withheld to satisfy tax withholding obligations and the net number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under the 2014 Plan.
        The 2014 Plan is generally administered by our Compensation Committee. Subject to the provisions of the 2014 Plan, our Compensation Committee determines in its discretion the persons to whom and the times at which awards are granted, the sizes of such awards and all of their terms and conditions. Our Compensation Committee has the authority to construe and interpret the terms of the 2014 Plan and awards granted under it. The 2014 Plan provides, subject to certain limitations, for indemnification by us of any director, officer or employee against all judgments, amounts paid in settlement and reasonable expenses, including attorneys' fees, incurred in connection with any legal action arising from such person's action or failure to act in administering the 2014 Plan.
        The 2014 Plan authorizes our Compensation Committee, without further stockholder approval, to provide for the cancellation of stock options or stock appreciation rights with exercise prices in excess of the fair market value of the underlying shares of common stock in exchange for new options or other equity awards with exercise prices equal to the fair market value of the underlying common stock or a cash payment.
        Awards may be granted under the 2014 Plan to our employees (including officers), directors or consultants, or those of any present or future parent or subsidiary corporation or other affiliated entity. All awards will be evidenced by a written agreement between us and the holder of the award and may include any of the following:
•
Stock Options.   We may grant nonstatutory stock options or incentive stock options (as described in Section 422 of the Internal Revenue Code), each of which gives its holder the right, during a specified term (not exceeding 10 years) and subject to any specified vesting or other conditions, to purchase a number of shares of our common stock at an exercise price per share determined by the administrator, which may not be less than the fair market value of a share of our common stock on the date of grant. 

•
Stock Appreciation Rights.   A stock appreciation right gives its holder the right, during a specified term (not exceeding 10 years) and subject to any specified vesting or other conditions, to receive the appreciation in the fair market value of our common stock between the date of grant of the award and the date of its exercise. We may pay the appreciation in shares of our common stock or in cash, except that a stock appreciation right granted in tandem with a related option is payable only in stock. 

•
Restricted Stock.   We may grant restricted stock awards either as a bonus or as a purchase right at such price as the administrator determines. Shares of restricted stock remain subject to forfeiture until vested, based on such terms and conditions as the administrator specifies. Holders of restricted stock will have the right to vote the shares and to receive any dividends paid, except that the dividends may be subject to the same vesting conditions as the related shares. 

•
Restricted Stock Units.   Restricted stock units represent rights to receive shares of our common stock (or their value in cash) at a future date without payment of a purchase price (unless required under applicable state corporate laws), subject to vesting or other conditions specified by the administrator. Holders of restricted stock units have no voting rights or rights to receive
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cash dividends unless and until shares of common stock are issued in settlement of such awards. However, the administrator may grant restricted stock units that entitle their holders to dividend equivalent rights.
•
Performance Shares and Performance Units.   Performance shares and performance units are awards that will result in a payment to their holder only if specified performance goals are achieved during a specified performance period. Performance share awards are rights denominated in shares of our common stock, while performance unit awards are rights denominated in dollars. The administrator may establish the applicable performance goals based on one or more measures of business performance enumerated in the 2014 Plan, such as net revenues, gross margin, net income or total stockholder return. To the extent earned, performance share and unit awards may be settled in cash or in shares of our common stock. Holders of performance shares or performance units have no voting rights or rights to receive cash dividends unless and until shares of common stock are issued in settlement of such awards. However, the administrator may grant performance shares that entitle their holders to dividend equivalent rights. 

•
Cash-Based Awards and Other Stock-Based Awards.   The administrator may grant cash-based awards that specify a monetary payment or range of payments or other stock-based awards that specify a number or range of shares or units that, in either case, are subject to vesting or other conditions specified by the administrator. Settlement of these awards may be in cash or shares of our common stock, as determined by the administrator. Their holder will have no voting rights or right to receive cash dividends unless and until shares of our common stock are issued pursuant to the award. The administrator may grant dividend equivalent rights with respect to other stock-based awards.
        In the event of a change in control as described in the 2014 Plan, the acquiring or successor entity may assume or continue all or any awards outstanding under the 2014 Plan or substitute substantially equivalent awards. Any awards which are not assumed or continued in connection with a change in control or are not exercised or settled prior to the change in control will terminate effective as of the time of the change in control. Our Compensation Committee may provide for the acceleration of vesting of any or all outstanding awards upon such terms and to such extent as it determines, except that the vesting of all awards held by members of the board of directors who are not employees will automatically be accelerated in full. The 2014 Plan will also authorize our Compensation Committee, in its discretion and without the consent of any participant, to cancel each or any outstanding award denominated in shares upon a change in control in exchange for a payment to the participant with respect to each share subject to the cancelled award of an amount equal to the excess of the consideration to be paid per share of common stock in the change in control transaction over the exercise price per share, if any, under the award.
        The 2014 Plan will continue in effect until it is terminated by the administrator, provided, however, that all awards will be granted, if at all, within 10 years of its effective date. The administrator may amend, suspend or terminate the 2014 Plan at any time, provided that without stockholder approval, the plan cannot be amended to increase the number of shares authorized, change the class of persons eligible to receive incentive stock options, or effect any other change that would require stockholder approval under any applicable law or listing rule.
2014 Employee Stock Purchase Plan
        In            , our board of directors adopted and our stockholders approved our 2014 Employee Stock Purchase Plan, or ESPP, which our board has discretion to implement at any time after the completion of this offering.
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        A total of             shares of our common stock are available for sale under our ESPP. In addition, our ESPP provides for annual increases in the number of shares available for issuance under the ESPP on January 1, 2015 and each subsequent anniversary through 2024, equal to the smallest of:
•
shares; 

•
% of the issued and outstanding shares of our common stock on the immediately preceding December 31; or 

•
such other amount as may be determined by our board of directors.
        Appropriate adjustments will be made in the number of authorized shares and in outstanding purchase rights to prevent dilution or enlargement of participants' rights in the event of a stock split or other change in our capital structure. Shares subject to purchase rights which expire or are cancelled will again become available for issuance under the ESPP.
        Our Compensation Committee will administer the ESPP and have full authority to interpret the terms of the ESPP. The ESPP provides, subject to certain limitations, for indemnification by us of any director, officer or employee against all judgments, amounts paid in settlement and reasonable expenses, including attorneys' fees, incurred in connection with any legal action arising from such person's action or failure to act in administering the ESPP.
        All of our employees, including our named executive officers, are eligible to participate if they are customarily employed by us for more than 20 hours per week and more than five months in any calendar year. However, an employee may not be granted rights to purchase stock under our ESPP if such employee:
•
immediately after the grant would own stock or options to purchase stock possessing 5.0% or more of the total combined voting power or value of all classes of our capital stock; or 

•
holds rights to purchase stock under all of our employee stock purchase plans that would accrue at a rate that exceeds $25,000 worth of our stock for each calendar year in which the right to be granted would be outstanding at any time.
        Our ESPP is intended to qualify under Section 423 of the Internal Revenue Code. The ESPP will typically be implemented through consecutive            offering periods, generally starting on the first trading day on or after        and        of each year, except for the first such offering period, which will commence on a date to be determined by the administrator. The administrator may, in its discretion, modify the terms of future offering periods, including establishing offering periods of up to           months and providing for multiple purchase dates.
        Our ESPP permits participants to purchase common stock through payroll deductions of up to        % of their eligible cash compensation, which includes a participant's regular base wages or salary and payments of overtime, shift premiums and paid time off before deduction of taxes and certain compensation deferrals.
        Amounts deducted and accumulated from participant compensation are used to purchase shares of our common stock at the end of each offering period. Unless otherwise provided by the administrator, the purchase price of the shares will be 85.0% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the purchase date. Participants may end their participation at any time during an offering period and will receive a refund of their account balances not yet used to purchase shares. Participation ends automatically upon termination of employment with us.
        Prior to the beginning of any offering period, the administrator may alter the maximum number of shares that may be purchased by any participant during the offering period or specify a maximum aggregate number of shares that may be purchased by all participants in the offering period. If
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insufficient shares remain available under the plan to permit all participants to purchase the number of shares to which they would otherwise be entitled, the administrator will make a pro rata allocation of the available shares. Any amounts withheld from participants' compensation in excess of the amounts used to purchase shares will be refunded, without interest.
        A participant may not transfer rights granted under the ESPP other than by will, the laws of descent and distribution or as otherwise provided under the ESPP. In the event of a change in control, an acquiring or successor corporation may assume our rights and obligations under outstanding purchase rights or substitute substantially equivalent purchase rights. If the acquiring or successor corporation does not assume or substitute for outstanding purchase rights, then the purchase date of the offering periods then in progress will be accelerated to a date prior to the change in control. Our ESPP will continue in effect until terminated by the administrator. Our Compensation Committee has the authority to amend, suspend or terminate our ESPP at any time.
401(k)
        We have established a tax-qualified employee savings and retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age and length of service. Under our 401(k) plan, employees may elect to reduce their current compensation by up to the statutory limit, $17,000 in 2012 and $17,500 in 2013, and have us contribute the amount of this reduction to our 401(k) plan. We intend for our 401(k) plan to qualify under Section 401 of the Code so that contributions by employees or by us to our 401(k) plan and income earned on plan contributions are not taxable to employees until withdrawn from our 401(k) plan. We do not match employee contributions under our 401(k) plan. We may in the future choose to make matching contributions or additional contributions to our 401(k) plan in amounts determined annually.
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 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
        Since January 1, 2011, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described where required in the section titled "Management" and the transactions described below.
2011 Series B Preferred Stock Financing
        On December 29, 2011, we sold an aggregate of 1,818,182 shares of our Series B preferred stock at a purchase price of $6.05 per share for an aggregate purchase price of $11.0 million, all of which shares were sold to entities affiliated with certain members of our board of directors or holders of more than 5% of any class of our voting securities. The table below summarizes these sales:

								
Purchaser 	 	Shares of
Series B Preferred
Stock Purchased	 	Aggregate
Purchase Price	 	
Entities affiliated with Adams Street Partners, LLC(1)	 	 	1,655,628	 	$	10,016,549	 	
Entities affiliated with C&B Capital(2)	 	 	92,236	 	 	558,028	 	
Johnston 2007 Exempt Trust(3)	 	 	51,313	 	 	310,444	 	
Texas Independent Bancshares, Inc.(4)	 	 	19,005	 	 	114,980	 	
 	 	 	 	 	 	
Total	 	 	1,818,182	 	$	11,000,001	 	

(1)
Consists of 231,030 shares purchased by Adams Street 2006 Direct Fund, L.P., 260,896 shares purchased by Adams Street 2007 Direct Fund, L.P., 423,012 shares purchased by Adams Street 2008 Direct Fund, L.P., 365,876 shares purchased by Adams Street 2009 Direct Fund, L.P., 207,837 shares purchased by Adams Street 2010 Direct Fund, L.P. and 166,977 shares purchased by Adams Street 2011 Direct Fund LP. Entities affiliated with Adams Street Partners, LLC are collectively holders of more than 5.0% of a class of our voting securities. Jeffrey T. Diehl, a partner of Adams Street Partners, LLC, is a member of our board of directors.

(2)
Consists of 50,658 shares purchased by C&B Capital II, L.P. and 41,578 shares purchased by C&B Capital II (PF), L.P. Entities affiliated with C&B Capital are holders of more than 5.0% of a class of our voting securities.

(3)
Johnston 2007 Exempt Trust is a holder of more than 5.0% of a class of our voting securities.

(4)
The chairman of the board of directors of Texas Independent Bancshares, Inc. is Charles T. Doyle, a member of our board of directors.
2011 Private Placement
        On December 29, 2011, certain of our existing stockholders, including entities affiliated with certain members of our board of directors or holders of more than 5% of any class of our voting securities, acquired an aggregate of 625,486 shares of our Series A preferred stock from RHS
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Investments-I, L.P., an entity affiliated with R.H. "Hank" Seale, III, the Executive Chairman of our board of directors, at a purchase price of $6.05 per share. The table below summarizes these sales:

								
Purchaser 	 	Shares of
Series A Preferred
Stock Purchased	 	Aggregate
Purchase Price	 	
Entities affiliated with Adams Street Partners, LLC(1)	 	 	569,566	 	$	3,445,874	 	
Entities affiliated with C&B Capital(2)	 	 	31,730	 	 	191,967	 	
Johnston 2007 Exempt Trust(3)	 	 	17,653	 	 	106,801	 	
Texas Independent Bancshares, Inc.(4)	 	 	6,537	 	 	39,549	 	
 	 	 	 	 	 	
Total	 	 	625,486	 	$	3,784,191	 	

(1)
Consists of 79,478 shares purchased by Adams Street 2006 Direct Fund, L.P., 89,573 shares purchased by Adams Street 2007 Direct Fund, L.P., 145,524 shares purchased by Adams Street 2008 Direct Fund, L.P., 125,868 shares purchased by Adams Street 2009 Direct Fund, L.P., 71,500 shares purchased by Adams Street 2010 Direct Fund, L.P. and 57,443 shares purchased by Adams Street 2011 Direct Fund LP. Entities affiliated with Adams Street Partners, LLC are collectively holders of more than 5.0% of a class of our voting securities. Jeffrey T. Diehl, a partner of Adams Street Partners, LLC, is a member of our board of directors.

(2)
Consists of 17,426 shares purchased by C&B Capital II, L.P. and 14,304 shares purchased by C&B Capital II (PF), L.P. Entities affiliated with C&B Capital are holders of more than 5.0% of a class of our voting securities.

(3)
Johnston 2007 Exempt Trust is a holder of more than 5.0% of a class of our voting securities.

(4)
The chairman of the board of directors of Texas Independent Bancshares, Inc. is Charles T. Doyle, a member of our board of directors.
cbanc Network, Incorporated
        In March 2013, we conducted a spin-off of our former subsidiary, cbanc Network, Incorporated, or cbanc, to our stockholders at that time. The spin-off was conducted as a dividend of all of the outstanding capital stock of CBG Holdings, Inc., a newly formed holding company of cbanc, to our stockholders and, as a result, we no longer own any capital stock of cbanc. The aggregate value of cbanc at the time of the spin-off was deemed by our board of directors to be approximately $4.0 million based in part on the valuation of an independent appraisal firm.
        Also, in connection with the spin-off, we entered into a transition services agreement to provide operating services to CBG Holdings, Inc., generally consisting of accounting, finance, human resources and IT support for a period of 6 months. Immediately following the spin-off, R.H. "Hank" Seale, III, our Executive Chairman, became a director of CBG Holdings, Inc. and served as its Chief Executive Officer until December 2013.
2013 Series C Preferred Stock Financing
        On March 1, 2013, we sold an aggregate of 2,605,094 shares of our Series C preferred stock at a purchase price of $7.68 per share for an aggregate purchase price of $20.0 million, all of which shares were sold to members of our board of directors, entities affiliated with certain members of our board
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of directors or holders of more than 5% of any class of our voting securities. The table below summarizes these sales:

								
Purchaser 	 	Shares of
Series C Preferred
Stock Purchased	 	Aggregate
Purchase Price	 	
Entities affiliated with Adams Street Partners, LLC(1)	 	 	521,020	 	$	4,001,434	 	
Entities affiliated with Battery Ventures(2)	 	 	2,026,183	 	 	15,561,085	 	
Entities affiliated with C&B Capital(3)	 	 	28,945	 	 	222,298	 	
James R. Offerdahl(4)	 	 	5,789	 	 	44,460	 	
Texas Independent Bancshares, Inc.(5)	 	 	20,262	 	 	155,612	 	
Michael J. Maples, Sr.(6)	 	 	2,895	 	 	22,234	 	
 	 	 	 	 	 	
Total	 	 	2,605,094	 	$	20,007,123	 	

(1)
Consists of 27,188 shares purchased by Adams Street 2006 Direct Fund, L.P., 30,703 shares purchased by Adams Street 2007 Direct Fund, L.P., 168,350 shares purchased by Adams Street 2008 Direct Fund, L.P., 145,611 shares purchased by Adams Street 2009 Direct Fund, L.P., 82,715 shares purchased by Adams Street 2010 Direct Fund, L.P. and 66,453 shares purchased by Adams Street 2011 Direct Fund LP. Entities affiliated with Adams Street Partners, LLC are collectively holders of more than 5.0% of a class of our voting securities. Jeffrey T. Diehl, a partner of Adams Street Partners, LLC, is a member of our board of directors.

(2)
Consists of 2,006,124 shares purchased by Battery Ventures IX, L.P. and 20,059 shares purchased by Battery Investment Partners IX, LLC. Entities affiliated with Battery Ventures are holders of more than 5.0% of a class of our voting securities. Michael M. Brown, an affiliate of Battery Ventures, is a member of our board of directors.

(3)
Consists of 15,897 shares purchased by C&B Capital II, L.P. and 13,048 shares purchased by C&B Capital II (PF), L.P. Entities affiliated with C&B Capital are holders of more than 5.0% of a class of our voting securities.

(4)
James R. Offerdahl is a member of our board of directors.

(5)
The chairman of the board of directors of Texas Independent Bancshares, Inc. is Charles T. Doyle, a member of our board of directors.

(6)
Michael J. Maples, Sr. is a member of our board of directors.
2013 Private Placements
        On March 1, 2013 and April 22, 2013, certain of our existing stockholders, including members of our board of directors, entities affiliated with certain members of our board of directors or holders of more than 5% of any class of our voting securities, acquired an aggregate of 3,582,000 shares of our common stock from RHS Investments-I, L.P., an entity affiliated with R.H. "Hank" Seale, III, the Executive Chairman of our board of directors, Matthew P. Flake, our president and chief executive
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officer, Adam D. Anderson, our executive vice president and chief technology officer, and certain other minority stockholders, at a purchase price of $6.98 per share. The table below summarizes these sales:

								
Purchaser 	 	Shares of
Common Stock
Purchased	 	Aggregate
Purchase Price	 	
Entities affiliated with Adams Street Partners, LLC(1)	 	 	716,400	 	$	5,000,472	 	
Entities affiliated with Battery Ventures(2)	 	 	2,786,000	 	 	19,446,280	 	
Entities affiliated with C&B Capital(3)	 	 	39,800	 	 	277,804	 	
James R. Offerdahl(4)	 	 	7,960	 	 	55,561	 	
Texas Independent Bancshares, Inc.(5)	 	 	27,860	 	 	194,463	 	
Michael J. Maples, Sr.(6)	 	 	3,980	 	 	27,780	 	
 	 	 	 	 	 	
Total	 	 	3,582,000	 	$	25,002,360	 	

(1)
Consists of 37,383 shares purchased by Adams Street 2006 Direct Fund, L.P., 42,217 shares purchased by Adams Street 2007 Direct Fund, L.P., 231,480 shares purchased by Adams Street 2008 Direct Fund, L.P., 200 shares purchased by Adams Street 2009 Direct Fund, L.P., 113,733 shares purchased by Adams Street 2010 Direct Fund, L.P. and 91,373 shares purchased by Adams Street 2011 Direct Fund LP. Entities affiliated with Adams Street Partners, LLC are collectively holders of more than 5.0% of a class of our voting securities. Jeffrey T. Diehl, a partner of Adams Street Partners, LLC, is a member of our board of directors.

(2)
Consists of 2,758,419 shares purchased by Battery Ventures IX, L.P. and 27,581 shares purchased by Battery Investment Partners IX, LLC. Entities affiliated with Battery Ventures are holders of more than 5.0% of a class of our voting securities. Michael M. Brown, an affiliate of Battery Ventures, is a member of our board of directors.

(3)
Consists of 21,589 shares purchased by C&B Capital II, L.P. and 17,941 shares purchased by C&B Capital II (PF), L.P. Entities affiliated with C&B Capital are holders of more than 5.0% of a class of our voting securities.

(4)
James R. Offerdahl is a member of our board of directors.

(5)
The chairman of the board of directors of Texas Independent Bancshares, Inc. is Charles T. Doyle, a member of our board of directors.

(6)
Michael J. Maples, Sr. is a member of our board of directors.
        On May 7, 2013, certain of our existing stockholders, including funds affiliated with Adams Street Partners, LLC (of which Jeffrey T. Diehl, one of our directors, is a partner) acquired an aggregate of (i) 247,221 shares of our common stock from certain minority stockholders, (ii) 53,919 shares of our junior preferred stock from certain minority stockholders and 16,708 shares of junior preferred stock held by David H. Johnston, a holder of more than 5.0% of our junior preferred stock, and (iii) 220,000 shares of our Series A preferred stock from certain minority stockholders, at a purchase
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price of $6.98 per share for each of the common stock, junior preferred stock and Series A preferred stock. The table below summarizes these sales:

								
Type of Shares 	 	Number of Shares
Purchased by Entities
affiliated with Adams Street
Partners	 	Aggregate
Purchase Price	 	
Common Stock(1)	 	 	247,221	 	$	1,725,603	 	
Junior Preferred Stock(2)	 	 	70,627	 	 	492,976	 	
Series A Preferred Stock(3)	 	 	220,000	 	 	1,535,600	 	
 	 	 	 	 	 	
Total	 	 	537,848	 	$	3,754,179	 	

(1)
Consists of 89,866 shares purchased by Adams Street 2008 Direct Fund, L.P., 77,728 shares purchased by Adams Street 2009 Direct Fund, L.P., 44,154 shares purchased by Adams Street 2010 Direct Fund, L.P. and 35,473 shares purchased by Adams Street 2011 Direct Fund LP. Entities affiliated with Adams Street Partners, LLC are collectively holders of more than 5.0% of a class of our voting securities. Jeffrey T. Diehl, a partner of Adams Street Partners, LLC, is a member of our board of directors.

(2)
Consists of 25,673 shares purchased by Adams Street 2008 Direct Fund, L.P., 22,206 shares purchased by Adams Street 2009 Direct Fund, L.P., 12,614 shares purchased by Adams Street 2010 Direct Fund, L.P. and 10,134 shares purchased by Adams Street 2011 Direct Fund LP. Entities affiliated with Adams Street Partners, LLC are collectively holders of more than 5.0% of a class of our voting securities. Jeffrey T. Diehl, a partner of Adams Street Partners, LLC, is a member of our board of directors.

(3)
Consists of 79,972 shares purchased by Adams Street 2008 Direct Fund, L.P., 69,169 shares purchased by Adams Street 2009 Direct Fund, L.P., 39,292 shares purchased by Adams Street 2010 Direct Fund, L.P. and 31,567 shares purchased by Adams Street 2011 Direct Fund LP. Entities affiliated with Adams Street Partners, LLC are collectively holders of more than 5.0% of a class of our voting securities. Jeffrey T. Diehl, a partner of Adams Street Partners, LLC, is a member of our board of directors.
Option Exercises
        Since January 1, 2011, the following executive officers, directors and holders of more than 5% of any class of our voting securities exercised options held by them:

													
Exercise Date 	 	Optionee	 	Exercise Price	 	Number of Options
Shares Exercised	 	Shares of
Common Stock
Issued	 	
2/18/2013	 	James R. Offerdahl	 	$	4.00	 	 	13,875	 	 	13,875	 	
2/18/2013	 	James R. Offerdahl	 	$	1.74	 	 	6,250	 	 	6,250	 	
2/22/2013	 	Adam D. Anderson	 	$	0.35	 	 	42,211	 	 	42,211	 	
2/22/2013	 	Adam D. Anderson	 	$	0.29	 	 	41,636	 	 	41,636	 	
11/18/2013	 	James D. Offerdahl	 	$	4.00	 	 	10,406	 	 	10,406	 	
11/18/2013	 	James D. Offerdahl	 	$	1.74	 	 	2,604	 	 	2,604	 	
2/5/2014	 	Matthew P. Flake	 	$	0.84	 	 	50,916	 	 	50,916	 	
2/5/2014	 	Matthew P. Flake	 	$	0.54	 	 	132,548	 	 	132,548	 	
2/5/2014	 	Matthew P. Flake	 	$	0.35	 	 	67,130	 	 	67,130	 	
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Amended and Restated Investors' Rights Agreements
        In connection with our Series B preferred stock financing, we entered into an amended and restated investors' rights agreement with certain of our stockholders, including R.H. "Hank" Seale, III and Matthew P. Flake, each a member of our board of directors, and entities affiliated with Adams Street Partners, LLC and C&B Capital, David H. Johnston, Texas Independent Bancshares, Inc. and RHS Investments-I, L.P., an entity controlled by our Executive Chairman. The agreement was then amended and restated in connection with our Series C preferred stock financing, and entities affiliated with Battery Ventures and James R. Offerdahl and Michael J. Maples, Sr., each a member of our board of directors, became additional parties to this amended and restated agreement. The third amended and restated investors' rights agreement, among other things:
•
grants the stockholders who are party to this agreement certain registration rights with respect to shares of our common stock, including shares of common stock issued or issuable upon conversion of our preferred stock. 

•
obligates us to deliver periodic financial statements to any holder of our Series A, Series B or Series C preferred stock who holds at least 1,500,000 shares of our registrable securities, or C&B Capital, so long as it holds at least 700,000 shares of our registrable securities, each of which we refer to as a "major investor;" and 

•
grants a right of first offer with respect to sales of our shares by us, subject to specified exclusions (which exclusions include the sale of the shares in connection with this offering), to R.H. "Hank" Seale, III, our Executive Chairman, and major investors.
        For more information regarding the registration rights provided in this agreement, please refer to the section titled "Description of Capital Stock—Registration Rights." Our obligation to deliver financial statements and the right of first offer described above will terminate upon completion of this offering.
Right of First Refusal and Co-Sale Agreement
        In connection with our Series B preferred stock financing, we entered into an amended and restated right of first refusal and co-sale agreement with certain of our stockholders, including R.H. "Hank" Seale, III and Matthew P. Flake, each a member of our board of directors, and entities affiliated with Adams Street Partners, LLC and C&B Capital, David H. Johnston, Texas Independent Bancshares, Inc. and RHS Investments-I, L.P., an entity controlled by our Executive Chairman. The agreement was then amended and restated in connection with our Series C preferred stock financing, and entities affiliated with Battery Ventures and James R. Offerdahl and Michael J. Maples, Sr., each a member of our board of directors, became additional parties to this amended and restated agreement. The second amended and restated right of first refusal and co-sale agreement, among other things:
•
grants the stockholders who are party to this agreement certain rights of first refusal and co-sale and put rights with respect to proposed transfers of our securities by RHS Investments-I, L.P. and certain other stockholders who may become subject to this agreement from time to time; 

•
grants us certain rights of first refusal with respect to proposed transfers of our securities by RHS Investments-I, L.P. and certain other stockholders who may become subject to this agreement from time to time; and 

•
includes an agreement by RHS Investments-I, L.P. and certain other stockholders, who may become subject to this agreement from time to time, to not sell or transfer their shares of our capital stock for 180 days following the effective date of our registration statement.
        This agreement will terminate automatically upon completion of this offering.
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Voting Agreement
        In connection with our Series B preferred stock financing, we entered into an amended and restated voting agreement with certain of our stockholders, including R.H. "Hank" Seale, III and Matthew P. Flake, each a member of our board of directors, and entities affiliated with Adams Street Partners, LLC and C&B Capital, David H. Johnston, Texas Independent Bancshares, Inc. and RHS Investments-I, L.P., an entity controlled by our Executive Chairman. The agreement was then amended and restated in connection with our Series C preferred stock financing, and entities affiliated with Battery Ventures, James R. Offerdahl and Michael J. Maples, Sr., each a member of our board of directors, became additional parties to this amended and restated agreement. The second amended and restated voting agreement, among other things:
•
provides for the voting of shares with respect to the constituency and size of the board of directors; 

•
provides for the designation of our directors by certain of our stockholders; 

•
provides for the voting of shares with respect to the increase in the authorized capital stock, if needed to accommodate the conversion of preferred stock into common stock; and 

•
provides for the voting of shares with respect to certain transactions approved by a majority of the holders of our outstanding preferred stock.
        This agreement will terminate upon completion of this offering. Each of Messrs. Brown, Diehl, Doyle, Flake, Maples, Offerdahl, Schaper and Seale was elected to our board of directors according to the provisions of this agreement. Notwithstanding the termination of this agreement, each of these directors will continue to serve on our board of directors until the election and qualification of his successor or his earlier death, resignation or removal.
Employment Agreements
        See "Executive Compensation—Agreements with Named Executive Officers—Employment Agreements" for information on compensation and employment arrangements with our named executive officers.
Indemnification of Officers and Directors
        Immediately prior to the completion of this offering, our amended and restated bylaws will provide that we will indemnify each of our directors and officers to the fullest extent permitted by the Delaware law. Further, we intend to enter into indemnification agreements with each of our directors and officers. These agreements provide for the indemnification of our directors and officers for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were our agents. We believe that these indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors' and officers' liability insurance. For further information, see "Executive Compensation—Limitations of Liability; Indemnification of Directors and Officers."
Registration Rights
        For more information regarding these agreements, see "Description of Capital Stock—Registration Rights." This section does not contain a complete description of the registration rights contained in our third amended and restated investors' rights agreement and is qualified by the full text of our third amended and restated investors' rights agreement filed as an exhibit to the registration statement of which this prospectus is a part.
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Other Related Party Transactions
        Charles T. Doyle, a member of our board of directors, is the chairman of the board of directors and a shareholder of Texas First Bank, a current customer of the Company. Our revenues from Texas First Bank were approximately $194,000, $200,900 and $280,160 in 2010, 2011 and 2012, respectively.
Policies and Procedures for Related Party Transactions
        As provided by our Financial Audit Committee charter, our Financial Audit Committee must review and approve in advance any related party transaction. Pursuant to our Related Party Transactions Policy to be effective upon the consummation of the offering, all of our directors, officers and employees are required to report to our Corporate Secretary for review by our Financial Audit Committee any such related party transaction prior to its completion. Each of the related party transactions described above that was submitted to our board of directors was approved by disinterested members of our board of directors after disclosure of the interest of the related party in the transaction.
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 PRINCIPAL AND SELLING STOCKHOLDERS
        The following table and footnotes set forth information with respect to the beneficial ownership of our common stock as of January 15, 2014, subject to certain assumptions set forth in the footnote and as adjusted to reflect the sale of the shares of common stock offered in the public offering under this prospectus for:
•
each stockholder, or group of affiliated stockholders, who we know beneficially owns more than 5% of the outstanding shares of our common stock; 

•
each of our named executive officers; 

•
each of our current directors; 

•
all of our current directors and current executive officers as a group; and 

•
each of the selling stockholders.
        Beneficial ownership of shares is determined under the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as indicated by footnote, and subject to applicable community property laws, we believe each person identified in the table possesses sole voting and investment power with respect to all shares of common stock beneficially owned by them, except for those jointly owned with that person's spouse. Shares of common stock subject to options currently exercisable or exercisable within 60 days of December 10, 2013, are deemed to be outstanding for calculating the number and percentage of outstanding shares of the person holding such options, but are not deemed to be outstanding for calculating the percentage ownership of any other person.
        Applicable percentage ownership in the following table is based on 25,955,776 shares of common stock outstanding as of February 7, 2014, assuming the conversion of our preferred stock into common stock, and             shares of common stock outstanding after completion of this offering.
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        Unless otherwise noted below, the address of each person listed on the table is c/o Q2 Holdings, Inc., 13785 Research Blvd, Suite 150, Austin, Texas 78750. Beneficial ownership representing less than 1% is denoted with an asterisk (*). The statements concerning voting and investment power included in the footnotes to this table shall not be construed as admissions that such persons are the beneficial owners of such shares of common stock.

																										
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Shares
Beneficially
Owned After the
Offering if
Underwriters'
Option is
Exercised in Full	 	
 	 	 	 	 	 	 	 	 	 	 	 	Number
of Shares
to be
Sold if
Underwriters'
Option is
Exercised
in Full			 	
 	 	 	 	 	 	 	 	Shares
Beneficially
Owned After the
Offering					 	
 	 	Shares Beneficially
Owned Prior to the
Offering	 	 							 	
 			 	Number
of Shares
Offered							 	
Name and Address of Beneficial Owner 	 	Shares	 	Percentage			 	Shares	 	Percentage			 	Shares	 	Percentage	 	
5% Stockholders :	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Entities affiliated with Adams Street Partners, LLC(1)	 	 	9,752,058	 	 	37.6	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
R.H. "Hank" Seale, III and affiliated entities(2)	 	 	7,594,271	 	 	28.7	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Entities affiliated with Battery Ventures(3)	 	 	4,812,183	 	 	18.5	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Named Executive Officers and Directors :	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Matthew P. Flake(4)	 	 	597,255	 	 	2.3	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
William M. Furrer(5)	 	 	23,333	 	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stephen C. Soukup(6)	 	 	10,625	 	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
R. H. "Hank" Seale, III(2)	 	 	7,594,271	 	 	28.7	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Michael M. Brown(3)	 	 	4,812,183	 	 	18.5	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Jeffrey T. Diehl(1)	 	 	9,752,058	 	 	37.6	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Charles T. Doyle(7)	 	 	442,513	 	 	1.7	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Michael J. Maples, Sr.(8)	 	 	43,708	 	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
James R. Offerdahl(9)	 	 	53,967	 	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Carl James Schaper(10)	 	 	149,333	 	 	 	*	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
All executive officers and directors as a group (14 persons)(11)	 	 	23,920,398	 	 	87.4	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

(1)
Represents 3,076,278 shares held by Adams Street 2006 Direct Fund, L.P., or AS 2006, 3,473,966 shares held by Adams Street 2007 Direct Fund, L.P., or AS 2007, 1,163,877 shares held by Adams Street 2008 Direct Fund, L.P., or AS 2008, 1,006,672 shares held by Adams Street 2009 Direct Fund, L.P., or AS 2009, 571,845 shares held by Adams Street 2010 Direct Fund, L.P., or AS 2010, and 459,420 shares held by Adams Street 2011 Direct Fund LP, or AS 2011. The shares owned by each of AS 2006, AS 2007, AS 2008, AS 2009, AS 2010 and AS 2011 may be deemed to be beneficially owned by Adams Street Partners, LLC, the managing member of the general partner of each of AS 2006, AS 2007, AS 2008, AS 2009 and AS 2010 and the managing member of the general partner of the general partner of AS 2011. Thomas D. Berman, David Brett, Jeffrey T. Diehl, Elisha P. Gould, III, Michael S. Lynn, Robin P. Murray, Sachin Tulyani, Craig D. Waslin and David S. Welsh, each of whom is a partner of Adams Street Partners, LLC (or a subsidiary thereof), may be deemed to share voting and dispositive power over the shares held by AS 2006, AS 2007, AS 2008, AS 2009, AS 2010 and AS 2011. Mr. Diehl is a member of our board of directors. The address of each of AS 2006, AS 2007, AS 2008, AS 2009, AS 2010 and AS 2011 is One North Wacker Drive, Suite 2200, Chicago, Illinois 60606. For a discussion of our material relationships with AS 2006, AS 2007, AS 2008, AS 2009, AS 2010, AS 2011, Adams Street Partners, LLC and Mr. Diehl, see "Certain Relationships and Related Party Transactions."

(2)
Represents 7,054,453 shares held by RHS Investments-I, L.P. and 539,818 shares issuable upon the exercise of options held by Mr. Seale that are exercisable within 60 days of February 7, 2014. Seale, Inc. is the general partner of RHS Investments-I, L.P. R.H. "Hank" Seale, III is the president of Seale, Inc. and has voting and dispositive power over the shares held by RHS Investments-I, L.P. Mr. Seale is Executive Chairman of our board of directors and served as our President and Chief Executive Officer until October 2013. For a discussion of our material relationships with Mr. Seale, see "Certain Relationships and Related Party Transactions."

(3)
Represents 4,764,543 shares held by Battery Ventures IX, L.P., or Battery Ventures IX, and 47,640 shares held by Battery Investment Partners IX, LLC, or BIP IX. Battery Partners IX, LLC, or BPIX, is the sole general partner of Battery Ventures IX and the sole manager of BIP IX. BPIX's investment adviser is Battery Management Corp. (together with BPIX, the Battery Companies). Neeraj Agrawal, Michael M. Brown, Thomas J. Crotty, Jesse Feldman, Richard D. Frisbie, Kenneth P. Lawler, R. David Tabors, Scott R. Tobin and Roger H. Lee are the managing members and officers of the Battery Companies and may be deemed to share voting and dispositive power over the shares held by the Battery Ventures IX and BIP IX. Mr. Brown is a member of our board of directors. The address for each of these entities is c/o Battery Ventures, One Marina Park Drive, Suite 1100, Boston, Massachusetts 02210. For a discussion of our material relationships with Battery Ventures IX, BIP IX and Mr. Brown, see "Certain Relationships and Related Party Transactions."

(4)
Includes 205,096 shares issuable upon the exercise of options exercisable within 60 days of February 7, 2014. Mr. Flake is our current President and Chief Executive Officer and a member of our board of directors.
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(5)
Represents shares issuable upon the exercise of options exercisable within 60 days of February 7, 2014. Mr. Furrer is our Senior Vice President of Product and Marketing.

(6)
Represents shares issuable upon exercise of options exercisable within 60 days of February 7, 2014. Mr. Soukup is our Senior Vice President of Sales.

(7)
Represents 433,138 shares held by Texas Independent Bancshares, Inc. and 9,375 shares issuable upon the exercise of options exercisable within 60 days of February 7, 2014. Mr. Doyle is the Chairman of the Board of Texas Independent Bancshares, Inc. and as such may be deemed to share voting and dispositive power over the shares held by Texas Independent Bancshares, Inc. Mr. Doyle disclaims beneficial ownership of the shares held by Texas Independent Bancshares, Inc., except to the extent of any pecuniary interest therein. Mr. Doyle is a member of our board of directors.

(8)
Includes 36,833 shares issuable upon the exercise of options exercisable within 60 days of February 7, 2014. Mr. Maples is a member of our board of directors.

(9)
Includes 7,083 shares issuable upon the exercise of options exercisable within 60 days of February 7, 2014. Mr. Offerdahl is a member of our board of directors.

(10)
Represents shares issuable upon the exercise of options exercisable within 60 days of February 7, 2014. Mr. Schaper is a member of our board of directors.

(11)
Includes 1,422,648 shares issuable upon the exercise of options exercisable within 60 days of February 7, 2014.
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 DESCRIPTION OF CAPITAL STOCK
         The following is a summary of our capital stock and certain provisions of our amended and restated certificate of incorporation and bylaws to be effective upon the completion of this offering. This summary does not purport to be complete and is qualified in its entirety by the provisions of our restated certificate of incorporation and amended and restated bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part.
        Immediately following the closing of this offering, our authorized capital stock will consist of             shares of common stock, $0.0001 par value, and             shares of undesignated preferred stock, $0.0001 par value.
Common Stock
        As of September 30, 2013, there were 25,630,261 shares of common stock outstanding that were held of record by approximately 81 stockholders after giving effect to the conversion of our preferred stock into shares of common stock. There will be             shares of common stock outstanding (assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options) after giving effect to the sale of the shares of common stock offered by this prospectus.
        The holders of common stock are entitled to one vote per share on all matters submitted to a vote of our stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferences that may be applicable to any preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive ratably any dividends declared by our board of directors out of assets legally available. See "Dividend Policy." Upon our liquidation, dissolution or winding up, holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding shares of preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.
Preferred Stock
        Upon the closing of this offering, all outstanding shares of our junior, Series A, Series B and Series C preferred stock will be converted into shares of common stock. Pursuant to our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue from time to time up to             shares of preferred stock, in one or more series. Our board will determine the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of any series, any or all of which may be greater than or senior to the rights of the common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and reduce the likelihood that such holders will receive dividend payments and payments upon liquidation, and the likelihood that holders of preferred stock will receive dividend payments and payments upon liquidation may have the effect of delaying, deterring or preventing a change in control, which could depress the market price of our common stock. We have no current plan to issue any shares of preferred stock.
Registration Rights
        We have entered into our third amended and restated investors' rights agreement dated March 1, 2013, or the Investors' Rights Agreement, with certain holders of our common and preferred stock.
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Subject to the terms of this agreement, holders of 17,411,906 shares (on an as converted to common stock basis) have registration rights, which includes demand registration rights, piggyback registration rights and short-form registration rights. The following description of the terms of the Investors' Rights Agreement is intended as a summary only and is qualified in its entirety by reference to the Investors' Rights Agreement filed as an exhibit to the registration statement, of which this prospectus forms a part.
        To the extent holders of these registration rights have determined not to sell their shares in this offering, they have waived their contractual rights to include shares held by them in this offering and their rights to demand registration of their shares until the expiration of the lock-up period applicable to this offering. See "Underwriting."
        The registration rights described below will terminate, with respect to any particular stockholder, upon the earlier of (i) seven years after the completion of this offering or (ii) any period after this offering in which all registrable securities held by a particular stockholder may immediately be sold under Rule 144 or Rule 145. To the extent holders of these registration rights have waived their right to include their shares in this offering, they have agreed not to sell or otherwise dispose of any shares of our common stock for a period of 180 days following the effective date of this offering.
Demand Registration Rights
        At any time following this offering, but subject to certain exceptions, the holders of at least two-thirds of the then outstanding registrable securities with demand registration rights can request that we file up to three registration statements registering all or a portion of their registrable securities. Upon any such demand and as soon as practicable, we must file and use our best efforts to effect the registration of the registrable securities that we have been requested to register, together with all other registrable securities that we may have been requested to register by other stockholders pursuant to the piggyback registration rights described below. These registration rights are subject to specified conditions and limitations, including the right of the underwriters, if any, to limit the number of shares included in any such registration under specified circumstances. In addition, we are not obligated to effect a demand registration unless the proposed aggregate offering proceeds (after deduction for underwriters' discounts and expenses related to the issuance) of the shares to be registered by the holders requesting registration is at least $20.0 million, and the per share offering price, net of underwriters' discounts and expenses, is at least $5.00.
        We have the ability to delay the filing of a registration statement, subject to certain restrictions, if the board of directors determines in its judgment that it would be materially detrimental to us and our stockholders for such registration to be effected at such time.
Piggyback Registration Rights
        Pursuant to the Investors' Rights Agreement, whenever we propose to file a registration statement under the Securities Act, other than with respect to a registration related to employee benefit plans, a registration relating to the offer and sale of debt securities, a registration relating to a corporate reorganization or other Rule 145 transaction or a registration on any registration form that does not permit secondary sales, the holders of then outstanding registrable securities are entitled to notice of the registration and have the right to include their registrable securities in such registration. As of September 30, 2013, the holders of approximately 17,411,906 shares of registrable securities will be entitled to notice of this registration and will be entitled to include their shares of common stock in the registration statement to the extent not waived. The underwriter(s) of any underwritten offering will have the right to limit the number of shares having registration rights to be included in the registration statement.
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Short-Form Registration Rights
        Following this offering, we are required by the Investors' Rights Agreement to use all reasonable efforts to qualify for registration on Form S-3. If we become eligible to file a registration statement on Form S-3, the holders of at least 25% of the then outstanding registrable securities may request in writing that we effect a registration on Form S-3 under the Securities Act, so long as the proposed aggregate offering price of the shares to be registered by the holders requesting registration and the holders of any other securities of ours entitled to inclusion in such registration is at least $1.0 million, subject to certain exceptions.
Expenses of Registration
        With specified exceptions, we are required to pay all expenses of registration, excluding underwriters' discounts, commissions and stock transfer taxes.
Anti-Takeover Provisions Under Our Charter and Bylaws and Delaware Law
        Certain provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, may have the effect of discouraging coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquiror outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Undesignated Preferred Stock
        As discussed above, our board of directors has the ability to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. This ability and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.
Limitations on the Ability of Stockholders to Act by Written Consent or Call a Special Meeting
        We have provided in our amended and restated certificate of incorporation that our stockholders may not act by written consent. This inability of our stockholders to act by written consent may lengthen the amount of time required to take stockholder actions. As a result, a holder controlling a majority of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws.
        In addition, our amended and restated certificate of incorporation and amended and restated bylaws provide that special meetings of the stockholders may be called only by the chairperson of our board of directors, the chief executive officer or a majority of the board of directors. A stockholder may not call a special meeting, which may delay the ability of our stockholders to force consideration of a proposal or for holders controlling a majority of our capital stock to take any action, including the removal of directors.
Requirements for Advance Notification of Stockholder Nominations and Proposals
        Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by
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or at the direction of the board of directors or a committee of the board of directors. However, our amended and restated bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquiror's own slate of directors or otherwise attempting to obtain control of our company.
Board Vacancies Filled Only by Majority of Directors
        Vacancies and newly created seats on our board of directors may be filled only by a majority of the number of then-authorized members of our board of directors. Only our board of directors may determine the number of directors. The inability of stockholders to determine the number of directors or to fill vacancies or newly created seats on our board of directors makes it more difficult to change the composition of our board of directors, but we believe that these provisions promote a continuity of existing management.
No Cumulative Voting
        Delaware law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our amended and restated certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation provides that there shall be no cumulative voting and our amended and restated bylaws do not expressly provide for cumulative voting.
Directors Removed Only for Cause
        Our amended and restated certificate of incorporation provides for the removal of a director only with cause and by the affirmative vote of the holders of at least 66-2/3% of the shares then entitled to vote at an election of our directors.
Amendment of Charter Provisions
        The amendment of the provisions in our amended and restated certificate of incorporation requires approval by holders of at least 66-2/3% of our outstanding capital stock entitled to vote generally in the election of directors (in addition to any rights of the holders of our outstanding capital stock to vote on such amendment under Delaware law). The amendment of the provisions in our amended and restated bylaws requires approval by either a majority of our board of directors or holders of at least 66-2/3% of our outstanding capital stock entitled to vote generally in the election of directors (in addition to any rights of the holders of our outstanding capital stock to vote on such amendment under Delaware law).
Delaware Anti-Takeover Statute
        We are subject to Section 203 of the Delaware law, which regulates corporate acquisitions of publicly held companies. This law provides that a specified person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the outstanding voting stock of a publicly held Delaware corporation or an interested stockholder, may not engage in business combinations with the company for a period of three years after the date on which the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in advance in a manner prescribed by Delaware law. This law does not include interested stockholders prior to the time our common stock is listed on the            . The law defines the term "business combination" to include mergers, asset sales and other transactions in which the interested stockholder receives or could receive a financial benefit on other than a pro rata basis with other stockholders. This provision has an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover
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attempts that might result in a premium over the market price for the shares of our common stock. With the approval of our stockholders, we could amend our amended and restated certificate of incorporation in the future to avoid the restrictions imposed by this anti-takeover law.
        The provisions of Delaware law and our amended and restated certificate of incorporation could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Limitations on Liability and Indemnification of Directors and Officers
        Delaware law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors' fiduciary duties. Our amended and restated certificate of incorporation includes a provision that eliminates the personal liability of directors for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by Delaware law.
        In addition, our amended and restated certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law. We also are expressly required to advance certain expenses to our directors and officers and are permitted to carry directors' and officers' insurance providing indemnification for our directors and officers for certain liabilities.
        Prior to the completion of this offering, we intend to enter into separate indemnification agreements with each of our directors and executive officers. Each indemnification agreement is expected to provide, among other things, for indemnification to the fullest extent permitted by law and our amended and restated certificate of incorporation and bylaws against (i) any and all expenses and liabilities, including judgments, fines, penalties, interest and amounts paid in settlement of any claim with our approval and counsel fees and disbursements, (ii) any liability pursuant to a loan guarantee, or otherwise, for any of our indebtedness and (iii) any liabilities incurred as a result of acting on behalf of us (as a fiduciary or otherwise) in connection with an employee benefit plan. The indemnification agreements will provide for the advancement or payment of expenses to the indemnitee and for reimbursement to us if it is found that such indemnitee is not entitled to such indemnification under applicable law and our amended and restated certificate of incorporation and bylaws. Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, officers or persons controlling us pursuant to the foregoing provisions, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
        We believe that these amended and restated certificate of incorporation and bylaws provisions and indemnification agreements as well as our maintaining directors' and officers' liability insurance help to attract and retain qualified persons as directors and officers.
Transfer Agent and Registrar
        The Transfer Agent and Registrar for our common stock will be American Stock Transfer & Trust Company, LLC.
Listing
        We intend to apply to list our common stock on the            under the symbol "QTWO."
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 SHARES ELIGIBLE FOR FUTURE SALE
        Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market could reduce prevailing market prices. Furthermore, since a substantial number of shares will be subject to contractual and legal restrictions on resale as described below, sales of substantial amounts of our common stock in the public market after these restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future.
        Upon completion of this offering, we will have outstanding an aggregate of             shares of common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by "affiliates," as that term is defined in Rule 144 under the Securities Act. The remaining             shares of common stock held by existing stockholders are "restricted securities," as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if their resale qualifies for an exemption from registration described below under Rules 144 or 701 promulgated under the Securities Act.
        As a result of the contractual restrictions described below and the provisions of Rules 144 and 701, the restricted shares will be available for sale in the public market as follows:
•
shares will be eligible for sale upon completion of this offering; and 

•
shares will be eligible for sale upon the expiration of the lock-up agreements, described below, beginning 180 days after the date of this prospectus.
        In addition, of the 5,361,390 shares of our common stock that were subject to stock options outstanding as of September 30, 2013, options to purchase 3,531,693 shares were vested as of September 30, 2013. Shares issued upon the exercise of such vested options will be eligible for sale 180 days after the date of this prospectus.
Lock-Up Agreements and Obligations
        In connection with this offering, we, the selling stockholders, all directors and officers and a significant majority of the holders of our outstanding stock and stock options, have agreed not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into shares or exercisable or exchangeable for shares of our common stock, or enter into any swap or other arrangement for transfer to another, in whole or in part, any of the economic consequences of ownership of our common stock, for a period of at least 180 days after the date of this prospectus, except for bona fide gifts to immediate family members, transfers to family trusts or distributions from trusts, distributions to affiliates or conversion or exercises of derivative securities provided that the shares underlying such derivative securities are held subject to such resale restrictions. Transfers or dispositions can be made sooner only under the conditions described above or with the prior written consent of J.P. Morgan Securities LLC, on behalf of the underwriters.
        In addition, each grant agreement under our 2007 Plan contains restrictions similar to those set forth in the lock-up agreements described above limiting the disposition of securities issuable pursuant to those plans for a period of 180 days following the date of this prospectus.
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10b5-1 Plans
        Prior to or after the completion of the offering, certain of our employees, including our executive officers, and directors may enter into written trading plans that are intended to comply with Rule 10b5-1 under the Securities Exchange Act. Sales under these trading plans would not be permitted until the expiration of the lock-up agreements relating to the offering described above.
Rule 144
        In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for 90 days, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for a least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.
        In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for 90 days, our affiliates or persons selling shares on behalf of our affiliates who own shares that were acquired from us or an affiliate of ours at least six months prior to the proposed sale are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
•
1% of the number of shares of common stock then outstanding, which will equal approximately             shares immediately after this offering; and 

•
The average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
        Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
        Rule 701 of the Securities Act, as currently in effect, permits any of our employees, officers, directors or consultants who purchased or received shares from us pursuant to a written compensatory plan or contract to resell such shares in reliance upon Rule 144, but without compliance with certain restrictions. Subject to any applicable lock-up agreements, Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 beginning 90 days after the date of this prospectus without complying with the holding period requirement of Rule 144 and that non-affiliates may sell such shares in reliance on Rule 144 beginning 90 days after the date of this prospectus without complying with the holding period, public information, volume limitation or notice requirements of Rule 144.
Registration Rights
        Upon completion of this offering, the holders of an aggregate of             shares of our common stock, or their transferees, will be entitled to rights with respect to the registration of their shares under the Securities Act in accordance with our Investors' Rights Agreement. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of such registration.
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Form S-8 Registration Statements
        Following the completion of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of our common stock that are issuable pursuant to our 2007 Plan, 2014 Plan and ESPP. See "Executive Compensation—Benefit Plans." Subject to the lock-up agreements described above, other contractual lock-up obligations set forth in the grant agreements under each such plan and any applicable vesting restrictions, shares registered under these registration statements will be available for resale in the public market immediately upon the effectiveness of these registration statements, except with respect to Rule 144 volume limitations that apply to our affiliates.
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 MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF COMMON STOCK
        This section summarizes the material U.S. federal income tax consequences to non-U.S. holders with respect to the ownership and disposition of our common stock issued pursuant to this offering. For purposes of this summary, a "non-U.S. holder" is any beneficial owner of our common stock who is not a partnership or other entity taxed as a partnership for U.S. federal income tax purposes or a U.S. person for U.S. federal income tax purposes. The term "U.S. person" means:
•
an individual citizen or resident of the U.S.; 

•
a corporation or entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the U.S. or any state, including the District of Columbia or otherwise treated as such for U.S. federal income tax purposes; 

•
an estate whose income is subject to U.S. income tax regardless of source; or 

•
a trust (i) whose administration is subject to the primary supervision of a court within the U.S. and which has one or more U.S. persons who have authority to control all substantive decisions of the trust or (ii) which has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
        Generally, an individual may be treated as a resident of the U.S. in any calendar year for U.S. federal income tax purposes by, among other ways, being present in the U.S. for at least 31 days in that calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For purposes of this calculation, such individual would count all of the days in which the individual was present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year. Residents generally are taxed for U.S. federal income tax purposes as if they were citizens of the U.S.
        The information provided below is based on existing authorities. These authorities may change, or the Internal Revenue Service, or IRS, might interpret the existing authorities differently. In either case, the tax considerations of owning or disposing of common stock could differ from those described below. This summary applies only to non-U.S. holders who acquire our common stock pursuant to this offering and who hold our common stock as a capital asset (generally property held for investment). This summary generally does not address tax considerations that may be relevant to particular investors because of their specific circumstances or because they are subject to special rules. Certain former U.S. citizens or long-term residents, controlled foreign corporations, passive foreign investment companies, corporations that accumulate earnings to avoid U.S. federal income tax, life insurance companies, tax-exempt organizations, dealers in securities or currencies, brokers, banks or other financial institutions, certain trusts, hybrid entities, pension funds and investors that hold our common stock as part of a hedge, straddle or conversion transaction are among those categories of potential investors that are subject to special rules not covered in this discussion. This summary does not provide a complete analysis of all potential tax considerations and does not address any U.S. federal estate and gift tax consequences, potential application of the net investment income or alternative minimum tax, or state or local or non-U.S. tax consequences.
        This summary does not consider the tax consequences for partnerships, entities classified as a partnership for U.S. federal income tax purposes or persons who hold their interests through a partnership or other entity classified as a partnership for U.S. federal income tax purposes. If a partnership is a beneficial owner of our common stock, the tax treatment of an equity owner of the partnership will depend upon the status of such equity owner and the activities of the partnership or other entity taxed as a partnership. Accordingly, a partnership or other entity taxed as a partnership that is a beneficial owner of our common stock and equity owners of such partnerships should consult
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their tax advisors regarding the tax consequences to them of the ownership and disposition of our common stock.
        THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF OTHER U.S. FEDERAL, STATE OR LOCAL AND ANY NON-U.S. LAWS AND ANY APPLICABLE TAX TREATIES.
Dividends
        We do not expect to make any payments of cash or other property to our stockholders with respect to our common stock in the foreseeable future. See "Dividend Policy." To the extent we make any such payments, other than payments of our common stock, such payments will constitute dividends to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those dividends exceed our current and accumulated earnings and profits, the dividends will constitute a return of capital and will first reduce a holder's basis, but not below zero, and then will be treated as gain from the sale of stock as described below under the heading "Gain on Disposition of Common Stock."
        Distributions constituting a dividend paid to a non-U.S. holder will be subject to U.S. withholding at a rate equal to 30% of the gross amount of the dividend or a reduced rate prescribed by an applicable income tax treaty, unless the dividends are effectively connected with a trade or business carried on by the non-U.S. holder within the U.S. (or dividends attributable to a non-U.S. holder's permanent establishment in the U.S. if an income tax treaty applies). Under applicable Treasury Regulations, a non-U.S. holder will be required to satisfy certain certification requirements, generally on IRS Form W-8BEN, directly or through an intermediary, in order to claim a reduced rate of withholding under an applicable income tax treaty.
        Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder (or dividends attributable to a non-U.S. holder's permanent establishment in the U.S. if an income tax treaty applies) are exempt from this withholding tax if the non-U.S. holder files the required forms, usually an IRS Form W-8ECI (or successor form) properly certifying this exemption. Effectively connected dividends (or dividends attributable to a permanent establishment), although not subject to withholding tax, are taxed at the same graduated U.S. federal income tax rates applicable to U.S. persons, net of certain deductions and credits. Dividends received by a corporate non-U.S. holder that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder (or dividends attributable to a corporate non-U.S. holder's permanent establishment in the U.S. if an income tax treaty applies) may also be subject to a branch profits tax at a rate of 30% (or such lower rate as may be specified in an income tax treaty). A non-U.S. holder who provides us with an IRS Form W-8BEN or an IRS Form W-8ECI will be required to periodically update such form.
        A non-U.S. holder of common stock that is eligible for a reduced rate of withholding tax pursuant to an income tax treaty may generally obtain a refund of any excess amounts currently withheld if an appropriate claim for refund is timely filed with the IRS.
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Gain on Disposition of Common Stock
        A non-U.S. holder will generally not be subject to U.S. federal income tax on any gains realized on the sale, exchange, or other taxable disposition of common stock unless:
•
the gain is effectively connected with a U.S. trade or business of the non-U.S. holder (or attributable to a permanent establishment in the U.S. if an income tax treaty applies), in which case the non-U.S. holder generally will be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates and, if the non-U.S. holder is a corporation, the branch profits tax may apply, at a 30% rate or such lower rate as may be specified by an applicable income tax treaty; 

•
the non-U.S. holder is an individual who is present in the U.S. for a period or periods aggregating 183 days or more during the taxable year in which the sale or disposition occurs and certain other conditions are met, in which case the non-U.S. holder will be required to pay a flat 30% tax (or such lower rate as may be specified by an applicable income tax treaty between the U.S. and such non-U.S. holder's country of residence) on the gain derived from the disposition, which gain may be offset by U.S. source capital losses, if any, provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses; or 

•
our common stock constitutes a U.S. real property interest by reason of our status as a "U.S. real property holding corporation" for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the holder's holding period for our common stock. We believe that we are not currently, and we are not likely to become, a "U.S. real property holding corporation" for U.S. federal income tax purposes.
        If we become a U.S. real property holding corporation after this offering, so long as our common stock is regularly traded on an established securities market and continues to be so traded, our common stock will be treated as U.S. real property interests only if the non-U.S. holder actually or constructively held more than 5% of our common stock at any time during the shorter of the five-year period preceding the disposition or the non-U.S. holder's holding period for our common stock. Any such non-U.S. holder that owns or has owned, actually or constructively, more than 5% of our common stock is urged to consult that holder's own tax advisor with respect to the particular tax consequences to such holder for the gain from the sale, exchange or other disposition of shares of our common stock if we were to become a U.S. real property holding company.
Backup Withholding and Information Reporting
        Generally, we must report annually to the IRS and to each non-U.S. holder the amount of dividends paid, the name and address of the recipient and the amount, if any, of tax withheld. These information reporting requirements apply even if withholding was not required because the dividends were effectively connected dividends or withholding was reduced by an applicable income tax treaty. Pursuant to income tax treaties or other agreements, the IRS may make its reports available to tax authorities in the non-U.S. holder's country of residence.
        Payments of dividends or of proceeds on the disposition of stock made to a non-U.S. holder may be subject to additional information reporting and backup withholding, currently at a rate of 28%. Backup withholding will not apply if the non-U.S. holder establishes an exemption, for example, by properly certifying its non-U.S. person status on an IRS Form W-8BEN (or successor form). Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person.
        Backup withholding is not an additional tax. Rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding
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results in an overpayment of taxes, a credit or refund may be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.
Legislation Relating to Foreign Accounts
        Legislation enacted in 2010 generally may impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common stock paid to a foreign financial institution (as specifically defined by such law) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). The legislation also generally may impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common stock paid to a non-financial foreign entity unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. An intergovernmental agreement between the U.S. and an applicable foreign country may modify the requirements described in this paragraph. Holders are encouraged to consult with their own tax advisors regarding the possible implications of the legislation on their investment in our common stock.
        These withholding requirements are expected to be phased-in for payments of dividends made on or after July 1, 2014 and for payments of gross proceeds from a sale or other disposition of our common stock on or after January 1, 2017.
        THE PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE OR LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
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 UNDERWRITING
        We and the selling stockholders are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and Stifel, Nicolaus & Company, Incorporated are acting as representatives of the underwriters named below. We and the selling stockholders have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we and the selling stockholders have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of our common stock listed next to its name in the following table:

			
Name 	 	Number of shares	
J.P. Morgan Securities LLC	 	 	
Stifel, Nicolaus & Company, Incorporated	 	 	
RBC Capital Markets, LLC	 	 	
Raymond James & Associates, Inc. 	 	 	
Canaccord Genuity Inc. 	 	 	
Needham & Company, LLC	 	 	
Total	 	 	
        The underwriters are committed to purchase all shares offered by us and the selling stockholders if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.
        The underwriters propose to offer the shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $      per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $      per share from the initial public offering price. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the U.S. may be made by affiliates of the underwriters. The representatives have advised us that the underwriters do not intend to confirm discretionary sales in excess of 5% of the common shares offered in this offering.
        The underwriters have an option to buy up to        additional shares of common stock from us and up to        additional shares of common stock from the selling stockholders to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. For information concerning the selling stockholders who have granted this over-allotment option to the underwriters, see "Principal and Selling Stockholders." The underwriters have 30 days from the date of this prospectus to exercise this over-allotment option. If any shares are purchased with this over-allotment option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
        The underwriting discounts and commissions are equal to the public offering price per share of common stock less the amount paid by the underwriters per share of common stock. The underwriting discounts and commissions are $        per share. The following table shows the per share and total
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underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.

														
 	 	Per share	 	Total	 	
 	 	Without
over-
allotment
exercise	 	With full
over-
allotment
exercise	 	Without
over-
allotment
exercise	 	With full
over-
allotment
exercise	 	
Public Offering Price	 	$	          	 	$	          	 	$	          	 	$	          	 	
Underwriting discounts and commissions paid by us	 	$	          	 	$	          	 	$	          	 	$	          	 	
Underwriting discounts and commissions paid by selling stockholders	 	$	          	 	$	          	 	$	          	 	$	          	 	
Proceeds, before expenses, to us	 	$	          	 	$	          	 	$	          	 	$	          	 	
Proceeds, before expenses, to selling stockholders	 	$	          	 	$	          	 	$	          	 	$	          	 	
        We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, including selling stockholder expenses, but excluding the underwriting discounts and commissions, will be approximately $            and will be paid by us. We have agreed to reimburse the underwriters for certain reasonable expenses and application fees incurred in connection with any filing with, and clearance of this offering by, the Financial Industry Regulatory Authority Inc., or FINRA.
        A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to the underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to the underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
        We, all of our directors and officers and the holders of substantially all of the shares of our capital stock outstanding immediately prior to this offering have agreed that, subject to certain exceptions, without the prior written consent of J.P. Morgan Securities LLC on behalf of the underwriters, we and they will not, for a period of 180 days after the date of this prospectus:
•
offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; 

•
enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of common stock or any security convertible into or exercisable or exchangeable for common stock; or 

•
make any demand for or exercise any right with respect to the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock;
with respect to the first and second bullets above, whether any such transaction is to be settled by delivery of common stock or such other securities, in cash or otherwise.
        The 180-day restricted period described in the preceding paragraph will be extended if, during any period that we are not an emerging growth company:
•
during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs; or
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•
prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day restricted period;
in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
        We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
        We will apply to have our common stock approved for listing/quotation on the            under the symbol "QTWO."
        In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, or purchasing and selling shares of, common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be "covered" shorts, which are short positions in an amount not greater than the underwriters' over-allotment option referred to above, or may be "naked" shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
        The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
        These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the            , as applicable, in the over-the-counter market or otherwise.
        Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:
•
the information set forth in this prospectus and otherwise available to the representatives; 

•
our prospects and the history and prospects for the industry in which we compete; 

•
our prospects for future earnings;
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•
the general condition of the securities markets at the time of this offering; 

•
the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and 

•
other factors deemed relevant by the underwriters and us.
        Neither we, the selling stockholders nor the underwriters can assure investors that an active trading market will develop for our common stock, or that the shares will trade in the public market at or above the initial public offering price.
        The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their affiliates may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they may receive customary fees and commissions. In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve our securities and/or instruments. The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Selling Restrictions
        Other than in the U.S., no action has been taken by us, the selling stockholders or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities referred to by this prospectus in any jurisdiction in which such an offer or solicitation is unlawful.
Dubai International Financial Centre
        This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or DFSA. This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus or taken steps to verify the information set forth herein and has no responsibility for the prospectus. The securities to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this prospectus, you should consult an authorized financial advisor.
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European Economic Area
        In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each, a Relevant Member State, an offer to the public of any shares which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
        (a)   to any legal entity which is a qualified investor as defined in the Prospectus Directive;
        (b)   to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or
        (c)   in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares shall result in a requirement for the publication by us, the selling stockholders, or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.
        For the purposes of this provision, the expression an "offer to the public" in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase any shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression "Prospectus Directive" means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State, and the expression "2010 PD Directive" means Directive 2010/73/EU.
Hong Kong
        The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to "professional investors" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance.
        No advertisement, invitation or document, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) has been issued or will be issued in Hong Kong or elsewhere, other than with respect to the shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance and any rules made under that Ordinance.
Japan
        The shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan, or the Financial Instruments and Exchange Law. Accordingly, no resident of Japan may participate in the offering of the shares, and each underwriter has agreed that it will not offer or sell any shares, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in
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Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Singapore
        The offer or invitation which is the subject of this document is only allowed to be made to the persons set out herein. Moreover, this document is not a prospectus as defined in the Securities and Futures Act (Chapter 289) of Singapore, or the SFA, and, accordingly, statutory liability under the SFA in relation to the content of the document will not apply.
        As this document has not been and will not be lodged with or registered as a document by the Monetary Authority of Singapore, this document and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than: (i) to an institutional investor under Section 274 of the SFA; (ii) to a relevant person, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
        Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person who is:
        (a)   a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
        (b)   a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor,
        shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the shares under Section 275 of the SFA except:
        (1)   to an institutional investor under Section 274 of the SFA or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets;
        (2)   where no consideration is given for the transfer; or
        (3)   by operation of law.
        By accepting this document, the recipient hereof represents and warrants that he or she is entitled to receive such report in accordance with the restrictions set forth above and agrees to be bound by the limitations contained herein. Any failure to comply with these limitations may constitute a violation of law.
Switzerland
        The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX or on any other stock exchange or regulated trading facility in Switzerland.
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        This document has been prepared without regard to the disclosure standards for issuance prospectuses under article 652a or article 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under article 27 et seq. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
        Neither this document nor any other offering or marketing material relating to the offering, the company or the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority, FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
United Arab Emirates
        This offering has not been approved or licensed by the Central Bank of the United Arab Emirates, or UAE, Securities and Commodities Authority of the UAE and/or any other relevant licensing authority in the UAE, including any licensing authority incorporated under the laws and regulations of any of the free zones established and operating in the territory of the UAE, in particular the Dubai Financial Services Authority, or DFSA, a regulatory authority of the Dubai International Financial Centre, or DIFC. This offering does not constitute a public offer of securities in the UAE, DIFC and/or any other free zone in accordance with the Commercial Companies Law, Federal Law No 8 of 1984 (as amended), DFSA Offered Securities Rules and Nasdaq Dubai Listing Rules, accordingly, or otherwise. The shares may not be offered to the public in the UAE and/or any of the free zones.
        The shares may be offered and issued only to a limited number of investors in the UAE or any of its free zones who qualify as sophisticated investors under the relevant laws and regulations of the UAE or the free zone concerned.
United Kingdom
        Each underwriter has represented and agreed that:
        (a)   it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to us; and
        (b)   it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.
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 LEGAL MATTERS
        DLA Piper LLP (US), Austin, Texas, will provide us with an opinion as to the validity of the common stock offered under this prospectus. Wilson Sonsini Goodrich & Rosati, Professional Corporation, Austin, Texas, will pass upon certain legal matters related to this offering for the underwriters.

 EXPERTS
        Our consolidated financial statements at December 31, 2012 and 2011 and at September 30, 2013, and for each of the two fiscal years in the period ended December 31, 2012 and for the nine-month period ended September 30, 2013, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

 WHERE YOU CAN FIND ADDITIONAL INFORMATION
        We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered under this prospectus. As permitted under the rules and regulations of the SEC, this prospectus does not contain all of the information in and exhibits and schedules to the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and its exhibits and schedules. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference. You may inspect a copy of the registration statement without charge at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Public Reference Room of the SEC, 100 F Street, NE, Washington, DC 20549, upon payment of fees prescribed by the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330.
        Upon completion of the offering, we will be subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's Public Reference Room and the website of the SEC referred to above. We also maintain a website at www.q2ebanking.com. Upon completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus.
        We intend to furnish our stockholders with annual reports containing financial statements audited by our independent registered public accounting firm and quarterly reports for the first three fiscal quarters of each fiscal year containing unaudited interim financial information. Our telephone number is (512) 275-0072.
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 Q2 HOLDINGS, INC. 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

					
Report of Independent Registered Public Accounting Firm	 	 	F-2	 	

Consolidated Balance Sheets as of December 31, 2011 and 2012, and September 30, 2013	

F-3	

Consolidated Statements of Operations for the Years Ended December 31, 2011 and 2012, and the Nine-Month Periods Ended September 30, 2012 (unaudited) and 2013	

F-4	

Consolidated Statements of Changes in Stockholders' Deficit for the Years Ended December 31, 2011 and 2012, and the Nine-Month Period Ended September 30, 2013	

F-5	

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2012, and the Nine-Month Periods Ended September 30, 2012 (unaudited) and 2013	

F-6	

Notes to Consolidated Financial Statements	

F-7	
 	
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 Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Q2 Holdings, Inc.
        We have audited the accompanying consolidated balance sheets of Q2 Holdings, Inc. as of September 30, 2013 and December 31, 2012 and 2011, and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the nine month period ended September 30, 2013 and for each of the two years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Q2 Holdings, Inc. at September 30, 2013 and December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for the nine month period ended September 30, 2013 and for each of the two years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
December 20, 2013
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Q2 HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

														
 	 	 	 	 	 	 	 	Pro Forma
Stockholders'
Equity	 	
 	 	December 31,	 	 			 	
 			 	September 30,
2013	 	September 30,
2013	 	
 	 	2011	 	2012					 	
 	 	 	 	 	 	 	 	(unaudited)	 	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	15,363	 	$	9,111	 	$	21,173	 	 	 	 	
Restricted cash	 	 	—	 	 	116	 	 	116	 	 	 	 	
Accounts receivable, net	 	 	3,891	 	 	5,857	 	 	6,850	 	 	 	 	
Prepaid expenses and other current assets	 	 	727	 	 	643	 	 	1,109	 	 	 	 	
Deferred solution and other costs, current portion	 	 	1,825	 	 	2,020	 	 	1,964	 	 	 	 	
Deferred implementation costs, current portion	 	 	918	 	 	1,387	 	 	1,761	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Total current assets	 	 	22,724	 	 	19,134	 	 	32,973	 	 	 	 	
Property and equipment, net	 	 	3,055	 	 	4,207	 	 	14,058	 	 	 	 	
Deferred solution and other costs, net of current portion	 	 	2,503	 	 	3,374	 	 	4,707	 	 	 	 	
Deferred implementation costs, net of current portion	 	 	2,798	 	 	3,746	 	 	4,559	 	 	 	 	
Other long-term assets	 	 	654	 	 	1,215	 	 	887	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	31,734	 	$	31,676	 	$	57,184	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Liabilities, redeemable convertible preferred stock, redeemable common stock and stockholders' equity (deficit)	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable	 	$	529	 	$	2,397	 	$	2,230	 	 	 	 	
Accrued liabilities	 	 	4,156	 	 	5,054	 	 	7,736	 	 	 	 	
Deferred revenues, current portion	 	 	7,452	 	 	8,571	 	 	9,650	 	 	 	 	
Capital lease obligations, current portion	 	 	425	 	 	560	 	 	785	 	 	 	 	
Long-term debt, current portion	 	 	—	 	 	2,500	 	 	—	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Total current liabilities	 	 	12,562	 	 	19,082	 	 	20,401	 	 	 	 	
Deferred revenues, net of current portion	 	 	
6,053	 	 	
9,269	 	 	
13,806	 	 	 	 	
Capital lease obligations, net of current portion	 	 	79	 	 	475	 	 	712	 	 	 	 	
Long-term debt, net of current portion	 	 	2,500	 	 	—	 	 	6,256	 	 	 	 	
Other long-term liabilities	 	 	60	 	 	101	 	 	4,350	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	21,254	 	 	28,927	 	 	45,525	 	 	 	 	
Commitments and contingencies (Note 7)	 	 	 	 	 	 	 	 	 	 	 	 	 	
Redeemable convertible preferred stock and redeemable common stock:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Series A preferred stock: $0.0001 par value; 7,908 shares authorized; 7,908 shares issued and outstanding as of December 31, 2011, December 31, 2012 and September 30, 2013, respectively; no shares authorized, issued or outstanding pro forma as of September 30, 2013 (unaudited); liquidation preference of $14.9 million as of September 30, 2013	 	 	10,815	 	 	10,815	 	 	10,815	 	$	—	 	
Series B preferred stock: $0.0001 par value; 1,818 shares authorized; 1,818 shares issued and outstanding as of December 31, 2011, December 31, 2012 and September 30, 2013, respectively; no shares authorized, issued or outstanding pro forma as of September 30, 2013 (unaudited); liquidation preference of $15.1 million as of September 30, 2013	 	 	10,915	 	 	10,915	 	 	10,915	 	 	—	 	
Series C preferred stock: $0.0001 par value; no shares authorized, issued or outstanding as of December 31, 2011 and December 31, 2012, respectively; 2,605 shares authorized; 2,605 shares issued and outstanding as of September 30, 2013; no shares authorized, issued or outstanding pro forma as of September 30, 2013 (unaudited); liquidation preference of $20.7 million as of September 30, 2013	 	 	—	 	 	—	 	 	18,995	 	 	—	 	
Common stock: no shares outstanding as of December 31, 2011 and December 31, 2012, respectively; 3,829 shares outstanding as of September 30, 2013; no shares outstanding pro forma as of September 30, 2013 (unaudited)	 	 	—	 	 	—	 	 	1,327	 	 	—	 	
Stockholders' equity (deficit):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Junior convertible preferred stock: $0.0001 par value; 1,251 shares authorized; 1,251 shares issued and outstanding as of December 31, 2011, December 31, 2012 and September 30, 2013, respectively; no shares authorized, issued or outstanding pro forma as of September 30, 2013 (unaudited); liquidation preference of $1.7 million as of September 30, 2013	 	 	1,740	 	 	1,740	 	 	1,740	 	 	—	 	
Common stock: $0.0001 par value; 35,000 shares authorized; 11,337, 11,379 and 8,219 shares issued and outstanding as of December 31, 2011, December 31, 2012 and September 30, 2013, respectively; 25,630 shares issued and outstanding pro forma as of September 30, 2013 (unaudited)	 	 	1	 	 	1	 	 	1	 	 	3	 	
Additional paid-in capital	 	 	5,087	 	 	6,135	 	 	6,099	 	 	49,889	 	
Accumulated deficit	 	 	(18,078	)	 	(26,857	)	 	(38,233	)	 	(38,233	)	
 	 	 	 	 	 	 	 	 	 	
Total stockholders' equity (deficit)	 	 	(11,250	)	 	(18,981	)	 	(30,393	)	$	11,659	 	
 	 	 	 	 	 	 	 	 	 	
Total liabilities, redeemable convertible preferred stock, redeemable common stock and stockholders' equity (deficit)	 	$	31,734	 	$	31,676	 	$	57,184	 	 	 	 	

The accompanying notes are an integral part of these Consolidated Financial Statements.
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Q2 HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
 	 	 	 	 	 	(unaudited)	 	 	 	
Revenues	 	$	26,982	 	$	41,101	 	$	29,151	 	$	41,203	 	
Cost of revenues(1)	 	 	14,795	 	 	25,170	 	 	17,478	 	 	25,382	 	
 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	12,187	 	 	15,931	 	 	11,673	 	 	15,821	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing(1)	 	 	5,589	 	 	8,962	 	 	6,298	 	 	11,797	 	
Research and development(1)	 	 	3,428	 	 	5,317	 	 	3,804	 	 	6,277	 	
General and administrative(1)	 	 	4,857	 	 	8,780	 	 	6,366	 	 	8,318	 	
Unoccupied lease charges	 	 	—	 	 	—	 	 	—	 	 	236	 	
 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	13,874	 	 	23,059	 	 	16,468	 	 	26,628	 	
 	 	 	 	 	 	 	 	 	 	
Loss from operations	 	 	(1,687	)	 	(7,128	)	 	(4,795	)	 	(10,807	)	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	 	7	 	 	4	 	 	3	 	 	5	 	
Interest and other expense	 	 	(83	)	 	(232	)	 	(163	)	 	(342	)	
 	 	 	 	 	 	 	 	 	 	
Total other expense, net	 	 	(76	)	 	(228	)	 	(160	)	 	(337	)	
 	 	 	 	 	 	 	 	 	 	
Loss before income taxes	 	 	(1,763	)	 	(7,356	)	 	(4,955	)	 	(11,144	)	
Provision for income taxes	 	 	(132	)	 	(164	)	 	(112	)	 	(33	)	
 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations	 	 	(1,895	)	 	(7,520	)	 	(5,067	)	 	(11,177	)	
 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations, net of tax	 	 	(1,132	)	 	(1,259	)	 	(918	)	 	(199	)	
 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(3,027	)	$	(8,779	)	$	(5,985	)	$	(11,376	)	
 	 	 	 	 	 	 	 	 	 	
Net loss per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations per common share, basic and diluted	 	$	(0.17	)	$	(0.66	)	$	(0.45	)	$	(0.95	)	
 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations per common share, basic and diluted	 	$	(0.10	)	$	(0.11	)	$	(0.08	)	$	(0.01	)	
 	 	 	 	 	 	 	 	 	 	
Net loss per common share, basic and diluted	 	$	(0.27	)	$	(0.77	)	$	(0.53	)	$	(0.96	)	
 	 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted	 	 	11,326	 	 	11,345	 	 	11,341	 	 	11,794	 	
Pro forma net loss per common share (unaudited):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted	 	 	 	 	$	(0.39	)	 	 	 	$	(0.46	)	
 	 	 	 	 	 	 	 	 	 	 	 	
Pro forma weighted average common shares outstanding (unaudited):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted	 	 	 	 	 	22,323	 	 	 	 	 	24,814	 	

(1)
Includes stock-based compensation expenses as follows:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
 	 	 	 	 	 	(unaudited)	 	 	 	
Cost of revenues	 	$	52	 	$	187	 	$	127	 	$	192	 	
Sales and marketing	 	 	52	 	 	123	 	 	82	 	 	180	 	
Research and development	 	 	57	 	 	195	 	 	132	 	 	189	 	
General and administrative	 	 	236	 	 	526	 	 	343	 	 	561	 	
 	 	 	 	 	 	 	 	 	 	
Total stock-based compensation expenses	 	$	397	 	$	1,031	 	$	684	 	$	1,122	 	

The accompanying notes are an integral part of these Consolidated Financial Statements.
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Q2 HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

(in thousands)

																						
 	 	Junior
Convertible
Preferred Stock	 	 	 	 	 	 	 	 	 	 	 	
 			 	Common Stock	 	 	 	 	 	 	 	
 					 	Additional
Paid-In
Capital	 	Accumulated
Deficit	 	Total
Stockholder's
Deficit	 	
Shares	 	 	 	Amount	 	Shares	 	Amount							 	
Balance at January 1, 2011	 	 	1,251	 	$	1,740	 	 	11,317	 	$  1	 	$	4,683	 	$	(15,051	)	$	(8,627	)	
Stock-based compensation	 	 	—	 	 	—	 	 	—	 	—	 	 	397	 	 	—	 	 	397	 	
Exercise of stock options	 	 	—	 	 	—	 	 	20	 	—	 	 	7	 	 	—	 	 	7	 	
Net loss	 	 	—	 	 	—	 	 	—	 	—	 	 	—	 	 	(3,027	)	 	(3,027	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2011	 	 	1,251	 	 	1,740	 	 	11,337	 	1	 	 	5,087	 	 	(18,078	)	 	(11,250	)	
Stock-based compensation	 	 	—	 	 	—	 	 	—	 	—	 	 	1,031	 	 	—	 	 	1,031	 	
Exercise of stock options	 	 	—	 	 	—	 	 	42	 	—	 	 	17	 	 	—	 	 	17	 	
Net loss	 	 	—	 	 	—	 	 	—	 	—	 	 	—	 	 	(8,779	)	 	(8,779	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2012	 	 	1,251	 	 	1,740	 	 	11,379	 	1	 	 	6,135	 	 	(26,857	)	 	(18,981	)	
Stock-based compensation	 	 	—	 	 	—	 	 	—	 	—	 	 	1,122	 	 	—	 	 	1,122	 	
Reclass to redeemable common stock	 	 	—	 	 	—	 	 	(3,829	)	—	 	 	(1,327	)	 	—	 	 	(1,327	)	
Exercise of stock options	 	 	—	 	 	—	 	 	669	 	—	 	 	342	 	 	—	 	 	342	 	
Distribution associated with spin-off	 	 	—	 	 	—	 	 	—	 	—	 	 	(173	)	 	—	 	 	(173	)	
Net loss	 	 	—	 	 	—	 	 	—	 	—	 	 	—	 	 	(11,376	)	 	(11,376	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at September 30, 2013	 	 	1,251	 	$	1,740	 	 	8,219	 	$  1	 	$	6,099	 	$	(38,233	)	$	(30,393	)	

The accompanying notes are an integral part of these Consolidated Financial Statements.
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Q2 HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
 	 	 	 	 	 	(unaudited)	 	 	 	
Operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(3,027	)	$	(8,779	)	$	(5,985	)	$	(11,376	)	
Adjustments to reconcile net loss to net cash used in operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Amortization of deferred implementation, solution and other costs	 	 	1,183	 	 	1,869	 	 	1,338	 	 	2,033	 	
Depreciation and amortization	 	 	1,013	 	 	1,697	 	 	1,029	 	 	2,115	 	
Stock-based compensation expenses	 	 	397	 	 	1,031	 	 	684	 	 	1,122	 	
Loss from discontinued operations	 	 	1,132	 	 	1,259	 	 	918	 	 	199	 	
Allowance for sales credits	 	 	—	 	 	51	 	 	—	 	 	56	 	
Loss on disposal of long-lived assets	 	 	—	 	 	24	 	 	—	 	 	18	 	
Unoccupied lease charges	 	 	—	 	 	—	 	 	—	 	 	236	 	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable, net	 	 	(2,151	)	 	(2,013	)	 	(1,515	)	 	(1,053	)	
Prepaid expenses and other current assets	 	 	(338	)	 	124	 	 	192	 	 	(443	)	
Deferred solution and other costs	 	 	(1,601	)	 	(1,728	)	 	(1,649	)	 	(1,947	)	
Deferred implementation costs	 	 	(2,043	)	 	(2,625	)	 	(1,939	)	 	(2,550	)	
Other long-term assets	 	 	40	 	 	(182	)	 	287	 	 	104	 	
Accounts payable	 	 	23	 	 	1,949	 	 	2,095	 	 	(233	)	
Accrued liabilities	 	 	1,139	 	 	1,094	 	 	36	 	 	1,841	 	
Deferred revenue	 	 	4,395	 	 	4,299	 	 	4,128	 	 	5,663	 	
Other long-term liabilities	 	 	(73	)	 	41	 	 	59	 	 	4,250	 	
 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) continuing operations	 	 	89	 	 	(1,889	)	 	(322	)	 	35	 	
 	 	 	 	 	 	 	 	 	 	
Net cash used in discontinued operating activities	 	 	(1,209	)	 	(1,120	)	 	(838	)	 	(236	)	
 	 	 	 	 	 	 	 	 	 	
Net cash used in operating activities	 	 	(1,120	)	 	(3,009	)	 	(1,160	)	 	(201	)	
 	 	 	 	 	 	 	 	 	 	
Investing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchases of property and equipment	 	 	(1,073	)	 	(1,804	)	 	(1,929	)	 	(10,058	)	
Acquisitions and purchase of intangible assets	 	 	(300	)	 	(425	)	 	(425	)	 	(125	)	
Increase in restricted cash	 	 	—	 	 	(116	)	 	(116	)	 	—	 	
Cash included in distribution of spin-off	 	 	—	 	 	—	 	 	—	 	 	(46	)	
 	 	 	 	 	 	 	 	 	 	
Net cash used in continuing operations	 	 	(1,373	)	 	(2,345	)	 	(2,470	)	 	(10,229	)	
 	 	 	 	 	 	 	 	 	 	
Net cash used in discontinued investing activities	 	 	(16	)	 	(261	)	 	(261	)	 	—	 	
 	 	 	 	 	 	 	 	 	 	
Net cash used in investing activities	 	 	(1,389	)	 	(2,606	)	 	(2,731	)	 	(10,229	)	
 	 	 	 	 	 	 	 	 	 	
Financing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from issuance of preferred stock, net of issuance costs	 	 	10,915	 	 	—	 	 	—	 	 	18,995	 	
Proceeds from borrowings on line of credit	 	 	2,500	 	 	—	 	 	—	 	 	6,350	 	
Payments on line of credit	 	 	—	 	 	—	 	 	—	 	 	(2,682	)	
Payments on capital lease obligations	 	 	(456	)	 	(654	)	 	(518	)	 	(510	)	
Proceeds from exercise of stock options to purchase common stock	 	 	7	 	 	17	 	 	4	 	 	339	 	
 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	 	 	12,966	 	 	(637	)	 	(514	)	 	22,492	 	
 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	 	 	10,457	 	 	(6,252	)	 	(4,405	)	 	12,062	 	
Cash and cash equivalents, beginning of period	 	 	4,906	 	 	15,363	 	 	15,363	 	 	9,111	 	
 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents, end of period	 	$	15,363	 	$	9,111	 	$	10,958	 	$	21,173	 	
 	 	 	 	 	 	 	 	 	 	
Supplemental disclosures of cash flow information:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash paid for taxes	 	$	123	 	$	199	 	$	69	 	$	164	 	
Cash paid for interest	 	 	77	 	 	184	 	 	124	 	 	269	 	
Supplemental disclosure of non-cash investing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equipment acquired under capital lease	 	$	352	 	$	1,185	 	$	971	 	$	975	 	
    
The accompanying notes are an integral part of these Consolidated Financial Statements.
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Q2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts and unless otherwise indicated)
1. Organization and Description of Business
        Q2 Holdings, Inc., or the Company, is a leading provider of secure, cloud-based virtual banking solutions. The Company enables regional and community financial institutions, or RCFIs, to deliver a robust suite of integrated virtual banking services and more effectively engage with their retail and commercial account holders who expect to bank anytime, anywhere and on any device. The Company delivers its solutions to the substantial majority of its customers using a software-as-a-service, or SaaS, model under which its RCFI customers pay subscription fees for the use of the Company's solutions.
        The Company, formerly known as CBG Holdings, Inc., was incorporated in Delaware in March 2005 and is a holding company that owns 100% of the outstanding capital stock of Q2 Software, Inc., doing business as Q2ebanking. On March 1, 2013, the Company reorganized its business operations in conjunction with the private placement of its Series C redeemable convertible preferred stock. Prior to the reorganization, the Company owned 100% of the outstanding capital stock of cbanc Network Inc., or cbanc. Pursuant to the reorganization, the Company distributed all shares of cbanc to its stockholders in a spin-off, and the Company was renamed Q2 Holdings, Inc.
        The Company's headquarters are located in Austin, Texas.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
        These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
        The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses. Significant items subject to such estimates include stock-based compensation, the useful lives of property and equipment and income taxes. In accordance with GAAP, management bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ significantly from those estimates.
Unaudited Interim Financial Information
        The accompanying interim consolidated statements of operations and cash flows for the nine-month period ended September 30, 2012, and financial information pertaining to the related period contained within these notes to the Company's consolidated financial statements, are unaudited. The unaudited interim consolidated financial statements have been prepared in accordance with GAAP. In the opinion of management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all normal recurring adjustments necessary for fair presentation.
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Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
Unaudited Pro Forma Presentation
        The Company has confidentially submitted a Registration Statement on Form S-1 with the Securities and Exchange Commission, or SEC, for the proposed initial public offering, or IPO, of shares of its common stock. If the Company's IPO is consummated, all outstanding shares of the Company's preferred stock will convert into 13,583 shares of common stock.
        Unaudited pro forma stockholders' equity as of September 30, 2013 was prepared assuming the conversion of all outstanding shares of preferred stock into 13,583 shares of common stock as of September 30, 2013. Unaudited pro forma net loss per common share and unaudited pro forma weighted average shares outstanding for the year ended December 31, 2012 and the nine-month period ended September 30, 2013 were computed assuming the conversion of all outstanding shares of preferred stock, on an as-if-converted basis, at the later of January 1, 2012 or the date of issuance of the preferred stock. The impact of repayment of the outstanding principal and accrued interest on the Company's line of credit has not been reflected in the pro forma weighted average shares used to compute net loss per share because the number of shares which would have to be sold to pay the outstanding principal and accrued interest cannot be estimated.
Cash and Cash Equivalents
        The Company considers all highly liquid investments acquired with an original maturity of ninety days or less at the date of purchase to be cash equivalents. Cash equivalents are stated at cost, which approximates market value, because of the short maturity of these instruments.
Restricted Cash
        Restricted cash consists of deposits held in a money market account for leased office space.
Fair Value of Financial Instruments
        The carrying values of the Company's financial instruments, principally cash equivalents, accounts receivable, restricted cash and accounts payable, approximated their fair values due to the short period of time to maturity or repayment. The carrying values of the Company's debt instruments approximated their fair value based on rates currently available to the Company. Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The current accounting guidance for fair value measurements defines a three-level valuation hierarchy for disclosures as follows:
•
Level I—Unadjusted quoted prices in active markets for identical assets or liabilities; 

•
Level II—Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and 

•
Level III—Unobservable inputs that are supported by little or no market activity, which requires the Company to develop its own assumptions.
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
        The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
        All Company assets with fair values measured on a recurring basis, which consists only of cash and cash equivalents, as of December 31, 2011 and 2012, and September 30, 2013 were classified as Level 1 assets.
Concentration of Credit Risk
        Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, restricted cash and accounts receivable. The Company's cash and cash equivalents and restricted cash are placed with high credit quality financial institutions and issuers, and at times may exceed federally-insured limits. The Company has not experienced any loss relating to cash and cash equivalents or restricted cash in these accounts. The Company provides credit, in the normal course of business, to a number of its customers. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. No individual customer accounted for 10% or more of revenues for the years ended December 31, 2011 and 2012, or for the nine-month periods ended September 30, 2012 (unaudited) and 2013. No individual customer accounted for 10% or more of accounts receivable, net, as of December 31, 2011 and 2012, or September 30, 2013.
Accounts Receivable
        Accounts receivable are stated at net realizable value, including both billed and unbilled receivables to customers. Unbilled receivable balances arise primarily when the Company performs services related to subscription fee agreements in advance of billing. Generally, billing for such services occurs one month in arrears.
        The Company assesses the collectability of outstanding accounts receivable on an ongoing basis and maintains an allowance for doubtful accounts for accounts receivable deemed uncollectable. This allowance is recorded as a reduction against accounts receivable. As of December 31, 2011 and 2012 and September 30, 2013, the Company did not provide for an allowance for doubtful accounts, as all amounts outstanding were deemed collectable. Historically, the Company's collection experience has not varied significantly, and bad debt expenses have been insignificant.
        The Company maintains a reserve for estimated sales credits issued to customers for billing disputes or other service-related reasons. This allowance is recorded as a reduction against current period revenues and accounts receivable. In estimating this allowance, the Company analyzes prior periods to determine the amounts of sales credits issued to customers compared to the revenues in the period that related to the original customer invoice. This estimate is analyzed quarterly and adjusted as necessary. The allowance for sales credits was $0.1 million as of December 31, 2012 and September 30, 2013. The Company did not have an allowance for sales credits as of December 31, 2011.
Deferred Implementation Costs
        The Company capitalizes certain personnel and other costs, such as employee salaries, benefits and the associated payroll taxes that are direct and incremental to the implementation of its solutions. The Company analyzes implementation costs that may be capitalized to assess their recoverability, and only capitalizes costs that it anticipates to be recoverable. The Company assesses the recoverability of its
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
deferred implementation costs by comparing the greater of the amount of the non-cancellable portion of a customer's contract, and the non-refundable customer prepayments received as it relates to the specific implementation costs incurred. The Company begins amortizing the deferred implementation costs for an implementation once the revenue recognition criteria have been met, and the Company amortizes those deferred implementation costs ratably over the remaining term of the customer agreement. The portion of deferred implementation costs expected to be amortized during the succeeding twelve-month period is recorded in current assets as deferred implementation costs, current portion, and the remainder is recorded in long-term assets as deferred implementation costs, net of current portion.
Deferred Solution and Other Costs
        The Company capitalizes sales commissions and other third-party costs, such as third party licenses and maintenance related to its customer agreements. The Company capitalizes sales commissions because the commission charges are so closely related to the revenues from the non-cancellable customer agreements that they should be recorded as an asset and charged to expense over the same period that the related revenue is recognized. The Company begins amortizing deferred solution and other costs for a particular customer agreement once the revenue recognition criteria are met, and the Company amortizes those deferred costs over the remaining term of the customer agreement. The Company analyzes solution and other costs that may be capitalized to assess their recoverability, and only capitalizes costs that it anticipates to be recoverable. The portion of capitalized costs expected to be amortized during the succeeding twelve-month period is recorded in current assets as deferred solution and other costs, current portion, and the remainder is recorded in long-term assets as deferred solution and other costs, net of current portion. Deferred commissions were $2.4 million, $2.9 million and $3.8 million as of December 31, 2011 and 2012 and September 30, 2013, respectively.
Property and Equipment
        Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the related assets. Maintenance and repairs that do not extend the life of or improve an asset are expensed in the period incurred.
        The estimated useful lives of property and equipment are as follows:

			
Computer hardware and equipment	 	3 - 5 years	
Purchased software and licenses	 	3 - 5 years	
Furniture and fixtures	 	7 years	
Leasehold improvements	 	Lesser of estimated useful life or lease term	
Deferred Revenues
        Deferred revenues primarily consist of amounts that have been billed to or received from customers in advance of revenue recognition and prepayments received from customers in advance for implementation, maintenance and other services, as well as initial subscription fees. The Company recognizes deferred revenues as revenues when the services are performed and the corresponding revenue recognition criteria are met. Customer prepayments are generally applied against invoices
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
issued to customers when services are performed and billed. Deferred revenues that are expected to be recognized as revenues during the succeeding twelve month period are recorded in current liabilities as deferred revenues, current portion and the remaining portion is recorded in long-term liabilities as deferred revenues, net of current portion.
Revenues
        All revenue-generating activities are directly related to the sale, implementation and support of the Company's solutions within a single operating segment. The Company derives the substantial majority of its revenues from subscription fees for the use of its solutions hosted in the Company's data centers as well as revenues for implementation and customer support services related to the Company's solutions. A small portion of the Company's customers host the Company's solutions in their own data centers under term license and maintenance agreements, and the Company recognizes the corresponding revenues over the term of those customer agreements.
        Revenues are recognized net of sales credits and allowances. The Company begins to recognize revenues for a customer when all of the following criteria are satisfied:
•
there is persuasive evidence of an arrangement; 

•
the service has been or is being provided to the customer; 

•
the collection of the fees is reasonably assured; and 

•
the amount of fees to be paid by the customer is fixed or determinable.
        Determining whether and when these criteria have been met can require significant judgment and estimates. In general, revenue recognition commences when the Company's solutions are implemented and made available to the customers.
        The Company's software solutions are available for use in hosted application arrangements under subscription fee agreements. Subscription fees from these applications, including related customer support, are recognized ratably over the customer agreement term beginning on the date the solution is made available to the customer. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on whether the Company's revenue recognition criteria have been met.
        The Company considers subscription fees to be fixed or determinable unless the fees are subject to refund or adjustment or are not payable within the Company's standard payment terms. In determining whether collection of subscription fees is reasonably assured, the Company considers financial and other information about customers, such as a customer's current credit-worthiness and payment history over time. Historically bad debt expenses have not been significant.
        The Company enters into arrangements with multiple-deliverables that generally include multiple subscriptions and implementation services.
        For multiple-deliverable arrangements, arrangement consideration is allocated to deliverables based on their relative selling price. In order to treat deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, each deliverable must be accounted for separately. The Company's subscription services have standalone value as such services are often sold separately. In determining whether implementation services have standalone value apart from the subscription
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
services, the Company considers various factors including the availability of the services from other vendors. To date, the Company has concluded that the implementation services included in multiple-deliverable arrangements do not have standalone value. As a result, when implementation services are sold in a multiple-deliverable arrangement, the Company capitalizes any arrangement fees for implementation services and recognizes such amounts ratably over the period of performance for the initial agreement term.
        When multiple-deliverables included in an arrangement are separated into different units of accounting, the arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence of selling price, or VSOE, if available, third-party evidence of selling price, or TPE, if VSOE is not available or best estimate of selling price, or BESP, if neither VSOE nor TPE is available. The Company has not established VSOE for its subscription services due to lack of pricing consistency, the introduction of new services and other factors. The Company has determined that TPE is not a practical alternative due to differences in its service offerings compared to other parties and the availability of relevant third-party pricing information. Accordingly, the Company uses BESP to determine the relative selling price. The amount of revenue allocated to delivered items is limited by contingent revenues.
        The Company determined BESP by considering its overall pricing objectives and market conditions. Significant pricing practices taken into consideration include the Company's discounting practices, the size and volume of its transactions, customer characteristics, price lists, go-to-market strategy, historical standalone sales and agreement prices. As the Company's go-to-market strategies evolve, it may modify its pricing practices in the future, which could result in changes in relative selling prices, and include both VSOE and BESP.
Subscription Fee Revenues
        The Company's solutions are available as hosted solutions under subscription fee agreements without licensing perpetual rights to the software. Subscription fees from a hosted solution are recognized monthly over the customer agreement term beginning on the date the Company's solution is made available to the customer. Additional fees for monthly usage above the levels included in the standard subscription fee, which include fees for transactions processed during the period, are recognized as revenue in the month when the usage amounts are determined and reported. Any revenues related to upfront implementation services are recognized ratably over the same customer agreement term. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met.
Professional Services Revenues
        When professional services are not combined with subscription services or term licenses as a single unit of accounting, these professional services revenues are recognized as the services are performed. Revenues from professional services not combined with subscription services were not significant in the periods presented.
        Certain out-of-pocket expenses billed to customers are recorded as revenues rather than an offset to the related expense. For the years ended December 31, 2011 and 2012 and for the nine-month periods ended September 31, 2012 and 2013, revenues recorded from out-of-pocket expense
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
reimbursements totaled approximately $0.2 million, $0.4 million, $0.3 million (unaudited) and $0.3 million, respectively. The out-of-pocket expenses are reported in cost of revenues.
Term Licenses and Maintenance Revenues
        A small portion of the Company's customers host and manage the Company's solutions on-premises or in third-party data centers under term license and maintenance agreements. Term licenses sold with maintenance, which entitles the customer to technical support and upgrades and updates to the software made available on a when-and-if-available basis, are accounted for under Accounting Standards Codification 985-605, " Software Revenue Recognition ." The Company does not have VSOE of fair value for the maintenance and professional services so the entire arrangement consideration is recognized monthly over the term of the software license when all of the other revenue recognition criteria have been met. Revenues from term licenses and maintenance agreements were not significant in the periods presented.
Cost of Revenues
        Cost of revenues is comprised primarily of salaries and other personnel-related costs, including employee benefits, bonuses and stock-based compensation, for employees providing services to the Company's customers. Costs associated with these services include the costs of the Company's implementation, customer support, data center and customer training personnel as well a reclassification of certain research and development expenses related to research and development personnel who perform services related to implementation and customer support. Cost of revenues also includes the direct costs of bill-pay and other third-party intellectual property included in the Company's solutions, the amortization of deferred solution and services costs, co-location facility costs and depreciation of the Company's data center assets, an allocation of general overhead costs and referral fees. Direct costs of third-party intellectual property include amounts paid for third-party licenses and related maintenance that are incorporated into the Company's software, with the costs amortized to cost of revenues over the useful lives of the purchased assets.
        The amount of research and development expenses allocated to cost of revenues was $0.4 million and $1.4 million for the years ended December 31, 2011 and 2012, respectively, and $0.9 million (unaudited) and $1.2 million for the nine-month periods ended September 30, 2012 and 2013, respectively.
        The Company capitalizes certain personnel costs directly related to the implementation of its solutions to the extent those costs are considered to be recoverable from future revenues. The Company amortizes the costs for a particular implementation once revenue recognition commences, and the Company amortizes those implementation costs over the remaining term of the customer agreement. Other costs not directly recoverable from future revenues are expensed in the period incurred. The Company capitalized implementation costs in the amount of $2.0 million and $2.6 million, respectively, for the years ended December 31, 2011 and 2012, and $1.9 million (unaudited) and $2.6 million for the nine-month periods ended September 30, 2012 and 2013, respectively.
Software Development Costs
        Software development costs include salaries and other personnel-related costs, including employee benefits, bonuses and stock-based compensation, attributed to programmers, software engineers and
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
quality control teams working on the Company's solutions. Costs related to software development incurred between reaching technological feasibility and the point at which the software solution is ready for general release have been insignificant through September 30, 2013, and accordingly all of the Company's software development costs have been expensed as incurred as research and development.
Research and Development Costs
        Research and development costs include salaries and other personnel-related costs, including employee benefits, bonuses and stock-based compensation, third-party contractor expenses, software development tools, an allocation of facilities and depreciation expenses and other related expenses incurred in developing new solutions and upgrading and enhancing existing solutions. Research and development costs are expensed as incurred.
Advertising
        All advertising costs of the Company are expensed the first time the advertising takes place. Advertising costs were insignificant for the years ended December 31, 2011 and 2012, and the nine-month period ended September 30, 2012 (unaudited). Advertising costs were $0.1 million for the nine-month period ended September 30, 2013.
Sales Tax
        The Company presents sales taxes and other taxes collected from customers and remitted to governmental authorities on a net basis and, as such, excludes them from revenues.
Comprehensive Loss
        Comprehensive loss includes net loss as well as other changes in stockholders' equity that result from transactions and economic events other than those with stockholders. The Company had no items of other comprehensive loss for the years ended December 31, 2011 and 2012, or the nine-month periods ended September 30, 2012 (unaudited) and 2013.
Stock-Based Compensation
        Stock options awarded to employees, directors and consultants are measured at fair value at each grant date. The Company recognizes compensation expense ratably over the requisite service period of the option award. Generally, options vest 25% on the one-year anniversary of the grant date with the balance vesting monthly over the following 36 months.
        The Company values stock options using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the risk-free interest rate, expected life, expected stock price volatility and dividend yield. The risk-free interest rate assumption is based upon observed interest rates for constant maturity U.S. Treasury securities consistent with the expected term of the Company's employee stock options. The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method. Under the simplified method, the expected life of an option is presumed to be the mid-point between the vesting date and end of the contractual term. The Company used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. Expected volatility is based on historical volatilities for publicly traded stock of
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
comparable companies over the estimated expected life of the stock options. The Company assumed no dividend yield because it does not expect to pay dividends in the near future, which is consistent with the Company's history of not paying dividends.
        The following summarizes the assumptions used for estimating the fair value of stock options granted during the periods indicated:

							
 	 	Year Ended December 31,	 	Nine Months
Ended
September 30,
2013	
 	 	2011	 	2012			
Risk-free interest rate	 	1.2 - 2.2%	 	0.7 - 1.1%	 	0.7 - 1.3%	
Expected life (in years)	 	6.25	 	4.75 - 6.25	 	4.75	
Expected volatility	 	43.8 - 44.6%	 	52.0 - 52.5%	 	46.8 - 49.4%	
Dividend yield	 	—	 	—	 	—	
Weighted-average grant date fair value per share          	 	$1.79	 	$2.65	 	$3.09	
Income Taxes
        The Company accounts for income taxes under the asset and liability method. The Company records deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which it expects to recover or settle those temporary differences. The Company recognizes the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. The Company assesses the likelihood that deferred tax assets will be realized and recognizes a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction. To date, the Company has provided a full valuation allowance against its deferred tax assets as it believes the objective and verifiable evidence of the Company's historical pretax net losses outweighs any positive evidence of its forecasted future results. Although the Company believes that its tax estimates are reasonable, the ultimate tax determination involves significant judgment that is subject to audit by tax authorities in the ordinary course of business. The Company will continue to monitor the positive and negative evidence and will adjust the valuation allowance as sufficient objective positive evidence becomes available.
        The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more likely than not that the position will be sustained upon examination. The Company recognizes potential accrued interest and penalties associated with unrecognized tax positions in income tax expense.
Basic and Diluted Net Loss per Common Share
        The Company uses the two-class method to compute net loss per common share because the Company has issued securities, other than common stock, that contractually entitle the holders to participate in dividends and earnings of the Company. The two-class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings. Holders of the Company's Series A, B and C
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
preferred stock are entitled, on a pari passu basis, to receive dividends when, as and if declared by the board of directors, prior and in preference to any declaration or payment of any dividend on the common stock or junior convertible preferred stock until such time as the total dividends paid on each share of Series A, B and C preferred stock is equal to the original issue price of the shares. Holders of junior convertible preferred stock are entitled to receive a pro rata share of any dividend declared, based on the number of shares of common and preferred stock outstanding. As a result, all series of the Company's preferred stock are considered participating securities.
        Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of current year earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the year's earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund losses. Diluted net loss per common share is computed under the two-class method by using the weighted-average number of shares of common stock outstanding plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options and warrants. In addition, the Company analyzes the potential dilutive effect of the outstanding participating securities under the if-converted method when calculating diluted earnings per share, in which it is assumed that the outstanding participating securities convert into common stock at the beginning of the period. The Company reports the more dilutive of the approaches as its diluted net income per share during the period. Due to net losses for the years ended December 31, 2011 and 2012, and nine-month periods ended September 30, 2012 (unaudited) and 2013, basic and diluted net loss per share were the same, as the effect of all potentially dilutive securities would have been anti-dilutive.
3. Deferred Solution and Other Costs
        Deferred solution and other costs, current portion and net of current portion, consisted of the following:

											
 	 	December 31,	 	 	 	
 			 	September 30,
2013	 	
 	 	2011	 	2012			 	
Deferred solution costs	 	$	1,164	 	$	1,333	 	$	1,131	 	
Deferred commissions	 	 	661	 	 	687	 	 	833	 	
 	 	 	 	 	 	 	 	
Deferred solution and other costs, current portion	 	$	1,825	 	$	2,020	 	$	1,964	 	
 	 	 	 	 	 	 	 	
Deferred solution costs	 	$	786	 	$	1,188	 	$	1,769	 	
Deferred commissions	 	 	1,717	 	 	2,186	 	 	2,938	 	
 	 	 	 	 	 	 	 	
Deferred solution and other costs, net of current portion	 	$	2,503	 	$	3,374	 	$	4,707	 	
 	 	 	 	 	 	 	 	
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
4. Property and Equipment
        Property and equipment consisted of the following:

											
 	 	December 31,	 	 	 	
 			 	September 30,
2013	 	
 	 	2011	 	2012			 	
Computer hardware and equipment	 	$	3,161	 	$	4,168	 	$	8,133	 	
Purchased software and licenses	 	 	854	 	 	1,499	 	 	2,963	 	
Furniture and fixtures	 	 	326	 	 	447	 	 	2,696	 	
Leasehold improvements	 	 	276	 	 	712	 	 	4,008	 	
 	 	 	 	 	 	 	 	
	 	 	4,617	 	 	6,826	 	 	17,800	 	
Accumulated depreciation	 	 	(1,562	)	 	(2,619	)	 	(3,742	)	
 	 	 	 	 	 	 	 	
Property and equipment	 	$	3,055	 	$	4,207	 	$	14,058	 	
 	 	 	 	 	 	 	 	
        Depreciation expense, including amortization of assets held under capital leases, was $0.8 million and $1.5 million for the years ended December 31, 2011 and 2012, respectively, and $2.0 million for the nine-month period ended September 30, 2013. Property and equipment included $1.0 million, $2.2 million and $3.2 million for assets acquired under capital leases at December 31, 2011 and 2012, and September 30, 2013, respectively.
5. Accrued Liabilities
        Accrued liabilities consisted of the following:

											
 	 	December 31,	 	 	 	
 			 	September 30,
2013	 	
 	 	2011	 	2012			 	
Employee compensation and benefits	 	$	916	 	$	2,032	 	$	3,173	 	
Accrued transaction processing fees	 	 	791	 	 	1,116	 	 	913	 	
Other	 	 	2,449	 	 	1,906	 	 	3,650	 	
 	 	 	 	 	 	 	 	
Total accrued liabilities	 	$	4,156	 	$	5,054	 	$	7,736	 	
 	 	 	 	 	 	 	 	
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Table of Contents

Q2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts and unless otherwise indicated)
6. Debt
        In September 2008, the Company entered into a loan and security agreement with a financial institution to provide a line of credit and term loan facility. The loan and security agreement was amended periodically as the Company's operations grew, most recently in May 2012 when the line of credit was increased from $7.0 million to $10.0 million. Amounts borrowed under the line of credit which were deemed an accounts receivable advance accrued interest at an annual rate equal to the greater of the financial institution's prime rate plus 1.50%, or 5.50%. Amounts borrowed under the line of credit which were deemed a contract revenue advance accrued interest at an annual rate equal to the greater of the financial institution's prime rate plus 2.25%, or 6.25%. For the years ended December 31, 2011 and 2012, and through the April 2013 termination of the loan and security agreement, the Company paid interest of 5.50% on borrowings deemed accounts receivable advances, and made no borrowings deemed to be contract revenue advances. As of December 31, 2011, the Company had advances of $2.5 million on the line of credit, leaving an available balance of $4.5 million. As of December 31, 2012, the Company had advances of $2.5 million on the line of credit, leaving an available balance of $7.5 million. In April 2013, the Company entered into a new credit agreement with another financial institution at which time the Company paid and terminated the loan and security agreement.
        In October 2010, the Company entered into a financing arrangement with a financial services company to procure certain equipment. The total amount financed was $0.3 million, and the Company completed payments on this financing arrangement in 2012.
        In April 2013, the Company entered into a secured credit facility agreement with Wells Fargo, N.A. which provides a line of credit of up to $25.0 million. The amount that can be borrowed under the line of credit is limited to the lesser of $25.0 million or 75% of the Company's trailing twelve-month recurring revenues. Access to the total borrowings available under the line of credit is restricted based on covenants related to the Company's minimum liquidity, trailing twelve-month recurring revenues and adjusted EBITDA. Amounts borrowed under the line of credit accrue interest, on the Company's election at either: (i) the per annum rate equal to the LIBOR rate plus an applicable margin; or (ii) the current base rate plus the greater of the U.S. Federal Funds rate plus one percentage point, the one month LIBOR plus one percentage point, or the lending financial institution's prime rate. Interest is payable monthly on the line of credit. The terms of the line of credit require that the Company maintain advances of at least $5.0 million at all times. The Company pays a monthly fee based on the total unused borrowings balance, an annual administrative fee and the initial closing fee, which is paid in three equal annual installments over the first three years of the credit facility. The credit facility matures in April 2017, at which time any outstanding borrowings and accrued interest become payable. In April 2013, the Company drew an advance on the line of credit of $2.5 million to pay off its existing loan and security agreement with another institution. In June 2013, the Company drew an advance on the line of credit of $3.9 million to fund capital expenditures and secured a letter of credit for the benefit of the landlord of its new corporate headquarters in the amount of $3.0 million. As of September 30, 2013, the Company had borrowings of $6.3 million and a secured letter of credit of $3.0 million against the line of credit, leaving an available balance of up to $15.7 million. The line of credit is collateralized by substantially all of the Company's assets and requires that the Company maintain certain financial covenants as provided in the credit facility agreement. The Company was in compliance with all such covenants as of September 30, 2013.
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
7. Commitments and Contingencies
Operating and Capital Lease Commitments
        The Company leases office facilities and certain equipment under non-cancelable operating leases and certain equipment under non-cancelable capital leases. Rent expense under operating leases was $0.6 million, $0.9 million and $1.1 million for the years ended December 31, 2011 and 2012, and the nine-month period ended September 30, 2013, respectively. In 2013, the Company moved to its new headquarters. As a result, the Company vacated its former leased headquarters and recorded an unoccupied lease charge of $236 for the remaining contractual lease payments less estimated sublease income.
        Future minimum payments required under capital and operating leases that have initial or remaining non-cancelable lease terms in excess of one year at September 30, 2013 were as follows:

								
 	 	Capital
Leases	 	Operating
Leases	 	
Year Ended December 31,	 	 	 	 	 	
2013 (from October 1 to December 31)	 	$	223	 	$	129	 	
2014	 	 	748	 	 	891	 	
2015	 	 	418	 	 	1,846	 	
2016	 	 	150	 	 	1,704	 	
2017	 	 	4	 	 	1,745	 	
Thereafter	 	 	—	 	 	6,122	 	
 	 	 	 	 	 	
Total minimum lease payments	 	 	1,543	 	$	12,437	 	
 	 	 	 	 	 	 	
Less: imputed interest	 	 	(46	)	 	 	 	
Less: current portion	 	 	(785	)	 	 	 	
 	 	 	 	 	 	 	
Capital lease obligations, net of current portion	 	$	712	 	 	 	 	
 	 	 	 	 	 	 	
Contractual Commitments
        The Company has non-cancelable contractual commitments related to third-party products, co-location fees and other product costs. Future minimum contractual commitments that have initial or remaining non-cancelable terms in excess of one year were as follows:

					
 	 	Contractual
Commitments	 	
Year Ended December 31,	 	 	 	 	
2013 (from October 1 to December 31)	 	$	952	 	
2014	 	 	4,159	 	
2015	 	 	3,779	 	
2016	 	 	3,153	 	
2017	 	 	2,608	 	
Thereafter	 	 	4,974	 	
 	 	 	 	
Total commitments	 	$	19,625	 	
 	 	 	 	
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
Legal Proceedings
        From time to time, the Company may become involved in legal proceedings arising in the ordinary course of its business. The Company is not presently a party to any legal proceedings that, if determined adversely to the Company, would have a material adverse effect on the Company.
8. Preferred Stock
Redeemable Convertible Preferred Stock
Series A Preferred Stock
        In 2007, the Company sold 7,908 shares of Series A preferred stock, at $1.39 per share for proceeds of $10.8 million.
Series B Preferred Stock
        In December 2011, the Company sold 1,818 shares of Series B preferred stock, at $6.05 per share to investors for cash proceeds of $10.9 million, net of issuance costs of $0.1 million.
Series C Preferred Stock
        In March and April 2013, the Company sold 2,605 shares of Series C preferred stock, at $7.68 per share to investors for cash proceeds of $19.0 million, net of issuance costs of $1.0 million.
Junior Convertible Preferred Stock
        In 2007, the Company sold 1,251 shares of junior preferred stock, at $1.39 per share for cash proceeds of $1.7 million.
Dividend Rights
        The holders of the outstanding shares of Series A, B and C preferred stock are entitled, on a pari passu basis, to receive dividends when, as and if declared by the board of directors, prior and in preference to any declaration or payment of any dividend on the common stock or junior preferred stock until such time as the total dividends paid on each share of Series A, B and C preferred stock is equal to the original issue price of the shares, subject to adjustment for dilution. As of September 30, 2013, no dividends had been declared by the board of directors.
Conversion Rights
        Each share of preferred stock is convertible upon issuance, at the option of the holder, into such number of fully paid and non-assessable shares of common stock as determined, with respect to each share of preferred stock, by dividing the issuance price of the shares by the applicable conversion price in effect on the date the certificate is surrendered for conversion. The initial conversion price per share is the original issue price.
        Upon either the date specified by holders of two-thirds of the outstanding shares of Series A, B and C preferred stock, and including an approval of the holders of a majority of the outstanding Series C preferred stock with regards to the conversion of Series C preferred stock, or the closing date of an IPO reflecting a certain minimum equity valuation of the Company and a certain minimum
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Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
amount of net proceeds to the Company, all issued and outstanding shares of convertible preferred stock shall automatically be converted to shares of common stock at the then effective conversion rate.
Liquidation Rights
        In the event of liquidation, dissolution or winding up of the Company, either voluntary or involuntary, each holder of Series A, B and C preferred stock is entitled to receive, on a pari passu basis, prior and in preference to any distribution of any of the assets of the Company to the holders of any other class or series of capital stock of the Company, including junior preferred stock and common stock, the amounts set forth below:
•
with respect to Series A preferred stock an amount equal to $1.39 per share, plus an amount equal to 6% of the original issue price of $1.39 accrued per annum plus declared but unpaid dividends from the initial issue date on the shares of Series A preferred stock; 

•
with respect to Series B preferred stock an amount equal to $6.05 per share, plus an amount equal to 6% of the original issue price of $6.05 accrued per annum plus $1.60 per share, plus declared but unpaid dividends from the initial issue date on the shares of Series B preferred stock; and 

•
with respect to Series C preferred stock an amount equal to $7.68 per share, plus an amount equal to 6% of the original issue price of $7.68 accrued per annum plus declared but unpaid dividends from the initial issue date on the shares of Series C preferred stock.
        If the assets and funds available for distribution are insufficient to pay each holder of Series A, B and C preferred stock the entire Series A, B and C liquidation preference amounts, then the entire assets and funds legally available for distribution shall be distributed ratably among holders of Series A, B and C preferred stock in proportion to each holder's original investment.
        With respect to junior preferred stock, after the payment of the liquidation preference amounts to holders of Series A, B and C preferred stock, each holder of junior preferred stock is entitled to receive, prior and in preference to any distribution of assets to the holders of common stock, an amount equal to $1.39 per share plus an amount equal to all the previously declared, but unpaid dividends on the junior preferred stock. If the assets and funds available for distribution are insufficient to permit the payment to each holder of junior preferred stock of the entire liquidation preference amounts, then the entire assets and funds legally available for distribution to the holders of the junior preferred stock shall be distributed ratably among the holders of the junior preferred stock in proportion to each holder's original investment.
        After payment to the holders of the preferred stock of their respective liquidation preference amounts, any additional remaining assets shall be distributed ratably to the holders of Series A preferred stock and common stock, assuming the conversion of the Series A preferred stock into common stock. However, holders of Series A preferred stock shall not be entitled to receive more than three times the original Series A preferred stock issue price of $1.39 per share plus any declared but unpaid dividends on each share of Series A preferred stock, or Maximum Participation Amount.
        If the amount the holders of Series A, B and C preferred stock would have received if all shares of Series A, B and C preferred stock had been converted into common stock exceeds for the holders of Series A preferred stock an amount equal to the sum of any declared, but unpaid dividends and the Maximum Participation Amount and for the holders of Series B and C preferred stock the liquidation preference amount payable to such holders, each holder of Series A, B and C preferred stock shall be
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Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
entitled to receive upon such liquidation, dissolution or winding up of the Company the amount each holder would have received if all shares of Series A, B and C preferred stock had been converted into common stock immediately prior to such liquidation, dissolution or winding up of the Company.
Redemption
        The Series A, B and C preferred stock is redeemable at any time after the fifth anniversary of the Series C preferred stock issue date (March 2018) upon receipt of a written request from the holders of at least 75% of the sum of the outstanding shares of (i) Series A, B and C preferred stock and (ii) common stock owned by holders of Series C preferred stock, or Selected Common Stock, voting as a single class on an as-converted-to-common-stock basis. The Company shall redeem the shares of Series A, B and C preferred stock by paying a sum per share equal to the greater of (i) fair market value for such shares as determined by an independent valuation expert acceptable to the holders of (A) at least 75% of the Series A, B and C preferred stock and Selected Common Stock (voting as a single class on an as-converted-to-common-stock basis) and (B) a majority of common stock or (ii) the original issue price. The Company shall redeem Selected Common Stock at the fair market value for such shares, as determined in the same manner as the Series A, B and C preferred stock. Such redemption shall occur in three equal annual installments, with the first such redemption date occurring within 30 days after the receipt by the Company of the redemption request, and the second and third redemption dates occurring on the first and second year anniversaries of the first redemption date.
        Based on the estimated fair value of the Company's stock as of December 31, 2011 and 2012, and September 30, 2013, the redemption price of each of the Series A, B and C preferred stock would exceed the applicable original issue price as of the first possible redemption date. However, the Company has not provided for accretion beyond the original issue price as management does not believe the Series A, B or C preferred stock will become redeemable.
Voting Rights
        Each share of preferred stock entitles the holder to one vote for each share of common stock into which each share of preferred stock could then be converted, with full voting rights and powers equal to the voting rights and powers of holders of common stock.
9. Common Stock
Redeemable Common Stock
        In conjunction with the Company's sale of its Series C preferred stock in March and April 2013, certain investors in Series C preferred stock purchased a total of 3,829 shares of the Company's common stock from selling stockholders at a price of $6.98 per share. Along with the purchase of the Series C preferred stock, the Series C preferred stockholder received a non-detachable right to redeem any shares of common stock that are also owned by the Series C preferred stockholder pursuant to the same terms and conditions as provided for redemption of Series C preferred stock, except that the common stock is only redeemable at its fair value. Similar to its redeemable convertible preferred stock, management believes that the redeemable common stock is not probable of becoming redeemable. Accordingly, the redeemable common stock has been recorded at its original issue price and has not been adjusted to its fair value as of September 30, 2013 (see Note 8).
F-22

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Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
Common Stock
        As of September 30, 2013, the Company was authorized to issue 35,000 common shares with a par value of $0.0001 per share, of which 8,219 shares were issued and outstanding. As of September 30, 2013, the Company had reserved shares of common stock, on an as-if-converted basis, for issuance as follows:

					
For conversion of Series A preferred stock	 	 	7,908	 	
For conversion of Series B preferred stock	 	 	1,818	 	
For conversion of Series C preferred stock	 	 	2,605	 	
For conversion of junior preferred stock	 	 	1,251	 	
For issuance under stock option plans	 	 	5,361	 	
 	 	 	 	
Total common shares reserved for future issuance	 	 	18,943	 	
 	 	 	 	
        The holders of common stock are entitled to receive dividends when, as and if declared by the board of directors, but not until dividends amounting to the original issue price have been paid on each of all issued and outstanding shares of Series A, B and C preferred stock. Holders of common stock are entitled to one vote per common share.
10. Stock-Based Compensation
        In July 2007, the Company adopted the 2007 Stock Plan under which options or stock purchase rights may be granted to employees, consultants and directors. An incentive stock option may be granted only to a person who is an employee on the effective date of grant of the option. Any person who is not an employee on the effective date of the grant of an option may be granted only a non-statutory stock option. In February 2012, the board of directors, under the authority granted to it by the 2007 Stock Plan, increased the number of shares available to be granted under the plan by 1,250 shares, and as of September 30, 2013, a total of 7,678 shares of common stock were allocated for issuance under the plan, of which 337 shares remained available for future issuance. Shares of common stock that may be issued under the 2007 Stock Plan consist of authorized, but unissued or reacquired shares of common stock or any combination thereof.
        Under the 2007 Stock Plan, the exercise price for each option is established at the discretion of the board of directors, subject to compliance with Section 409A of the Internal Revenue Code; provided, however, that the exercise price per share is not less than the fair market value of a share of stock on the effective date of grant of the option. The maximum term of the options is ten years measured from the effective date of the option grant. Prior to 2012, all stock options issued under the 2007 Stock Plan had a ten-year contractual life. During the year ended December 31, 2012, the board of directors began issuing stock options with a seven-year contractual life. The exercise price per share for a person who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company may not be less than 110% of the fair market value of a share of the Company's common stock on the effective date of grant of the option and the term of the option will be no more than five years measured from the option grant date. With the exception of an option granted to an officer, a director or a consultant, no option will become exercisable at a rate less than 20% per year over a period of five years from the effective date of grant of such option, subject to the participant's continued service. Generally, the standard vesting schedule is 25% of the total number of shares of common stock subject to the option will vest on the first anniversary of the vesting commencement date and the remaining option shares will vest in a series of equal monthly installments
F-23

Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
for 36 successive months for a total of four years. Under certain conditions, vesting is accelerated as to each option outstanding under the 2007 Stock Plan at the time of a change in control as defined in the 2007 Stock Plan.
        Stock option activity was as follows:

								
 	 	Number of
Options	 	Weighted
Average
Exercise Price	 	
Balance as of January 1, 2011	 	 	3,502	 	$	0.45	 	
Granted	 	 	1,607	 	 	2.56	 	
Exercised	 	 	(20	)	 	0.33	 	
Forfeited	 	 	(67	)	 	0.83	 	
 	 	 	 	 	 	 	
Balance as of December 31, 2011	 	 	5,022	 	 	1.12	 	
Granted	 	 	1,064	 	 	5.73	 	
Exercised	 	 	(42	)	 	0.41	 	
Forfeited	 	 	(312	)	 	1.84	 	
 	 	 	 	 	 	 	
Balance as of December 31, 2012	 	 	5,732	 	 	1.94	 	
Granted	 	 	411	 	 	7.56	 	
Exercised	 	 	(669	)	 	0.51	 	
Forfeited	 	 	(113	)	 	4.53	 	
 	 	 	 	 	 	 	
Balance as of September 30, 2013	 	 	5,361	 	$	2.50	 	
 	 	 	 	 	 	 	
        The summary of stock options outstanding as of September 30, 2013 was as follows:

																				
 	 	Options Outstanding	 	Options Exercisable	 	
Range of Exercise Prices 	 	Number of
Options	 	Weighted
Average
Exercise
Price	 	Weighted
Average
Remaining
Contractual Life
(in years)	 	Number of
Options	 	Weighted
Average
Exercise
Price	 	Weighted
Average
Remaining
Contractual Life
(in years)	 	
$0.29	 	 	729	 	$	0.29	 	 	4.4	 	 	729	 	$	0.29	 	 	4.4	 	
$0.35	 	 	971	 	 	0.35	 	 	4.4	 	 	971	 	 	0.35	 	 	4.4	 	
$0.54 - $0.84	 	 	1,022	 	 	0.68	 	 	5.9	 	 	933	 	 	0.68	 	 	5.8	 	
$1.74 - $3.10	 	 	1,263	 	 	2.75	 	 	7.9	 	 	681	 	 	2.58	 	 	7.7	 	
$4.00 - $6.57	 	 	966	 	 	5.76	 	 	8.8	 	 	217	 	 	5.39	 	 	8.4	 	
$6.98 - $7.75	 	 	410	 	 	7.56	 	 	9.7	 	 	—	 	 	—	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	5,361	 	$	2.50	 	 	6.7	 	 	3,531	 	$	1.16	 	 	5.7	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
        The aggregate intrinsic value of stock options exercised during the years ended December 31, 2011 and 2012, and the nine-month period ended September 30, 2013, was $0.1 million, $0.2 million and $4.4 million, respectively. The total fair market value of stock options vested during the years ended December 31, 2011 and 2012 and the nine-month period ended September 30, 2012 was $0.3 million, $0.8 million and $1.1 million, respectively. As of September 30, 2013, total unrecognized stock-based compensation expense, adjusted for estimated forfeitures, related to stock options was $4.3 million, which is expected to be recognized over the next 2.9 years.
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Table of Contents

Q2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts and unless otherwise indicated)
11. Net Loss per Common Share
        The following table sets forth the computations of loss per share:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
 	 	 	 	 	 	(unaudited)	 	 	 	
Numerators:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations attributable to common stockholders	 	$	(1,895	)	$	(7,520	)	$	(5,067	)	$	(11,177	)	
Loss from discontinued operations attributable to common stockholders	 	 	(1,132	)	 	(1,259	)	 	(918	)	 	(199	)	
 	 	 	 	 	 	 	 	 	 	
Net loss attributable to common stockholders	 	$	(3,027	)	$	(8,779	)	$	(5,985	)	$	(11,376	)	
Denominator:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted-average common shares outstanding, basic and diluted	 	 	11,326	 	 	11,345	 	 	11,341	 	 	11,794	 	
Loss from continuing operations per share, basic and diluted	 	$	(0.17	)	$	(0.66	)	$	(0.45	)	$	(0.95	)	
 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations per share, basic and diluted	 	$	(0.10	)	$	(0.11	)	$	(0.08	)	$	(0.01	)	
 	 	 	 	 	 	 	 	 	 	
Net loss per common share, basic and diluted	 	$	(0.27	)	$	(0.77	)	$	(0.53	)	$	(0.96	)	
 	 	 	 	 	 	 	 	 	 	
        Due to net losses for the years ended December 31, 2011 and 2012, and nine-month periods ended September 30, 2012 (unaudited) and 2013, basic and diluted loss per share were the same, as the effect of all potentially dilutive securities would have been anti-dilutive. The following table sets forth the anti-dilutive common share equivalents:

														
 	 	Year Ended
December 31,	 	Nine Months Ended
September 30,	 	
 	 	2011	 	2012	 	2012	 	2013	 	
 	 	 	 	 	 	(unaudited)	 	 	 	
Redeemable convertible preferred stock:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Series A preferred stock	 	 	7,908	 	 	7,908	 	 	7,908	 	 	7,908	 	
Series B preferred stock	 	 	15	 	 	1,818	 	 	1,818	 	 	1,818	 	
Series C preferred stock	 	 	—	 	 	—	 	 	—	 	 	2,042	 	
Junior preferred stock	 	 	1,251	 	 	1,251	 	 	1,251	 	 	1,251	 	
Stock options	 	 	3,503	 	 	4,765	 	 	4,786	 	 	4,535	 	
 	 	 	 	 	 	 	 	 	 	
Total anti-dilutive common share equivalents	 	 	12,677	 	 	15,742	 	 	15,763	 	 	17,554	 	
 	 	 	 	 	 	 	 	 	 	
Pro Forma Net Loss per Common Share (unaudited)
        The numerator and denominator used in computing the unaudited pro forma net loss per common share for the year ended December 31, 2012 and the nine-month period ended September 30, 2013 have been adjusted to assume the conversion of all outstanding shares of preferred stock into common stock at the later of January 1, 2012 or the date of issuance of the preferred stock. Pro forma net loss
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
per common share does not give effect to potentially dilutive securities where the impact would be anti-dilutive.

								
 	 	Year Ended
December 31,
2012	 	Nine Months
Ended
September 30,
2013	 	
 	 	(unaudited)	 	
Numerator:	 	 	 	 	 	 	 	
Net loss attributable to common stockholders	 	$	(8,779	)	$	(11,376	)	
Denominator:	 	 	 	 	 	 	 	
Historical denominator for basic and diluted net loss per common share—weighted-average common shares outstanding, basic and diluted	 	 	11,345	 	 	11,794	 	
Plus: assumed conversion of preferred stock to common stock	 	 	10,978	 	 	13,020	 	
 	 	 	 	 	 	
Denominator for pro forma basic and diluted net loss per common share	 	 	22,323	 	 	24,814	 	
 	 	 	 	 	 	
Pro forma net loss per common share, basic and diluted	 	$	(0.39	)	$	(0.46	)	
 	 	 	 	 	 	
12. Provision for Income Taxes
        The components of the Company's provision for income taxes from continuing operations were as follows:

											
 	 	Year Ended
December 31,	 	 	 	
 			 	Nine Months
Ended
September 30,
2013	 	
 	 	2011	 	2012			 	
Current taxes:	 	 	 	 	 	 	 	 	 	 	
Federal	 	$	—	 	$	—	 	$	—	 	
State	 	 	129	 	 	162	 	 	30	 	
 	 	 	 	 	 	 	 	
Total current taxes	 	$	129	 	$	162	 	$	30	 	
 	 	 	 	 	 	 	 	
Deferred taxes:	 	 	 	 	 	 	 	 	 	 	
Federal	 	$	—	 	$	—	 	$	—	 	
State	 	 	3	 	 	3	 	 	3	 	
 	 	 	 	 	 	 	 	
Total deferred taxes	 	 	3	 	 	3	 	 	3	 	
 	 	 	 	 	 	 	 	
Provision for income taxes	 	$	132	 	$	164	 	$	33	 	
 	 	 	 	 	 	 	 	
        As of September 30, 2013, the Company had federal net operating loss carryforwards of approximately $42.1 million, state tax credits of approximately $0.2 million and federal alternative minimum tax credits of $0.1 million. The net operating loss carryforwards will expire at various dates beginning in 2026 if not utilized. The state tax credits expire in 2027 if not utilized. The alternative minimum tax credits have an indefinite carryforward period.
        Federal and state laws impose restrictions on the utilization of net operating loss carryforwards and research and development credit carryforwards in the event of a change in ownership of the Company, which constitutes an "ownership change" as defined by Internal Revenue Code Sections 382 and 383.
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Table of Contents

Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
Should there be an ownership change in the future, the Company's ability to utilize existing carryforwards could be substantially restricted.
        Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has established a valuation allowance due to uncertainties regarding the realization of deferred tax assets based on the Company's lack of earnings history. During the nine-month period ended September 30, 2013, the valuation allowance increased by $2.5 million.
        The Company's deferred tax assets and deferred tax liabilities were as follows:

											
 	 	December 31,	 	 	 	
 			 	September 30,
2013	 	
 	 	2011	 	2012			 	
Deferred tax assets:	 	 	 	 	 	 	 	 	 	 	
NOL and credit carryforwards	 	$	8,058	 	$	11,054	 	$	13,969	 	
Deferred revenue	 	 	1,148	 	 	1,146	 	 	1,851	 	
Accrued expenses and other	 	 	138	 	 	662	 	 	1,350	 	
Deferred rent	 	 	—	 	 	134	 	 	1,758	 	
 	 	 	 	 	 	 	 	
Total deferred tax assets	 	 	9,344	 	 	12,996	 	 	18,928	 	
Deferred tax liabilities:	 	 	 	 	 	 	 	 	 	 	
Deferred expenses	 	 	(2,072	)	 	(2,799	)	 	(3,613	)	
Depreciation and amortization	 	 	(798	)	 	(982	)	 	(3,569	)	
 	 	 	 	 	 	 	 	
Total deferred tax liabilities	 	 	(2,870	)	 	(3,781	)	 	(7,182	)	
 	 	 	 	 	 	 	 	
Deferred tax assets less tax liabilities	 	 	6,474	 	 	9,215	 	 	11,746	 	
Less: valuation allowance	 	 	(6,352	)	 	(9,097	)	 	(11,631	)	
 	 	 	 	 	 	 	 	
Net deferred tax asset	 	$	122	 	$	118	 	$	115	 	
 	 	 	 	 	 	 	 	
        The Company had $0.9 million of excess stock deductions which are not included in deferred tax assets. The tax benefit from these deductions will increase additional paid-in capital when they are deemed realized under the "with and without" method.
        The Company's provision for income taxes from continuing operations differs from the amount computed by applying the statutory federal income tax rate of 34% primarily as a result of the following:

											
 	 	Year Ended
December 31,	 	 	 	
 			 	Nine Months Ended
September 30,
2013	 	
 	 	2011	 	2012			 	
Income tax at U.S. statutory rate	 	 	34.0	%	 	34.0	%	 	34.0	%	
Effect of:	 	 	 	 	 	 	 	 	 	 	
Increase in deferred tax valuation allowance	 	 	(33.0	)	 	(31.5	)	 	(31.9	)	
State taxes, net of federal benefit	 	 	(4.8	)	 	(0.7	)	 	1.0	 	
Other permanent items	 	 	(3.7	)	 	(4.0	)	 	(3.4	)	
 	 	 	 	 	 	 	 	
Income tax provision effective rate	 	 	(7.5	)%	 	(2.2	)%	 	(0.3	)%	
 	 	 	 	 	 	 	 	
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Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
        The Company files income tax returns in the U.S. federal jurisdiction and several state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years before 2010. Operating losses generated in years prior to 2010 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating losses are utilized. The tax years 2010 through 2013 remain open to examination by all major taxing jurisdictions to which the Company is subject, though the Company is not currently under examination by any major taxing jurisdiction.
        The Company had not recorded any tax reserves related to uncertain tax positions as of December 31, 2011 and 2012 and September 30, 2013. The Company's policy is to accrue interest and penalties related to uncertain tax positions as a component of income tax expense. For the years ended December 31, 2011 and 2012 and the nine-month period ended September 30, 2013, the Company did not incur any interest or penalties.
13. Employee Benefit Plan
        In January 2009, the Company adopted a 401(k) profit-sharing plan, or 401(k) Plan, covering substantially all employees. Employees can contribute between 1% and 90% of their total earnings. The 401(k) Plan also provides for employer contributions to be made at the Company's discretion. As of September 30, 2013, the Company had not made any discretionary contributions.
14. Discontinued Operations
        On March 1, 2013, the Company distributed all of the shares of a subsidiary to the Company's stockholders in a spin-off. The subsidiary was not a discontinued operation or classified as held for sale as of December 31, 2011 or 2012. However, since all shares of the subsidiary were distributed in 2013, the Company's consolidated statements of operations and statements of cash flows have been presented to show the discontinued operations of the subsidiary separately from continuing operations for all periods presented. Since the transaction was between entities under common control, the distribution of the shares of the subsidiary did not result in a gain or loss on distribution as it was recorded at historical carrying values.
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Q2 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and unless otherwise indicated)
        The following table sets forth the assets and liabilities of the discontinued operations which are included in the Company's consolidated balance sheets:

								
 	 	December 31,	 	
 	 	2011	 	2012	 	
Assets:	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	11	 	$	146	 	
Accounts receivable, net	 	 	—	 	 	4	 	
Prepaids and other current assets	 	 	—	 	 	40	 	
Property and equipment, net	 	 	24	 	 	22	 	
Other long term assets	 	 	—	 	 	180	 	
 	 	 	 	 	 	
Total assets	 	 	35	 	 	392	 	
Liabilities:	 	 	 	 	 	 	 	
Accounts payable	 	 	2	 	 	15	 	
Accrued liabilities	 	 	46	 	 	97	 	
Deferred revenue, net of current portion	 	 	10	 	 	47	 	
 	 	 	 	 	 	
Total liabilities	 	 	58	 	 	159	 	
 	 	 	 	 	 	
Net assets (liabilities)	 	$	(23	)	$	233	 	
 	 	 	 	 	 	
15. Segments and Geographic Information
        All revenue-generating activities are directly related to the sale, implementation and support of the Company's solutions in a single operating segment. The Company's chief operating decision maker, the Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. All of the Company's principal operations, assets and decision-making functions are located in the United States.
16. Related Parties
        For the years ended December 31, 2011 and 2012, and the nine-month period ended September 30, 2013, the Company recorded revenues from a related-party customer of $0.2 million, $0.3 million and $0.2 million, respectively.
        For the year ended December 31, 2012, the Company paid $0.1 million to related parties for professional services.
17. Subsequent Events
        The Company has evaluated subsequent events through December 20, 2013, the date the consolidated financial statements were issued.
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                    Shares
Common Stock
PROSPECTUS

			
J.P. Morgan	 	Stifel	

							
RBC Capital Markets	 	Raymond James	 	Canaccord Genuity	 	Needham & Company	

Table of Contents

 PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13.    Other Expenses of Issuance and Distribution
        The following table sets forth the costs and expenses, other than the underwriting discounts and commissions payable by us, in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee, the Financial Industry Regulatory Authority, or FINRA, filing fee and the             listing fee.

					
SEC registration fee	 	$	17,774	 	
FINRA filing fee	 	$	21,200	 	
             listing fee	 	 	*	 	
Blue sky fees and expenses	 	 	*	 	
Transfer agent and registrar fees	 	 	*	 	
Accounting fees and expenses	 	 	*	 	
Legal fees and expenses	 	 	*	 	
Printing and engraving costs	 	 	*	 	
Miscellaneous expenses	 	 	*	 	
 	 	 	 	
Total	 	$	*	 	

*
To be completed by amendment.
Item 14.    Indemnification of Directors and Officers
        Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act.
        As permitted by Delaware law, our amended and restated certificate of incorporation to be effective upon the completion of this offering includes a provision that eliminates the personal liability of our directors for monetary damages for breach of fiduciary duty as a director, except for liability:
•
for any breach of the director's duty of loyalty; 

•
for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; 

•
under section 174 of the Delaware General Corporation Law regarding unlawful dividends and stock purchases; or 

•
for any transaction for which the director derived an improper personal benefit.
        As permitted by Delaware law, our amended and restated bylaws to be effective upon completion of this offering provide that:
•
we are required to indemnify our directors and officers to the fullest extent permitted by Delaware law, subject to very limited exceptions; 

•
we may indemnify our other employees and agents to the fullest extent permitted by Delaware law, subject to very limited exceptions; 

•
we are required to advance expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by Delaware law, subject to very limited exceptions;
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•
we may advance expenses, as incurred, to our employees and agents in connection with a legal proceeding; and 

•
the rights conferred in the bylaws are not exclusive.
        We intend to enter into indemnity agreements with each of our current directors and officers to give these directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our restated certificate of incorporation and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving our directors, officers or employees regarding which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.
        The indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws and the indemnity agreements entered into between us and each of our directors and officers may be sufficiently broad to permit indemnification of our directors and officers for liabilities arising under the Securities Act.
        Reference is also made to the underwriting agreement, which provides for the indemnification of our directors, officers and controlling persons against certain liabilities.
        We are seeking to obtain directors' and officers' liability insurance and expect the insurance to include coverage for securities matters.
Item 15.    Recent Sales of Unregistered Securities
        In the three years preceding the filing of this registration statement, Q2 Holdings, Inc. has sold and issued the following unregistered securities:
1.
On December 29, 2011, we sold and issued an aggregate of 1,818,182 shares of our Series B preferred stock to 10 accredited investors at a purchase price of $6.05 per share for aggregate consideration of approximately $11.0 million.

2.
On March 1, 2013, we sold and issued an aggregate of 2,605,094 shares of our Series C preferred stock to 13 accredited investors at a purchase price of $7.68 per share for aggregate consideration of approximately $20.0 million.

3.
During the three-year period ending December 31, 2013, an aggregate of 800,275 shares of our common stock were issued to employees, consultants and directors upon exercise of stock options under our 2007 Plan, for an aggregate consideration of approximately $456,611.

4.
During the three-year period ending December 31, 2013, we have granted to employees, consultants and directors options to purchase 3,505,035 shares of our common stock under our 2007 Plan. The exercise price per share of these options ranged from $1.74 to $7.82.
        No underwriters were involved in the foregoing sales of securities. The issuances of the securities described above were deemed to be exempt from registration under the Securities Act, in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions pursuant to compensation benefits plans and contracts relating to compensation.
Item 16.    Exhibits and Financial Statement Schedules
        (a)   Exhibits
        A list of exhibits filed as part of this registration statement is set forth in the Exhibit Index, which is incorporated herein by reference.
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        (b)   Financial Statement Schedules
        Financial statement schedules have been omitted because the information required to be set forth therein is either inapplicable or is shown in our consolidated financial statements or notes thereto, other than with respect to the statement above related to dividend payments.
Item 17.    Undertakings
        The registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
        Insofar as indemnification by the registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this registration statement or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
        The registrant hereby undertakes that:
(1)
For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2)
For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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 SIGNATURES
        Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Austin, Texas on the 12th day of February, 2014.

					
 	 	Q2 HOLDINGS, INC.	

 	
By:	
 	
/s/ MATTHEW P. FLAKE

Matthew P. Flake
 President, Chief Executive Officer and Director	
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 POWER OF ATTORNEY
        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Matthew P. Flake and Jennifer N. Harris and each of them, his or her true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments (including post-effective amendments) to this registration statement together with all schedules and exhibits thereto and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together with all schedules and exhibits thereto, (ii) act on, sign and file such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith, (iii) act on and file any supplement to any prospectus included in this registration statement or any such amendment or any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (iv) take any and all actions which may be necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, hereby approving, ratifying and confirming all that such agent, proxy and attorney-in-fact or any of his substitutes may lawfully do or cause to be done by virtue thereof.
         Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated:

					
Name 	 	Title 	 	Date 	

 	

 	
/s/ MATTHEW P. FLAKE

Matthew P. Flake	 	President, Chief Executive Officer (Principal Executive Officer) and Director	 	February 12, 2014	

/s/ JENNIFER N. HARRIS

Jennifer N. Harris	
 	
Chief Financial Officer (Principal Financial and Accounting Officer)	
 	
February 12, 2014	

/s/ R. H. "HANK" SEALE, III 

R. H. "Hank" Seale, III	
 	
Executive Chairman of the Board of Directors	
 	
February 12, 2014	

/s/ MICHAEL M. BROWN

Michael M. Brown	
 	
Director	
 	
February 12, 2014	

/s/ JEFFREY T. DIEHL

Jeffrey T. Diehl	
 	
Director	
 	
February 12, 2014	

/s/ CHARLES T. DOYLE

Charles T. Doyle	
 	
Director	
 	
February 12, 2014	
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Name 	 	Title 	 	Date 	

 	

 	
/s/ MICHAEL J. MAPLES, SR.

Michael J. Maples, Sr.	 	Director	 	February 12, 2014	

/s/ JAMES R. OFFERDAHL

James R. Offerdahl	
 	
Director	
 	
February 12, 2014	

/s/ CARL JAMES SCHAPER

Carl James Schaper	
 	
Director	
 	
February 12, 2014	
II-6

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 EXHIBIT INDEX

			
Exhibit
Number	 	Description	
1.1	*	Form of Underwriting Agreement	

2.1	
 	
Agreement and Plan of Reorganization, dated July 27, 2007, by and among the Registrant, Q2 Acquisition Corporation, Q2 Software, Inc., and RHS Investments, L.P.	

2.2	
 	
Agreement and Plan of Reorganization, dated July 27, 2007, by and among the Registrant, Cardinal Acquisition Corporation, Cardinal Software, Inc. and RHS Investments, Inc.	

2.3	
 	
Asset Purchase Agreement, dated June 11, 2010, by and between Cardinal Software Inc., ITS, Inc., and ITS Acquisition Sub, Inc.	

2.4	
 	
Separation and Distribution Agreement, dated March 1, 2013, by and between the Registrant, Q2 Software, Inc., CB Network Holdings, Inc. and CBANC Network, Incorporated	

3.1	
 	
Third Amended and Restated Certificate of Incorporation, dated March 1, 2013	

3.2	
*	
Form of Amended and Restated Certificate of Incorporation of the Registrant, to be effective upon the closing of the offering	

3.3	
 	
Bylaws of the Registrant, as currently in effect	

3.4	
*	
Form of Amended and Restated Bylaws of the Registrant, to be effective upon closing of the offering	

4.1	
 	
Third Amended and Restated Investors' Rights Agreement, dated March 1, 2013	

4.2	
 	
Second Amended and Restated Right of First Refusal and Co-Sale Agreement, dated March 1, 2013	

4.3	
 	
Second Amended and Restated Voting Agreement, dated March 1, 2013	

5.1	
*	
Opinion of DLA Piper LLP (US)	

10.1	
*	
Form of Indemnification Agreement for directors and officers	

10.2.1	
 	
2007 Stock Plan, as amended	

10.2.2	
 	
Form of Stock Option Agreement under the 2007 Stock Plan	

10.2.3	
 	
Form of Stock Option Agreement for Executive Officers under the 2007 Stock Plan	

10.2.4	
 	
Form of Stock Option Agreement for Directors under the 2007 Stock Plan	

10.3.1	
 	
Credit Agreement, dated April 11, 2013, by and among Wells Fargo Bank, National Association, as administrative agent for the lenders named therein, the Registrant, and Q2 Software, Inc.	

10.3.2	
 	
Guaranty and Security Agreement, dated April 11, 2013, by and among Wells Fargo Bank, National Association, as administrative agent for the lenders named therein, the Registrant, and Q2 Software,  Inc.	

10.3.3	
 	
Patent Security Agreement, dated April 11, 2013, by and among Wells Fargo Bank, National Association, as administrative agent for the lenders named therein, the Registrant, and Q2 Software, Inc.	

10.4	
 	
Lease Agreement, dated November 20, 2012, by and among the Q2 Software, Inc. and 13785 Research Blvd, LLC	

10.5	
*	
Amended and Restated Employment Agreement, dated                    2014, by and among the Registrant and Matthew P. Flake	

Table of Contents

			
Exhibit
Number	 	Description	
10.6	*	Employment Agreement, dated                    2014, by and among the Registrant and R.H. "Hank" Seale, III	

10.7	
*	
Employment Agreement, dated                    2014, by and among the Registrant and William M. Furrer	

10.8	
*	
Employment Agreement, dated                    2014, by and among the Registrant and Stephen C. Soukup	

10.9	
*	
2014 Equity Incentive Plan and forms of agreements thereunder	

10.10	
*	
2014 Employee Stock Purchase Plan	

10.11	
 	
Master Service Agreement dated October 18, 2012, by and among the Registrant and ViaWest, Inc.	

10.12	
 	
Master Service Agreement dated January 11, 2010, by and among the Registrant and Cyrus Networks, LLC	

10.12.1	
 	
Service Level Agreement dated January 11, 2010, by and among the Registrant and Cyrus Networks, LLC	

21.1	
 	
List of Subsidiaries of the Registrant	

23.1	
 	
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm	

23.2	
*	
Consent of DLA Piper LLP (US) (included in Exhibit 5.1)	

24.1	
 	
Power of Attorney (see page II-5 to this Registration Statement on Form S-1)	

*
To be filed by amendment.

Exhibit 2.1
 
AGREEMENT AND PLAN OF MERGER
 
AMONG
 
CBG Holdings, Inc,
a Delaware Corporation (“ Acquiror ”),
 
Q2 Acquisition Corporation
a Delaware Corporation (“ Merger Sub ”),
 
Q2 Software, Inc.,
a Delaware Corporation (“ Target ”)
 
and
 
RHS Investments, L.P. (“ Stockholder ”)
 
July 27, 2007

 
AGREEMENT AND PLAN OF REORGANIZATION
 
This Agreement and Plan of Reorganization (this “ Agreement ”) is entered into as of July 27, 2007, by and among CBG Holdings, Inc., a Delaware corporation (“ Acquiror ”), Q2 Acquisition Corp.,  a Delaware corporation and a wholly-owned Subsidiary of Acquiror (“ Merger Sub ”), Q2 Software, Inc., a Delaware corporation (“ Target ”) and RHS Investments, L.P. (the “ Stockholder ”).  Acquiror, Merger Sub, Target and Stockholder are referred to collectively as the “ Parties ,” and each as a “ Party .”
 
This Agreement contemplates a transaction in which Acquiror will acquire all of the outstanding capital stock of Target for Acquiror Shares through a reverse subsidiary merger of Merger Sub with and into Target.
 
The Board of Directors of Acquiror, Merger Sub and Target have each approved and adopted this Agreement as a plan of reorganization within the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the “ Code ”).  At Closing, all Target Shares (as defined below) will automatically be exchanged for Acquiror Shares (as defined below), all Target Options (as defined below) will automatically be assumed by Acquiror, and all Target Warrants (as defined below) will automatically be assumed by Acquiror, each as set forth in this Agreement.
 
Now, therefore, in consideration of the mutual promises, representations, warranties and covenants contained in this Agreement, the Parties agree as follows.
 
1.                                       Definitions .
 
“ Acquiror Options ” means the options to purchase common stock of Acquiror.
 
“ Acquiror Shares ” means the common stock of Acquiror.
 
“ General Corporation Law ” means the Delaware General Corporation Law, as amended.
 
“ Party ” or “ Parties ” has the meaning set forth in the preface above.
 
“ Person ” means an individual, a partnership, a corporation, an association, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof).
 
“ Target Options ” means all options to purchase Target Shares.
 
“ Target Shares ” means all outstanding shares of common stock and/or preferred stock of Target.
 
“ Subsidiary ” means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors.
 
1 

 
2.                                       Basic Transaction .
 
(a)                                  The Merger .  On and subject to the terms and conditions of this Agreement, Merger Sub will merge with and into Target (the “ Merger ”) at the Effective Time.  Target shall be the corporation surviving the Merger (the “ Surviving Corporation ”).
 
(b)                                  The Closing .  The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of DLA Piper US LLP, in Austin, Texas commencing at 10:00 a.m. CDT on July 27, 2007 or such other time and date as the Parties may agree (the “ Closing Date ”).
 
(c)                                   Actions at the Closing .  At the Closing, Target and Merger Sub will file a Certificate of Merger (including a Plan of Merger) with the Secretary of State of the State of Delaware (the “ Certificate of Merger ”).
 
(d)                                  Effect of Merger .
 
(i)                                      General .  The Merger shall become effective at the time Merger Sub and Target file the Certificate of Merger (the “ Effective Time ”).  The Merger shall have the effect set forth in the Delaware General Corporation Law.  The Surviving Corporation may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of either Merger Sub or Target in order to carry out and effectuate the transactions contemplated by this Agreement.  The Merger filings shall be made simultaneously with or as soon as practicable immediately prior to or following the Closing.
 
(ii)                                   Certificate of Incorporation .  At and as of the Effective Time, the Certificate of Incorporation of Merger Sub shall be the Certificate of Incorporation of the Surviving Corporation.
 
(iii)                                Bylaws .  At and as of the Effective Time, the Bylaws of Merger Sub shall be the bylaws of the of Surviving Corporation.
 
(iv)                               Directors and Officers .  At and as of the Effective Time, the officers and directors of Target, respectively, shall be the directors and officers of the Surviving Corporation.
 
(e)                                   Conversion of Target Shares .  At and as of the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, Merger Sub, Target or Stockholder, each Target Share that consists of preferred stock of Target shall automatically be converted into 1.28474053 of a share of Acquiror Shares, and each Target Share that consists of common stock of Target shall automatically be converted into 1.13552971 of a share of Acquiror Shares (together, the “ Merger Consideration ”).  Each Target Share that is directly owned by Acquiror or Shareholder immediately prior to the Effective Time shall automatically be cancelled and shall cease to exist, and no consideration shall be delivered in exchange therefor.
 
(f)                                    Conversion of Target Options .  At and as of the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, Merger Sub, Target, or Stockholder, Acquiror shall assume all outstanding Target Options pursuant to the terms of
 
2 

 
Target’s equity incentive plan and each Target Share that is subject to an outstanding Target Option shall automatically be converted into a right to receive 1.13552971 of a share of Acquiror Shares at an exercise price proportionally adjusted for such conversion.
 
(g)                                   Capital Stock of Merger Sub .  At the Effective Time, each share of common stock of Merger Sub issue and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation.
 
(h)                                  Fractional Shares .  No fraction of a share of Acquiror Shares will be issued, but in lieu thereof, each holder of shares of Target Shares who would otherwise be entitled to a fraction of a share of Acquiror Shares and after aggregating all fractional shares of Acquiror Shares to be received by such holder, shall receive from Acquiror an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction, multiplied by (ii) the fair market value of one Acquiror Share as determined by Acquiror’s Board of Directors.  The fractional share interests of each Target stockholders shall be aggregated, so that no Target stockholder shall receive cash in respect of fractional share interests in an amount greater than the value of one Acquiror Share.
 
(i)                                      No Further Ownership Rights in Target Capital Stock .  The Merger Consideration delivered upon the surrender for exchange of shares of Target Shares in accordance with the terms hereof (including any dividends, distributions or cash paid in lieu of fractional shares) shall be deemed to have been issued in full satisfaction of all rights pertaining to such Target Shares, and there shall be no further registration of transfers on the records of the Surviving Corporation of Target Shares which were outstanding immediately prior to the Effective Time.  If, after the Effective Time, stock certificates for Target Shares are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Section 2 .
 
3.                                       Representations and Warranties Concerning Stockholder . The Stockholder represents and warrants to Acquiror and Merger Sub with respect to the Stockholder, as applicable, as follows:
 
(a)                                  Organization, Existence and Good Standing .  If the Stockholder is a corporation, limited partnership, limited liability company, bank, trust company, trust or other entity, the Stockholder, as applicable, is duly organized, existing and in good standing under the laws of its jurisdiction of incorporation or formation.
 
(b)                                  Power and Authority .  The Stockholder has full power and authority to execute and perform this Agreement.  If the Stockholder is a corporation, limited partnership, limited liability company, bank, trust company, trust or other entity, the execution and delivery of this Agreement by the Stockholder, as applicable, and the performance by it of all of its obligations under this Agreement have been duly approved prior to the date of this Agreement by all requisite action of its board of directors, general partners, managers, trustees or the like, as the case may be.  The approval of the Stockholder’s Stockholders, members, limited partners,
 
3 

 
beneficiaries or the like (as the case may be), for it to execute this Agreement or consummate the transactions contemplated hereby is either not required or has been duly given.
 
(c)                                   Enforceability .  This Agreement has been duly executed and delivered by the Stockholder and constitutes a legal, valid and binding agreement of the Stockholder, enforceable against the Stockholder, as applicable, in accordance with its terms.
 
(d)                                  Consents .  No consent, authorization, order or approval of, or filing or registration with, any governmental authority is required for or in connection with the consummation by the Stockholder of the transactions contemplated hereby.
 
(e)                                   Conflicts Under Constituent Documents or Laws .  If the Stockholder is a corporation, limited partnership, limited liability company, bank, trust company, trust or other entity, neither the execution and delivery of this Agreement by the Stockholder, nor the consummation by it of the transactions contemplated hereby will conflict with or constitute a breach of any of the terms, conditions or provisions of its certificate or articles of incorporation or formation, by-laws, agreement of limited partnership, operating agreement, trust agreement or declaration of trust, or other organizational documents, as the case may be.  Neither the execution and delivery of this Agreement by the Stockholder, nor the consummation by him, her or it of the transactions contemplated hereby will conflict with or constitute a breach of any of the terms, conditions or provisions of any statute or administrative regulation, or of any order, writ, injunction, judgment or decree of any court or governmental authority or of any arbitration award, to which the Stockholder is a party or by which the Stockholder, as applicable, is bound.
 
(f)                                    Conflicts Under Contracts .  The Stockholder is not a party to, or bound by, any unexpired, undischarged or unsatisfied written or oral contract, agreement, indenture, mortgage, debenture, note or other instruments under the terms of which the execution, delivery and performance by the Stockholder of this Agreement and the consummation of the transactions contemplated hereby by the Stockholder will require a consent, approval, or notice or result in a lien on the Shares or other rights to acquire Target Shares owned by the Stockholder, respectively.
 
(g)                                   Title to Shares .  As of the Closing Date, the Stockholder owns the number of Target Shares and Target Warrants listed on the Stockholder’s signature page, free and clear of all mortgages, pledges, assessments, claims, liens, charges, security interests and other encumbrances of any kind or nature whatsoever.
 
4.                                       Miscellaneous .
 
(a)                                  No Third Party Beneficiaries .  This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.
 
(b)                                  Entire Agreement .  This Agreement (and the documents referred to herein including the Exhibits and Schedules) constitutes the entire agreement between the Parties and supersede any prior understandings, agreements, or representations by or between the Parties, written or oral, to the extent they related in any way to the subject matter hereof.
 
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(c)                                   Succession and Assignment .  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.  No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party.
 
(d)                                  Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.
 
(e)                                   Headings .  The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
 
(f)                                    Notices .  All notices, requests, demands, claims, and other communications hereunder will be in writing.  Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below:
 
If to Target :                                                                                                             Q2 Software, Inc.
6850 Austin Center Blvd.
Suite 300
Austin, TX 78731
 
If to Acquiror or                                                                                       CBG Holdings, Inc.
Merger Sub :                                                                                                             6850 Austin Center Blvd.
Suite 300
Austin, TX 78731
 
Copy to :                                                                                                                               DLA Piper US LLP
1221 S. Mopac Expressway
Suite 400
Austin, TX 78746
Attn.: John J. Gilluly III, P.C.
Fax: (512) 457-7001
 
Any Party may send any notice, request, demand, claim, or other communication under this Agreement to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient.  Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.
 
(g)                                   Governing Law and Venue .  This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to
 
5 

 
any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.  The parties hereby consents to the personal jurisdiction of the U.S. Courts for the State of Texas.
 
(h)                                  Arbitration .  All disputes concerning the matter covered by this Agreement will be submitted to arbitration in the State of Texas, in accordance with the rules of the American Arbitration Association.  Any decision issued by an arbitrator must be delivered in writing accompanied by written findings of fact and conclusions of law and shall be binding on the parties.  The prevailing party, as part of its damages, will be entitled to recover from the other party its legal fees and expenses in incurred in connection with the dispute that is the subject of the arbitration.
 
(i)                                      Amendments and Waivers .  No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Party affected.  No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.
 
(j)                                     Severability .  Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.
 
(k)                                  Construction .  The Parties have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.  Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires.  The word “including” shall mean including without limitation.
 
Signature page follows
 
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

ACQUIROR:	 	
 	 	
CBG Holdings, Inc	 	

By:	/s/ R.H. Seale	 	
 	R.H. “Hank” Seale, III	 	
Its:	Chief Executive Officer	 	
 	 	
MERGER SUB:	 	
 	 	
Q2 Software, Inc.	 	

By:	/s/ R.H. Seale	 	
 	R.H. “Hank” Seale, III	 	
Its:	Chief Executive Officer	 	

TARGET:	 	
 	 	
Q2 Software, Inc.	 	

By:	/s/ R.H. Seale	 	
 	R.H. “Hank” Seale, III	 	
Its:	President	 	
 
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]

 

STOCKHOLDER:	 	
 	 	
CBG HOLDINGS, INC.	 	
 	 	 	
By:	/s/ R.H. Seale	 	
 	 	 	
Name:	R.H. “Hank” Seale, III	 	
 	 	
Number of Target Shares Owned:	 	 	
 	 	
Class of Stock Owned:	 	 	
 	 	
Number of Target Options Owned:	 	 	

RHS INVESTMENTS, L.P.	 	
 	 	 	
By:	/s/ R.H. Seale	 	
 	 	 	
Name:	R.H. “Hank” Seale, III	 	
 	 	
Number of Target Shares Owned:	 	 	
 	 	
Class of Stock Owned:	 	 	
 	 	
Number of Target Options Owned:	 	 	

[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]

Exhibit 2.2
 
AGREEMENT AND PLAN OF MERGER
 
AMONG
 
CBG Holdings, Inc,
a Delaware Corporation (“ Acquiror ”),
 
Cardinal Acquisition Corporation
a Delaware Corporation (“ Merger Sub ”),
 
Cardinal Software, Inc.,
a Delaware Corporation (“ Target ”)
 
and
 
RHS Investments, Inc. (“ Stockholder ”)
 
July 27, 2007

 
AGREEMENT AND PLAN OF REORGANIZATION
 
This Agreement and Plan of Reorganization (this “ Agreement ”) is entered into as of July 27, 2007, by and among CBG Holdings, Inc., a Delaware corporation (“ Acquiror ”), Cardinal Acquisition Corporation, a Delaware corporation and a wholly-owned Subsidiary of Acquiror (“ Merger Sub ”), Cardinal Software, Inc., a Delaware corporation (“ Target ”) and RHS Investments, Inc. (the “ Stockholder ”).  Acquiror, Merger Sub, Target and Stockholder are referred to collectively as the “ Parties ,” and each as a “ Party .”
 
This Agreement contemplates a transaction in which Acquiror will acquire all of the outstanding capital stock of Target for Acquiror Shares through a reverse subsidiary merger of Merger Sub with and into Target.
 
The Board of Directors of Acquiror, Merger Sub and Target have each approved and adopted this Agreement as a plan of reorganization within the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the “ Code ”).  At Closing, all Target Shares (as defined below) will automatically be exchanged for Acquiror Shares (as defined below) and all Target Options (as defined below) will automatically be assumed by Acquiror, each as set forth in this Agreement.
 
Now, therefore, in consideration of the mutual promises, representations, warranties and covenants contained in this Agreement, the Parties agree as follows.
 
1.                                       Definitions .
 
“ Acquiror Options ” means the options to purchase common stock of Acquiror.
 
“ Acquiror Shares ” means the common stock of Acquiror.
 
“ General Corporation Law ” means the Delaware General Corporation Law, as amended.
 
“ Party ” or “ Parties ” has the meaning set forth in the preface above.
 
“ Person ” means an individual, a partnership, a corporation, an association, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof).
 
“ Target Options ” means all options to purchase Target Shares.
 
“ Target Shares ” means all outstanding shares of common stock and/or preferred stock of Target.
 
“ Subsidiary ” means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors.

 
2.                                       Basic Transaction .
 
(a)                                  The Merger .  On and subject to the terms and conditions of this Agreement, Merger Sub will merge with and into Target (the “ Merger ”) at the Effective Time.  Target shall be the corporation surviving the Merger (the “ Surviving Corporation ”).
 
(b)                                  The Closing .  The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of DLA Piper US LLP, in Austin, Texas commencing at 10:00 a.m. CDT on July 27, 2007 or such other time and date as the Parties may agree (the “ Closing Date ”).
 
(c)                                   Actions at the Closing .  At the Closing, Target and Merger Sub will file a Certificate of Merger (including a Plan of Merger) with the Secretary of State of the State of Delaware (the “ Certificate of Merger ”).
 
(d)                                  Effect of Merger .
 
(i)                                      General .  The Merger shall become effective at the time Merger Sub and Target file the Certificate of Merger (the “ Effective Time ”).  The Merger shall have the effect set forth in the Delaware General Corporation Law.  The Surviving Corporation may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of either Merger Sub or Target in order to carry out and effectuate the transactions contemplated by this Agreement.  The Merger filings shall be made simultaneously with or as soon as practicable immediately prior to or following the Closing.
 
(ii)                                   Certificate of Incorporation .  At and as of the Effective Time, the Certificate of Incorporation of Merger Sub shall be the Certificate of Incorporation of the Surviving Corporation.
 
(iii)                                Bylaws .  At and as of the Effective Time, the Bylaws of Merger Sub shall be the bylaws of the of Surviving Corporation.
 
(iv)                               Directors and Officers .  At and as of the Effective Time, the officers and directors of Target, respectively, shall be the directors and officers of the Surviving Corporation.
 
(e)                                   Conversion of Target Shares .  At and as of the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, Merger Sub, Target or Stockholder, each Target Share that consists of preferred stock of Target shall automatically be converted into 0.83762047 of a share of Acquiror Shares, and each Target Share that consists of common stock of Target shall automatically be converted into 0.32720209 of a share of Acquiror Shares (together, the “ Merger Consideration ”).  Each Target Share that is directly owned by Acquiror or Shareholder immediately prior to the Effective Time shall automatically be cancelled and shall cease to exist, and no consideration shall be delivered in exchange therefor.
 
(f)                                    Conversion of Target Options .  At and as of the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, Merger Sub, Target, or Stockholder, Acquiror shall assume all outstanding Target Options pursuant to the terms of
 
2 

 
Target’s equity incentive plan and each Target Share that is subject to an outstanding Target Option shall automatically be converted into a right to receive 0.32720209 of a share of Acquiror Shares at an exercise price proportionally adjusted for such conversion.
 
(g)                                   Capital Stock of Merger Sub .  At the Effective Time, each share of common stock of Merger Sub issue and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation.
 
(h)                                  Fractional Shares .  No fraction of a share of Acquiror Shares will be issued, but in lieu thereof, each holder of shares of Target Shares who would otherwise be entitled to a fraction of a share of Acquiror Shares and after aggregating all fractional shares of Acquiror Shares to be received by such holder, shall receive from Acquiror an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction, multiplied by (ii) the fair market value of one Acquiror Share as determined by Acquiror’s Board of Directors.  The fractional share interests of each Target stockholders shall be aggregated, so that no Target stockholder shall receive cash in respect of fractional share interests in an amount greater than the value of one Acquiror Share.
 
(i)                                      No Further Ownership Rights in Target Capital Stock .  The Merger Consideration delivered upon the surrender for exchange of shares of Target Shares in accordance with the terms hereof (including any dividends, distributions or cash paid in lieu of fractional shares) shall be deemed to have been issued in full satisfaction of all rights pertaining to such Target Shares, and there shall be no further registration of transfers on the records of the Surviving Corporation of Target Shares which were outstanding immediately prior to the Effective Time.  If, after the Effective Time, stock certificates for Target Shares are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Section 2 .
 
3.                                       Representations and Warranties Concerning Stockholder . Stockholder represents and warrants to Acquiror and Merger Sub with respect to the Stockholder, as applicable, as follows:
 
(a)                                  Organization, Existence and Good Standing .  If the Stockholder is a corporation, limited partnership, limited liability company, bank, trust company, trust or other entity, the Stockholder, as applicable, is duly organized, existing and in good standing under the laws of its jurisdiction of incorporation or formation.
 
(b)                                  Power and Authority .  The Stockholder has full power and authority to execute and perform this Agreement.  If the Stockholder is a corporation, limited partnership, limited liability company, bank, trust company, trust or other entity, the execution and delivery of this Agreement by the Stockholder, as applicable, and the performance by it of all of its obligations under this Agreement have been duly approved prior to the date of this Agreement by all requisite action of its board of directors, general partners, managers, trustees or the like, as the case may be.  The approval of the Stockholder’s Stockholders, members, limited partners,
 
3 

 
beneficiaries or the like (as the case may be), for it to execute this Agreement or consummate the transactions contemplated hereby is either not required or has been duly given.
 
(c)                                   Enforceability .  This Agreement has been duly executed and delivered by the Stockholder and constitutes a legal, valid and binding agreement of the Stockholder, enforceable against the Stockholder, as applicable, in accordance with its terms.
 
(d)                                  Consents .  No consent, authorization, order or approval of, or filing or registration with, any governmental authority is required for or in connection with the consummation by the Stockholder of the transactions contemplated hereby.
 
(e)                                   Conflicts Under Constituent Documents or Laws .  If the Stockholder is a corporation, limited partnership, limited liability company, bank, trust company, trust or other entity, neither the execution and delivery of this Agreement by the Stockholder, nor the consummation by it of the transactions contemplated hereby will conflict with or constitute a breach of any of the terms, conditions or provisions of its certificate or articles of incorporation or formation, by-laws, agreement of limited partnership, operating agreement, trust agreement or declaration of trust, or other organizational documents, as the case may be.  Neither the execution and delivery of this Agreement by the Stockholder, nor the consummation by him, her or it of the transactions contemplated hereby will conflict with or constitute a breach of any of the terms, conditions or provisions of any statute or administrative regulation, or of any order, writ, injunction, judgment or decree of any court or governmental authority or of any arbitration award, to which the Stockholder is a party or by which the Stockholder, as applicable, is bound.
 
(f)                                    Conflicts Under Contracts .  The Stockholder is not a party to, or bound by, any unexpired, undischarged or unsatisfied written or oral contract, agreement, indenture, mortgage, debenture, note or other instruments under the terms of which the execution, delivery and performance by the Stockholder of this Agreement and the consummation of the transactions contemplated hereby by the Stockholder will require a consent, approval, or notice or result in a lien on the Shares or other rights to acquire Target Shares owned by the Stockholder, respectively.
 
(g)                                   Title to Shares .  As of the Closing Date, the Stockholder owns the number of Target Shares listed on the Stockholder’s signature page, free and clear of all mortgages, pledges, assessments, claims, liens, charges, security interests and other encumbrances of any kind or nature whatsoever.
 
4.                                       Miscellaneous .
 
(a)                                  No Third Party Beneficiaries .  This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.
 
(b)                                  Entire Agreement .  This Agreement (and the documents referred to herein including the Exhibits and Schedules) constitutes the entire agreement between the Parties and supersede any prior understandings, agreements, or representations by or between the Parties, written or oral, to the extent they related in any way to the subject matter hereof.
 
4 

 
(c)                                   Succession and Assignment .  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.  No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party.
 
(d)                                  Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.
 
(e)                                   Headings .  The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
 
(f)                                    Notices .  All notices, requests, demands, claims, and other communications hereunder will be in writing.  Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below:

If to Target :	Cardinal Software, Inc.	
 	6850 Austin Center Blvd.	
 	Suite 300	
 	Austin, TX 78731	
 	 	
If to Acquiror or	CBG Holdings, Inc.	
Merger Sub :	6850 Austin Center Blvd.	
 	Suite 300	
 	Austin, TX 78731	
 	 	
Copy to :	DLA Piper US LLP	
 	1221 S. Mopac Expressway	
 	Suite 400	
 	Austin, TX 78746	
 	Attn.: John J. Gilluly III, P.C.	
 	Fax: (512) 457-7001	
 
Any Party may send any notice, request, demand, claim, or other communication under this Agreement to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient.  Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.
 
(g)                                   Governing Law and Venue .  This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to
 
5 

 
any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.  The parties hereby consents to the personal jurisdiction of the U.S. Courts for the State of Texas.
 
(h)                                  Arbitration .  All disputes concerning the matter covered by this Agreement will be submitted to arbitration in the State of Texas, in accordance with the rules of the American Arbitration Association.  Any decision issued by an arbitrator must be delivered in writing accompanied by written findings of fact and conclusions of law and shall be binding on the parties.  The prevailing party, as part of its damages, will be entitled to recover from the other party its legal fees and expenses in incurred in connection with the dispute that is the subject of the arbitration.
 
(i)                                      Amendments and Waivers .  No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Party affected.  No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.
 
(j)                                     Severability .  Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.
 
(k)                                  Construction .  The Parties have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.  Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires.  The word “including” shall mean including without limitation.
 
Signature page follows
 
6 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

ACQUIROR:	 	
 	 	
CBG Holdings, Inc	 	
 	 	
/s/ R.H. Seale	 	
By: Robert H. Seale III	 	
Its: Chief Executive Officer	 	
 	 	
MERGER SUB:	 	
 	 	
Cardinal Software, Inc.	 	

/s/ R.H. Seale	 	
By: Robert H. Seale III	 	
Its: Chief Executive Officer	 	

TARGET:	 	
 	 	
Cardinal Software, Inc.	 	

/s/ Jace Day	 	
By: Jace Day	 	
Its: Chief Executive Officer	 	
 
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]

 

STOCKHOLDER:	 	
 	 	
CBG HOLDINGS, INC.	 	
 	 	
Signature:	/s/ R.H. Seale	 	
 	 	
Name:	Robert H. Seale III	 	
 	 	
Number of Target Shares Owned:	 	 	
 	 	
Class of Stock Owned:	 	 	
 	 	
Number of Target Options Owned:	 	 	

RHS INVESTMENTS, L.P.	 	
 	 	
Signature:	/s/ R.H. Seale	 	
 	 	
Name:	Robert H. Seale III	 	
 	 	
Number of Target Shares Owned:	 	 	
 	 	
Class of Stock Owned:	 	 	
 	 	
Number of Target Options Owned:	 	 	

[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]

Exhibit 2.3
 
ASSET PURCHASE AGREEMENT
 
THIS ASSET PURCHASE AGREEMENT (this “ Agreement ”) is made and entered into as of June 11, 2010 by and among ITS, Inc., an Iowa corporation (“ ITS ”), ITS Acquisition Sub, Inc., an Iowa corporation and wholly owned subsidiary of ITS (“ Acquisition Sub ”), and Cardinal Software Inc., a Delaware corporation (“ Seller ”) and wholly owned subsidiary of CBG Holdings, Inc., a Delaware corporation (“ Parent ”).
 
RECITALS:
 
WHEREAS, Parent owns several subsidiaries that are in the business of developing, distributing, licensing, and maintaining software products for financial institutions, including cbanc, Q2 Software, Inc. and Seller.
 
WHEREAS, Seller is in the business of developing, distributing, licensing, and maintaining software products, including that certain Cardinal/400 software program and related products for use by financial institutions (the “ Business ”).
 
WHEREAS, Acquisition Sub desires to acquire substantially all of the assets of Seller and Seller desires to sell substantially all of its assets to Acquisition Sub (the “ Acquisition ”); and
 
WHEREAS, the board of directors of Seller, Parent, ITS and Acquisition Sub have approved the Acquisition upon and subject to the terms and conditions of this Agreement.
 
AGREEMENT:
 
NOW, THEREFORE, in consideration of the agreements, covenants and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows:
 
Article 1. 
THE ACQUISITION
 
1.1                                Assets .
 
(a)                                  Seller hereby sells, transfers, conveys, assigns and delivers to Acquisition Sub, and Acquisition Sub hereby purchases and accepts from Seller, free and clear of all Encumbrances (as defined below), other than Permitted Encumbrances (as defined below), all of Seller’s right, title and interest in and to the Assets (as defined below), wherever located, all upon and subject to the terms and conditions of this Agreement.  The term “ Assets ” for purposes of this Agreement means the following assets of Seller:
 
(i)                                      Real Property Leases .  The leases and subleases of real property described in Schedule 1.1(a)(i)  as to which Seller is the lessee or sublessee, together with any options to purchase the underlying property and leasehold improvements thereon, and all other rights, subleases, licenses, permits, deposits and profits appurtenant to or related to such leases and subleases (the “ Real Property Leases ”);
 
(ii)                                   Inventory .  All inventories of work-in-process, products under research and development, demonstration equipment, office and other supplies, parts, packaging materials and other accessories related thereto which are held at, or are in transit from or to, the locations at which the
 
1 

 
Business is conducted, or located at customers’ premises on consignment, including any of the foregoing purchased subject to any conditional sales or title retention agreement in favor of any other Person, together with all rights of Seller against suppliers of such inventories (the “ Inventory ”);
 
(iii)                                Accounts Receivable .  All accounts receivable (whether billed or unbilled, and including the portion of any accounts receivable for which Seller has established a reserve or other allowance for doubtful accounts or collection) and all notes, bonds and other evidences of indebtedness of and rights to receive payments, however arising (including out of sales occurring in the conduct of the Business) and any security agreements related thereto, including any rights of Seller with respect to any third party collection procedures or any other actions or proceedings which have been commenced in connection therewith (the “ Accounts Receivable ”);
 
(iv)                               Equipment .  All machinery, equipment, fixtures, furniture, appliances, supplies, computers (but not leased computers), computer hardware (including, without limitation, servers), improvements, tools, all process records including standard operating procedures and quality records, all support documentation and similar items, and all other tangible personal property (other than Inventory and Vehicles) owned by Seller including, but not limited to, the items listed in Schedule 1.1(a)(iv) , (the “ Equipment ”);
 
(v)                                  Equipment Leases .  (A) The leases or subleases of computers and equipment described in Schedule 1.1(a)(v)(A)  as to which Seller is the lessor or sublessor, and (B) the leases of computers and equipment described in Schedule 1.1(a)(v)(B)  as to which Seller is the lessee or sublessee, together with any options to purchase the underlying property (the leases and subleases described in subclauses (A) and (B), the “ Equipment Leases ”);
 
(vi)                               Business Contracts .  The contracts described in Schedule 1.1(a)(vi) (the “ Business Contracts ”);
 
(vii)                            Prepaid Expenses .  All prepaid expenses relating to the Business, including but not limited to the items listed in Schedule 1.1(a)(vii)  (the “ Prepaid Expenses ”);
 
(viii)                         Intangible Personal Property .  All Intellectual Property (as that term is defined in Section 2.10), all goodwill (including all goodwill associated with or arising from service marks and trademarks of Seller), and all rights, privileges, claims, causes of action and options relating or pertaining to the Business or the Assets, including all copyrights which are owned by Seller in all software and the items listed in Schedule 1.1(a)(viii)  (the “ Intangible Personal Property ”);
 
(ix)                               Licenses .  To the extent their transfer is permitted under the terms thereof and under applicable laws, all licenses (including applications therefor), including the licenses listed in Schedule 1.1(a)(ix)  (the “ Business Licenses ”);
 
(x)                                  Vehicles .  All motor vehicles owned by Seller, including the vehicles listed in Schedule 1.1(a)(x)  (the “ Vehicles ”);
 
(xi)                               Security Deposits .  All security deposits deposited by or on behalf of Seller as lessee or sublessee under the Real Property Leases or the Equipment Leases, including the security deposits identified in Schedule 1.1(a)(xi) (the “ Tenant Security Deposits ”);
 
(xii)                            Books and Records .  All books and records used or held for use in the conduct of the Business or otherwise relating to the Business or the Assets, in whatever form, including
 
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all electronic files, other than the minute books, stock transfer books and any corporate seal of Seller (the “ Business Books and Records ”);
 
(xiii)                         Software .  All software owned by Seller, in both object code and source code, including the Cardinal/400 software, including any and all copyrights in all such software and related manuals and documentation; and
 
(xiv)                        Other Assets and Properties .  All other assets and properties of Seller, except for the Excluded Assets (as that term is defined in Section 1.1(b) (the “ Other Assets ”), including the assets described in Schedule 1.1(a)(xiv) .
 
“ Encumbrances ” shall mean all claims, charges, liens, security interests, mechanics’ or other statutory liens, mortgages, encumbrances, attachments, taxes, penalties, fines and any and all other demands, reservations, restrictions or third party interests of whatever type or nature whatsoever and howsoever arising or existing.
 
“ Permitted Encumbrances ” shall mean only (a) those Encumbrances, if any, as are expressly set forth in the terms and conditions of the Real Property Leases, the Equipment Leases or the Business Contracts; provided, however, that Permitted Encumbrances shall not include any liability or obligation whatsoever for any duties or obligations of Seller or Parent which arose or accrued under any of the Real Property Leases, the Equipment Leases or the Business Contracts on or at any time prior to the Closing Date or which relate in any way to the period on or prior to the Closing Date, or for any breach or default by Seller or Parent of or under any of the Real Property Leases, the Equipment Leases or the Business Contracts in any way arising out of or related to any act, omission, matter, event, circumstance or other occurrence taken, failed to be taken or otherwise occurring or arising, in whole or in part, on or prior to the Closing Date, (b) express licenses of Intellectual Property, Software and/or intangible assets as set forth in the Business Contracts, and (c) liens for Taxes not yet due and payable; provided, however, that Seller shall timely and fully pay all such Taxes when the Taxes otherwise become due and payable and Acquisition Sub is not assuming any Taxes incurred by, or otherwise payable by, Seller or Parent.  Acquisition Sub and ITS acknowledge (i) as provided in Section 1.4(b)(iv) of this Agreement, that certain consents or approvals may be required under the terms of the Scheduled Contracts which have not been obtained, and (ii) as provided in Section 1(f) of the Transition Agreement, certain consents, licenses, sublicenses or approvals may be required with respect to certain of the Seller Facilities and Transition Items (as those two terms are defined in the Transition Agreement) which have not been obtained.
 
To the extent any of the Business Books and Records are items susceptible to duplication and are either (x) used in a regular and material manner in connection with any of Parent’s businesses other than the Business or (y) are required by Law to be retained by Seller, Seller may retain those Business Books and Records and deliver photostatic copies or other reproductions from which, in the case of Business Books and Records referred to in clause (x), information solely concerning Parent’s businesses other than the Business has been deleted.  If any Business Books and Records are retained by Seller pursuant to this paragraph, Seller and Parent shall hold and utilize such Business Books and Records in accordance with, and subject to, the SPNC Agreement (as that term is defined in Section 1.4(b)(vi)).
 
(b)                                  Excluded Assets .  Notwithstanding anything in this Agreement to the contrary, the following assets and properties of Seller (the “ Excluded Assets ”) shall be excluded from and shall not constitute Assets and are not being sold by Seller or purchased by Acquisition Sub pursuant to this Agreement:
 
(i)                                      Cash .  Cash, commercial paper, certificates of deposit and other bank deposits, treasury bills and other cash equivalents;
 
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(ii)                                   Insurance .  Life insurance policies of officers and other employees of Seller and all other insurance policies relating to the operation of the Business;
 
(iii)                                Employee Benefit Plans .  All assets owned or held by any employee benefit plans;
 
(iv)                               Tax Refunds .  All refunds or credits, if any, of Taxes (as defined in Section 1.3(b)  below) due to or from Seller;
 
(v)                                  Real and Personal Property .  All real estate owned by Seller and any personal property described in Schedule 1.1(b)(v) ;
 
(vi)                               Corporate Records .  The minute books, stock transfer books and corporate seal of Seller;
 
(vii)                            Litigation Claims .  Any rights (including indemnification) and claims and recoveries under litigation of Seller against third parties arising out of or relating to events prior to the date of this Agreement that are (a) related to the matters and/or parties described in Schedule 1.1(b)(vii) (the “ Existing Litigation ”), or (b) related to any other matters and/or parties (collectively, the “ Litigation Claims ”);
 
(viii)                         Excluded Obligations .  Without limiting the generality of Section 1.2(b), any lease, contract, agreement, document, instrument or understanding, whether written or oral, which is not a Real Estate Lease, an Equipment Lease or a Business Contract and any Business License which is not, by its terms or under applicable law, transferable or assignable to Acquisition Sub (the “ Excluded Obligations ”);
 
(ix)                               Rights Under This Agreement .  Seller’s rights under this Agreement; and
 
(x)                                  Other Excluded Assets .  The assets set forth on Schedule 1.1(b)(x).
 
1.2                                Liabilities .
 
(a)                                  Assumed Liabilities .  Acquisition Sub (i) assumes the Assumed Expenses (as that term is defined in the Assignment and Assumption Agreement), and (ii) assumes and agrees to perform each and all of the duties and obligations of Seller under the Real Estate Leases, the Equipment Leases and the Business Contracts (collectively, the “ Assumed Contracts ”) which arise and relate to the period on or after the date of this Agreement (including any obligations resulting from any breach of the Scheduled Contracts by virtue of the assignment of such contracts to Acquisition Sub), except that Acquisition Sub assumes and agrees to perform the obligations arising under any representation or warranty or any other term or condition of the Business Contracts (including the obligations with respect to the matters set forth on Schedule 2.8 ) regardless of whether any obligations arising from those terms arise prior to, on or following the date of this Agreement (“ Assumed Warranty Liabilities ”), all pursuant to and upon the terms and conditions of the Assignment and Assumption Agreement in the form attached to this Agreement as Exhibit “A” (the “ Assignment and Assumption Agreement ” and the liabilities assumed, the “ Assumed Liabilities ”).  The Assignment and Assumption Agreement shall be executed and delivered by Seller and Acquisition Sub concurrently with the execution of this Agreement.  Acquisition Sub will timely and fully satisfy all of the Assumed Liabilities when and as they become due.
 
(b)                                  Retained Liabilities .  Except only as otherwise expressly provided in the Assignment and Assumption Agreement with respect to the Assumed Liabilities, neither ITS nor
 
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Acquisition Sub assume any duties, responsibilities, debts, liabilities, expenses, accounts payable or other obligations of any kind or nature whatsoever of Seller or Parent.  Seller or Parent will timely and fully satisfy all such unassumed duties, responsibilities, debts, liabilities, expenses, accounts payable and other obligations (“ Retained Liabilities ”) when and as they become due.  The Retained Liabilities include the following liabilities of Seller or Parent (i) the Existing Litigation; (ii) all Taxes due or payable by Seller or Parent, including all sales and use Taxes and all franchise, income and loan taxes which have been assessed by the Pennsylvania Department of Revenue; (iii) all obligations and liabilities of Seller or Parent under or with respect to any employee benefits plans, health and welfare plans and programs, and the 401(k) plan or under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including for any and all welfare and health care continuation requirements under Section 4980B of the Internal Revenue Code of 1986 and Part G of Subtitle B of Title 1 of ERISA (“COBRA”) for all former and existing employees of Seller or Parent and with respect to any M&A Qualified Beneficiary (as defined in the COBRA regulations) as a result of this Agreement or the Acquisition; (iv) without limiting clause (iii) and in addition thereto, all obligations and liabilities whatsoever for any employees, agents, sales or other personnel of Seller or Parent or who are otherwise connected with Seller or the Business, including all liability or responsibility under or relating to labor or employment agreements or arrangements with hourly, salaried or management personnel or arising under any laws, rules or regulations; (v) all liabilities or responsibilities arising from any breach or violation of any law, rule, regulation or order of any governmental authority or agency or court by Seller, Parent or any contractor, employee, agent, or other personnel of Seller or Parent; (vi) all Excluded Obligations; and (vii) the Seller Vendor Invoices (as that term is defined in the Assignment and Assumption Agreement.
 
1.3                                Purchase Price; Allocation .
 
(a)                                  Purchase Price .  The aggregate purchase price for the Assets (the “ Purchase Price ”) is $10,500,000, subject to adjustment as follows:
 
(i)                                      The Purchase Price shall be reduced, on a dollar for dollar basis, to the extent the Working Capital (as that term is defined below) of Seller on the date of this Agreement is less than $2,028,357 (the “ Base Working Capital Amount ”), and the Purchase Price shall be increased, on a dollar for dollar basis, to the extent the Working Capital of Seller on the date of this Agreement exceeds the Base Working Capital Amount.  The term “ Working Capital ” means the sum of the (a) accounts receivable, (b) deferred product costs, current portion (c) long-term deferred product costs, (d) prepaid expenses and other current assets, (e) fixed assets and (f) other long-term assets, all as shall be set out in the balance sheet of Seller as of the date of this Agreement (the “ Closing Date Balance Sheet ”).  Seller shall deliver the Closing Date Balance Sheet to Acquisition Sub concurrently with the execution of this Agreement.  The Closing Date Balance Sheet shall be prepared and presented in the same manner as the balance sheet included in the Financial Statements and Interim Financial Statements (as those terms are defined in Section 2.6 ).  The Base Working Capital Amount is based upon the following amounts:  (1) accounts receivable of $746,759; (2) deferred product costs, current portion of $511,446; (3) long-term deferred product costs of $519,516; (4) prepaid expenses and other current assets of $38,333; (5) fixed assets of $175,459; and (6) other long-term assets - $36,844.  ITS, Acquisition Sub and Seller acknowledge that Seller has reserved $25,000 against the accounts receivable of Carizzo Capital Bank of Texas (the “ $25,000 Carizzo Reserve Amount ”), with the $25,000 Carizzo Reserve Amount relating to Seller’s invoices to Carizzo Capital Bank during the calendar year 2009, with invoice dates and numbers of, respectively, 1/22/09 — 1263; 1/22/09 — 1264; 2/26/09 — 1542; 3/24/09 — 1765; 3/24/09 — 1766; 3/26/09 — 1792; 3/31/09 — 1829; 4/16/09 — 2032; 6/26/09 — 3281; 8/26/09 — 3282 and 10/13/09 - 3841 (collectively, the “ 2009 Carizzo Invoices ”).  ITS, Acquisition Sub and Seller also acknowledge that the accounts receivable amount of $746,759 which is part of the Base Working Capital Amount is net of the $25,000 Carizzo Reserve Amount, and that the accounts receivable in the Closing Date Balance Sheet
 
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shall be reduced to take into account the $25,000 Carizzo Reserve Amount as part of determining the Working Capital as of the date of this Agreement.
 
(ii)                                   The Purchase Price shall be reduced, on a dollar for dollar basis, to the extent the deferred revenues of Seller on the date of this Agreement exceed the Base Deferred Revenues Amount (as defined below).  The term “ Base Deferred Revenues Amount for purposes of this Agreement means the amount determined by subtracting (a) both the DR Reduction Amount (as defined below) and the Amortization Amount (as defined below), from (ii) $3,853,910.  The term “ DR Reduction Amount” for purposes of this Agreement means the amount by which the deferred revenues of Seller were reduced by reason of the termination of the Business Contracts identified on Schedule 1.3(a)(ii), and of any other contract upon which any portion of the deferred revenues of Seller as of March 31, 2010 were based and with respect to which Seller received notice of termination at any time after March 31, 2010 and up to and including the date of this Agreement.  Seller acknowledges that the deferred revenues of Seller on the Closing Date Balance Sheet shall reflect the reductions set forth in Schedule 1.3(a)(ii) by reason of the termination of those Business Contracts listed thereon.  The term “ Amortization Amount ” for purposes of this Agreement means the amount by which the deferred revenues of Seller as of March 31, 2010 were reduced by Seller in accordance with the normal and ordinary course practices of Seller over the period from April 1, 2010 up to the date of this Agreement.  Seller acknowledges that the deferred revenues of Seller as of March 31, 2010 were $3,853,910.  The deferred revenues of Seller as of the date of this Agreement shall be set out in the Closing Date Balance Sheet.
 
(iii)                                The Purchase Price shall be reduced, on a dollar for dollar basis, by the amount of any deconversion, termination or similar fees paid to Seller at any time after March 31, 2010 and up to and including the date of this Agreement, by reason of or in connection with any termination of any Business Contract, for whatever reason or for no reason; provided, however, that no such reduction shall be made for the $10,000 of such fees which have been paid to Seller by Forrest City Bank, Forest City, Arkansas, with Seller hereby agreeing that Seller has performed all services and duties under Seller’s contract with the Forest City Bank.  Notwithstanding anything to the contrary herein, in no event shall any amount described in this subparagraph (iii) be included in the deferred revenues of Seller as of the date of this Agreement, but Seller shall follow Seller’s past normal and ordinary course accounting and books and records practices with respect to all such amounts.
 
As provided above, the adjustments provided for in subparagraphs (i) and (ii) above shall be based upon the Closing Date Balance Sheet, which must be delivered by Seller to Acquisition Sub concurrently with the execution of this Agreement and which must comply with Section 2.6.  An initial adjustment pursuant to this Section 1.3(a) shall be made immediately prior to the payment of the Closing Amount, and Acquisition Sub must notify Seller of any further objections Acquisition Sub has to the amounts or calculation of the Working Capital and/or deferred revenues of Seller as set out in the Closing Date Balance Sheet by giving Seller written notice of such objections and of the amount of Acquisition Sub’s proposed adjustment to the Purchase Price (an “Objection Notice”) within 30 days of the date of this Agreement.  If Acquisition Sub does not give Seller an Objection Notice within said 30 day period, or if Acquisition Sub otherwise notifies Seller within said 30 day period that Acquisition Sub has no further objections to the Closing Date Balance Sheet, then there shall be no further adjustment of the Purchase Price pursuant to either of subparagraphs (i) or (ii) above.  If Acquisition Sub timely gives Seller an Objection Notice, however, Seller shall have 15 days to give Acquisition Sub written notice of Seller’s response to the Objection Notice (the “Seller Response”).  If Seller fails to give a Seller Response to the Objection Notice, Seller shall be deemed to have agreed to the Objection Notice, and the Purchase Price shall be adjusted as set out in the Objection Notice and Acquisition Sub shall set off the adjustment amount against the Escrow Amount (as that term is defined in Section 1.4(a)) as provided in Section 1.6(g) and Seller shall pay any portion of such adjustment amount which is not satisfied by the Escrow Amount to Acquisition Sub, within five (5) days of the close of the above referenced 15 day period.  If Seller timely provides a Seller Response, then Acquisition Sub and Seller shall each appoint one
 
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representative to attempt to resolve such dispute over the 10 day period following the date Acquisition Sub receives the Seller Notice.  If Acquisition Sub and Seller are able to resolve the dispute within that 10 day period, then Acquisition Sub shall set off the adjustment amount against the Escrow Amount as provided in Section 1.6(g) and Seller shall pay any portion of such adjustment amount which is not satisfied by the Escrow Amount to Acquisition Sub within five (5) days of the close of said 10 day period.  If Acquisition Sub and Seller are unable to resolve such dispute within said 10 day period, then the Acquisition Sub and Seller may pursue any and all rights and remedies available to them with respect to such dispute.
 
(b)                                  Allocation of Purchase Price .  Acquisition Sub and Seller shall negotiate in good faith following the execution of this Agreement to attempt to agree to the allocation of the Purchase Price among the Assets consistently with subparagraph (a) above and with the requirements of Section 1060 of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder, and otherwise in proportion to their respective fair market values, but not in excess thereof, as mutually agreed by Acquisition Sub and Seller.  If Acquisition Sub and Seller cannot reach such mutual agreement within 30 days of the date of this Agreement, the fair market values shall be based on an appraisal obtained by an appraiser selected by Acquisition Sub (and reasonably acceptable to Seller), and any remaining amount shall be allocated to goodwill of the Business.  If, after application of the procedure described in the preceding sentence, the amount to be allocated among the Assets is insufficient to equal the Purchase Price, then such deficit shall be made up by reducing the allocation to the Assets proportionately and no amount shall be allocated to or determined to exist for the goodwill of the Business.  The appraisal referred to herein shall be delivered to Seller promptly after completion and in no event later than 90 days after the date of this Agreement.  Acquisition Sub and Seller each shall pay one-half of the fees of the appraiser and the other expenses of the appraisal.  Each party hereto agrees (i) to complete jointly and to file separately Form 8594 with its federal income Tax Return (as defined below) consistent with such allocation for the 2010 tax year, and (ii) that they will not take a position on any income, transfer or gains Tax Return, before any Governmental Agency (as defined below) charged with the collection of any such Tax or in any judicial proceeding, that is in any manner inconsistent with the terms of any such allocation without the prior consent of the other.
 
“ Tax ” or “ Taxes ” for purposes of this Agreement means any foreign, federal, state, or local tax, fee, levy, assessment or other governmental charge, including any income (gross or net), franchise, gross receipts, property, sales, use, services, value-added, withholding, social security, estimated, accumulated earnings, alternative or add-on minimum, transfer, license, privilege, payroll, profits, capital stock, employment, unemployment, excise, severance, stamp, customs or occupation tax, and any interest, additions to tax and fines and penalties in connection therewith.  “ Tax Returns ” for purposes of this Agreement means all returns, amended returns, estimated returns, information returns, reports, and other filings regarding Taxes that were filed or are required to be filed under applicable law, whether on a consolidated, combined, unitary, or individual basis.  “ Governmental Agency(ies) ” for purposes of this Agreement means (a) any international, foreign, federal, state, county, or local governmental or administrative agency, (b) any governmental agency, authority, board, bureau, commission, department, or instrumentality, or (c) any court or administrative tribunal.
 
(c)                                   Sales and Use Taxes From the Acquisition .  Seller shall be responsible for and shall timely pay all sales, transfer, use and other taxes, if any, arising out of or payable with respect to the sale and transfer of the Assets by Seller to Acquisition Sub pursuant to this Agreement.
 
1.4                                Payment of Purchase Price; Other Actions and Agreements .
 
(a)                                  Upon the execution of this Agreement and the agreements, documents and instruments contemplated by this Agreement, Acquisition Sub shall pay the Closing Amount (as that
 
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term is defined below) to Seller by wire transfer of immediately available funds to such account as Seller may reasonably direct.  The term “ Closing Amount ” means the amount determined by subtracting (i) both $236,746 (the “ Sales Tax Amount ”), and $250,000 (the “ Escrow Amount ”), from (ii) the Purchase Price (as adjusted pursuant to Section 1.3(a)).  The Sales Tax Amount and the Escrow Amount shall be retained and held by Acquisition Sub subject to, and shall be applied and/or payable in accordance with, respectively, Section 1.6(e)  and Section 1.6(g) .
 
(b)                                  Seller shall permit Acquisition Sub reasonable access in order to allow Acquisition Sub to take actual and complete possession and control of the Assets and Seller shall discontinue Seller’s use of the Assets, including deleting all electronic files of the software (both object code and source code) of Seller and of the Books and Records.  Seller shall not be liable for any costs associated with physically delivering the Assets to Acquisition Sub.  Seller shall also duly execute and/or deliver, as the case may be, and shall cause Parent (with respect to subparagraphs (i), (vi), (viii), (ix) and (x)) and Q2 Solutions, Inc. (with respect to subparagraph (xii)) to execute and/or deliver, as the case may be, the following concurrently with the execution of this Agreement:
 
(i)                                      A Bill of Sale in the form attached hereto as Exhibit “B” (the “ Bill of Sale ”).
 
(ii)                                   All motor vehicle title transfers and related documents and instruments as may be required by applicable law, in form and content satisfactory to counsel for Acquisition Sub, transferring title to Acquisition Sub of all Vehicles which are subject to any certificate of title or similar or related laws, rules or regulations of any applicable jurisdiction.
 
(iii)                                Full, complete and unconditional releases of any and all Encumbrances (whether or not perfected), other than any Permitted Encumbrances, with respect to any of the Assets and not theretofore fully released, terminated or otherwise satisfied of record.
 
(iv)                               Other than with respect to the contracts set forth on Schedule 1.4(b)(iv)  (the “ Scheduled Contracts ”) , written consents or acknowledgements of all third parties necessary to permit the valid and effective sale, assignment, transfer and conveyance of the Assets to Acquisition Sub, in form and content acceptable to Acquisition Sub, including the approvals, consents or acknowledgements set out in Schedule 2.4 and the approval, consent and/or acknowledgement of the other parties to the Assumed Contracts, if required by the terms of the Assumed Contracts, all in form and content acceptable to ITS and Acquisition Sub.  The consents for the Patapsco Bank, Community South Bank and Middle Fork Financial Group, Inc. shall include a waiver of those respective institutions’ right to terminate their respective Business Contract as a result of the Acquisition.  Acquisition Sub acknowledges that the Scheduled Contracts are part of the Business Contracts.
 
(v)                                  All documentation necessary or appropriate to assign the registered Intellectual Property and other Intangible Personal Property to Acquisition Sub upon the records and in the office of the United States Patent and Trademark Office and United States Copyright Office and in any other offices in which any similar or related registrations have been obtained or applications therefor have been filed with respect to any of the Intellectual Property or other Intangible Personal Property, all in form and content acceptable to Acquisition Sub, including the assignments of copyrights and marks attached collectively to this Agreement as Exhibit “G”.
 
(vi)                               A Noncompete and Confidentiality Agreement in the form attached to this Agreement as Exhibit “C” (the “ SPNC Agreement ”).
 
(vii)                            The Closing Date Balance Sheet.
 
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(viii)                         The Right of First Refusal Agreement in the form attached to this Agreement as Exhibit “D” (the “ RFR Agreement ”).
 
(ix)                               The Transition Services Agreement in the form attached to this Agreement as Exhibit “E” (the “ Transition Agreement ”).
 
(x)                                  The Indemnification Agreement in the form attached to this Agreement as Exhibit “F” (the “ Indemnification Agreement ”).
 
(xi)                               The Assignment and Assumption Agreement.
 
(xii)                            Amendments to the following agreements between Seller and Q2 Software, Inc. in the forms attached to this Agreement as Exhibit “J” (collectively, the “Q2 Amendments”): (1) Marketing Services Agreement dated May 16, 2006, and (2) Q2 Value Added Reseller License Agreement dated February 14, 2007, each as amended.
 
(xiii)                         An amendment to the Master Source Code Escrow Agreement dated December 8, 2009 between Seller and Barry G. Benton, P.C. in the form attached to this Agreement as Schedule K.
 
(xiv)                        Any payment required under Section 1.5 .
 
(c)                                   Seller shall also cause R. H. Seale III to execute and deliver a Noncompete and Confidentiality Agreement in the form attached to this Agreement as Exhibit “H” (the “SP Employee NC Agreement”) concurrently with the execution of this Agreement; and (ii) Q2 Software, Inc. to execute and deliver the Q2 Referral Agreement in the form attached to this Agreement as Exhibit “I” (the “License Agreement:”) concurrently with the execution of this Agreement.
 
(d)                                  ITS and/or Acquisition Sub, as the case may be, shall duly execute and/or deliver, as the case may be, the following to Seller concurrently with the execution of this Agreement:
 
(i)                                      The Closing Amount;
 
(ii)                                   The SPNC Agreement;
 
(iii)                                An SP Employee NC Agreement with R. H. Seale III;
 
(iv)                               The RFR Agreement;
 
(v)                                  The Transition Agreement;
 
(vi)                               The Indemnification Agreement;
 
(vii)                            The License Agreement;
 
(viii)                         The Assignment and Assumption Agreement and
 
(ix)                               Any payment required under Section 1.5 .
 
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(e)                                   Seller Employees .  Seller has terminated Seller’s employment of each of the individuals listed in Schedule 2.13 effective concurrently with the execution of this Agreement, and Seller will pay each such individual all salary, benefits, vacation pay and all other obligations of Seller to each such individual accrued through the date of this Agreement; provided, however, that Seller shall maintain all of Seller’s health and welfare benefits and plans (including medical, dental, vision, long term disability, short term disability, group term life, supplemental life, dependent life and flexible benefits) and the 401(k) plan in place and in full force and effect through June 30, 2010 for all individuals who are employed or otherwise retained by Acquisition Sub, including the payment of premiums, benefits and claims thereunder.  Seller shall defend, indemnify and hold Acquisition Sub and ITS harmless from and against all of the foregoing obligations and matters.
 
On or prior to the date of this Agreement, Acquisition Sub shall offer employment to each of the individuals listed in Schedule 2.13 with compensation and benefits that are reasonable comparable to those provided by Seller as of March 31, 2010.
 
Seller consents to Acquisition Sub and/or ITS employing the individuals listed in Schedule 2.13, and Seller hereby waives and releases any noncompete, confidentiality or other covenants (in each case, solely with respect to the Business) which might prohibit, restrict, limit or otherwise affect such individuals’ right and ability to provide any services or duties with respect to the Business to or on behalf of Acquisition Sub and/or ITS.
 
1.5                                Prorations .  The prorations relating to the Assumed Contracts as provided for in the Assignment and Assumption Agreement will be made as of the date of this Agreement as provided in the Assignment and Assumption Agreement, and the net amount of all such prorations will be settled and paid on the date of this Agreement.
 
1.6                                Further Assurances; Post-Closing Cooperation .
 
(a)                                  At any time or from time to time after the execution of this Agreement, at Acquisition Sub’s or ITS’s request and without further consideration, Seller shall timely execute and deliver, and shall cause Parent to execute and/or deliver, to Acquisition Sub such other instruments of sale, transfer, conveyance, assignment and confirmation, and take such other actions, as may be reasonably necessary or desirable in order to more effectively transfer, convey and assign to Acquisition Sub, and to confirm Acquisition Sub’s title to, all of the Assets, and/or to put Acquisition Sub in possession and operating control of the Business and the Assets.
 
Without limiting the generality of the foregoing, Seller and/or Parent shall provide Acquisition Sub with (i) all documentation from Q2 Software, Inc. which is necessary to assign and transfer the domain names cardinal400.com; cardinal-software.com and Cardinal-software.net to Acquisition Sub, with such documentation to be in form and content satisfactory to Acquisition Sub; and (ii) voluntary disclosure agreements executed by both Seller and the applicable state tax authority, “no tax due”, “tax clearance” or other similar certificates and/or other evidence reasonably satisfactory to Acquisition Sub evidencing that no sales tax is due or payable by Seller in any ST State (as that term is defined in Section 1.6(e) below), or that all sales tax payable to the ST States has been paid, with such agreements, certificates and/or other evidence (“ Sales Tax Evidence ”) to be provided by Seller within 180 days of the date of this Agreement; provided, however, that such period shall be extended to up to 360 days of the date of this Agreement so long as Seller evidences that Seller is making reasonable and diligent efforts to obtain such Sales Tax Evidence (in either event, the “ST Compliance Period”).  Seller shall also, within 10 days of the date of this Agreement, take all actions which are necessary to change the name of Seller to a name which does not utilize either of the words “Cardinal” or “Software”, including filing amendments to its Certificate of
 
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Incorporation and to all filings made by Seller to qualify as a foreign corporation in any state or other jurisdiction.  Seller and Parent shall also, if requested by Acquisition Sub, reasonably cooperate with Acquisition Sub in attempting to obtain any consents or approvals from the other parties to the Scheduled Contracts with respect to the assignment of the Scheduled Contracts by Seller to Acquisition Sub.
 
(b)                                  Following the execution of this Agreement, each party will afford the other parties, their counsel and their accountants, during normal business hours, reasonable access to the books, records and other data relating to the Business in its possession with respect to periods prior to the date of this Agreement and the right to make copies and extracts therefrom, to the extent that such access may be reasonably required by the requesting party in connection with (i) the preparation of Tax Returns, (ii) the determination or enforcement of rights and obligations under this Agreement, (iii) compliance with the requirements of any Governmental Agency, (iv) the determination or enforcement of the rights and obligations of any Acquiror Indemnitee or Seller Indemnitee under, respectively, Section 4.2 or Section 4.3 , or (v) in connection with any actual or threatened action or proceeding with respect to the Business or the Assets.  Further, each party agrees for the period of the longer of (i) ten (10) years after the date of this Agreement, or (ii) the period required by applicable law with respect to the books, records or data in question, not to destroy or otherwise dispose of any such books, records and other data unless such party shall first offer in writing to surrender such books, records and other data to the other parties and one or more of the other parties shall not agree in writing to take possession thereof during the ten (10) day period after such offer is made.
 
(c)                                   If, in order to properly prepare its Tax Returns or other documents or reports required to be filed with Governmental Agencies or its financial statements or to fulfill its obligations hereunder, it is necessary that a party be furnished with additional information, documents or records relating to the Business not referred to in paragraph (b) above, and such information, documents or records are in the possession or control of another party, such other party shall use its commercially reasonable efforts to furnish or make available such information, documents or records (or copies thereof) at the recipient’s request, cost and expense.
 
(d)                                  Notwithstanding anything to the contrary contained in this Section, if the parties are in a dispute or an adversarial relationship or in litigation, mediation, arbitration or other dispute resolution procedure, the furnishing of information, documents or records in accordance paragraphs (b) or (c) of this Section 1.6 shall be subject to applicable rules relating to discovery.
 
(e)                                   Subject to release as set forth below, the Sales Tax Amount will be retained by Acquisition Sub (without the payment of any interest) with respect to each of the respective states listed in Schedule 1.6(e) (each an “ ST State ”) and in the respective amounts set forth in Schedule 1.6(e) (with respect to each ST State, the “ ST Amount ”) for the ST Period (as that term is defined below) for the ST State in question.  Acquisition Sub may set off against and withhold from the ST Amount for the ST State in question the amount of any sales tax payable by Seller to the ST State in question which has not been paid by Seller by the date of this Agreement and which has not been paid by Seller by the close of the ST Compliance Period, and Acquisition Sub may, in its discretion, pay such amounts directly to the applicable sales tax authority on Seller’s behalf, and, in any such case, Acquisition Sub shall notify Seller concurrently of each such payment.  The term “ ST Period ” with respect to each ST State means the period of time commencing with the date of this Agreement and continuing until the date on which Seller has provided Acquisition Sub with the Sales Tax Evidence for such ST State as contemplated by Section 1.6(a) above.  Within five days of the delivery of such Sales Tax Evidence, Acquisition Sub shall deliver the full ST Amount with respect to such ST State to Seller.  In the event the amount of sales tax payable by Seller to a ST State exceeds the ST Amount for such ST State, and such excess amount is paid by Acquisition Sub or ITS, Seller shall reimburse Acquisition Sub or ITS, as the case may be, for such
 
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excess amount within two days of the written demand therefor by Acquisition Sub or ITS, as the case may be.
 
(f)                                    Seller and Acquisition Sub acknowledge and agree that all accounts receivable of Seller (“ Seller’s Accounts Receivable ”) are included in the Assets and are being sold by Seller and purchased by Acquisition Sub pursuant to this Agreement.  Acquisition Sub shall, from and after the date of this Agreement, have sole control over and shall collect all accounts receivable arising from the Business, including all of Seller’s Accounts Receivable.  Acquisition Sub agrees that it will pursue collection of Seller’s Accounts Receivable in accordance with ITS’s normal and ordinary course of business as established for ITS’s other accounts receivable; provided, however, that Acquisition Sub shall in no event have any obligation to initiate any lawsuits regarding any of Seller’s Accounts Receivable or to place any of Seller’s Accounts Receivable for collection with any person or collection agency.  Collections on accounts receivable by Acquisition Sub on or after the date of this Agreement with respect to each customer shall be applied on a first in, first out basis for that customer, unless specifically instructed otherwise by the customer without any prompting.
 
In the event any of Seller’s Accounts Receivable remain uncollected by Acquisition Sub ninety (90) days after the due date therefor, and including any for which Seller had established a reserve or other allowance for doubtful accounts or collection (a “ Past Due Accounts Receivable ”), Acquisition Sub may elect, at its option, to (i) require Seller to purchase the Past Due Accounts Receivable from Acquisition Sub at a price equal to the amount of such Past Due Accounts Receivable (excluding any interest, late fees or similar charges with respect to such Past Due Accounts Receivable), which price shall be paid to Acquisition Sub by Seller within ten (10) days of the date of the written demand therefore from Acquisition Sub, or (ii) set off all such amounts against the Escrow Amount as provided in Section 1.6(g) and, in each case, deliver such Past Due Accounts Receivable and all rights to collect the same to Seller.  Acquisition Sub agrees to grant Seller reasonable access to Acquisition Sub’s books and records with respect to Seller’s Accounts Receivable for the sole and limited purpose of Seller reviewing Acquisition Sub’s collections on any Past Due Accounts Receivable which Acquisition Sub has required Seller to purchase from Acquisition Sub as provided above or which Acquisition Sub has set off against the Escrow Amount.  Seller acknowledges that (i) the Past Due Accounts Receivable include the amounts of $63,603.85 for Wayne County, $11,252.40 for Union State and $11,467.55 for Community Bank, with each such amount resulting from Seller’s accounting treatment for the “free” services provided to those respective banks; but Acquisition Sub agrees that Acquisition Sub shall not be entitled to require Seller to purchase more than $43,000 of such aggregate amount from Acquisition Sub pursuant to this subparagraph (f), or to set off more than $43,000 of such aggregate amount against the Escrow Amount pursuant to Section 1.6(g).
 
Acquisition Sub agrees that Acquisition Sub shall not require Seller to purchase the $25,000 Carizzo Reserve Amount pursuant to this subparagraph (f) or set off the $25,000 Carizzo Reserve Amount against the Escrow Amount pursuant to Section 1.6(g).  Acquisition Sub also agrees that if Acquisition Sub collects on any of the $25,000 Carizzo Reserve Amount, Acquisition Sub shall pay such amount to Parent within 10 days of Acquisition Sub’s receipt and actual collection of such amount.  Notwithstanding anything in this Section 1.6(f) which may appear to be to the contrary, Acquisition Sub does not have any duty or responsibility to devote any efforts to collect any of the 2009 Carizzo Invoices.
 
(g)                                   Acquisition Sub shall be entitled to retain the Escrow Amount, without the payment of any interest, for the Escrow Period (as that term is defined below).  Acquisition Sub may set off against and withhold from the Escrow Amount (i) the amount of any downward adjustments to the Purchase Price pursuant to Section 1.3(a), and/or (ii) the amount of any Past Due Accounts Receivable contemplated by Section 1.6(f) above.  The term “Escrow Period” means the 120 day period following the date of this Agreement; provided, however, that if Seller has provided a Seller Notice pursuant to Section 1.3(a), then the Escrow Period shall be extended beyond the 120 day period referenced above until the
 
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earlier of (i) the date which is 180 days after the Closing Date; or (ii) the date on which Acquisition Sub and Seller agree in writing to the adjustments to the Purchase Price under Section 1.3(a).  Acquisition Sub shall pay any remaining balance of the Escrow Amount to Seller within 10 days of the close of the Escrow Period.
 
(h)                                  Seller shall maintain all of Seller’s health and welfare benefits and plans and 401(k) plans in place and in full force and effect through June 30, 2010 for all of the employees of Seller who are employed or otherwise retained by Acquisition Sub, including the payment of employer’s portion of premiums, benefits and claims thereunder.
 
1.7                                Tax Consequences . Each party has consulted with its own tax advisors with respect to the tax consequences of the Acquisition
 
Article 2. 
REPRESENTATIONS AND WARRANTIES OF SELLER
 
Seller represents and warrants to ITS and Acquisition Sub as follows:
 
2.1                                Organization and Standing .  Seller and Parent are each a Delaware corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware.  Neither Seller nor Parent is a “foreign person” within the meaning of Section 1445(f) of the Code.  Seller does not own any interest in any subsidiary, affiliate, joint venture or other entity.
 
2.2                                Authority; Execution and Delivery .  The execution and delivery of this Agreement and the agreements, documents and instruments contemplated by this Agreement by Seller and Parent, and the performance by Seller and Parent of their obligations hereunder and thereunder, have been duly and validly authorized by all necessary corporate action, and this Agreement and the agreements, documents and instruments contemplated by this Agreement constitute the valid and binding obligations of Seller and Parent, as applicable, enforceable against Seller and Parent in accordance with their respective terms.
 
2.3                                No Violations .  The execution and delivery by Seller and Parent of this Agreement and the agreements, documents and instruments contemplated hereby, and the consummation by Seller and Parent of the transactions contemplated hereby and thereby, do not (i) contravene any provisions of Seller’s or Parent’s charter or by-laws, (ii) constitute a default (or an event that might, with the passage of time or the giving of notice or both, constitute a default) or give rise to any right to terminate, cancel, or accelerate or to any loss of benefit under any lease, indenture, mortgage, loan, credit agreement, or any other agreement (other than under the Scheduled Contracts with respect to the assignment of the Scheduled Contracts to Acquisition Sub or as a result of the failure to obtain any consents, licenses, sublicenses or approvals contemplated by Section 1(f) of the Transition Agreement) to which Seller or Parent is a party or by which Seller or Parent or any of their assets are bound, (iii) violate or constitute a breach of any decision, judgment, or order of any Governmental Agency by which Seller or Parent or any of their assets are bound, or (iv) violate any law, rule, or regulation by which Seller or Parent or any of their assets are bound.
 
2.4                                No Consents or Approvals of Governmental Agency or Others . Neither Seller nor Parent is required to obtain any approval, authorization of, consent, order of or waiver by, or make any declaration, filing or registration with, any Governmental Agency or any third party in connection with the execution and delivery of this Agreement or any agreement, document or instrument contemplated hereby by Seller or Parent or the performance by Seller or Parent of the transactions contemplated hereby or thereby, except for any of the foregoing which are specified on Schedule 2.4 and all of which (other than under the Scheduled Contracts with respect to the assignment of the Scheduled Contracts to Acquisition Sub) were obtained by Seller prior to the execution of this Agreement.
 
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2.5                                Litigation .  Other than the Existing Litigation, there is no civil, governmental or other third party suit or action pending against Seller or Parent, or any administrative, arbitration or other similar proceeding pending against Seller or Parent, or any investigation of Seller or Parent of which Seller or Parent has been notified (a) that affects the Business or any of Seller’s assets; or (b) that challenges, or is likely to have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated by this Agreement or any of the agreements, documents or instruments contemplated hereby. Other than the Existing Litigation, to the Knowledge of Seller or Parent (as that phrase is defined below), no such suit, action, proceeding or investigation has been threatened and, to the Knowledge of Seller or Parent, there is no bona fide basis for any such suit, action, proceeding or investigation.  There is no order, judgment or decree of any Governmental Agency requiring Seller or Parent to take, or enjoining Seller or Parent from taking, any action of any kind with respect to the Business or the Assets.
 
2.6                                Financial Statements and Accounts Receivable .
 
(a)                                  Attached hereto as Schedule 2.6(a)  is a true, accurate and complete copy of the Financial Statements and the Interim Financial Statements (as those terms are defined below). The Financial Statements and the Interim Financial Statements (i) have been prepared in accordance with the books and records of Seller, all of which books and records are true, accurate and complete, (ii) have been prepared in accordance with GAAP consistently applied with prior periods, and (iii) fairly present the financial position and results of operations of Seller in all material respects as of the dates and for the periods indicated therein, subject to the omission of footnote disclosure with respect to the Interim Financial Statements and, in the case of the Interim Financial Statements, normal, recurring year-end adjustments.  Seller maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and with statutory accounting principles and to maintain accountability for assets; and (iii) access to assets is permitted only in accordance with management’s general or specific authorization.  “ Financial Statements ” means Seller’s (a) balance sheet as of and at December 31, 2007, December 31, 2008 and December 31, 2009, and (b) statements of income for the fiscal years ending December 31, 2007, December 31, 2008 and December 31, 2009.  “ Interim Financial Statements ” shall mean Seller’s (a) balance sheet as of and at March 31, 2010, April 30, 2010 and May 31, 2010  and (b) statement of income for the three months ended March 31, 2010, the four months ended April 30, 2010 and the five months ended May 31, 2010.
 
(b)                                  Intentionally Omitted
 
(c)                                   Accounts Receivable .  Attached hereto as Schedule 2.6(c)  is a complete and accurate list of all Accounts Receivable (including the aging thereof and any reserves or allowances with respect to any of the Accounts Receivable) as of the date of this Agreement.  Except as noted on Schedule 2.6(c) , all of the Accounts Receivable set forth on Schedule 2.6(c)  represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business.  To the Knowledge of Seller or Parent, there is no contest, claim, or right of set-off under any contract with any obligor of any Accounts Receivable relating to the amount, validity or collectability of such Account Receivable.
 
2.7                                No Adverse Changes .  Since March 31, 2010 (i) there has not been any occurrence that has adversely affected in a material way, or is likely to adversely affect in a material way, the Business or the Assets, and (ii) Seller has not incurred any liability or entered into any transaction other than in the normal and ordinary course of business.
 
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2.8                                Product Liability .  No defects or deficiencies exist in any of the software or other products or any of the services that Seller has sold or licensed that would reasonably be expected to give rise to any material liabilities for product liability or any material liabilities for any breach of warranty or representation or any other term or condition of any of the Business Contracts.  Except as set forth in Schedule 2.8 and as specifically set forth in the Business Contracts, (a) there are no warranties, express or implied, whether written or oral, with respect to the software or other products or services of Seller or the Business and (b) there are no pending, or, to the Knowledge of Seller or Parent, threatened, claims with respect to any breach of warranty or representation or any other term or condition of any of the Business Contracts.
 
2.9                                Customers and Suppliers .  Except as set forth in Schedule 2.9, since September 1, 2009, none of Seller’s customers or suppliers have notified Seller or Parent of their intent to cease or materially reduce purchasing or licensing from, or selling to Seller, or to terminate, not renew, seek a price reduction for or alter, in any material respect, their purchases or licenses from or sales to Seller or to terminate, not renew, seek a price reduction or a price increase for or alter in any material respect, their purchases or licenses from or sales to ITS or Acquisition Sub following the consummation of the Acquisition and other transactions contemplated hereby.  Schedule 2.9 includes the date on which services will cease to be provided by Seller with respect to any Business Contracts which have been terminated by Seller or the customer in question since September 1, 2009.
 
2.10                         Intellectual Property .  Attached hereto as Schedule 2.10 is a list of (i) certain copyrights, patents, patent applications, software (both object code and source code), service marks, trademarks, service mark and trademark applications, domain names and other Intellectual Property which are owned by Seller (the “ Owned Intellectual Property ”) and (ii) all IP Licenses (as defined below) to which Seller is a party as licensee of any Intellectual Property of a third-party (“ Third-Party Intellectual Property ”), including any IP Licenses pursuant to which Seller is authorized to use any third party software, other than Desktop Software (as defined below).  Schedule 2.10 lists all of Seller’s registered Intellectual Property.  Schedule 2.10 also lists all domain names registered in the name of Seller with the applicable registrar.  Except as specifically disclosed on Schedule 2.10 :
 
(a)                                  Seller owns the Owned Intellectual Property (including the object code and source code of all software included within the Owned Intellectual Property) free and clear of any Encumbrances other than any Permitted Encumbrances.  The Permitted Encumbrances with respect to the object code and source code for all of the software which is included within the Owned Intellectual Property do not include, and none of the Business Contracts otherwise grant, any ownership of any such object code or source code to any third party.  Seller is licensed and, to the Knowledge of Seller and Parent, otherwise possesses legally enforceable rights, to use the Third Party Intellectual Property in accordance with the terms of the IP Licenses.
 
(b)                                  No claim or action with respect to the Owned Intellectual Property, or to the Knowledge of Seller or Parent, any of the Third-Party Intellectual Property (to the extent arising out of any use, reproduction or distribution of such Third-Party Intellectual Property by or through Seller or Parent), has been asserted or is pending or, to the Knowledge of Seller or Parent, is threatened by any person against Seller or Parent (i) to the effect that the sale, licensing or use by Seller or Parent of any Owned Intellectual Property or of any Third-Party Intellectual Property constitutes an unlawful use or infringes on or otherwise violates any right of any person; (ii) alleging that any of the Owned Intellectual Property or the Third-Party Intellectual Property constitutes an unlawful use or infringes, misappropriates or misuses the intellectual property of any person; (iii) challenging Seller’s ownership of or validity of its interest in the Owned Intellectual Property; or (v) challenging any IP Licenses or legally enforceable right of Seller to use any Third-Party Intellectual Property in the manner in which it is currently used by Seller.
 
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(c)                                   No current or former employee or consultant of Seller or Parent, or, to the Knowledge of Seller or Parent, any other person, is engaged in the unauthorized use, disclosure, infringement or misappropriation of any Owned Intellectual Property.  There are no agreements to which Seller or Parent is a party that could reasonably be expected to limit ITS’s or Acquisition Sub’s use of or rights in the Owned Intellectual Property following the date of this Agreement.
 
(d)                                  Whether through written assignment or as a matter of law, including pursuant to “work for hire” doctrines, Seller or Parent has obtained from current and former employees or consultants of Seller and Parent that have contributed to the development of the Owned Intellectual Property, unconditional and full ownership of all such contributions.  To the Knowledge of Seller or Parent, no person other than Seller has any ownership of, or ownership rights in or to, any of the Owned Intellectual Property.
 
(e)                                   The Owned Intellectual Property does not constitute an unlawful use of, or infringe upon or otherwise violate, the intellectual property or other rights whatsoever of any person.
 
(f)                                    To the Knowledge of Seller or Parent, the use of the Third Party Intellectual Property in accordance with the terms of the IP Licenses does not constitute an unlawful use, or infringe upon or otherwise violate, the intellectual property or other rights whatsoever of any person.
 
(g)                                   Seller has not granted the other parties to the Business Contracts or any other person the right or authority to develop or make any upgrades, updates, enhancements or any other changes or modifications to any of the software which is owned by Seller, or to market, license or otherwise permit or authorize any other person to use any of the software which is owned by Seller.
 
(h)                                  Seller has not granted the other parties to the Business Contracts a license to the source code for any of the software which is the subject of the particular Business Contract in question, or any other rights to possess or use any such source code, other than any rights as may be granted to any such party under an escrow agreement to which such party is a signatory or other beneficiary.  Seller has provided Acquisition Sub with copies of each such escrow agreement.
 
“ Intellectual Property ” for purposes of this Agreement means all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, logos, characters, fictitious business names and other marks, copyrights (whether in published or unpublished works), know-how, business methods, trade secrets, inventions, ideas, discoveries, improvements, confidential information, software (including user guides or manuals, data and all other similar or related documentation and all copies and tangible embodiments thereof in whatever form or medium, and including both the source code and object code of the software in question), technical information, processed technology, plans, drawings, specifications, prints, licenses, domain names, web sites, applications, formulations, and all other intellectual property that the Seller uses, whether or not registered or registrable.
 
“ Desktop Software ” means any third-party computer software that is licensed for use on desktop or laptop “PC-class” computers or related local area network servers other than by a written agreement the licensee executed and includes software licensed under shrink wrap or click wrap licenses, the Microsoft Windows class of operating system software, and Microsoft Office or similar office productivity software (including individual programs contained therein).
 
“ IP Licenses ” means all licenses, agreements and other arrangements under which Seller has the right to use any Intellectual Property of a third party (other than Desktop Software).
 
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2.11                         Real Property .
 
(a)                                  Seller does not own any real property.
 
(b)                                  Schedule 2.11 sets forth a list of all real property used in the Business that is leased by Seller (the “ Leased Property ”) and the leases pursuant to which Seller leases such Leased Property (the “ Leased Property Leases ”).  Schedule 2.11 lists, for each such Leased Property Lease, the name of the lessor, the date of the lease and the lease term.  The Leased Property Leases cover all the Leased Property that Seller uses in the conduct of the Business.  Seller has delivered to ITS or Acquisition Sub true, correct and complete copies of all of the Leased Property Leases.  Seller has good title to its leasehold interest in the Leased Property, free and clear of all Encumbrances, other than Permitted Encumbrances.  Each Leased Property Lease is in full force and effect and is valid, binding and enforceable in accordance with its terms.  All accrued and currently payable rents and other payments required under the Leased Property Leases have been paid, and no notice of default or termination has been given or received by Seller, no event of default has occurred, and no condition exists and no event has occurred that, with the giving of notice, the lapse of time, or the happening of any further event, would become a default under or permit early termination of any of the Leased Property Leases.
 
(c)                                   All of Seller’s and Parent’s activities with respect to Leased Property have been and are being conducted in compliance with applicable Environmental Laws (as defined below), and there has been no release of Hazardous Materials (as defined below) on, in, from or onto the Leased Property.  Seller has not generated, manufactured, refined, transported, stored, handled, disposed of or released any Hazardous Materials on the Leased Property nor has Seller knowingly or negligently permitted the foregoing.  Seller has obtained all approvals and caused all notifications to be made as required by Environmental Laws, and Seller has obtained all required registrations with, licenses from, or permits issued by governmental agencies or authorities pursuant to any applicable Environmental Laws, and all such registrations, licenses or permits are in full force and effect.  Neither Seller nor Parent has received any notice of any violation of any Environmental Laws relating to the Leased Property,  and no action has been commenced or, to the Knowledge of Seller or Parent, threatened, regarding Seller’s compliance with any Environmental Laws relating to the Leased Property.  No tanks used for the storage of any Hazardous Material above or below ground are present or were at any time present on or about the Leased Property.  No action has been commenced or threatened regarding the presence of any Hazardous Material on or about the Leased Property,  and no Hazardous Materials are present on or at the Leased Property in such a manner as may require investigation or remediation under any applicable law.  No friable asbestos is present on the Leased Property.  “ Environmental Laws ” means any and all federal, state and local statutes, regulations and ordinances relating to the protection of human health and the environment, including the air, water and land.  “ Hazardous Material ” means any hazardous or toxic material, substance, or waste including, without limitation, those materials, substances, and wastes listed in the United States Department of Transportation Hazardous Materials Table (49 C.F.R. § 172.101) or by the United States Environmental Protection Agency as hazardous substances (40 C.F.R. Part 302 and amendments thereto), petroleum products (as defined in Title I to the Resource Conservation and Recovery Act, 42 U.S.C. § 6991-6991(i)) and their derivatives, and such other materials, substances, and wastes as become regulated or subject to cleanup authority under any Environmental Laws.
 
2.12                         Equipment and Vehicles .  Except as disclosed on Schedule 2.12 attached hereto (i) Seller has good title to all of the Equipment and the Vehicles, (ii) the Equipment and the Vehicles are free and clear of all Encumbrances, other than Permitted Encumbrances, (iii) the Equipment and the Vehicles include all material tangible personal property Seller used in the operation of the Business during the twelve (12) month period immediately prior to the date of this Agreement, except for tangible personal property disposed of in the ordinary course of business prior to April 1, 2010, and (iv) the Equipment and
 
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the Vehicles are in good order, repair and operating condition, subject only to the effects of ordinary wear and tear and depreciation arising from lapse of time or normal and proper use.
 
2.13                         Employees .  Attached hereto as Schedule 2.13 is a list of all of Seller’s employees (the “ Employees ”) and the Employees’ current rates of pay and original dates of hire.  There are no disputes pending or, to the Knowledge of Seller or Parent, threatened, between Seller and any Employees of Seller.  Except as set forth on Schedule 2.13 , the Employees are all terminable at will, and Seller has no obligation for severance pay to any of the Employees and will not have any such obligation as a result of the Acquisition or the other transactions contemplated hereby.  Except as noted in Schedule 2.13 , the Employees constitute all persons currently used by Seller in Seller’s operation and conduct of the Business.
 
Seller is and has been in material compliance with all laws, rules, and regulations involving any employment matters, including wages or hours of employees, benefit plans and all obligations of Seller relating to the Employees and all former employees of Seller (the “ Former Employees ”), whether arising by operation of law or by contract, have been satisfied, or will be timely satisfied by Seller.
 
Schedule 2.13 also identifies all Employees on leave of absence and all Employees, Former Employees, and their respective dependents and qualified beneficiaries receiving group health and welfare benefits, or eligible to receive group health and welfare benefits, pursuant to the requirements of COBRA.  Notice of the availability of health care continuation coverage for Employees, Former Employees, and their respective dependents and qualified beneficiaries, as required by COBRA, has been provided to all persons entitled thereto, and all persons properly electing such coverage are being (or have been, if applicable) provided such coverage.
 
2.14                         Employee Plans .  The Seller has never contributed to or sponsored a defined benefit pension plan within the meaning of Section 3(2) of ERISA.
 
2.15                         Assumed Contracts .  Except for any Assumed Warranty Liabilities in existence on the date of this Agreement and except as disclosed on Schedule 2.15 attached hereto,
 
(a)                                  Seller has fulfilled all of its obligations under the Assumed Contracts that were required to be fulfilled prior to the date hereof;
 
(b)                                  Seller has not defaulted under any of the Assumed Contracts, nor has any event occurred which, with the giving of notice, the lapse of time and/or other action or inaction, would constitute a default by Seller under any of the Assumed Contracts;
 
(c)                                   no consent of any party to any of the Assumed Contracts is required for the execution, delivery or performance of this Agreement, or the consummation of the transactions contemplated hereby, other than as set forth in Schedule 2.4 , and except under the Scheduled Contracts with respect to the assignment of the Scheduled Contracts to Acquisition Sub, all such consents have been obtained by Seller on or prior to the date of this Agreement;
 
(d)                                  There has been no material default under any of the Assumed Contracts by the other parties to the Assumed Contracts at any time after January 1, 2009, and no event has occurred since January 1, 2009 which, with the giving of notice, the lapse of time and/or other action or inaction, would constitute a material default under any of the Assumed Contracts by the other parties to the Assumed Contracts; and
 
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(e)                                   Seller has not assigned any of its rights or interests in any Assumed Contract to any person, and all of the Assumed Contracts are, and immediately after the sale and assignment of the Assumed Contracts to Acquisition Sub as contemplated by this Agreement shall continue to be, in full force and effect and valid, binding and enforceable in accordance with their respective terms, in each case, except for such failure to be in full force and effect and valid, binding and enforceable that have been caused by a party to such Assumed Contract other than Seller or Parent.
 
Seller has provided Acquisition Sub or ITS with true, correct and complete copies of all of the Assumed Contracts.  All information regarding the Business Contracts as set forth in Schedule 1.1(a)(vi) is true, correct and complete, including the commencement date of each Business Contract.
 
2.16                         Compliance with Law .   Seller has complied in all material respects with all applicable laws, rules, regulations, ordinances, and judicial decrees applicable to the Business or the Assets.
 
2.17                         No Rebates or Discounts .  Seller has not granted any rebates or cash discounts to any customer in connection with any of the Assumed Contracts, other than as a normal and ordinary trade term to encourage early payment by customers.
 
2.18                         Tax Matters .  Except as disclosed in Schedule 2.18 , (a) all Tax Returns (as defined in Section 1.3(b) ) relating to the Business or the Assets that are required to have been filed have been filed on a timely basis with the appropriate authorities, (b) all such Tax Returns are true, correct and complete in all respects, (c) Seller has paid all Taxes shown to have been due on such Tax Returns, (d) Seller has collected or withheld all Taxes or other amounts relating to the Employees, the Former Employees, the Assets and/or the Business that Seller was required to collect or withhold, (e) there is no pending, or to the Knowledge of Seller or Parent, threatened, audit, examination, investigation, claim, or proceeding relating to Taxes, (f) no statute of limitations with respect to any Tax relating to the Business or the Assets and no due date of any Tax Returns relating to the Business or the Assets that Seller is required to file has been extended, and (g) there are no Encumbrances on any of Seller’s assets that arose in connection with any failure or asserted failure to pay any Tax when due.  Seller shall timely file with the appropriate authorities all Tax Returns as may be required to be filed by Seller at any time in the future, all of which Tax Returns shall be true, correct and complete in all respects, and Seller shall timely and fully pay all Taxes payable pursuant to such Tax Returns.
 
2.19                         Brokers .  No broker, finder, or investment banker is entitled to any brokerage, finders’, or other commission or fee in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller or Parent.
 
2.20                         No Encumbrances .  Seller has the full right, capacity, power and authority to sell the Assets to Acquisition Sub as provided herein, and Seller is transferring all of the Assets to Acquisition Sub free and clear of all Encumbrances, other than the Permitted Encumbrances.  No representation or warranty is made pursuant to this Section 2.20 with respect to Intellectual Property matters.
 
2.21                         Name of Seller .  Seller has only conducted the Business under the name “Cardinal Software, Inc.”, and there are no security interests, financing statements, mortgages, deeds of trust or other liens, claims, demands or Encumbrances existing or filed of record with respect to the Business or the Assets utilizing any other names for Seller.
 
2.22                         Scope of Assets .  The Assets constitute all of the assets (except for the Excluded Assets) used or held for use by Seller in the Business as now conducted.
 
2.23                         Omitted.
 
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2.24                         Compliance of Software with All Laws .  All software owned by Seller, including the Cardinal/400 software, and all operations, functions, calculations and processes of all such software, and all output produced by such software, comply in all material respects with all applicable laws, rules, regulations and ordinances as in existence on the date of this Agreement.
 
2.25                         FFIEC Matters .  The last review and audit of Seller and the operations of Seller by the Federal Financial Institution Examining Council (“FFIEC”) was conducted in July 2009, and the FFIEC found no violations of law, any matters requiring attention or any remedial action by Seller or any other deficiencies or matters requiring any action by Seller.  A copy of the report and other information generated by the FFIEC in connection with such review and audit has, to the extent permitted by applicable law, been previously provided to ITS and Acquisition Sub.
 
2.26                         No Other Material Information .  No representation or warranty by Seller or Parent in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the representations and warranties contained herein not misleading.
 
The phrase “to the Knowledge of Seller or Parent” as used in this Agreement means the actual knowledge of R. H. Seale III, Richard (Jace) Day, David Nelson and Matt Flake; provided, however, that knowledge shall not be imputed for this purpose to any such individual by virtue of such individual’s duties or responsibilities on behalf of Seller or Parent. The words “material”, “materially”, and any other derivations thereof as used in this Article 2 mean and include, but without limitation, that (i) the agreement, document or instrument in question, (ii) the occurrence or nonoccurrence of the fact, event, matter, thing or other circumstance in question, (iii) the breach of the representation, warranty or covenant in question, or (iv) the information in question, as the case may be, will have, or may reasonably be anticipated to have, an effect, individually of $25,000 or more, or in the aggregate across all such matters of $100,000 or more, on the operations or conduct of the Business or upon the Assets.
 
Article 3. 
REPRESENTATIONS AND WARRANTIES OF ITS AND ACQUISITION SUB
 
ITS and Acquisition Sub, jointly and severally, represent and warrant to Seller as follows:
 
3.1                                Organization, Standing and Power .  ITS and Acquisition Sub are each an Iowa corporation, and each are duly organized, validly existing and in good standing under the laws of the State of Iowa.  Neither ITS nor Acquisition Sub is a “foreign person” within the meaning of Section 1445(f) of the Code.
 
3.2                                Authority .  The execution and delivery of this Agreement and the agreements, documents and instruments contemplated hereby by ITS and Acquisition Sub, and the performance by ITS and Acquisition Sub of their respective obligations hereunder and thereunder, have been duly and validly authorized by all necessary corporate action, and this Agreement and the agreements, documents and instruments contemplated hereby constitute the valid and binding obligation of ITS and Acquisition Sub, enforceable against each of them in accordance with their respective terms.
 
3.3                                No Violations .  The execution and delivery by ITS and Acquisition Sub of this Agreement and the agreements, documents and instruments contemplated hereby and the consummation by each of them of the transactions contemplated hereby and thereby shall not (i) contravene any provisions of ITS’s or Acquisition Sub’s respective charter or by-laws, (ii) constitute a default (or an event that might, with the passage of time or the giving of notice or both, constitute a default) or give rise to any right to terminate, cancel, or accelerate or to any loss of benefit under any lease, indenture, mortgage, loan, credit agreement, or any other agreement to which ITS or Acquisition Sub is a party or by which they or any of their respective assets are bound, (iii) violate or constitute a breach of any decision,
 
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judgment, or order of any Governmental Agency by which ITS or Acquisition Sub is bound, or (iv) violate any law, rule, or regulation by which ITS or Acquisition Sub is bound.
 
3.4                                No Consents or Approvals of Governmental Agency or Others . ITS and Acquisition Sub are not required to obtain any approval, authorization of, consent, order of or waiver by, or make any declaration, filing or registration with, any Governmental Agency or any third party in connection with the execution and delivery of this Agreement by ITS or Acquisition Sub or the performance by ITS or Acquisition Sub of the transactions contemplated hereby.
 
ARTICLE 4. 
REMEDIES
 
4.1                                Survival .  The representations and warranties of the parties set forth in, respectively, Article 2 and Article 3 , and the obligation of the respective parties to provide indemnity pursuant to this Article 4 with respect to any breach or default of any such representations and warranties, shall survive until the date which is twenty-four (24) months after the date of this Agreement; provided, however, that the representations and warranties set forth in Sections 2.2, 2.11, 2.18 and 2.20 (the “ Extended Representations ”) shall survive, and indemnity pursuant to this Article 4 shall be available, for the applicable statute of limitations period, and (iii) indemnity pursuant to this Article 4 shall in all events be available for the applicable statute of limitations period for any fraudulent, willful or intentional breach or default of any representation or warranty set forth in Article 2 or Article 3 .
 
4.2                                Indemnification of Acquiror Indemnitees .  Subject to the other terms of this Article 4 , ITS and Acquisition Sub and their respective successors and permitted assigns, and the officers, employees, directors and stockholders of ITS, Acquisition Sub and their respective affiliates, agents and representatives (collectively, including ITS and Acquisition Sub, the “ Acquiror Indemnitees ”), shall be indemnified by Seller for the amount of any losses, damages, claims, fines, penalties, costs and/or expenses (including reasonable fees and expenses of outside attorneys), reasonable costs of investigation (including reasonable fees and expenses of outside accountants, consultants and experts), amounts paid in settlement, court costs and other expenses of litigation (collectively, “ Damages ”), actually incurred by an Acquiror Indemnitee arising out of, relating to or resulting from, directly or indirectly, any:
 
(a)                                  breach of any representation or warranty made by Seller or Parent in this Agreement or in any Related Agreement; or
 
(b)                                  breach of any covenant or agreement of Seller or Parent in this Agreement or in any Related Agreement.
 
4.3                                Indemnification of Seller Indemnitees .  Subject to the other terms of this Article 4 , Seller and Parent and their respective successors and permitted assigns, and the officers, employees, directors and stockholders of Seller, Parent and their respective affiliates, agents and representatives (collectively, the “ Seller Indemnitees; ” and together with the Acquiror Indemnitees, the “ Indemnitees ”), shall be indemnified by ITS and Acquisition Sub for the amount of any Damages actually incurred by a Seller Indemnitee arising out of, relating to or resulting from, directly or indirectly, any:
 
(a)                                  breach of any representation or warranty made by ITS or Acquisition Sub in this Agreement or in any Related Agreement; or
 
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(b)                                  breach of any covenant or agreement of ITS or Acquisition Sub in this Agreement or in any Related Agreement.
 
4.4                                Exclusive Remedy Under this Agreement; Limitations .
 
(a)                                  Each party hereby acknowledges and agrees that its sole and exclusive remedy with respect to (i) any and all claims relating to the representations, warranties, covenants and agreements contained in this Agreement, and (ii) other claims pursuant to or in connection with this Agreement (“ Agreement Claims ”) shall be pursuant to the indemnification provisions set forth in this Article 4 ; provided, however, that nothing in this Section 4.4(a)  or otherwise in this Article 4 shall limit (i) the right of any party to (A) seek specific performance, injunctive or other equitable relief; (B) proceed against any person other than (i) a party to this Agreement, (ii) Parent, (iii) the successors and permitted assigns of Parent or a party to this Agreement, (iv) the officers, employees, directors and stockholders of Parent or any party to this Agreement and (v) the respective affiliates, agents and representatives of any of the foregoing, or (C) litigate in an appropriate forum its right to receive indemnification under this Article 4 . Nothing in this Section 4.4(a)  shall limit ITS’s and Acquisition Sub’s rights and remedies as set forth in the Indemnification Agreement (but the rights and remedies against Parent thereunder shall be limited to the same extent as the rights and remedies against Seller are limited hereunder).  Without limiting the generality of the foregoing, this Section 4.4 is not applicable to the various agreements, documents and instruments contemplated by this Agreement, including the Assignment and Assumption Agreement, the License Agreement, the Transition Agreement, the SPNC Agreement, the SP Employee NC Agreement or the RFR Agreement.
 
(b)                                  Notwithstanding anything to the contrary in this Article 4 , other than the following provisions of this Section 4.4(b) , the Acquiror Indemnitees shall not be entitled to indemnification for any Damages with respect to Agreement Claims (“ Agreement Damages ”) until the aggregate amount of the Acquiror Indemnitees’ Agreement Damages (including legal fees) exceeds $100,000 (the “ Indemnity Basket ”), but once the claims for Agreement Damages exceed the Indemnity Basket, the Acquiror Indemnitees shall be indemnified for all Agreement Damages, including the $100,000 comprising the Indemnity Basket; provided, however, that the aggregate indemnification obligation of Seller with respect to Agreement Damages shall in no event exceed $2,500,000, comprised of the following:  (i) Seller shall be solely responsible for, and shall pay, the first $1,000,000 of Agreement Damages (including the Indemnity Basket), and (ii) Seller shall be responsible for, and shall pay, one-half of the next $3,000,000 of Agreement Damages, resulting in a possible aggregate liability of $1,500,000 under this subclause (ii), and a possible total aggregate liability of $2,500,000 under subclauses (i) and (ii).  Notwithstanding the foregoing or any other term or condition of this Agreement, or otherwise, which is or may appear to be to the contrary, however, the Acquiror Indemnitees shall be entitled to indemnification from Seller for Agreement Damages with no limitation by the Indemnity Basket, and there shall be no limitation (other than as set forth in Section 4.6 below) on the indemnification obligation of Seller, with respect to any Agreement Damages arising out of, relating to or resulting from, directly or indirectly, (i) any fraudulent, willful or intentional breach by Seller of this Agreement, or (ii) any breach of any of the Extended Representations.
 
(c)                                   No Indemnitee shall be entitled to recover any Agreement Damages in excess of the direct damages suffered by such Indemnitee, and each of ITS, Acquisition Sub and Seller, on its behalf and on behalf of its Indemnitees, hereby waives any right to recover indirect, special, consequential, punitive or exemplary damages with respect to Agreement Claims; provided, however, that this subparagraph (c) shall not be applicable to, and accordingly shall not limit the type of Damages that may be recovered with respect to, or otherwise arising out of, relating to or resulting from, directly or indirectly, (i) any fraudulent, willful or intentional breach of this Agreement or (ii) any breach of the Extended Representations.
 
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(d)                                  An Indemnitees’ right to indemnification for any Agreement Damages shall be reduced by any insurance or other third party indemnification proceeds as may be actually recovered by the Indemnitee prior to receiving indemnification pursuant to this Article 4.  Each Indemnitee shall use reasonable efforts to claim and recover any Agreement Damages suffered by the Indemnitee under any such insurance policies.  None of ITS, Acquisition Sub or Seller are, however, required to carry any insurance that might cover any Agreement Claims or any Agreement Damages.
 
(e)                                   Anything herein to the contrary notwithstanding, no breach of any representation, warranty, covenant or agreement contained herein will give rise to any right on the part of any party to rescind this Agreement.
 
(f)                                    For purposes of this Article 4 , in determining the amount of Damages arising out of, relating to or resulting from, directly or indirectly, a breach of a representation or warranty in this Agreement (but not for purposes of determining whether there has been a breach), all materiality qualifiers will be ignored.  Each Indemnitee shall take all reasonable steps to mitigate all Damages after becoming aware of any event that could reasonably be expected to give rise to any Damages that are indemnifiable hereunder.
 
4.5                                Exclusive Remedy Under Related Agreements; Limitations .
 
(a)                            Each party hereby acknowledges and agrees that its sole and exclusive remedy with respect to (i) any and all claims relating to the representations, warranties, covenants and agreements contained in the Related Agreements (as defined below), and (ii) other claims pursuant to or in connection with the Related Agreements (“ Related Agreement Claims ”) shall be pursuant to the indemnification provisions set forth in this Article 4; provided, however, that nothing in this Section 4.5(a) or otherwise in this Article 4 shall limit (i) the right of any party to (A) seek specific performance, injunctive or other equitable relief; (B) proceed against any person other than (i) a party to this Agreement, (ii) Parent, (iii) the successors and permitted assigns of Parent or a party to this Agreement, (iv) the officers, employees, directors and stockholders of Parent or any party to this Agreement and (v) the respective affiliates, agents and representatives of any of the foregoing, or (C) litigate in an appropriate forum its right to receive indemnification under this Article 4.  Nothing in this Section 4.5(a)  shall limit ITS’s and Acquisition Sub’s rights and remedies as set forth in the Indemnification Agreement (but the rights and remedies against Parent thereunder shall be limited to the same extent as the rights and remedies against Seller are limited hereunder).  The term “Related Agreements” for purposes of this Agreement means the Bill of Sale, the Assignment and Assumption Agreement, the Transition Agreement, the SPNC Agreement and the RFR Agreement, as all the same may be amended or restated from time to time.
 
(b)                                  The Acquiror Indemnities shall be entitled to indemnification for Damages with respect to Related Agreement Claims (“ Related Agreement Damages ”) without regard to any indemnity basket or other limitations, except only as set forth in Section 4.6 below.
 
(c)                                   No Indemnitee shall be entitled to recover any Related Agreement Damages in excess of the direct damages suffered by such Indemnitee, and each of ITS, Acquisition Sub and Seller, on its behalf and on behalf of its Indemnitees, hereby waives any right to recover indirect, special, consequential, punitive or exemplary damages with respect to Related Agreement Claims; provided, however, that this subparagraph (c) shall not be applicable to, and accordingly shall not limit the type of Damages that may be recovered with respect to, or otherwise arising out of, relating to or resulting from, directly or indirectly, any fraudulent, willful or intentional breach of any Related Agreement.
 
(d)                                  An Indemnitee’s right to indemnification for any Related Agreement Damages shall be reduced by any insurance or other third party indemnification proceeds as may be actually recovered by the Indemnitee prior to receiving indemnification pursuant to this Article 4.  Each
 
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Indemnitee shall use reasonable efforts to claim and recover any Related Agreement Damages suffered by the Indemnitee under any such insurance policies.  None of ITS, Acquisition Sub or Seller are, however, required to carry any insurance that might cover any Related Agreement Claims or any Agreement Damages.
 
4.6                                Aggregate Limitation on Agreement Damages and Related Agreement Damages .  Notwithstanding anything to the contrary in this Article 4, Seller’s aggregate indemnification obligation for Agreement Damages and for Related Agreement Damages shall not exceed the Purchase Price, except that this Section 4.6 is not applicable to, and there is no limit on Seller’s or Parent’s liability for, any Agreement Damages and/or Related Agreement Damages that may be recovered with respect to, or otherwise arising out of, relating to or resulting from, directly or indirectly, any fraudulent, willful or intentional breach of any term or condition of this Agreement or any Related Agreement.
 
4.7                                Notice of Claims and Procedures .
 
(a)                                  An Indemnitee will give the indemnifying party prompt written notice of any claim for Damages (whether Agreement Damages, Related Agreement Damages, or otherwise), for which the Indemnitee proposes to demand indemnification, (1) by a Person that is not a party to this Agreement (such a claim, being a “ Third Party Claim ”) or (2) that does not involve a Third Party Claim, in each case specifying the amount and nature of such claim (to the extent known) (such notice being the “ Claim Notice ”).  Thereafter, the Indemnitee will give the indemnifying party, promptly after the Indemnitee’s receipt thereof, copies of all documents (including court papers) received by the Indemnitee relating to any Third Party Claim.
 
(b)                                  Within thirty (30) days after receiving the Claim Notice (or sooner as is reasonably necessary, in the case of a Third Party Claim), the indemnifying party shall give written notice to the Indemnitee stating whether it in good faith disputes the claim for indemnification and whether it will defend against any Third Party Claim at its own cost and expense.  If the indemnifying party fails to give notice that it disputes an indemnification claim within thirty (30) days after receipt of the Claim Notice thereof (or sooner as is reasonably necessary, in the case of a Third Party Claim), it shall be deemed to have accepted and agreed to the claim, and the amount of indemnification to which the Indemnitee shall be entitled under this Article 4 shall be determined: (i) by the written agreement between the indemnifying party and the Indemnitee; (ii) by a final, non-appealable judgment or decree of any court of competent jurisdiction; or (iii) by any other means to which the indemnifying party and the Indemnitee shall agree.  The judgment or decree of a court shall be deemed final when the time for appeal, if any, shall have expired and no appeal shall have been taken or when all appeals taken shall have been finally determined.
 
(c)                                   The following procedures shall apply with respect to the Third Party Claims.
 
(i)                                      The indemnifying party and the Indemnitee will cooperate and assist in all reasonable respects regarding such Third Party Claim, including by promptly making available to the other (and its legal counsel and other professional advisers with a reasonable need to know) all books and records in their possession relating to such Third Party Claim, subject to reasonable confidentiality precautions.
 
(ii)                                   Promptly after receiving a Claim Notice with respect to a Third Party Claim, the indemnifying party will have the option to conduct the defense of such Third Party Claim, at the expense of the indemnifying party, except if (A) the aggregate amount of the potential obligations of the Indemnitee regarding such Third Party Claim exceeds the maximum indemnification obligations under this Article 4 regarding such Third Party Claim, (B) there is a reasonable probability that such Third Party Claim will materially adversely affect the Indemnitee, other than as a result of money
 
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damages, or (C) the indemnifying party fails to provide the Indemnitee with evidence reasonably satisfactory to the Indemnitee that the indemnifying party has the financial resources to actively and diligently conduct the defense of such Third Party Claim.  In any of those events, the Indemnitee may conduct the defense of the Third Party Claim, but at the indemnifying party’s cost and expense and without in any way releasing the indemnifying party of its indemnification obligations under this Article 4 .  To elect to conduct such defense, the indemnifying party must give written notice of such election to the Indemnitee within 30 days (or within the shorter period, if any, during which a defense must be commenced for the preservation of rights) after the Indemnitee gives the corresponding Claim Notice to the indemnifying party; otherwise, such right to conduct such defense will be deemed waived, in which event the Indemnitee may conduct the defense of the Third-Party Claim, but at the indemnifying party’s cost and expense and without in any way releasing the indemnifying party of its indemnification obligations under this Article 4 .  If the indemnifying party validly makes such election, it will nonetheless lose such right to conduct such defense if it fails to continue to actively and diligently conduct such defense, in which event the Indemnitee may conduct the defense of the Third-Party Claim, but at the indemnifying party’s cost and expense and without in any way releasing the indemnifying party of its indemnification obligations under this Article 4 .
 
(iii)                                If the indemnifying party conducts the defense of such Third Party Claim, then (A) the Indemnitee may participate, at its own expense (except that the indemnifying party will be responsible for the fees and expenses of the Indemnitee’s counsel (but not more than one law firm per jurisdiction) if the Indemnitee reasonably concludes that counsel to the indemnifying party has a conflict of interest), in such defense (including any proceeding regarding such Third Party Claim) and will have the right to receive copies of all notices, pleadings or other similar submissions regarding such defense, (B) the indemnifying party will keep the Indemnitee reasonably informed of all matters material to such defense and Third Party Claim at all stages thereof, (C) there will be no compromise or settlement of such Third Party Claim without the consent of the Indemnitee (which consent will not be unreasonably withheld, but which must in all events include a full and final settlement and release of the Indemnitee with respect to all of the claims in question) and (D) the indemnifying party’s election to conduct the defense of such Third Party Claim will not conclusively establish the applicability of the indemnification obligations under this Agreement with respect to such Third Party Claim hereunder.
 
(iv)                               No Indemnitee will have the right to compromise or settle a Third Party Claim without the consent of the indemnifying party, which consent shall not be unreasonably withheld, delayed or conditioned.  Any such consent will not conclusively establish the applicability of the indemnification obligations under this Agreement with respect to such Third Party Claim hereunder.
 
ARTICLE 5. 
GENERAL PROVISIONS
 
5.1                                Notices .  All notices and other communications hereunder shall be in writing and shall be deemed sent, given and delivered: (i) immediately if given by personal delivery, (ii) one day after deposit with an overnight delivery service, (iii) one day after being sent via facsimile (with electronic confirmation of receipt) and (iv) three days after deposit in the mail via registered or certified mail (return receipt requested) to the parties at the following address (or at such other address for a party as shall be specified by like notice):
 
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(a)                                  if to ITS or Acquisition Sub, to:
 
ITS Acquisition Sub, Inc.
6700 Pioneer Parkway
Johnston, Iowa 50131
Attention: Michael K. Hollinger
 
(b)                                  if to the Seller, to:
 
Cardinal Software, Inc.
9430 Research Blvd.
Building 4, Suite 400
Austin, Texas 78759
Attention: R. H. Seale III
 
With a copy to (which shall not constitute notice):
 
DLA Piper US LLP
401 Congress Avenue, Suite 2500
Austin, Texas 78701
Attention: John J. Gilluly III, PC
 
5.2                                Counterparts; Facsimile .  This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.  Delivery of an executed counterpart signature page to this Agreement by facsimile or other electronic delivery shall be effective as delivery of an original counterpart signature page.
 
5.3                                Entire Agreement; Assignment .  This Agreement and the agreements, documents, instruments and certificates delivered pursuant hereto, including the exhibits and the schedules hereto, constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.  This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. This Agreement may be assigned by any party to this Agreement without the consent of any of the other parties to this Agreement, but any such assignment shall not relieve the assigning party of any of the duties, obligations or liabilities of the assigning party under this Agreement, including the assigning party’s indemnification obligations under Article 4 , and the assignee in any such assignment shall also be deemed to have the obligations of the assigning party under this Agreement.
 
5.4                                Amendment; Waiver .  This Agreement may be amended and any provision hereof may be waived at any time, in each case, only by execution of a separate instrument in writing signed by each of ITS, Acquisition Sub and Seller.
 
5.5                                Severability .  In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto.
 
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5.6                                Governing Law; Jurisdiction .  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to applicable principles of choice of law or conflicts of law.
 
5.7                                Rules of Construction .  The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.  The term “person” as used in this Agreement includes individuals and all types and forms of entities,  including corporations, limited liability companies and partnerships and including public or governmental bodies, agencies or instrumentalities.  The words “include” and “including” are used in this Agreement in a nonexclusive manner and fashion, that is so as to include, but without limitation, the facts, items, matters or other things in question.
 
5.8                                Enforcement .  The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.
 
5.9                                Waiver of Jury Trial .  Each of the parties hereby unconditionally waives any right to a jury trial with respect to and in any action, proceeding, claim, counterclaim, demand or other matter whatsoever arising out of this Agreement or any agreement, document or instrument contemplated by this Agreement.
 
5.10                         ITS Guarantee .  ITS hereby irrevocably guarantees that Acquisition Sub will timely perform all of its obligations under this Agreement.
 
5.11                         Mutual Non-Solicitation .  From the date of this Agreement through the third anniversary of the date of this Agreement, neither Seller nor Parent shall directly or indirectly solicit for employment or hire any person that is (i) then employed by ITS or Acquisition Sub or (ii) has been employed by ITS or Acquisition Sub within the preceding 3 months (unless such person has been terminated by ITS or Acquisition Sub).  From the date of this Agreement through the third anniversary of the date of this Agreement, neither ITS nor Acquisition Sub shall directly or indirectly solicit for employment or hire any person (i) that is then employed by Parent or any subsidiary of Parent or (ii) that has been employed by Parent or any subsidiary of Parent within the preceding 3 months (unless such person has been terminated by Parent or any subsidiary of Parent).  Notwithstanding the foregoing, this Section 5.11 does not prohibit or restrict Seller, Parent, ITS or Acquisition Sub from soliciting individuals for employment through general advertising and other methods of locating, soliciting or recruiting prospective employees which are not directed to any named individual or through employment, head hunter or other agencies which locate, solicit or recruit prospective employee candidates.
 
5.12                         Consent to Jurisdiction .  Notwithstanding anything herein to the contrary, any claim or dispute arising out of or related to this Agreement or the Related Agreements (other than the SPNC Agreement) or the interpretation, making, performance or breach thereof, shall be finally and exclusively settled by any United States or state court, in each case, sitting anywhere in Delaware.  Acquisition Sub, ITS and Seller each hereby submit to the jurisdiction of any such court and each agree that all claims and counterclaims in respect of any such action or proceeding may be heard and determined in any such court; provided, however, that actions or proceedings to enforce any decrees, orders, judgments, decisions or awards by such court may be brought in any other court with jurisdiction.
 
5.13                         Confidentiality of Agreements by Acquisition Sub and ITS .  Acquisition Sub and ITS covenant and agree that Acquisition Sub and ITS will not at any time, directly or indirectly, disclose the terms of this Agreement or of the agreements, documents or instruments contemplated hereby (collectively, the “Transaction Agreements”) to any person; provided, however that Acquisition Sub and
 
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ITS may disclose the terms of the Transaction Agreements to the Prospective Person (as defined below) in connection with a ITS Transaction (as defined below); provided, however, that Acquisition Sub and ITS shall give Parent notice of any disclosure of the Transaction Agreements in connection with a proposed ITS Transaction and Acquisition Sub and ITS shall in all events be and remain liable and responsible for assuring that the Prospective Person utilizes the Transaction Agreements only in connection with analyzing the proposed ITS Transaction and otherwise maintains the confidentiality of the Transaction Agreements.  The term “ITS Transaction” means a bona fide, arms length transaction between Acquisition Sub and/or ITS and the Prospective Person in question for (i) the sale of all or substantially all of the assets of Acquisition Sub or ITS to the Prospective Person, or of the Prospective Person to Acquisition Sub or ITS; (ii) the merger or consolidation of Acquisition Sub and/or ITS with or into the Prospective Person or of the Prospective Person with or into Acquisition Sub or ITS; (iii) the purchase by the Prospective Person of any equity or debt issued by Acquisition Sub or ITS; or (iv) the loan of funds by the Prospective Person to Acquisition Sub and/or ITS.  The term “Prospective Person” means the other person (besides Acquisition Sub and/or ITS) to the ITS Transaction.
 
Schedules:
 
1.1(a)(i) -                                               List of Real Property Leases
 
1.1(a)(iv) -                                        List of Equipment
 
1.1(a)(v)(A) -                          List of Equipment Leases (Seller as lessor or sublessor)
 
1.1(a)(v)(B) -                          List of Equipment Leases (Seller as lessee or sublessee)
 
1.1(a)(vi) -                                        List of Business Contracts
 
1.1(a)(vii) -                                     List of Prepaid Expenses
 
1.1(a)(viii) -                                  List of Intangible Personal Property
 
1.1(a)(ix) -                                        List of Business Licenses
 
1.1(a)(x) -                                           List of Vehicles
 
1.1(a)(xi) -                                        List of Security Deposits
 
1.1(a)(xiv)-                                    List of Certain Other Assets
 
1.1(b)(v) -                                           List of Personal Property Included In the Excluded Assets
 
1.1(b)(vii) -                                     List of Existing Litigation
 
1.1(b)(x) -                                           List of Certain Excluded Assets
 
1.3(a)(ii) -                                            List of Terminated Business Contracts and Related Information
 
1.4(b)(iv)                                               Scheduled Contracts
 
1.6(e) -                                                           ST States and ST Amounts
 
2.4 -                                                                         List of Other Seller Consents
 
2.6(a) -                                                          Copies of Financial Statements and Interim Financial Statements
 
2.6(c) -                                                           List of Accounts Receivable
 
2.8 -                                                                         List of Warranties and Warranty Claims
 
2.9 -                                                                         Customer Notices
 
2.10 -                                                                  List of Owned Intellectual Property and Third-Party Intellectual Property
 
28 

 
2.11 -                                                                  List of Leased Real Property and Leased Property Leases
 
2.12 -                                                                  Equipment and Vehicle Matters
 
2.13 -                                                                  Employee Information
 
2.15 -                                                                  Assumed Contracts Matters
 
2.18 -                                                                  Tax Matters
 
Exhibits
 
A -                                 Assignment and Assumption Agreement [Section 1.2(a)]
 
B -                                 Bill of Sale [Section 1.4(b)(i)]
 
C -                                 Noncompete and Confidentiality Agreement - Seller and Parent [Section 1.4(b)(vi)]
 
D -                                 Right of First Refusal Agreement [Section 1.4(b)(viii)]
 
E -                                  Transition Services Agreement [Section 1.4(b)(ix)]
 
F -                                   Indemnification Agreement [Section 1.4(b)(x)]
 
G -                                 Copyright, Mark and Domain Name Assignments [Section 1.4(b)(xii)]
 
H -                                Noncompete and Confidentiality Agreement - R. H. Seale III [Section 1.4(c)]
 
I -                                     License Agreement - Q2 Software, Inc. [Section 1.4(c)]
 
J -                                     Amendments to Q2 Software, Inc. Agreements [Section 1.4(b)(xii)
 
K. -                             Amendment to Master Source Code Escrow Agreement [Section 1.4(b)(xii)]
 
SIGNATURE PAGE FOLLOWS.
 
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IN WITNESS WHEREOF , this Asset Purchase Agreement has been executed and delivered by each of the parties hereto, all as of the date first written above.

 	ITS, INC.	

 	By:	/s/ Michael K. Hollinger	
 	Name:	Michael K. Hollinger	
 	Title:	Chief Executive Officer	

 	ITS ACQUISITION SUB, INC.	

 	By:	/s/ Michael K. Hollinger	
 	Name:	Michael K. Hollinger	
 	Title:	President	

 	CARDINAL SOFTWARE INC.	

 	By:	/s/ R.H. Seale	
 	Name:	R. H. Seale, III	
 	Title:	Chief Executive Officer	

Exhibit 2.4
 
EXECUTION VERSION
 
SEPARATION AND DISTRIBUTION AGREEMENT
 
by and among
 
CBG HOLDINGS, INC.,
 
Q2 SOFTWARE, INC.
 
CB NETWORK HOLDINGS, INC.
 
and
 
CBANC NETWORK, INCORPORATED
 
dated as of
 
March 1, 2013

 
TABLE OF CONTENTS

 	Page	
 	 	
Article I	Definitions	1	
 	 	 	
Article II	The Separation	7	
 	 	 	 	
 	2.1	General	7	
 	 	 	 	
 	2.2	Transfer of Cbanc Assets and Assumption of Cbanc Liabilities	7	
 	 	 	 	
 	2.3	Governmental Approvals; Consents	8	
 	 	 	 	
 	2.4	Certain Financial and Other Arrangements	9	
 	 	 	 	
 	2.5	Termination of Intercompany Agreements	9	
 	 	 	 	
 	2.6	Representations and Warranties	9	
 	 	 	 	
 	2.7	Disclaimer of Representations and Warranties	10	
 	 	 	 	
Article III	The Distribution	10	
 	 	 	 	
 	3.1	The Distribution	10	
 	 	 	 	
 	3.2	Actions in Connection with the Distribution	11	
 	 	 	 	
 	3.3	Conditions to Distribution	11	
 	 	 	 	
 	3.4	Fractional Shares	12	
 	 	 	 	
 	3.5	Insurance Matters	12	
 	 	 	 	
Article IV	Certain Covenants and Other Agreements of The Parties	13	
 	 	 	 	
 	4.1	Restrictive Covenants	13	
 	 	 	 	
 	4.2	Name Changes	14	
 	 	 	 	
 	4.3	Further Assurances	14	
 	 	 	 	
 	4.4	Tax Matters	14	
 	 	 	 	
 	4.5	Future License of Intellectual Property	15	
 	 	 	 	
Article V	Confidentiality	15	
 	 	 	 	
 	5.1	Confidentiality	15	
 	 	 	 	
 	5.2	Protective Arrangements	16	
 	 	 	 	
Article VI	Access to Information and Services	16	
 	 	 	 	
 	6.1	Provision of Books and Records	16	
 	 	 	 	
 	6.2	Access to Information	16	
 	 	 	 	
Article VII	Dispute Resolution	17	
 	 	 	 	
 	7.1	Disputes and Negotiation	17	
 	 	 	 	
 	7.2	Dispute Resolution and Arbitration	17	
 	 	 	 	
Article VIII	Termination	18	
 
i 

 
TABLE OF CONTENTS
(continued)

 	 	Page	
 	 	 	
 	8.1	Termination	18	
 	 	 	 	
Article IX	Miscellaneous	18	
 	 	 	 	
 	9.1	Governing Law	18	
 	 	 	 	
 	9.2	Waiver of Jury Trial	18	
 	 	 	 	
 	9.3	Assignability	18	
 	 	 	 	
 	9.4	Third Party Beneficiaries	19	
 	 	 	 	
 	9.5	Notices	19	
 	 	 	 	
 	9.6	Severability	19	
 	 	 	 	
 	9.7	Expenses	20	
 	 	 	 	
 	9.8	Survival of Covenants	20	
 	 	 	 	
 	9.9	Waivers of Default	20	
 	 	 	 	
 	9.10	Specific Performance	20	
 	 	 	 	
 	9.11	Amendments	20	
 	 	 	 	
 	9.12	Entire Agreement	20	
 	 	 	 	
 	9.13	Schedules	20	
 	 	 	 	
 	9.14	Construction	21	
 	 	 	 	
 	9.15	Counterparts	21	
 
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THIS SEPARATION AND DISTRIBUTION AGREEMENT (this “ Agreement ”), dated as of March 1, 2013, is entered into by and among CBG Holdings, Inc., a Delaware corporation (“ Parent ”), Q2 Software, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“ Q2 ”), CB Network Holdings, Inc., a Delaware corporation (“ Spinco ”), and cbanc Network, Incorporated, a Delaware corporation and wholly owned subsidiary of Parent (“ CBN ” and, collectively with Spinco, “ CBanc ”) (each a “ Party ” and collectively, the “ Parties ”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I .
 
RECITALS
 
WHEREAS, the Board of Directors of Parent has determined that it is appropriate, desirable and in the best interests of Parent and its stockholders to separate the business and ownership of its wholly owned subsidiary CBN by means of the contribution of certain assets of Parent and capital stock of CBN held by Parent, all as more fully described in this Agreement and the Ancillary Agreements (the “ Separation ”).
 
WHEREAS, in order to effect the Separation, Parent will provide for the initial capitalization of Spinco by contributing 100% of the outstanding common stock of CBN to Spinco so that CBN shall be a wholly owned subsidiary of Spinco, in exchange for Series A Common Stock of Spinco (the “ Spinco Common Stock ”), resulting in Spinco becoming a wholly-owned subsidiary of Parent.
 
WHEREAS, in order to effect the Separation, the Board of Directors of Parent has further determined that it is appropriate, desirable and in the best interests of Parent and its stockholders to distribute, as a dividend to the holders of shares of Common Stock of Parent (“ Parent Common Stock ”) and shares of preferred stock of Parent (“ Parent Preferred Stock ” and, together with Parent Common Stock, the “ Parent Capital Stock ”) 100% of the Spinco Common Stock, in proportion to their ownership of the Parent Common Stock or Parent Preferred Stock, as the case may be, on an as-converted basis (the “ Distribution ”).
 
WHEREAS, Parent and Spinco have determined that it is necessary and desirable to set forth the principal corporate transactions required to effect the Separation and Distribution and to set forth other agreements that will govern certain other matters prior to and following the Separation and Distribution.
 
NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and provisions of this Agreement, Parent, Q2, Spinco and CBN mutually covenant and agree as follows:
 
Article I
 
Definitions
 
1.1                                “ Action ” shall mean any demand, action, cause of action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international Governmental Entity or any arbitration or mediation tribunal.
 
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1.2                                “ Affiliate ” shall mean, with respect to any specified Person, any other Person directly or indirectly through one or more intermediaries, controlling, controlled by or under common control with such specified Person.
 
1.3                                “ Ancillary Agreements ” shall mean all of the agreements, instruments, understandings, assignments or other arrangements entered into in connection with the transactions contemplated hereby, including, without limitation, the Transition Services Agreement.
 
1.4                                “ Arbitration Notice ” shall have the meaning set forth in Section 7.2 .
 
1.5                                “ Assumed Contracts ” shall have the meaning set forth in Section 1.7(f) .
 
1.6                                “ Assumption ” shall have the meaning set forth in Section 2.2(e) .
 
1.7                                “ Cbanc Assets ” mean, collectively, all of the following rights and assets as of the close of business on the Distribution Date:
 
(a)                                  The Note and all rights and benefits of Parent thereunder.
 
(b)                                  All of the assets included in the Cbanc Business Pro Forma Balance Sheet.
 
(c)                                   All Cbanc Books and Records.  “ Cbanc Books and Records ” shall mean books and records which relate to Spinco, CBN, the Cbanc Assets, the Cbanc Liabilities or the conduct of the Cbanc Business.
 
(d)                                  The following Intellectual Property assets related to the Cbanc Business:  (i) the Trademarks listed in Schedule 1.7(d) ; (ii) the patents and patent applications listed in Schedule 1.7(d) , and any patents of addition, re-examinations, reissues, extensions, granted supplementary protection certifications, substitutions, confirmations, registrations, revalidations, revisions, additions and the like, of or to said patents and any and all divisionals, continuations and continuations-in-part, and any patents issuing therefrom, as well as any patent applications related thereto; (iii) all U.S. and foreign copyrights and copyrightable subject matter solely related to the Cbanc Business, whether registered or unregistered, published or unpublished, statutory or common law; (iv) any other Intellectual Property listed in Schedule 1.7(d) , including rights in Software and rights to domain names; and (v) all Actions against past, present, and future infringement, misappropriation, or other violation of the foregoing.
 
(e)                                   All fixed assets set forth on Schedule 1.7(e) .
 
(f)                                    All rights and benefits of Q2 in existence as of the Effective Time or arising after the Effective Time under the Contracts listed in Schedule 1.7(f)  (the “ Assumed Contracts ”), including any rights to Intellectual Property contained therein.  The Assumed Contracts shall be deemed to include all purchase, work and change orders related thereto.
 
(g)                                   Cbanc Policies.
 
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(h)                                  All assets and rights expressly contemplated by this Agreement or any Ancillary Agreement (or the Attachments and Schedules hereto or thereto) to be transferred to Spinco or CBN.
 
(i)                                      Any other asset acquired by Parent, Q2 or CBN from the date of the Cbanc Business Pro Forma Balance Sheet to the close of business on the Distribution Date that is owned by Parent, Q2 or CBN as of the close of business on the Distribution Date and that is of a nature or type that would have resulted in such asset being included as an asset on the Cbanc Business Pro Forma Balance Sheet had it been acquired on or prior to the date of the Cbanc Business Pro Forma Balance Sheet, determined on a basis consistent with the determination of the assets included on the Cbanc Business Pro Forma Balance Sheet.
 
1.8                                “ Cbanc Business ” shall mean (i) the business being conducted by CBN immediately prior to the Distribution Date, (ii) the business of facilitating electronic transaction processing among unrelated banks for internal purposes (e.g., loan syndication and deposit management) and (iii) the business of consolidating financial services companies.
 
1.9                                “ Cbanc Business Pro Forma Balance Sheet ” shall mean the pro forma consolidated balance sheet for Spinco and CBN as of February 27, 2013 attached hereto as Exhibit A .
 
1.10                         “ Cbanc Employees ” shall mean all employees listed on Schedule 1.10 .
 
1.11                         Cbanc Insured Loss ” shall have the meaning set forth in Section 3.5(b) .
 
1.12                         “ Cbanc Liabilities ” shall mean:
 
(a)                                  All categories of Liabilities that are reflected as liabilities of Spinco and CBN in the Cbanc Business Pro Forma Balance Sheet that remain outstanding as of the close of business on the Distribution Date.
 
(b)                                  All Liabilities under the Assumed Contracts.
 
(c)                                   All Liabilities relating to any Cbanc Employees incurred on or after the Distribution Date, including liabilities related to the “lease” of such employees for the period set forth in Section 2.2(c) .
 
(d)                                  All other Liabilities that are incurred or which accrue or are accrued at any time on, prior to or after the date of the Cbanc Business Pro Forma Balance Sheet and that arise or arose out of, or in connection with, the Cbanc Assets or the Cbanc Business, determined on a basis consistent with the determination of Liabilities of Cbanc on the Cbanc Business Pro Forma Balance Sheet.
 
(e)                                   Any and all Liabilities expressly set forth on Schedule 1.12(e) .
 
(f)                                    Any and all other Liabilities relating to, arising out of or resulting from Spinco or CBN’s performance or obligations under any Ancillary Agreement (including but not limtied to the Transition Services Agreement) or this Agreement.
 
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(g)                                   Any and all other Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Attachments and Schedules hereto or thereto) to be transferred to and assumed by Cbanc.
 
1.13                         “ Cbanc Policies ” shall mean all Policies, current or past, which are owned or maintained by or on behalf of Parent or Q2, which relate solely to the Cbanc Business and are assignable to Cbanc, as listed on Schedule 1.13 .
 
1.14                         “ CBN Stock Transfer ” shall have the meaning set forth in Section 2.2(a) .
 
1.15                         “ Code ” shall have the meaning set forth in Section 4.4 .
 
1.16                         “ Combined Books and Records ” shall have the meaning set forth in Section 6.1(b) .
 
1.17                         “ Consents ” shall mean any and all consents, waivers or approvals from, or notification requirements to, any Third Parties, including those set forth on Schedule 1.17 .
 
1.18                         “ Contract ” shall mean any contract, obligation, indenture, agreement, lease, purchase order, commitment, permit, license, note, bond, mortgage, arrangement or undertaking (whether written or oral and whether express or implied) that is legally binding on any Person or any part of its property under applicable Law, but excluding this Agreement and any Ancillary Agreement save as otherwise expressly provided in this Agreement or any Ancillary Agreement.
 
1.19                         “ Distribution ” shall have the meaning set forth in the recitals hereto.
 
1.20                         “ Distribution Date ” shall mean the date on which the Distribution to the stockholders of Parent is effective.
 
1.21                         “ Effective Time ” shall mean 11:59 p.m. Central Time on the day immediately preceding the Distribution Date.
 
1.22                         “ Excluded Assets ” shall mean all assets of Parent, Q2 and their Affiliates other than those set forth in Section 1.7 , including, without limitation, (a) the Excluded Intellectual Property; (b) any and all Contracts of Parent or Q2, other than the Assumed Contracts; and (c) all of Parent’s and Q2’s rights, title and interest in and to any and all other assets that are expressly contemplated to be retained by Parent and Q2 by this Agreement or any Ancillary Agreement (or the Attachments and Schedules hereto or thereto).
 
1.23                         “ Excluded Intellectual Property ” shall mean all Intellectual Property of Parent, Q2 and their Affiliates other than that set forth in Section 1.7(d), including all Actions against past, present, and future infringement, misappropriation, or other violation of the foregoing.
 
1.24                         “ Excluded Liabilities ” shall mean any and all Liabilities of Parent, Q2 and their Affiliates other than those set forth in Section 1.12 , including, without limitation, all Liabilities relating to any Cbanc Employees incurred before the Distribution Date.
 
4 

 
1.25                         “ Governmental Approvals ” shall mean any notices, reports or other filings to be made, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Entity.
 
1.26                         “ Governmental Entity ” shall mean any federal, state, local, foreign or international court, government department, commission, board, bureau, agency, official or other regulatory, administrative or governmental entity.
 
1.27                         “ Information ” shall mean information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), communications and materials otherwise related to or made or prepared in connection with or in preparation for any legal proceeding, and other technical, financial, employee or business information or data.
 
1.28                         “ Intellectual Property ” shall mean all intellectual property and industrial property rights of any kind or nature, including all United States and foreign (a) patents, patent applications, patent disclosures, and all related continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions and extensions thereof, (b) Trademarks and all goodwill associated therewith, (c) rights of publicity, (d) moral rights and rights of attribution and integrity, (g) rights in Software, (h) trade secrets and all other confidential and proprietary information, know-how, inventions, improvements, processes, formulae, models and methodologies, (i) rights to domain names, (j) rights to personal information, (k) telephone numbers and internet protocol addresses, (l) applications and registrations for the foregoing, and (m) Actions against past, present, and future infringement, misappropriation, or other violation of the foregoing.
 
1.29                         “ JAMS ” shall have the meaning set forth in Section 7.2 .
 
1.30                         “ JAMS Rules ” shall have the meaning set forth in Section 7.2 .
 
1.31                         “ Law ” shall mean any United States or non-United States federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including common law).
 
1.32                         “ Liabilities ” shall mean any and all debts, liabilities, and obligations, whether accrued or fixed, known or unknown, absolute or contingent, matured or unmatured, reserved or unreserved, or determined or determinable of any kind or nature whatsoever, including those arising under any Law or Action, whether asserted or unasserted, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Entity, and those arising under any Contract or any fines, damages or equitable relief which may be imposed in connection with any of the foregoing and including all costs and expenses related thereto.
 
5 

 
1.33                         “ Notes ” shall mean the notes payable by CBN to Parent as the same are set forth on the Cbanc Business Pro Forma Balance Sheet.
 
1.34                         “ Party ” shall have the meaning set forth in the preamble hereof.
 
1.35                         “ Parent Capital Stock ” shall have the meaning set forth in the recitals hereto.
 
1.36                         “ Parent Common Stock ” shall have the meaning set forth in the recitals hereto.
 
1.37                         “ Parent Policies ” shall mean all Policies, other than the Cbanc Policies, entered prior to or as of the Effective Time, which are between or among Parent or Q2 and one or more Third Parties, that benefit either or both the Q2 Business and the Cbanc Business.
 
1.38                         “ Parent Preferred Stock ” shall have the meaning set forth in the recitals hereto.
 
1.39                         “ Person ” shall mean any natural person, firm, individual, corporation, business trust, joint venture, association, company, limited liability company, partnership, or other organization or entity, whether incorporated or unincorporated, or any governmental entity.
 
1.40                         “ Policies ” shall mean insurance policies and insurance Contracts of any kind (other than life and benefits policies or Contracts), including primary, excess and umbrella policies, comprehensive general liability policies, director and officer liability, fiduciary liability, automobile, aircraft, property and casualty, business interruption, workers’ compensation and employee dishonesty insurance policies, bonds and self-insurance and captive insurance company arrangements, together with the rights, benefits and privileges thereunder.
 
1.41                         “ Q2 Business ” shall mean the business of Q2 as currently conducted or currently proposed to be conducted by Q2 as of the Effective Time.
 
1.42                         “ Record Date ” shall mean the 12:00 p.m. on the date to be determined by the Parent Board of Directors as the record date for the Distribution.
 
1.43                         “ Separation ” shall have the meaning set forth in the recitals hereto.
 
1.44                         “ Software ” shall mean all computer programs (whether in source code, object code, or other form), algorithms, databases, compilations and data, and technology supporting the foregoing, and all documentation, including flowcharts and other logic and design diagrams, technical, functional and other specifications, and user manuals and training materials related to any of the foregoing.
 
1.45                         “ Spinco Common Stock ” shall have the meaning set forth in the recitals hereto.
 
1.46                         “ Spinco Stock Issuance ” shall have the meaning set forth in Section 2.2(b) .
 
1.47                         “ Third Party ” shall mean any Person other than the Parties and their respective Affiliates.
 
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1.48                         “ Trademarks ” shall mean all trademarks, service marks, trade names, names, slogans, taglines, logos, design marks, trade dress, product designs, and product packaging, including all applications for and registrations of the foregoing, and including those at common law.
 
1.49                         “ Transfer ” shall have the meaning set forth in Section 2.2(a) .
 
1.50                         “ Transition Services Agreement ” shall mean the Transition Services Agreement by and among Parent, Q2, Spinco and CBN, dated as of the date hereof.
 
Article II
 
The Separation
 
2.1                                General .  Subject to the terms and conditions of this Agreement, the Parties shall use, and shall cause any respective subsidiary to use, their respective reasonable best efforts to consummate the transactions contemplated hereby.
 
2.2                                Transfer of Cbanc Assets and Assumption of Cbanc Liabilities .  Subject to Sections 2.3 , 2.4 and 2.5:
 
(a)                                  At the Effective Time, (i) Q2 shall, and hereby does, transfer, distribute, assign and convey to Parent all of Q2’s right, title and interest in and to the Cbanc Assets (if any), and Parent shall, and hereby does, accept such transfer from Q2 to Parent, and (ii) immediately after the transactions described in clause (i) and without any further action by any other Party, Parent shall, and hereby does, transfer, contribute, assign, and convey, or cause to be transferred, contributed, assigned, and conveyed, to CBN all of Parent’s right, title and interest in and to the Cbanc Assets (the “ Transfer ”) and CBN shall, and hereby does, accept the Transfer from Parent.
 
(b)                                  At the Effective Time and after giving effect to the transactions described in Section 2.2(a) , (i) Parent shall, and hereby does, transfer, contribute and convey to Spinco all of Parent’s right, title and interest in and to the capital stock of CBN (the “CBN Stock Transfer ”), and Spinco shall and hereby does, accept the CBN Stock Transfer from Parent, and (ii) Spinco shall, and hereby does, issue to Parent 22,460,007 shares of Spinco’s Series A Common Stock (the “ Spinco Stock Issuance ”), and Parent shall, and hereby does, accept the Spinco Stock Issuance as consideration for the transactions described in Sections 2.2(a)  and (b)(i) .
 
(c)
 
(d)                                  Q2 shall terminate the employment of the Cbanc Employees effective at 12:00 a.m. Central Time on March 1, 2013 and CBN shall offer employment to the Cbanc Employees, such new employment effective as of such date.
 
(e)                                   Except as otherwise specifically set forth in this Agreement or any Ancillary Agreement, at the Effective Time CBN shall, and hereby does, accept, assume or, as applicable, retain all the Cbanc Liabilities and shall after the Effective Time perform, discharge
 
7 

and fulfill, in accordance with their respective terms, all the Cbanc Liabilities, in each case, unless specified otherwise in the definition of Cbanc Liabilities, regardless of (i) when or where such Liabilities arose or arise, (ii) where or against whom such Liabilities are asserted or determined, (iii) which entity is named in any action associated with any Liability, and (iv) whether the facts on which they are based occurred prior to, on or after the Effective Time (the “ Assumption ”).  Notwithstanding the foregoing, CBN shall not assume any Liability attributable to the failure of Parent, Q2 or their respective officers, directors, employees, agents or Affiliates to materially perform Parent’s or Q2’s obligations to CBN pursuant to this Agreement or the Ancillary Agreements.
 
(f)                                    If at any time, after the Effective Time, the Parties agree that Parent, Q2 or any of their subsidiaries possesses any assets or liabilities related to the Cbanc Business, Parent and Q2 shall as promptly as reasonably practicable transfer or cause to be transferred, at CBN’s expense, and CBN shall accept such transfer and/or assume, for no additional consideration, such Cbanc Asset and/or Liability, including any and all economic benefits generated from such Cbanc Asset and/or Liabilities after the Effective Time, to CBN.  Each such transferred asset or liability shall be deemed a Cbanc Asset or a Cbanc Liability, respectively, and shall be subject to the terms and conditions of this Agreement applicable thereto.
 
(g)                                   If at any time, after the Effective Time, the Parties agree that Spinco, CBN or any of their subsidiaries possesses any assets or liabilities related to the Q2 Business, Spinco and CBN shall as promptly as reasonably practicable transfer or cause to be transferred, at Q2’s expense, and Q2 shall accept such transfer and/or assume, for no consideration, such asset and/or liability, including any and all economic benefits generated from such asset and/or liabilities after the Effective Time, to Q2.  Each such transferred asset or liability shall be deemed an Excluded Asset or an Excluded Liability, respectively, and shall be subject to the terms and conditions of this Agreement applicable thereto.
 
(h)                                  In furtherance of the Transfer and the assumption of the Cbanc Liabilities by CBN as set forth above, and simultaneously with the execution and delivery of this Agreement (i) Parent and/or Q2 shall execute and deliver such bills of sale, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the Transfer, and (ii) Spinco and/or CBN shall execute and deliver to Parent and Q2 such bills of sale, stock powers, certificates of title, assumptions of contracts, indemnity agreements and other instruments of assumption as and to the extent necessary to evidence the valid and effective Assumption.
 
2.3                                Governmental Approvals; Consents .
 
(a)                                  To the extent that the Transfer or the Assumption requires any Governmental Approvals, the Parties shall use reasonable best efforts to obtain any such Governmental Approvals.  If and to the extent that the Transfer or the Assumption would be a violation of applicable laws or require any Governmental Approval in connection with the Separation or the Distribution, then, unless Parent shall otherwise determine, the Transfer to or Assumption by CBN of such Cbanc Assets or Cbanc Liabilities, as the case may be, shall be automatically deemed deferred and any such purported Transfer or the Assumption shall be null
 
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and void until such time as all legal impediments are removed and/or each of such Governmental Approval has been obtained.
 
(b)                                  The Parties shall use reasonable best efforts to obtain any Consents required in connection with the transactions contemplated by this Agreement.  Notwithstanding the foregoing, no Party shall be obligated to pay any consideration therefor to any Third Party from whom any such Consent, substitution or amendment is requested (unless such Party is fully reimbursed by the requesting Party).
 
2.4                                Certain Financial and Other Arrangements .
 
(a)                                  Settlement of Intercompany Accounts Between Parent and Spinco . All intercompany receivables, payables and loans (other than the Note (which shall be transferred to CBN pursuant to Section 2.2(a), receivables, payables and loans otherwise specifically provided for in any other the Ancillary Agreements or hereunder), including, without limitation, in respect of any cash balances, any cash balances representing deposited checks or drafts for which only a provisional credit has been allowed or any cash held in any centralized cash management system, between Parent and/or Q2, on the one hand, and Spinco and/or CBN, on the other hand, shall, as of the close of business on the Distribution Date, be settled, capitalized or converted into ordinary trade accounts, in each case as may be agreed in writing prior to the Distribution Date by duly authorized representatives of Parent and CBN.
 
(b)                                  Operations in Ordinary Course . Except as otherwise provided in this Agreement or any Ancillary Agreement, during the period from the date of this Agreement through the Distribution Date, Parent, Q2, Spinco and Cbanc shall conduct their respective businesses in a manner substantially consistent with current and past operating practices and in the ordinary course, including, without limitation, with respect to the payment and administration of accounts payable and the collection and administration of accounts receivable, the purchase of capital assets and equipment and the management of inventories.
 
2.5                                Termination of Intercompany Agreements .  Except with respect to this Agreement and the Ancillary Agreements (and agreements expressly contemplated herein or therein to survive by their terms) and subject to the terms of Section 2.4(a) , the Parties hereby terminate any and all written or oral agreements, arrangements, commitments or understandings, between or among them, effective as of the Distribution Date; and each Party shall, at the reasonable request of the other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing; provided , however , that such termination shall not have any effect whatsoever on any of its rights and/or obligations that accrued or were incurred prior to the Distribution Date.
 
2.6                                Representations and Warranties .  Each of Parent and Q2 represents on behalf of itself to Spinco, and each of Spinco and CBN represents on behalf of itself to Parent as follows:
 
(a)                                  such Party is a corporation duly formed, validly existing and in good standing under this jurisdiction of its formation;
 
(b)                                  such Party has the requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform each of this Agreement
 
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and each other Ancillary Agreement to which it is a party and to consummate the transactions contemplated by this Agreement and the Ancillary Agreements to which it is a party; and
 
(c)                                   this Agreement has been duly executed and delivered by such Party and constitutes a valid and binding agreement of it enforceable against it in accordance with the terms thereof (assuming the due execution and delivery thereof by the other Party), and each of the other Ancillary Agreements to which it will be a party will be duly executed and delivered by it and will constitute a valid and binding agreement of it enforceable against such person in accordance with the terms thereof (assuming the due execution and delivery thereof by the other party or parties to such Ancillary Agreement).
 
2.7                                Disclaimer of Representations and Warranties .  THE PARTIES UNDERSTAND AND AGREE THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, NO PARTY TO THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT HEREBY OR THEREBY, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE CBANC ASSETS, CBANC BUSINESS OR CBANC LIABILITIES CONTRIBUTED, TRANSFERRED, DISTRIBUTED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY CONSENTS OR GOVERNMENTAL APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY CBANC ASSETS, CBANC BUSINESS OR CBANC LIABILITIES OR AS TO THE ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY CLAIM, INCLUDING ANY ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY CONTRIBUTION, DISTRIBUTION, ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE TO ANY CBANC ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF.  EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, ALL SUCH CBANC ASSETS ARE BEING TRANSFERRED ON AN “AS IS,” “WHERE IS” BASIS AND SO LONG AS THE TRANSFEROR IS IN COMPLIANCE WITH THE TERMS OF THIS AGREEMENT RELATING TO THE TRANSFER, THE TRANSFEREE SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE SHALL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD AND MARKETABLE TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, AND (II) ANY NECESSARY CONSENTS OR GOVERNMENTAL APPROVALS ARE NOT OBTAINED OR THAT THE REQUIREMENTS OF LAWS, CONTRACTS, OR JUDGMENTS ARE NOT COMPLIED WITH.
 
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Article III
 
The Distribution
 
3.1                                The Distribution .
 
(a)                                  Prior to the Distribution Date, Parent will deliver stock certificates, endorsed by Parent in blank, to Spinco, representing all of the outstanding and issued shares of common stock of CBN then owned by Parent.
 
(b)                                  Subject to Section 3.3 , on or as soon as practicable following the Distribution Date, for the benefit of and distribution to the holders of Parent Capital Stock on the Record Date, Parent will prepare stock certificates representing all of the outstanding and issued shares of Spinco Common Stock then owned by Parent, certificated to the names of the parties and in the amounts set forth in Section 3.1(c) .
 
(c)                                   Subject to Section 3.4 , each holder of Parent Capital Stock on the Record Date (or such holder’s designated transferee or transferees) will be entitled to receive in the Distribution the number of shares of Spinco Common Stock set forth in Schedule 3.1(c) , as calculated on a pro rata basis.  No investment decision or action by any such stockholder shall be necessary for such stockholder (or such stockholder’s designated transferee or transferees) to receive the applicable number of shares of Spinco Common Stock.
 
(d)                                  Spinco and Parent, as the case may be, will provide to the other Party and its representatives any and all information required in order to complete the Distribution.
 
3.2                                Actions in Connection with the Distribution .
 
(a)                                  In connection with the Distribution, Parent and Spinco shall prepare and mail to the holders of Parent Capital Stock such information concerning Cbanc, the Cbanc Business, the Cbanc Assets, the Cbanc Liabilities, operations and management, the Distribution, the Separation and such other matters as Parent shall reasonably determine and as may be required by Law.
 
(b)                                  Parent and Spinco shall take all such action as may be necessary or appropriate under the securities or blue sky laws of the states or other political subdivisions of the United States or of other foreign jurisdictions in connection with the Separation and the Distribution.
 
(c)                                   Parent and Spinco shall take all reasonable steps necessary and appropriate to cause the conditions set forth in Section 3.3 to be satisfied and to effect the Distribution on the Distribution Date.
 
(d)                                  Parent and Spinco shall take all actions necessary to cause, immediately prior to the Distribution, the number of shares of Spinco Common Stock issued and outstanding to be increased to equal the number of shares of Spinco Common Stock to be distributed to holders of Parent Capital Stock in accordance with this Agreement.
 
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3.3                                Conditions to Distribution .  Subject to Section 3.2 , the following are conditions to the consummation of Distribution.  The conditions are for the sole benefit of Parent and shall not give rise to or create any duty on the part of Parent or the Board of Directors of Parent to waive or not waive any such condition:
 
(a)                                  All permits, registrations and consents required under the securities or blue sky laws of the states or other political subdivisions of the United States or of other foreign jurisdictions in connection with the Separation and the Distribution shall have been obtained and be in full force and effect.
 
(b)                                  All material Government Approvals and other Consents necessary to consummate the Separation and the Distribution shall have been obtained and be in full force and effect.
 
(c)                                   No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation and the Distribution shall be in effect and no other event outside the control of Parent shall have occurred or failed to occur that prevents the consummation of the Distribution.
 
(d)                                  The Board of Directors of Parent shall have authorized and approved the Distribution and not withdrawn such authorization and approval.
 
(e)                                   The requisite holders of Parent Preferred Stock shall have approved the Separation and the Distribution and not withdrawn such approval.
 
(f)                                    Parent and Q2 shall have completed the Transfer of Cbanc Assets to CBN, and the Assumption of all the Cbanc Liabilities by Spinco and CBN shall be completed.
 
(g)                                   The Board of Directors of Parent shall have approved the Cbanc Business Pro Forma Balance Sheet.
 
(h)                                  All Ancillary Agreements shall have been entered into by the Parties and all other parties thereto, as applicable, and shall remain in full force and effect.
 
(i)                                      No other events or developments shall have occurred that, in the sole discretion of the Board of Directors of Parent, would result in the Distribution having a material adverse effect on Parent or on the stockholders of Parent or not being in the best interest of Parent and its stockholders.
 
3.4                                Fractional Shares .  No fraction of a share of Spinco Common Stock will be issued to any Parent stockholder, but in lieu thereof each holder of Parent Capital Stock who would otherwise be entitled to a fraction of a share of Spinco Common Stock (after aggregating all fractional shares of Spinco Common Stock to be received by such holder) shall have such holder’s total number of shares of Spinco Common Stock rounded down to the nearest whole share of such Spinco Common Stock.
 
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3.5                                Insurance Matters .
 
(a)                                  Except as expressly provided in this Section 3.5 , the Parent Policies will remain in full force and effect through either (at Parent’s option) (i) the Effective Time or (ii) the renewal date of any such Parent Policy, at which time, future coverage thereunder will be discontinued with respect to the Cbanc Business.
 
(b)                                  As of the Effective Time, Parent shall use its commercially reasonable efforts to cause to be transferred to Spinco or CBN, to the extent permitted under the relevant Parent Policies and applicable law and to the extent that such transfer would not impair in any material respect Parent’s rights under such policies, any claim, chose in action or other right Parent has to insurance coverage or insurance proceeds under any Parent Policy with respect to any loss, liability, claim, damage or expense of Cbanc arising out of occurrences prior to the Effective Time (a “ Cbanc Insured Loss ”).  To the extent the transfer of such claim, chose in action or right referred to in the preceding sentence does not occur, upon the reasonable request of Spinco, Parent shall use its commercially reasonable efforts to promptly assist Spinco in tendering claims for any Cbanc Insured Losses to the applicable insurers under the Parent Polices and to provide Spinco with the proceeds of claims made by or with respect to such Cbanc Insured Losses subject to the self-insured limits and deductibles under the applicable policy.  Upon request of Spinco, Parent shall provide historical loss information with respect to any insurance policies that cover the assets, businesses, operations, employees, officers and directors of Cbanc.  Parent shall cause any payments received from the Parent Policies to be promptly paid with respect to all reported claims made by or on behalf of Cbanc.  Subsequent to the Distribution Date and to the extent consistent with the provisions of this Section 3.5 , Spinco assumes responsibility for the administration and adjustment of all Cbanc Insured Losses.
 
Article IV
Certain Covenants and Other Agreements of The Parties
 
4.1                                Restrictive Covenants
 
(a)                                  Restriction on Employee Solicitation and Hiring .  Following the transfer of the Cbanc Employees from Q2 to CBN pursuant to this Agreement, none of Parent, Q2, Spinco or CBN from the Distribution Date through and including the five (5) year anniversary of the Distribution Date, without prior written consent of the applicable Party, may solicit, aid, encourage or induce any employee to terminate or breach an employment, contractual or other relationship with the other Party (or its Affiliates), hire or otherwise employ any employee of the other Party.
 
(b)                                  Non-Compete .  For a period of eight (8) years from the Distribution Date, each of Spinco and CBN shall not engage in the Q2 Business (directly or indirectly whether as a manager, stockholder, owner, partner, joint venturer, consultant, distributor, agent or otherwise) in any country where Parent or Q2 engages or proposes to engage in the Q2 Business as of the Distribution Date; provided, however, the Parties acknowledge and agree that Spinco’s and CBN’s engaging in the Cbanc Business shall not constitute engaging in the Q2 Business for purposes of this Section 4.1(b) .
 
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(c)                                   Acknowledgments by Parties .  Each of Spinco and CBN acknowledges that the provisions of Section 4.1(a) and (b)  are a material inducement to Parent and Q2 to execute this Agreement, without which Parent and Q2 would not close the transactions contemplated hereby.  Each of Parent and Q2 acknowledges that the provisions of Section 4.1(a)  are a material inducement to Spinco and CBN to execute this Agreement, without which Spinco and CBN would not close the transactions contemplated hereby.  Each Party further agrees that these restrictions are not unduly restrictive upon such Party and that the scope of Sections 4.1(a)  and (b)  in time, geography, and types and limitations of activities restricted is reasonable.
 
(d)                                  Reformation .  If an arbitrator or court of law holds any provision of Section 4.1(a) or (b)  to be illegal, invalid, or unenforceable, (i) that provision shall be deemed amended to provide the applicable Party benefitting from such provision, the maximum protection permitted by applicable law and (ii) the legality, validity and enforceability of the remaining provisions of Section 4.1(a) or (b)  shall not be affected.  For example, if the period of time, the extent of the geographic area, or the scope of the prescribed activities covered by Section 4.1(b)  should be deemed unenforceable, then Section 4.1(b)  shall be construed to cover the maximum period of time, geographic area and scope of prescribed activities (not to exceed the maximum time, geographic area or scope set forth herein) as may be valid under applicable law and each of the parties hereto shall request any court or arbitrator (if applicable) considering the enforceability of Section 4.1(a) or (b)  to construe and/or reform it so as to render it enforceable to the maximum extent as provided above.
 
4.2                                Name Changes .  Parent and Spinco shall cooperate to change the name, effective on or prior to the Distribution Date, of (a) Spinco to “CBG Holdings, Inc.” and (b) Parent to “Q2 Holdings, Inc.” Notwithstanding the foregoing, Parent may continue to operate CBG Holdings, Inc. under that name during the period in which Parent transfers its activities to the new name, such period not to exceed ninety (90) days after the Effective Time.
 
4.3                                Further Assurances .
 
(a)                                  In addition to and without limiting the actions specifically provided in this Agreement, each of the Parties shall use its reasonable best efforts, prior to, on and after the Distribution Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.
 
(b)                                  Without limiting the foregoing, prior to, on and after the Distribution Date, each Party shall cooperate with the other Party, and without any further consideration, but at the expense of the requesting Party, to execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any Governmental entity or any other Person under any permit, license, agreement, indenture or other instrument (including any Consents or Governmental Approvals), and to take all such other actions as such Party may reasonably be requested to take by the other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the
 
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Transfer of the Cbanc Assets and the assignment and assumption of the Cbanc Liabilities and the other transactions contemplated hereby and thereby.
 
4.4                                Tax Matters .  The Parties intend the Distributions to be treated as tax-free distributions under the Internal Revenue Code (the “ Code ”) Section 355, and each Party shall use its reasonable efforts to cause the Distributions to so qualify.  None of Parent, Q2, Spinco or CBN shall take any action that might cause:
 
(a)                                  The Distributions to fail to quality as tax-free distributions under Code Section 355.
 
(b)                                  Any other transfer of Cbanc Assets or Cbanc Liabilities that is intended to qualify as a tax-free transfer under Code Section 351, 355 or 368 to fail to so qualify.
 
4.5                                Future License of Intellectual Property .  In the event that a Party seeks to license another Party’s Intellectual Property after the Distribution Date, each Party seeking to negotiate such license and each Party from which such license is sought agree to negotiate in good faith a mutually agreeable license for such Intellectual Property on commercially reasonable terms.
 
Article V
 
Confidentiality
 
5.1                                Confidentiality .
 
(a)                                  Notwithstanding any termination of this Agreement and subject to Section 5.2 , each Party agrees to hold, and to cause its respective subsidiaries, directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, in strict confidence, and undertake all reasonable precautions to safeguard and protect the confidentiality of, all Information concerning the other Party that is in its possession after the Distribution Date or furnished by the other Party or its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement, any Ancillary Agreement or otherwise, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder or thereunder, except, in each case, to the extent that such Information has been (i) in the public domain through no fault of such Party, their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) lawfully acquired from other sources, which are not bound by a confidentiality obligation, by such Party or (iii) independently generated without reference to any proprietary or confidential Information of the other Party.
 
(b)                                  Each Party agrees not to release or disclose, or permit to be released or disclosed, any such Information to any other Person, except its directors, officers, employees, agents, accountants, counsel and other advisors and representatives who need to know such Information and who are informed and advised that the Information is confidential and subject to the obligations hereunder, except in compliance with Section 5.2 .  Without limiting the foregoing, when any Information is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each Party will promptly after request of the other Party
 
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either (i) destroy all copies of the Information in such Party’s possession, custody or control (including any that may be stored in any computer, word processor, or similar device, to the extent not commercially impractical to destroy such copies) including any copies, summaries, analyses, compilations, reports, extracts or other reproductions, in whole or in part, of such written, electronic or other tangible material or any other materials in written, electronic or other tangible format based on, reflecting or containing Information prepared by such Party, and/or (ii) return to the requesting Party, at the expense of the requesting Party, all copies of the Information furnished to such Party by or on behalf of the requesting Party.  Notwithstanding the foregoing, each Party may maintain the confidential Information of the other Party that is contained in such Party’s electronic back-up files that are created in the normal course of business pursuant to such Party’s standard protocol for preserving its electronic records.
 
5.2                                Protective Arrangements .  In the event that either Party or their respective Affiliates, either (a) determines after consultation with counsel, in the opinion of such counsel that it is required by law to disclose any Information, or (b) receives any demand under lawful process or from any Governmental Entity to disclose or provide Information of the other Party or their respective subsidiaries that is subject to the confidentiality provisions hereof, such Party shall notify the other Party prior to disclosing or providing such Information and shall cooperate at the expense of the requesting party (and to the extent legally permissible) in seeking any reasonable protective arrangements requested by such other Party.  Subject to the foregoing, the Party that received such request may thereafter (x) furnish only that portion of the Confidential Information that is legally required, (y) give notice to the other Party of the Information to be disclosed as far in advance as is practical, and (z) exercise reasonable best efforts to obtain reliable assurance that the confidential nature of such Information shall be maintained.
 
Article VI
 
Access to Information and Services
 
6.1                                Provision of Books and Records .
 
(a)                                  Except as otherwise provided in any Ancillary Agreement, as soon as practicable after the Distribution Date, Parent, Q2 and Cbanc shall cooperate to provide that originals of Cbanc Books and Records (including all documents and electronically stored information except e-mails or other electronic correspondence not readily available in hard copy) which solely relate to Spinco, CBN or the conduct of the Cbanc Business, as the case may be, up to the Effective Time, are in the possession or control of Spinco or CBN.
 
(b)                                  With respect to Cbanc Books and Records (including e-mails and other electronic correspondence not readily available in hard copy) that relate to both the Cbanc Business and the Q2 Business (the “ Combined Books and Records ”), (i) the Parties shall use good faith efforts to divide as soon as practicable but no later than six (6) months following the Distribution Date such Combined Books and Records into the books and records which solely relate to Parent, Q2 or the conduct of the Q2 Business and those that relate solely to Spinco, CBN and the Cbanc Business, as the case may be, up to the Effective Time, as appropriate, and (ii) to the extent such Combined Books and Records are not so divided, each Party shall keep and maintain copies of such Combined Books and Records as reasonably appropriate under the
 
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circumstances, subject to applicable confidentiality provisions hereof and of any Ancillary Agreement.
 
6.2                                Access to Information .  Except as otherwise provided in any Ancillary Agreement, after the Distribution Date, each Party shall provide the other Party and such other Party’s authorized accountants, counsel and other designated representatives reasonable access and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and Information relating to pre-Distribution operations of the Cbanc Business or Q2 Business, as applicable, or within such Party’s possession or control or such other Information reasonably necessary for the preparation, review or auditing for spin-out financials for such other Party (including using reasonable best efforts to give access to Persons or firms possessing Information) insofar as such access is reasonably required by such other Party for the conduct of the Cbanc Business or Q2 Business, as applicable, subject to appropriate restrictions for classified or privileged information.
 
Article VII
 
Dispute Resolution
 
7.1                                Disputes and Negotiation .  Parent, Q2, Spinco and CBN recognize that disputes as to certain matters may from time to time arise during the effectiveness of this Agreement and the Ancillary Agreements which relate to either Party’s rights and obligations hereunder or thereunder.  It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement and the Ancillary Agreements in an expedient manner by mutual cooperation and without resort to litigation.  To accomplish this objective, the Parties agree to follow the procedures set forth in this Article VII if and when a dispute arises under this Agreement or the Ancillary Agreements.  In the event of a dispute between the Parties other than with respect to breaches or alleged breaches of Section 4.1 , the chief executive officers, or such other designated representative, of Parent and Spinco shall meet at a mutually agreed upon time and location for the purpose of resolving such disagreement.  Other than with respect to breaches or alleged breaches of Section 4.1, the chief executive officers of Parent and CBN will discuss such disagreement and/or negotiate for a period of up to sixty (60) days in an effort to resolve such disagreement or negotiate an acceptable interpretation or revision of the applicable portion of this Agreement or the Ancillary Agreements mutually agreeable to both Parties, without the necessity of formal procedures relating thereto.  During the course of such negotiations, the Parties will reasonably cooperate and provide information that is not materially confidential in order that each of the Parties may be fully informed with respect to the issues in dispute.  The institution of a formal proceeding, including arbitration under Section 7.2 , to resolve the disagreement may occur by written notice to the other Party only after the earlier of: (i) the chief executive officers of Parent and Spinco mutually agreeing that resolution of the disagreement through continued negotiation is not likely to occur; or (ii) the expiration of the sixty (60) day negotiation period.
 
7.2                                Dispute Resolution and Arbitration .  Disputes arising out of, relating to or in connection with this Agreement or the Ancillary Agreements (but excluding disputes arising out of, relating to or in connection with Section 4.1 ), or in relations between the Parties with respect to the subject matter hereof but excluding disputes arising out of, relating to or in connection
 
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with Section 4.1 ), for any reason or under any circumstances, that have not been resolved in accordance with Section 7.1 will be finally settled by a single arbitrator in a binding arbitration in accordance with the Judicial Arbitration and Mediation Services (“ JAMS ”) Comprehensive Arbitration Rules and Procedures (or the Streamlined Arbitration Rules if mutually agreed by the Parties to this dispute, in either such case, the “ JAMS Rules ”).  Upon the expiration of the procedures set forth in Section 7.1 , either Party may elect arbitration of any dispute by written notice to the other (the “ Arbitration Notice ”).  The arbitration shall be held in Austin, Texas before one (1) arbitrator from JAMS having substantial experience as a jurist and mediator selected by the mutual agreement of Parent and CBN; provided , however , that if such parties cannot agree on an arbitrator within thirty (30) days of the Arbitration Notice, either Party may request JAMS select the arbitrator, and JAMS shall select an arbitrator pursuant to the procedure set out by the JAMS rules.  The arbitration shall be administered by JAMS pursuant to its JAMS Rules.  Judgment on the arbitration award may be entered in any court having jurisdiction.  The arbitrator may, in the arbitration award, allocate for payment by the non-prevailing party all or part of the costs of the arbitration, including fees of the arbitrator and the reasonable attorneys’ fees and costs incurred by the prevailing party.  The decision and award of the arbitrator will be final and binding on the Parties and may be entered and enforced in any court having jurisdiction. For purposes of clarity, this Section 7.2 shall not apply to disputes arising out of, relating to or in connection with Section 4.1 .
 
Article VIII
 
Termination
 
8.1                                Termination .  Notwithstanding anything to the contrary herein, this Agreement may be terminated and the Separation and Distribution may be amended, modified or abandoned at any time prior to the Distribution by and in the sole discretion of Parent without the approval of Cbanc or the stockholders of Parent.  In the event of such termination, no Party shall have any Liability to the other Party or any other Person.  After the Distribution, this Agreement may not be terminated except by an agreement in writing signed by each Party.
 
Article IX
 
Miscellaneous
 
9.1                                Governing Law .  This Agreement shall be deemed to have been made in the State of Delaware and its form, execution, validity, construction and effect shall be determined in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof.
 
9.2                                Waiver of Jury Trial .  EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
 
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9.3                                Assignability .  The provisions of this Agreement, each Ancillary Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors and permitted transferees and assigns.  Notwithstanding the foregoing, this Agreement shall not be assignable, in whole or in part, by any Party without the prior written consent of the other Party, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be null and void; provided , however, that a Party may assign this Agreement to an Affiliate controlled by such Party or in connection with a merger transaction in which such Party is not the surviving entity or in connection with the sale or other transfer by such Party of all or substantially all of its assets, and upon the effectiveness of such assignment, the assigning Party shall be released from all of its obligations under this Agreement if the surviving entity of such merger or the transferee of such assets shall agree in writing, in form and substance reasonably satisfactory to the other Party, to be bound by all terms of this Agreement as if named as a “Party” hereto.
 
9.4                                Third Party Beneficiaries .  The provisions of this Agreement and each Ancillary Agreement are solely for the benefit of the Parties and are not intended to confer upon any Person except the Parties any rights or remedies hereunder. There are no Third Party beneficiaries of this Agreement or any Ancillary Agreement and neither this Agreement nor any Ancillary Agreement shall provide any Third Party with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement or any Ancillary Agreement.
 
9.5                                Notices .  All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given:  (a) upon personal delivery to the Party to be notified, (b) when sent by confirmed facsimile or e-mail, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent to the respective Parties at the addresses set forth below (or at such other addresses as shall be specified by notice given in accordance with this Section):

If to Parent or Q2, to:	Q2 Holdings, Inc.	
 	Attention: General Counsel	
 	9430 Research Blvd., Building IV, Suite 120	
 	Austin, Texas 78759	
 	Facsimile: 512-275-1726	
 	E-mail: bbenton@q2ebanking.com	
 	 	
If to Spinco or CBN to:	cbanc Network, Incorporated	
 	Attention: Chief Executive Officer	
 	9430 Research Blvd., Building IV, Suite 120	
 	Austin, Texas 78759	
 	Facsimile: 512-275-1726	
 	 	
In each case, with	DLA Piper LLP (US)	
a copy to:	Attention: John J. Gilluly, III	
 
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(not to constitute notice)	401 Congress Ave. Suite 2500
Austin, Texas
Facsimile: 512-721-2290
E-mail: John.Gilluly@dlapiper.com	
 
9.6                                Severability .  If any provision of this Agreement or any Ancillary Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby or thereby, as the case may be, is not affected in any manner adverse to any Party.  Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to affect the original intent of the Parties.
 
9.7                                Expenses .  Except as expressly set forth in this Agreement or in any Ancillary Agreement, whether or not the Separation or the Distribution is consummated, all Third Party fees, costs and expenses paid or incurred in connection with the Separation and Distribution shall be paid by Parent but only to the extent such fees arise or were paid or incurred prior to the Effective Time.
 
9.8                                Survival of Covenants .  Except as expressly set forth in any Ancillary Agreement, all covenants, representations and warranties contained in this Agreement and each Ancillary Agreement, and liability for the breach of any obligations contained herein, shall survive the Effective Time and remain in full force and effect in accordance with their applicable terms.
 
9.9                                Waivers of Default .  The failure of either Party to require strict performance by the other Party of any provision in this Agreement or any Ancillary Agreement will not waive or diminish such Party’s right to demand strict performance thereafter of that or any other provision hereof.
 
9.10                         Specific Performance .  The Parties agree that irreparable injury would occur in the event that the provisions of this Agreement were not performed in accordance with their specific terms, and that such injury would not be adequately compensable in monetary damages.  Accordingly, it is hereby agreed that the Parties shall be entitled to (a) an injunction or injunctions to enforce specifically the terms and provisions hereof in any arbitration in accordance with Section 7.2 , (b) provisional or temporary injunctive relief in accordance therewith in a court of competent jurisdiction, without proof of actual damages and (iii) enforcement of any such award of an arbitral tribunal in any court of the United States, or any other any court or tribunal sitting in any state of the United States or in any foreign country that has jurisdiction, this being in addition to any other remedy or relief to which they may be entitled.  In addition, with respect to disputes arising out of, relating to or in connection with a breach or threatened breach of Section 4.1 , the Parties seeking to enforce such Section shall be entitled to an injunction, provisional or temporary injunctive relief without proof of actual damages, this being in addition to any other remedy or relief to which such Party may be entitled.
 
20 

 
9.11                         Amendments .  This Agreement may not be modified or amended except by an agreement in writing signed by each of the Parties.
 
9.12                         Entire Agreement .  This Agreement constitutes and contains the entire understanding of the Parties hereto with respect to the matters addressed herein and supersede any and all prior negotiations, correspondence, understandings and agreements between the Parties hereto respecting the subject matter hereof.
 
9.13                         Schedules .  All schedules attached hereto are hereby incorporated in and made a part of this Agreement as if set forth in full herein.  Capitalized terms used in the schedules hereto but not otherwise defined therein will have the respective meanings assigned to such terms in this Agreement.
 
9.14                         Construction .
 
(a)                                  This Agreement has been prepared jointly and shall not be strictly construed against either Party.
 
(b)                                  For purposes of this Agreement, whenever the context requires:  the singular shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders.
 
(c)                                   Except as otherwise indicated, all references in this Agreement to “Articles,” “Sections,” “Exhibits” and “Attachments” are intended to refer to Articles and Sections of, and Exhibits and Attachments, to this Agreement.
 
(d)                                  The words “include” and “including,” shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”
 
(e)                                   The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
 
9.15                         Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but which together shall constitute one and the same instrument.  Any executed counterpart delivered by facsimile or other means of electronic transmission shall be deemed an original for all purposes.
 
SIGNATURE PAGE FOLLOWS
 
21 

 
IN WITNESS WHEREOF, the Parties have caused this Separation and Distribution Agreement to be executed by their duly authorized representatives as of the day and year first above written.

 	CBG Holdings, Inc.	

 	By:	/s/ Mark Johnson	
 	Name: Mark Johnson	
 	Title: Chief Financial Officers	
 	 	
 	Q2 Software, Inc.	
 	 	 	
 	By:	/s/ Mark Johnson	
 	Name: Mark Johnson	
 	Title: Chief Financial Officer	
 	 	
 	CB Network Holdings, Inc.	
 	 	 	
 	By:	/s/ Myers Dupuy	
 	Name: Myers Dupuy	
 	Title: President	
 	 	
 	cbanc Network, Incorporated	

 	By:	/s/ Myers Dupuy	
 	Name: Myers Dupuy	
 	Title: President	
 
Signature Page to Separation and Distribution Agreement

Exhibit 3.1

 
THIRD AMENDED AND RESTATED 
CERTIFICATE OF INCORPORATION
OF
 CBG HOLDINGS, INC.
a Delaware corporation

 
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
 
CBG Holdings, Inc. , a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), certifies that:
 
The name of the Corporation is CBG Holdings, Inc.  The Corporation’s original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware (the “ Secretary of State ”) on March 31, 2005 under the name of CBG Holdings, Inc.  The Corporation’s Amended and Restated Certificate of Incorporation was filed with the Secretary of State on July 27, 2007, was amended by a Certificate of Amendment filed with the Secretary of State on October 31, 2007, and was further amended by a Second Certificate of Amendment filed with the Secretary of State on November 18, 2011 (as the same was corrected by a Certificate of Correction filed with the Secretary of State on December 16, 2011).  The Corporation’s Second Amended and Restated Certificate of Incorporation was filed with the Secretary of State on December 29, 2011 and was amended by a Certificate of Amendment filed with the Secretary of State on March 1, 2013.  Upon the filing of this Third Amended and Restated Certificate of Incorporation, the name of the Corporation shall be changed to “Q2 Holdings, Inc.”
 
This Third Amended and Restated Certificate of Incorporation of the Corporation in the form attached hereto as Exhibit A, which both restates and further amends the provisions of the Corporation’s Second Amended and Restated Certificate of Incorporation, was duly adopted in accordance with the provisions of Sections 242 and 245  has been duly adopted in accordance with the provisions of Sections 228, 245 and 242 of the General Corporation Law of the State of Delaware (the “General Corporation Law”) and by the written consent of its stockholders in accordance with Section 228 of the General Corporation Law by the directors and stockholders of the Corporation. The Third Amended and Restated Certificate of Incorporation so adopted reads in full as set forth in Exhibit A attached hereto and is incorporated herein by this reference.

 
IN WITNESS WHEREOF , the Corporation has caused this Certificate to be signed by its Chief Financial Officer, as of March 1, 2013.

 	CBG HOLDINGS, INC.	

 	 	By:	/s/ Mark Johnson	
 	 	 	Mark Johnson	
 	 	 	Chief Financial Officer	

 
EXHIBIT A

 
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
Q2 HOLDINGS, INC.
(F/K/A CBG HOLDINGS, INC.)

 
ARTICLE I
 
The name of the Corporation is Q2 Holdings, Inc.
 
ARTICLE II
 
The address of the registered office of the Corporation in the State of Delaware is 1679 South Dupont Highway, Suite 100, City of Dover, County of Kent, Delaware, 19901.  The name of its registered agent at such address is Registered Agent Solutions, Inc.
 
ARTICLE III
 
The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.
 
ARTICLE IV
 
A.                                     Classes of Stock .  The Corporation is authorized to issue two classes of capital stock to be designated, respectively, “ Common Stock ” and “ Preferred Stock .”  The total number of shares of capital stock authorized to be issued is 48,582,691 shares.  35,000,000 shares shall be Common Stock, par value $0.0001 per share, and 13,582,691 shares shall be Preferred Stock, par value $0.0001 per share, 7,908,442 of which shall be designated as “Series A Convertible Preferred Stock” (the “ Series A Preferred Stock ”), 1,818,182 of which shall be designated “Series B Convertible Preferred Stock” (the “ Series B Preferred Stock ”), 2,605,100 of which shall be designated as “Series C Convertible Preferred Stock” (the “ Series C Preferred Stock ” and together with Series A Preferred Stock and the Series B Preferred Stock, the “ Senior Preferred Stock ”), and 1,250,967 of which shall be designated “Junior Convertible Preferred Stock” (the “ Junior Preferred Stock ”).
 
B.                                     Rights, Preferences and Restrictions of Preferred Stock .  The rights, preferences, privileges, and restrictions granted to and imposed on the Preferred Stock are as set forth below in this Division B of Article IV .

 
(1)                                  Dividend Provisions .
 
(a)                                  Senior Preferred Stock .  The holders of the outstanding shares of Senior Preferred Stock shall be entitled, on a pari passu basis, to receive dividends from time to time out of any assets legally available for payment of dividends, when, as, and if declared by the Board, prior and in preference to any declaration or payment of any dividend on the Common Stock, Junior Preferred Stock or any other class of capital stock ranking junior to the Senior Preferred Stock with respect to dividends until such time as the total dividends paid on each share of Senior Preferred Stock is equal to its Issue Price (as defined below).  Any declared but unpaid dividends on shares of the Senior Preferred Stock shall be payable (i) in cash upon the liquidation, dissolution, or winding up of the Corporation as provided in Subsection B2 , or upon the redemption of the Senior Preferred Stock as provided in Subsection B3 , and (ii) upon conversion as provided in Subsection B4 in cash or, at the election of the Corporation, by the Corporation’s issuance of that number of shares of Common Stock with a fair market value equal to the aggregate amount of such declared but unpaid dividends (such distribution shall be governed by the provisions of Subsection B2(f) ).
 
(b)                                  Priority on Dividends; Participation .  Unless the full amount of all preferential amounts specified in Subsection B1(a)  shall have been paid in full or a sum sufficient for the payment of such dividends reserved and irrevocably set apart, (i) no dividend or distribution shall be declared or paid on any class of capital stock other than the Senior Preferred Stock and (ii) no shares of capital stock other than the Senior Preferred Stock shall be purchased, redeemed, or acquired by the Corporation and no monies shall be paid into or set aside or made available for a sinking fund for the purchase, redemption, or acquisition of any such shares; provided that this restriction shall not apply to (x) the redemption of Senior Preferred Stock pursuant to the terms of this Certificate of Incorporation or (y) the repurchase of shares of Common Stock from directors or employees of, or consultants or advisors to, the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at the original purchase price of such shares upon the occurrence of certain events, including without limitation, the termination of employment by or service to the Corporation or any subsidiary.  After dividends on the full preferential amounts specified in Subsection B1(a)  have been paid or irrevocably set apart, the Board may declare additional dividends out of funds legally available for payment of dividends.  The aggregate amount of such additional dividends shall be distributed to the holders of Common Stock and Preferred Stock pro rata according to the number of shares of Common Stock held by such holders, where each holder of shares of Preferred Stock is treated for this purpose as holding the greatest whole number of shares of Common Stock then issuable upon conversion of all shares of Preferred Stock held by such holder pursuant to Subsection B4 ; provided , however , that holders of Senior Preferred Stock  shall not be entitled to receive dividends pursuant to this sentence of Subsection B1(b)  in the aggregate of more than three times the applicable Issue Price for each share, as adjusted for any stock splits, stock dividends, recapitalizations or the like after the Series C Issue Date (as defined below).
 
(c)                                   Non-Cash Dividend .  Any dividend or distribution which is declared by the Corporation and payable with assets or equity of the Corporation other than cash shall be governed by the provisions of Subsection B2(f) .

 
(2)                                  Liquidation Preference .
 
(a)                                  The “ Series A Issue Price ” shall mean with respect to each outstanding share of Series A Preferred Stock an amount equal to $1.3909179 (as adjusted to reflect stock dividends, stock splits, combinations, recapitalizations or the like after the date shares of Series A Preferred Stock were first issued (the “ Series A Issue Date ”)).  The “ Series B Issue Price ” shall mean with respect to each outstanding share of Series B Preferred Stock an amount equal to $6.05 (as adjusted to reflect stock dividends, stock splits, combinations, recapitalizations or the like after the date shares of Series B Preferred Stock are first issued (the “ Series B Issue Date ”)).  The “ Series C Issue Price ” shall mean with respect to each outstanding share of Series C Preferred Stock an amount equal to $7.67727 (as adjusted to reflect stock dividends, stock splits, combinations, recapitalizations or the like after the date shares of Series C Preferred Stock were first issued (the “ Series C Issue Date ” and, together with the Series A Issue Date and the Series B Issue Price, as applicable, the “ Issue Date ”)).  The “ Issue Price ” means the Series A Issue Price, the Series B Issue Price, or the Series C Issue Price, as applicable.
 
(b)                                  In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, each holder of Senior Preferred Stock shall be entitled to receive, on a pari passu basis, prior and in preference to any distribution of any of the assets of the Corporation to the holders of any other class or series of the capital stock of the Corporation, including the Common Stock, by reason of their ownership thereof the amounts set forth below:
 
(i) With respect to each outstanding share of Series A Preferred Stock, an amount per share equal to A + B (the “ Series A Liquidation Amount ”), where:
 
A                                        =                                          the Series A Issue Price; and
 
B                                        =                                          an amount equal to 6% of the Series A Issue Price accrued per annum plus declared but unpaid dividends from the Series A Issue Date on each share of Series A Preferred Stock held by such holder.
 
(ii) With respect to shares of outstanding Series B Preferred Stock, an amount per share equaling X + Y +, if applicable, Z, (the “ Series B Liquidation Amount ”), where:
 
X                                        =                                          the Series B Issue Price;
 
Y                                        =                                          an amount equal to 6% of the Series B Issue Price accrued per annum plus declared but unpaid dividends from the Series B Issue Date on each share of Series B Preferred Stock held by such holder; and
 
Z                                         =                                          an additional amount payable only on shares of Series B Preferred Stock issued on the Series B Issue Date equal to $1.6028047 per share (as adjusted to reflect stock dividends, stock splits, combinations, recapitalizations or the like after the Series B Issue Date).

 
(iii) With respect to each outstanding share of Series C Preferred Stock, an amount per share equal to A + B (the “ Series C Liquidation Amount ” and together with the Series A Liquidation Amount and the Series B Liquidation Amount, the “ Senior Liquidation Amount ”), where:
 
A                                        =                                          the Series C Issue Price; and
 
B                                        =                                          an amount equal to 6% of the Series C Issue Price accrued per annum plus declared but unpaid dividends from the Series C Issue Date on each share of Series C Preferred Stock held by such holder.
 
If upon the occurrence of a liquidation, dissolution or winding up, the assets and funds thus distributed among the holders of the Senior Preferred Stock shall be insufficient to permit the payment to such holders of the full Senior Liquidation Amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Senior Preferred Stock in proportion to the aggregate Senior Liquidation Amount for the shares of Senior Preferred Stock held by them.
 
(c)                                   After payment of the Senior Liquidation Amount set forth in Subsection B2(b)  above, each holder of Junior Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock, by reason of their ownership thereof, an amount per share equal to the sum of (i) $1.3909179 (as adjusted to reflect stock dividends, stock splits, combinations, recapitalizations or the like after the date shares of Junior Preferred Stock are first issued) for each outstanding share of Junior Preferred Stock held by such holder (the “ Junior Preferred Issue Price ”) and (ii) an amount equal to all the declared but unpaid dividends declared on the Junior Preferred Stock (together, the “ Junior Liquidation Amount ”).  If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Junior Preferred Stock shall be insufficient to permit the payment to such holders of the full Junior Liquidation Amount, then the entire assets and funds of the Corporation legally available for distribution to the holders of Junior Preferred Stock shall be distributed ratably among the holders of the Junior Preferred Stock in proportion to the amount of such stock owned by each such holder.
 
(d)                                  After payment to the holders of the Senior Preferred Stock and Junior Preferred Stock of the Senior Liquidation Amount and the Junior Preferred Liquidation Amount set forth in Subsections B2(b) and (c)  above, any additional remaining assets shall be distributed ratably to the holders of Series A Preferred Stock and Common Stock, assuming the conversion of the Series A Preferred Stock into Common Stock; provided , however , that holders of Series A Preferred Stock shall not be entitled to receive more than three times the Series A  Issue Price (as adjusted for any stock splits, stock dividends, recapitalizations or the like after the Series C Issue Date), pursuant to this Subsection B2(d) , plus any declared but unpaid dividends on each such share (the “ Maximum Participation Amount ”).  Notwithstanding the foregoing, if the amount the holders of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as applicable, would have received if all shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as applicable, had been converted into Common Stock immediately prior to such liquidation, dissolution or winding up of the

 
Corporation exceeds an amount equal to the sum of the amount payable under Subsection B2(b) and, in the case of the Series A Preferred Stock, the Maximum Participation Amount, each holder of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as applicable, shall (instead of the amount payable under Subsection B2(b)  and, in the case of holders of Series A Preferred Stock, the holder’s share of the Maximum Participation Amount) be entitled to receive upon such liquidation, dissolution or winding up of the Corporation the amount such holder would have received if all shares Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred Stock, as applicable, had been converted into Common Stock immediately prior to such liquidation, dissolution or winding up of the Corporation.
 
(e)                                   Notwithstanding the forgoing, if a Deemed Liquidation Event (as defined herein) involves an Asset Sale (as defined herein), the proceeds from such sale shall be distributed in accordance with this Subsection B2 based on a timing schedule determined by the Board of Directors including two of the Senior Directors (as defined below).
 
(f)                                    For purposes of this Section 2 , a liquidation, dissolution, or winding up of the Corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of the Corporation by another person or entity by means of any transaction or series of related transactions (including, without limitation, any stock sale, reorganization, merger, or consolidation), unless the Corporation’s stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation’s acquisition or sale or otherwise) hold at least 51% of the voting power of the surviving or acquiring entity; (B) a sale of all or substantially all of the assets of the Corporation (together with (C) below “ Asset Sale ”) and; or (C) a sale or exclusive license of all or substantially all of the intellectual property of the Corporation (each of (A), (B) and (C), a “ Deemed Liquidation Event ”).
 
(i)                                      In any Deemed Liquidation Event, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors.  Any securities to be delivered to the holders of the Preferred Stock or Common Stock, as the case may be, shall be valued as follows:
 
(A)                                If traded on a securities exchange, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the 30 day period ending three days prior to the closing;
 
(B)                                If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the 30 day period ending three days prior to the closing; and
 
(C)                                If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors.
 
(ii)                                   In the event the requirements of this Subsection B2(f)  are not complied with, the Corporation shall forthwith either:

 
(A)                                cause such closing to be postponed until such time as the requirements of this Subsection B2 have been complied with; or
 
(B)                                cancel such transaction, in which event the respective rights, preferences, and privileges of the holders of the Senior Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Subsection B2(f)(iv)  below.
 
(iii)                                In the event of a Deemed Liquidation Event pursuant to Subsection B2 in which the Initial Consideration (as defined below) is not sufficient to pay the Senior Liquidation Amount, the agreement relating to such Deemed Liquidation Event shall provide that (a) the portion of such consideration (the “ Initial Consideration ”) that is not a portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the “ Additional Consideration ”) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsection B2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation event and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsection B2 after taking into account the previous payment of the Initial Consideration as part of the same transaction.  For the purposes of this Subsection B2(f)(iii), consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.
 
(iv)                               The Corporation shall give each holder of record of Senior Preferred Stock written notice of such impending transaction not later than 20 days prior to the stockholders’ meeting called to approve such transaction, or 20 days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction.  The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Subsection B2 , and the Corporation shall thereafter give such holders prompt notice of any material changes.  The transaction shall in no event take place sooner than 20 days after the Corporation has given the first notice provided for herein or sooner than 10 days after the Corporation has given notice of any material changes provided for herein; provided , however , that such periods may be shortened upon the Corporation’s receipt of written consent of the holders of at least two-thirds (2/3) of the Senior Preferred Stock (voting as a single class on an as converted to Common Stock basis) entitled to such notice rights or similar notice rights.
 
(3)                                  Redemption .
 
(a)                                  At any time after the fifth anniversary of the Series C Issue Date, but within 30 days after the receipt by the Corporation of a written request from the holders of at least 75% of the sum of outstanding shares of (i) Senior Preferred Stock and (ii) Common Stock owned by holders of Series C Preferred Stock (the “ Selected Common Stock ”) (voting together as a single class on an as converted to Common Stock basis) that the shares of Senior Preferred Stock be redeemed (the “ Redemption Request ”), and concurrently with surrender by such

 
holders of the certificates representing such shares, the Corporation shall, to the extent it may lawfully do so, redeem the shares of Senior Preferred Stock and Selected Common Stock by paying a sum per share equal to (A) with respect to the Senior Preferred Stock, the greater of (i) fair market value for such shares (as determined by an independent valuation expert acceptable to the holders of (x) at least 75% of the sum of outstanding shares of (i) Senior Preferred Stock and (ii) Selected Common Stock (voting together as a single class on an as converted to Common Stock basis) and (y) at least a majority of the outstanding Common Stock on the Redemption Date and (ii) the Issue Price of such share of Senior Preferred Stock and (B) with respect to the Selected Common Stock, the fair market value for such Shares (determined in accordance with (A)(i) above) (each of clauses (A) and (B) being a “ Redemption Price ”).  The Redemption Price for the Senior Preferred Stock shall be paid in three equal annual installments (each a “ Redemption Date ”), with the first such Redemption Date occurring on a date set by the Corporation, which shall be no more than 30 days after the receipt by the Corporation of a Redemption Request, the second such Redemption Date occurring on the first year anniversary of the first Redemption Date and the third such Redemption Date occurring on the second year anniversary of the first Redemption Date.  Any payment effected pursuant to this Subsection B3(a)  shall be made on a pro rata basis among the holders of the Senior Preferred Stock and Selected Common Stock in proportion to the aggregate Redemption Price for the shares of Senior Preferred Stock and Selected Common Stock held by them.  If any Redemption Date fixed for the payment of the Redemption Price of shares pursuant to this Subsection B3(a)  is a Saturday, Sunday, or legal holiday, then such payment shall occur on the first business day thereafter.
 
(b)                                  At least 15 but no more than 30 days prior to the applicable Redemption Date, written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Senior Preferred Stock and Selected Common Stock for which the Redemption Price shall be paid, at the address last shown on the records of the Corporation for such holder, notifying such holder of the payment of the Redemption Price to be effected, specifying the number of shares for which the Redemption Price will paid to such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares of Senior Preferred Stock and Selected Common Stock for which the Redemption Price will be paid (the “ Redemption Notice ”).  Except as provided in Subsection B3(c) , on or after the applicable Redemption Date, each holder of Senior Preferred Stock and Selected Common Stock to be for which the Redemption Price will be paid  shall surrender to the Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled.  In the event the Redemption Price is paid for less than all the shares represented by any such certificate, a new certificate shall be issued representing the unpaid shares.
 
(c)                                   From and after the applicable Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Senior Preferred Stock and Selected Common Stock designated for redemption in the

 
Redemption Notice as holders of such shares of Senior Preferred Stock and Selected Common Stock (except the right to receive the applicable Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.  If the funds of the Corporation legally available for payment of the Redemption Price of shares of Senior Preferred Stock and Selected Common Stock on a Redemption Date are insufficient to pay the Redemption Price of the total number of shares of Senior Preferred Stock and Selected Common Stock for which payment is to be made on such date, those funds which are legally available will be used to pay the Redemption Price of the maximum possible number of such shares ratably among the holders of such shares for which the Redemption price will be paid.
 
The shares of Senior Preferred Stock and Selected Common Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein.  At any time thereafter when additional funds of the Corporation are legally available for payment of the Redemption Price of shares of Senior Preferred Stock and Selected Common Stock, such funds will immediately be used to pay the balance of the Redemption Price which the Corporation has become obliged to pay on the applicable Redemption Date but which it has not paid.
 
(d)                                  Redemption Prohibited .  If, at a Redemption Date, the Corporation is prohibited under applicable law from paying the Redemption Price for all shares of the Senior Preferred Stock and Selected Common Stock for which payment of the Redemption Price is required hereunder, then the Corporation shall pay the Redemption Price for such shares on a pro-rata basis among the holders of the Senior Preferred Stock and Selected Common Stock in proportion to the full respective amounts to which they are entitled hereunder to the extent possible and shall pay the Redemption Price of the remaining shares to be paid as soon as the Corporation is not prohibited from redeeming some or all of such shares under applicable law.  Any shares of Senior Preferred Stock or Selected Common Stock for which the Redemption Price is not paid shall remain outstanding and entitled to all of the rights and preferences provided herein.  The Corporation shall take such action as shall be necessary or appropriate to review and promptly remove any impediment to its ability to redeem the Senior Preferred Stock and Selected Common Stock under the circumstances contemplated by this Subsection B3(d) .  In the event that the Corporation fails for any reason to pay the Redemption Price on shares for which a Redemption Request is submitted pursuant to this Subsection B3(d) , including, without limitation, due to a prohibition of such Redemption Price under applicable law, then during the period from the applicable Redemption Date through the date on which such shares are redeemed, the applicable Redemption Price with respect to the shares which the Corporation fails to redeem and any dividend accumulating or declared thereon after the Redemption Date shall increase at the rate (the “ Interest Rate ”) of the greater of (i) ten percent (10%) per annum and (ii) the rate per annum equal to one percent (1%) in excess of the rate established from time to time by Citibank, N.A. as its prime rate, with such increase to accrue daily in arrears and to be compounded annually; provided , however , that in no event shall such interest exceed the maximum permitted rate of interest under applicable law (the “ Maximum Permitted Rate ”).  In the event that fulfillment of any provision hereof results in such rate of interest being in excess of the Maximum Permitted Rate, the Interest Rate shall automatically be reduced to eliminate such

 
excess.  To the extent that the Corporation has failed to pay the Redemption Price on any Redemption Date, amounts subsequently paid by the Corporation with respect thereto, shall first be applied to the Redemption Price due on the oldest Redemption Date and thereafter to the next oldest Redemption Date and so on.
 
(e)                                   On or prior to the applicable Redemption Date, the Corporation shall deposit the Redemption Price of all shares of Senior Preferred Stock and Selected Common Stock for which the Redemption Price is to be paid on such Redemption Date in the Redemption Notice, and not yet redeemed or converted, with a bank or trust corporation having aggregate capital and surplus in excess of $100,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust corporation to publish the notice of redemption thereof and pay the applicable Redemption Price for such shares to their respective holders on or after the applicable Redemption Date, upon receipt of notification from the Corporation that such holder has surrendered his, her or its share certificate(s) to the Corporation pursuant to Subsection B3(b)  above.  As of the date of such deposit (even if prior to the applicable Redemption Date), the deposit shall constitute full payment of the shares to their holders.  From and after the date of such deposit the shares so called for payment shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto, except the rights to receive from the bank or trust corporation payment of the Redemption Price of the shares, without interest, upon surrender of their certificates therefor and the right to convert such shares as provided in Subsection B4 below.  Such instructions shall also provide that any monies deposited by the Corporation pursuant to this Subsection B3(e)  for the redemption of shares thereafter converted into shares of the Corporation’s Common Stock pursuant to Subsection B4 below prior to the applicable Redemption Date shall be returned to the Corporation forthwith upon such conversion.  The balance of any monies deposited by the Corporation pursuant to this Subsection B3(e)  remaining unclaimed at the expiration of two years following the final Redemption Date shall thereafter be returned to the Corporation upon its request expressed in a resolution of its Board of Directors.
 
(4)                                  Conversion .  The holders of the Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):
 
(a)                                  Right to Convert .  Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined, with respect to each share of Preferred Stock, by dividing the Issue Price for such class of Preferred Stock by the applicable “ Conversion Price ” in effect for such class of Preferred Stock on the date the certificate is surrendered for conversion.  The initial Series C Conversion Price per share for the Series C Preferred Stock (the “ Series C Conversion Price ”) shall be the Series C Issue Price, the initial Series B Conversion Price per share for the Series B Preferred Stock (the “ Series B Conversion Price ”) shall be the Series B Issue Price, the initial Series A Conversion Price per share for the Series A Preferred Stock (the “ Series A Conversion Price ”) shall be the Series A Issue Price and the initial Junior Preferred Conversion Price per share for the Junior Preferred

 
Stock shall be the Junior Preferred Issue Price; provided , however , that such Conversion Prices shall be subject to adjustment as set forth in Subsection B4(c)  below.
 
(b)                                  Mechanics of Conversion .  Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock pursuant to Subsection B4(a)  above, such holder shall surrender the certificate or certificates therefor, duly endorsed (or if such registered holder alleges that such certificate or certificates for such shares have been lost, stolen, or destroyed, a lost certificate affidavit), at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued.  The Corporation shall, as soon as practicable thereafter, pay all accrued or declared and unpaid dividends (in cash or shares of Common Stock in accordance with Subsection B1(a) ) on such shares of stock and issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid.  Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date.
 
(c)                                   Conversion Price Adjustments .  The Conversion Price shall be subject to adjustment from time to time as follows:
 
(i)                                      (A)                                If the Corporation shall issue, after the Series C Issue Date, any Additional Stock (as defined in Subsection B4(c)(ii)  below) without consideration or for a consideration price per share less than the Series A Conversion Price, Series B Conversion Price and/or Series C Conversion Price in effect immediately prior to the issuance of such Additional Stock, the Series A Conversion Price, Series B Conversion Price and/or Series C Conversion Price, as applicable, in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i) be reduced to a price determined by multiplying the applicable Conversion Price by a fraction, the numerator of which shall be (a) the number of shares of Common Stock outstanding (or deemed outstanding pursuant to Subsection B4(c)(i)(E)) plus the number of shares of Common Stock issuable upon conversion of any shares of Preferred Stock outstanding immediately prior to such issuance (“ Common Stock Deemed Outstanding ”) plus (b) the number of shares of Common Stock (assuming conversion or exercise in the case of a convertible security) that the aggregate consideration received by the Corporation for such issuance would purchase at such applicable Conversion Price in effect immediately prior to such issuance; and the denominator of which shall be the number of shares of Common Stock Deemed Outstanding immediately prior to such issuance plus the number of shares of Additional Stock so issued in such issuance.  For example, if after the Series C Issue Date, the Corporation issues 5,000,000 shares of Common Stock for consideration per share of $0.10, and assuming there are 20,000,000 shares of Common Stock Deemed Outstanding immediately prior to such issuance, the Series A Conversion Price immediately would be reduced to the price determined by multiplying $0.50, the Series A Conversion Price then in effect, by the following fraction:

 

 	 	20,000,000	+	$0.10 x 5,000,000 
 $0.50	
 	 	20,000,000	+	5,000,000	
 	 	 	 	 	
=	 	21,000,000
 25,000,000	 	 	
 	 	 	 	 	
=	 	0.84	 	 	
 
resulting in an adjusted Series A Conversion Price of $0.42 (i.e., $0.50 x 0.84), and an adjusted conversion rate of 1.1905:1 ( i.e. , $0.50/$0.42).
 
(B)                                No adjustment of a Conversion Price shall be made if such adjustment would be in an amount less than one cent per share of such Conversion Price.
 
(C)                                In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting in connection with the issuance and sale thereof.
 
(D)                                In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined pursuant to Subsection B2(f)  above.
 
(E)                                 In the case of the issuance (whether before, on or after the Series C Issue Date) of equity securities, the following provisions shall apply for all purposes of this Subsection B4(c)(i)  and Subsection B4(c)(ii) :
 
(1)                                  The aggregate maximum number of shares of Common Stock deliverable upon exercise (to the extent then exercisable) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Subsections B4(c)(i)(C)  and Subsection B4(c)(i)(D)) , if any, received by the Corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights for the Common Stock covered thereby.
 
(2)                                  The aggregate maximum number of shares of Common Stock deliverable upon conversion of, or in exchange (to the extent then convertible or exchangeable) for, any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration

 
in each case to be determined in the manner provided in Subsection B4(c)(i)(C)  and Subsection B4(c)(i)(D)) .
 
(3)                                  In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof (unless such options or rights or convertible or exchangeable securities were merely deemed to be included in the numerator and denominator for purposes of Subsection B4(c)(i)(A)) , the Series A Conversion Price, Series B Conversion Price or Series C Conversion Price, as applicable, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities.
 
(4)                                  Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Series A Conversion Price, Series B Conversion Price, or Series C Conversion Price, as applicable, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities.
 
(5)                                  The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Subsection B4(c)(i)(E)(1)  and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Subsection B4(c)(i)(E)(3)  or Subsection B4(c)(i)(E)(4) .
 
(ii)                                   “ Additional Stock ” shall mean all shares of Common Stock and any evidence of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock issued (or deemed to have been issued pursuant to Subsection B4(d)(i)(E)(1)  or Subsection B4(d)(i)(E)(2)) by the Corporation after the Series C Issue Date, other than shares of Common Stock issued or issuable:
 
(A)                                upon conversion of shares of the Preferred  Stock;
 
(B)                                to officers, directors or employees of, or consultants to, the Corporation as compensation for services, directly or pursuant to a stock option plan or a restricted stock purchase plan approved by the Board of Directors, including two of the Senior Directors;
 
(C)                                pursuant to a transaction for which adjustments of the Conversion Price are made pursuant to Subsection B4(c); or

 
(D)                                pursuant to the operation of Subsection B1(a)(ii) .
 
(iii)                                In the event the Corporation should at any time or from time to time after the Series C Issue Date fix a record date for the effectuation of a split or a subdivision of the outstanding shares of Common Stock or make, issue or set a record date for (at the determination of holders of Common Stock entitled to receive) a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “ Common Stock Equivalents ”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the applicable Conversion Price shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of the Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents.
 
If the number of shares of Common Stock deemed outstanding at any time after the Series C Issue Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the applicable Conversion Price shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the outstanding shares.
 
(d)                                  Other Distributions .  In the event the Corporation shall declare a dividend or distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or Common Stock Equivalents, then, in each such case, the holders of the Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such dividend or distribution.
 
(e)                                   Recapitalizations .  If at any time or from time to time after the Series C Issue Date, there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Subsection B4 or in Subsection B2 above) provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of their shares of Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization.  In any such case, appropriate adjustment shall be made in the application of the provisions of this Subsection B4 with respect to the rights of the holders of the Preferred Stock after the recapitalization to the end that the provisions of this Subsection B4 (including adjustment of the applicable Conversion Price then in effect and the number of shares purchasable upon conversion of the Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.

 
(f)                                    No Fractional Shares and Certificate as to Adjustments .
 
(i)                                      No fractional shares shall be issued upon the conversion of any share or shares of the Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share.  Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock which the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.
 
(ii)                                   Upon the occurrence of the event causing the adjustment or readjustment of the applicable Conversion Price of the Preferred Stock pursuant to this Subsection B4 , the Corporation, at its expense, shall promptly, but in any event no later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the applicable Conversion Price at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Preferred Stock.
 
(g)                                   Notices of Record Date .  In the event of any taking by the Corporation 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 (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Preferred Stock, at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.  Any notice required by the provisions of this Subsection B4 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder’s address appearing on the books of the Corporation or given by electronic communication to each holder of record at such holder’s e-mail address appearing on the books of the Corporation in compliance with the provisions of the General Corporation Law.
 
(h)                                  Reservation of Stock Issuable Upon Conversion .  The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, the Corporation will take such corporate action as, in the opinion of its counsel, may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including,

 
without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to its Certificate of Incorporation.
 
(i)                                      Mandatory Conversion .
 
(i)                                      Upon either (A) a date specified by holders of two-thirds (2/3) of the outstanding shares of Senior Preferred Stock (voting as a single class on an as-converted to Common Stock basis) or (B) the closing of a Qualified IPO (the date specified in clause (A) or the date of the closing specified in clause (B) is referred to herein as the “ Mandatory Conversion Date ”), then (x) all outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective applicable Conversion Price, and (y) such shares may not be reissued by the Corporation; provided, however notwithstanding the foregoing, the Series C Preferred Stock shall not be converted pursuant to clause (A) above without the vote or consent of the holders of a majority of the outstanding Series C Preferred Stock (voting as a separate class).   “ Qualified IPO ” shall mean a sale of shares of Common Stock to the public at a price per share reflecting an equity valuation of the Corporation of not less than $375,000,000, in a firm commitment underwritten public offering of the Company’s Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $50,000,000 in net proceeds (before the underwriting discount and commissions) to the Corporation.
 
(ii)                                   All holders of record of Preferred Stock shall be given written notice of the Mandatory Conversion Date and the place designated for mandatory conversion of all such shares of Preferred Stock.  Such notice shall be given at least ten (10) days in advance of the occurrence of the Mandatory Conversion Date.  Such notice shall be sent by first class or registered mail, postage prepaid, or given by electronic communication in compliance with the provisions of the General Corporation Law, to each record holder of Preferred Stock.  Upon the receipt of such notice, each holder of shares of Preferred Stock shall surrender his, her or its certificate or certificates for all such shares to the Corporation at the place designated in such notice and shall thereafter receive certificates for the number of shares of Common Stock to which such holder is entitled pursuant to this Subsection B(4) .  On the Mandatory Conversion Date, all outstanding shares of Preferred Stock shall be deemed to have been converted into shares of Common Stock, which shall be deemed to be outstanding of record, and all rights with respect to the Preferred Stock so converted, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates therefore, to receive certificates for the number of shares of Common Stock, into which such Preferred Stock has been converted, and payment of any declared but unpaid dividends thereon.  If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in a form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney, duly authorized in writing.  As soon as practicable after the Mandatory Conversion Date and the surrender of the certificate or certificates for Preferred Stock, the Corporation shall cause to be issued and delivered to such holder, or on his, her or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash

 
as provided in Subsection B4(f)  in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion.
 
(iii)                                All certificates evidencing shares of Preferred Stock which are required to be surrendered for conversion in accordance with the provisions hereof, shall from and after the Mandatory Conversion Date, be deemed to have been retired and cancelled and the shares of Preferred Stock represented thereby converted into Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such dates.  Such converted Preferred Stock may not be reissued.
 
(j)                                     Waiver of Anti-Dilution Adjustment .  Notwithstanding anything herein to the contrary, the operation of, and any adjustment of the Conversion Price pursuant to Subsection B4(c)  of any series of Preferred Stock may be waived with respect to shares of such Preferred Stock, either prospectively or retroactively and either generally or in a particular instance, by a writing executed by the registered holders of (i) in the case of Series A Preferred Stock, the registered holders of at least a majority of then outstanding shares of Series A Preferred Stock (voting as a separate class), (ii) in the case of Series B Preferred Stock, the registered holders of at least a majority of then outstanding shares of Series B Preferred Stock (voting as a separate class), and (iii) in the case of the Series C Preferred Stock, the registered holders of 75% of the sum of outstanding shares of (A) Series C Preferred Stock and (B) Selected Common Stock (voting together as a single class on an as converted to Common Stock basis). Any waiver pursuant to this Subsection B4(j)  shall bind all holders of the then outstanding shares of Preferred Stock or any subsequently acquired shares of Preferred Stock.
 
(5)                                  Voting Rights .
 
(a)                                  The holder of each share of Preferred Stock (i) shall have the right to one vote for each share of Common Stock into which such holder’s shares of Preferred Stock could then be converted, with full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, except as required by law or as expressly provided herein, including the protective provisions in Subsection B6 below; (ii) shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the bylaws of the Corporation; and (iii) except for such elections as described in Subsection B5(b)(ii) , shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote.  Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with 0.5 being rounded upward).
 
(b)                                  Voting for the Election of Directors .  The Board of Directors shall be elected as follows:
 
(i)                                      So long as any shares of Senior Preferred Stock (as adjusted to reflect stock dividends, stock splits, combinations, recapitalizations or the like after the Series C Issue Date) remain outstanding, the holders of the outstanding shares of Senior Preferred Stock and Selected Common Stock shall have the exclusive right, separately from the holders of

 
Common Stock, to elect three directors of the Corporation (each, a “ Senior Director ”).  Each Senior Director shall be elected by the vote or written consent of the holders of at least 75% of the sum of outstanding shares of (i) Senior Preferred Stock and (ii) Selected Common Stock (voting together as a single class on an as converted to Common Stock basis); provided, however, that (A) for so long as any of Adams Street Partners LLC, Adams Street Partners 2006 Direct Fund, L.P., Adams Street Partners 2007 Direct Fund, L.P., Adams Street Partners 2008 Direct Fund, L.P., Adams Street Partners 2009 Direct Fund, L.P., Adams Street Partners 2010 Direct Fund, L.P., and/or Adams Street Partners 2011 Direct Fund L.P. or any of their affiliated funds own any shares of the Senior Preferred Stock, one Senior Director shall be designated by Adams Street Partners, LLC on behalf of such funds (together, “ ASP ”) (the “ ASP Director ”), appointed solely in the discretion of ASP and (B) for so long as any of Battery Ventures IX, L.P. or any of its affiliated funds own any shares of the Senior Preferred Stock, one Senior Director shall be designated by Battery Ventures IX, LLC on behalf of such funds (together, “ Battery ”) (the “ Battery Director ”), appointed solely in the discretion of Battery.  If a Senior Director shall cease to serve as a director for any reason, another director elected by the holders of the Senior Preferred Stock shall replace such director, provided, that if such director is the ASP Director or the Battery Director, then ASP or Battery, as applicable, shall designate such replacement director.  Each Senior Director may be removed, with or without cause, and the replacement Senior Director may be elected in his stead, at any time by the affirmative vote at a meeting duly called for the purpose, or by written consent, of the holders of at least at least 75% of the sum of outstanding shares of (i) Senior Preferred Stock and (ii) Selected Common Stock (voting together as a single class on an as converted to Common Stock basis); provided however, that neither the ASP Director nor the Battery Director may be removed unless such removal is directed or approved by ASP or Battery, as applicable.
 
(ii)                                   The holders of the outstanding shares of Common Stock shall have the exclusive right, separately from the holders of Senior Preferred Stock, to elect three directors of the Corporation (each, a “ Common Director ”).  Each Common Director shall be elected by the vote or written consent of the holders of a majority of the outstanding Common Stock.  If a Common Director shall cease to serve as a director for any reason, another director elected by the holders of the Common Stock shall replace such director.  Each Common Director may be removed, with or without cause, and a replacement Common Director may be elected in his stead, at any time by the affirmative vote at a meeting duly called for the purpose, or by written consent, of the holders of a majority of the outstanding shares of Common Stock.
 
(iii)                                The holders of the outstanding shares of Preferred Stock and Common Stock shall have the exclusive right, voting together, to elect the balance of the total number of directors of the Corporation (each, a “ Remaining Director ”).  Each Remaining Director shall be elected by the vote or written consent of the holders of a majority of the outstanding shares of Senior Preferred Stock and Common Stock (voting together as a single class on an as converted to Common Stock basis).  If a Remaining Director shall cease to serve as a director for any reason, another director elected by the holders of a majority of the outstanding shares of Senior Preferred Stock and Common Stock (voting together as a single class on an as converted to Common Stock basis) shall replace such director.  Each Remaining Director may be removed, with or without cause, and a replacement Remaining Director may be elected in his stead, at any time by the affirmative vote at a meeting duly called for the purpose,

 
or by written consent, of the holders of a majority of the outstanding shares of Senior Preferred Stock and Common Stock (voting together as a single class on an as converted to Common Stock basis).
 
(6)                                  Protective Provisions .
 
(a)                                  So long as any shares of Series C Preferred Stock are outstanding, the Corporation shall not and shall not permit a subsidiary to (in each case either directly or indirectly by amendment, merger, consolidation or otherwise), without first obtaining the approval (by vote or written consent, as permitted by law) of the holders of a majority of the then outstanding shares of Series C Preferred Stock (voting or acting, as the case may be, as a single class) to take any action or permit any action to be taken which would effect a Deemed Liquidation Event pursuant to Subsection (B)(2)(f)(A) , if, in any such case, the proceeds distributed to the holders of the Series C Preferred Stock are less than 1.75 times the Series C Issue Price per share of the Series C Preferred Stock.
 
(b)                                  So long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not and shall not permit a subsidiary to (in each case either directly or indirectly by amendment, merger, consolidation or otherwise), without first obtaining the approval (by vote or written consent, as permitted by law) of the holders of a majority of the then outstanding shares of Series B Preferred Stock (voting or acting, as the case may be, as a single class) to take any action or permit any action to be taken which would effect a Deemed Liquidation Event pursuant to Subsection (B)(2)(f)(A) , if, in any such case, the proceeds distributed to the holders of the Series B Preferred Stock are less than two times the Series B Issue Price per share of the Series B Preferred Stock.
 
(c)                                   So long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not and shall not permit a subsidiary to (in each case either directly or indirectly by amendment, merger, consolidation or otherwise), without first obtaining the approval (by vote or written consent, as permitted by law) of the holders of a majority of the then outstanding shares of Series A Preferred Stock (voting or acting, as the case may be, as a single class) to take any action or permit any action to be taken which would effect a liquidation, dissolution or winding up of the business affairs of the Corporation or a Deemed Liquidation Event pursuant to Subsection (B)(2)(f)(A) , if, in any such case, the proceeds distributed to the holders of the Series B Preferred Stock are less than three times the Series A Issue Price per share of  the Series A Preferred Stock.
 
(d)                                  So long as any shares of Senior Preferred Stock are outstanding, the Corporation shall not and shall not permit a subsidiary to (in each case either directly or indirectly by amendment, merger, consolidation or otherwise), without first obtaining the approval (by vote or written consent, as permitted by law) of the holders of at least 75% of the sum of outstanding shares of (i) Senior Preferred Stock and (ii) Selected Common Stock (voting or acting, as the case may be, together as a single class on an as converted to Common Stock basis):

 
(i)                                      create, authorize or issue, or authorize or effect any reclassification of, or obligate itself to issue, any equity security, including any other security convertible into or exercisable for any equity security, which security is on parity with, or has a preference over, the Senior Preferred Stock;
 
(ii)                                   take any action or permit any action to be taken which would effect a firm commitment underwritten public offering of the Company’s Common Stock pursuant to a registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933, unless such offering is a Qualified IPO;
 
(iii)                                in the case of a subsidiary, create, authorize or issue, or authorize or effect any reclassification of, or obligate itself to issue, any equity security, including any other security convertible into or exercisable for any equity security, unless approved by the Corporation’s Board of Directors, including the affirmative vote of two of the Senior Directors;
 
(iv)                               amend, alter or repeal any provisions of the Certificate of Incorporation or Bylaws of the Corporation that adversely changes the rights, preferences or privileges of the Senior Preferred Stock;
 
(v)                                  declare or pay any dividend on, or purchase redeem or otherwise acquire any shares of, Common Stock, Junior Preferred Stock or any other class or series of stock junior to the Senior Preferred Stock;
 
(vi)                               incur or permit any subsidiary to incur indebtedness in excess of $500,000 in the aggregate, excluding such amounts that are approved by the Corporation’s Board of Directors, including the affirmative vote of both the ASP Director and the Battery Director;
 
(vii)                            increase the number of shares of Common Stock reserved for issuance under the Corporation’s 2007 Stock Plan or create any new equity incentive or benefit plan or permit any subsidiary to do any of the foregoing;
 
(viii)                         redeem any shares of the Corporation’s capital stock, except as otherwise provided for in Subsection B3 ;
 
(ix)                               make any changes in the Corporation’s or its subsidiaries’ business strategy away from selling software and services to banks and credit unions;
 
(x)                                  grant an exclusive license of any part of the Corporation’s intellectual property;
 
(xi)                               make any changes to the executive compensation of the Corporation’s executives not otherwise approved by the compensation committee of the Corporation’s Board of Directors, including the affirmative vote of both the ASP Director and the Battery Director then serving on such committee; or

 
(xii)                            increase or decrease the authorized number of directors constituting the Corporation’s Board of Directors, unless the same is approved by the Corporation’s Board of Directors, including the affirmative vote of both the ASP Director and the Battery Director.
 
(7)                                  Status of Converted or Redeemed Stock .  In the event any shares of Preferred Stock shall be converted pursuant to Subsection B4 above, or in the event any shares of Senior Preferred Stock shall be redeemed pursuant to Subsection B3 above, the shares so converted or redeemed shall be cancelled and shall not thereafter be issuable by the Corporation.
 
C.                                     Common Stock .
 
(1)                                  Dividend Rights .  Subject to the provisions of Division B of this Article IV , the holders of the Common Stock shall be entitled to receive, when, as, and if declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.
 
(2)                                  Liquidation Rights .  Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Subsection B2 .
 
(3)                                  Redemption .  The Common Stock is not redeemable.
 
(4)                                  Voting Rights .  In addition to the voting rights provided for in Subsection B5(b)(ii) , the holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law.  The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding or reserved for issuance upon the exercise of options or warrants or the conversion of Senior Preferred Stock) by the affirmative vote of the holders of at least a majority of the capital stock of the Corporation entitled to vote, voting as a single class, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
 
ARTICLE V
 
To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law or (iv) for any transaction from which the director derived any improper personal benefit.  If the General Corporation Law is amended after approval by the stockholders of this Article V to authorize corporation action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.

 
Any repeal or modification of the foregoing provisions of this Article V by the stockholders of the Corporation shall not adversely affect any right or protection of or increase the liability of a director of the Corporation existing at the time of such repeal or modification.
 
ARTICLE VI
 
To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) agents of the Corporation (and any other persons to which Delaware law permits the Corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to the Corporation, its stockholders, and others.
 
ARTICLE VII
 
Subject to any additional vote required by this Third Amended and Restated Certificate of Incorporation, the Board of Directors may from time to time adopt, amend, alter, supplement, rescind or repeal any or all of the bylaws of the Corporation without any action on the part of the stockholders; provided , however , that the stockholders may adopt, amend or repeal any bylaw adopted by the Board of Directors, and no amendment or supplement to the bylaws adopted by the Board of Directors shall vary or conflict with any amendment or supplement adopted by the stockholders.
 
ARTICLE VIII
 
Subject to any additional vote required by this Third Amended and Restated Certificate of Incorporation and subject to any restrictions which may be imposed by the Corporation’s bylaws, the number of directors of the Corporation shall be set from time to time by resolution of the Board of Directors.
 
ARTICLE IX
 
Elections of directors need not be by written ballot unless the bylaws of the Corporation shall so provide.
 
ARTICLE X
 
Meetings of stockholders may be held within or without the State of Delaware, as the bylaws may provide.  The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the bylaws of the Corporation.

 
ARTICLE XI
 
The Corporation renounces any interest or expectancy of the Corporation in, or being offered an opportunity to participate in, any Excluded Opportunity.  An “ Excluded Opportunity ” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Corporation who is not an employee of the Corporation or any its subsidiaries, or (ii) any holder of Senior Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, “ Covered Persons ”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation.
 
ARTICLE XII
 
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (c) any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s certificate of incorporation or bylaws or (d) any action asserting a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine, except for, as to each of (a) through (d) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. If any provision or provisions of this Article XII shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article XII (including, without limitation, each portion of any sentence of this Article XII containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.
 
*  *  *

Exhibit 3.3

 
BYLAWS
 
OF
 
CBG HOLDINGS, INC.

 
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BYLAWS
OF
CBG HOLDINGS, INC.
 
ARTICLE I
STOCKHOLDERS
 
1.1                                Place of Meetings .  All meetings of stockholders shall be held at such place within or without the State of Delaware as may be designated from time to time by the Board of Directors or the President.
 
1.2                                Annual Meeting .  The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held on a date to be fixed by the Board of Directors at the time and place to be fixed by the Board of Directors and stated in the notice of the meeting.
 
1.3                                Special Meetings .  Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called by (a) the Board of Directors, (b) the Chairman of the Board, or (c) any beneficial holders of not less than twenty-five percent (25%) of all shares entitled to cast votes at the meeting, and shall be held at such place, on such date and at such time as the Board shall fix.  Business transacted at any special meeting of the stockholders shall be confined to the purpose or purposes stated in the notice of meeting.
 
1.4                                Notice of Meetings .  Written notice of each meeting of stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or as required by law (meaning here and hereafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation).  The notices of all meetings shall state the place, date and hour of the meeting and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting.  The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called.  If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation.
 
1.5                                Voting List .  The Secretary or other officer shall prepare, at least ten (10) days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principle place of business of the corporation.  In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation.  The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and may be inspected by any stockholder who is present.  If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the
 
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notice of the meeting.  This list shall determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.
 
1.6                                Quorum .  Except as otherwise provided by law or these Bylaws, the holders of a majority of the shares of the capital stock of the corporation entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business.  If a quorum shall fail to attend any meeting, the Chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date or time.
 
If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting.
 
1.7                                Adjournments .  Any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these Bylaws by the Chairman of the meeting or, in the absence of such person, by any officer entitled to preside at or to act as Secretary of such meeting, or by the holders of a majority of the shares of stock present or represented at the meeting and entitled to vote, although less than a quorum.  When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting.
 
1.8                                Voting and Proxies .  Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided by law or in the Certificate of Incorporation.  Each stockholder of record entitled to vote at a meeting of stockholders may vote in person or may authorize any other person or persons to vote or act for him by written proxy executed by the stockholder or his authorized agent or by a transmission permitted by law and delivered to the Secretary of the corporation.  No stockholder may authorize more than one proxy for his shares.  Any copy, facsimile transmission or other reliable reproduction of the writing or transmission created pursuant to this Section 1.8 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission.
 
1.9                                Action at Meeting .  When a quorum is present at any meeting, any election of directors shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election, and all other matters shall be determined by a majority of the votes cast affirmatively or negatively on the matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, a majority of each such class present or represented and voting affirmatively or negatively on the matter) shall decide such matter, except when a different vote is required by express provision of law, any national securities exchange or quotation system on which capital stock of the corporation is traded, the Certificate of Incorporation or these Bylaws.
 
All voting, including on the election of directors, but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken.  Every stock vote shall be taken by ballot, each of which
 
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shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting.  Every vote taken by ballot shall be counted by an inspector or inspectors appointed by the Chairman of the meeting.  The corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof.  The corporation may designate one or more persons as an alternate inspector to replace any inspector who fails to act.  If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting.  Each inspector, before entering upon the discharge of his duties, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his or her ability.
 
1.10                         Stockholder Action Without Meeting .  Any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the actions so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes which would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.  All such consents shall be filed with the Secretary of the corporation and shall be maintained in the corporate records.  Prompt notice of the taking of a corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
 
An electronic transmission consenting to an action to be taken and transmitted by a stockholder, or by a proxy holder or other person authorized to act for a stockholder, shall be deemed to be written, signed and dated for the purpose of this Section 1.10, provided that such electronic transmission sets forth or is delivered with information from which the corporation can determine (i) that the electronic transmission was transmitted by the stockholder or by a person authorized to act for the stockholder and (ii) the date on which such stockholder or authorized person transmitted such electronic transmission.  The date on which such electronic transmission is transmitted shall be deemed to be the date on which such consent was signed.  No consent given by electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its principal place of business or an officer or agent of the corporation having custody of the books in which proceedings of meetings of stockholders are recorded.
 
1.11                         Meetings by Remote Communication .  If authorized by the Board of Directors, and subject to such guidelines and procedures as the Board may adopt, stockholders and proxy holders not physically present at a meeting of stockholders may, by means of remote communication, participate in the meeting and be deemed present in person and vote at the meeting, whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxy holder, (ii) the corporation shall implement reasonable measures to provide such stockholders and proxy holders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxy holder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.
 
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ARTICLE II
BOARD OF DIRECTORS
 
2.1                                General Powers .  The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors, who may exercise all of the powers of the corporation except as otherwise provided by law or the Certificate of Incorporation.  In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.
 
2.2                                Number and Term of Office .  The number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption).  Each director shall hold office until the expiration of the term for which he is elected and until his respective successors are elected, except in the case of the death, resignation, retirement, disqualification or removal of any director.
 
2.3                                Vacancies and Newly Created Directorships .  Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification or other cause (other than removal from office by a vote of the stockholders) may be filled only by a majority vote of the directors then in office, though less than a quorum, or by the sole remaining director, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders unless earlier removed as provided below.  No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
 
2.4                                Resignation .  Any director may resign by delivering notice in writing or by electronic transmission to the President, Chairman of the Board or Secretary.  Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.
 
2.5                                Removal .  Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, with or without cause, by the affirmative vote of the holders of at least a majority of the voting power of all of the outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class.  Vacancies in the Board of Directors resulting from such removal may be filled by (i) a majority of the directors then in office, though less than a quorum, (ii) the sole remaining director, or (iii) the affirmative vote of the holders of at least two-thirds of all of the outstanding shares of capital stock issued and outstanding and entitled to vote generally in the election of directors, voting together as a single class at the next annual meeting or at a special meeting called in accordance with Section 1.3 above.  Directors so chosen shall hold office until the next annual meeting of stockholders.
 
2.6                                Regular Meetings .  Regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as shall be determined from time to time by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of the determination.  A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders.
 
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2.7                                Special Meetings .  Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or two or more directors and may be held at any time and place, within or without the State of Delaware.
 
2.8                                Notice of Special Meetings .  Notice of any special meeting of directors shall be given to each director by the Secretary or by the officer or one of the directors calling the meeting.  Notice shall be duly given to each director by (i) giving notice to such director in person or by telephone, electronic transmission or voice message system at least twenty-four (24) hours in advance of the meeting, (ii) sending a facsimile, or delivering written notice by hand, to his last known business or home address at least twenty-four (24) hours in advance of the meeting, or (iii) mailing written notice to his last known business or home address at least three (3) days in advance of the meeting.  A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting.  Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.
 
2.9                                Participation in Meetings by Telephone Conference Calls or Other Methods of Communication .  Directors or any member of any committee designated by the directors may participate in a meeting of the Board of Directors or such committee by means of telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting.
 
2.10                         Quorum .  A majority of the total number of authorized directors shall constitute a quorum at any meeting of the Board of Directors.  In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each such director so disqualified; provided, however, that in no case shall less than one-third (1/3) of the number so fixed constitute a quorum.  In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present.  Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or at a meeting of a committee which authorizes a particular contract or transaction.
 
2.11                         Action at Meeting .  At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, the Certificate of Incorporation or these Bylaws.
 
2.12                         Action by Written Consent .  Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting if all members of the Board or committee, as the case may be, consent to the action in writing or by electronic transmission, and the writings or electronic transmissions are filed with the minutes of proceedings of the Board or committee.  Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
 
2.13                         Committees .  The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation, with such lawfully delegated powers and duties as it therefor confers, to serve at the pleasure of the Board.  The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.  In the absence or disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.  Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of the Delaware General Corporation Law, shall have and may exercise all the powers and authority of
 
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the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it.  Each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request.  Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these Bylaws for the Board of Directors.
 
2.14                         Compensation of Directors .  Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine.  No such payment shall preclude any director from serving the corporation or any of its parent or subsidiary corporations in any other capacity and receiving compensation for such service.
 
2.15                         Nomination of Director Candidates .  Subject to the rights of holders of any class or series of Preferred Stock then outstanding, nominations for the election of Directors may be made by (i) the Board of Directors or a duly authorized committee thereof or (ii) any stockholder entitled to vote in the election of Directors.
 
ARTICLE III
OFFICERS
 
3.1                                Enumeration .  The officers of the corporation shall consist of a Chief Executive Officer, a President, a Secretary, a Chief Financial Officer, a Treasurer and such other officers with such other titles as the Board of Directors shall determine, including, at the discretion of the Board of Directors, a Chairman of the Board and one or more Vice Presidents and Assistant Secretaries.  The Board of Directors may appoint such other officers as it may deem appropriate.
 
3.2                                Election .  Officers shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders.  Officers may be appointed by the Board of Directors at any other meeting. Officers shall hold office until their respective successors are elected or their earlier death, resignation or removal.
 
3.3                                Qualification .  No officer need be a stockholder.  Any two or more offices may be held by the same person.
 
3.4                                Tenure .  Except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, each officer shall hold office until his successor is elected and qualified, unless a different term is specified in the vote appointing him, or until his earlier death, resignation or removal.
 
3.5                                Resignation and Removal .  Any officer may resign by delivering notice in writing or by electronic transmission to the President or Secretary.  Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.  Any officer elected by the Board of Directors may be removed at any time, with or without cause, by the Board of Directors.
 
3.6                                Chairman of the Board .  The Board of Directors may appoint a Chairman of the Board.  If the Board of Directors appoints a Chairman of the Board, he shall perform such duties and possess such powers as are assigned to him by the Board of Directors.  Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the stockholders, and, if he is a director, at all meetings of the Board of Directors.
 
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3.7                                President .  The President shall, subject to the direction of the Board of Directors, have responsibility for the general management and control of the business and affairs of the corporation and shall perform all duties and have all powers which are commonly incident to the office of President or which are delegated to him or her by the Board of Directors.  Unless otherwise designated by the Board of Directors, the President shall be the Chief Executive Officer of the corporation.  The President shall, in the absence of or because of the inability to act of the Chairman of the Board, perform all duties of the Chairman of the Board and preside at all meetings of the Board of Directors and of stockholders.  The President shall perform such other duties and shall have such other powers as the Board of Directors may from time to time prescribe.  He or she shall have power to sign stock certificates, contracts and other instruments of the corporation which are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the corporation, other than the Chairman of the Board.
 
3.8                                Vice Presidents .  Any Vice President shall perform such duties and possess such powers as the Board of Directors or the President may from time to time prescribe.  In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President.  The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors.
 
3.9                                Secretary and Assistant Secretaries .  The Secretary shall perform such duties and shall have such powers as the Board of Directors or the President may from time to time prescribe.  In addition, the Secretary shall perform such duties and have such powers as are incident to the office of the Secretary, including, without limitation, the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to keep a record of the proceedings of all meetings of stockholders and the Board of Directors, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents.
 
Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer, the President or the Secretary may from time to time prescribe.  In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary.
 
In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary secretary to keep a record of the meeting.
 
3.10                         Chief Financial Officer .  The Chief Financial Officer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board of Directors, the Chief Executive Officer or the President.  In addition, the Chief Financial Officer shall perform such duties and have such powers as are incident to the office of chief financial officer, including without limitation, the duty and power to keep and be responsible for all funds and securities of the corporation, to maintain the financial records of the corporation, to deposit funds of the corporation in depositories as authorized, to disburse such funds as authorized, to make proper accounts of such funds, and to render as required by the Board of Directors accounts of all such transactions and of the financial condition of the corporation.
 
3.11                         Treasurer .  The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board of Directors, or as the President and the Chief Financial Officer may mutually agree.  In addition, the Treasurer shall perform such duties and have such
 
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powers as are incident to the office of Chief Financial Officer, including without limitation, the duty and power to keep and be responsible for all funds and securities of the corporation, to maintain the financial records of the corporation, to deposit funds of the corporation in depositories as authorized, to disburse such funds as authorized, to make proper accounts of such funds, and to render as required by the Board of Directors accounts of all such transactions and of the financial condition of the corporation.
 
3.12                         Salaries .  Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors.
 
3.13                         Delegation of Authority .  The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.
 
ARTICLE IV
CAPITAL STOCK
 
4.1                                Issuance of Stock .  Unless otherwise voted by the stockholders and subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of any unissued balance of the authorized capital stock of the corporation held in its treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such consideration and on such terms as the Board of Directors may determine.
 
4.2                                Certificates of Stock .  Every holder of stock of the corporation shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, certifying the number and class of shares owned by him in the corporation.  Each such certificate shall be signed by, or in the name of the corporation by, the Chairman or Vice Chairman, if any, of the Board of Directors, or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation.  Any or all of the signatures on the certificate may be a facsimile.
 
Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the Bylaws, applicable securities laws or any agreement among any number of shareholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction.
 
4.3                                Transfers .  Except as otherwise established by rules and regulations adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or authenticity of signature as the corporation or its transfer agent may reasonably require.  Except as may be otherwise required by law, the Certificate of Incorporation or the Bylaws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these Bylaws.
 
4.4                                Lost, Stolen or Destroyed Certificates .  The corporation may issue a new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen, or destroyed, upon
 
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such terms and conditions as the Board of Directors may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity as the Board of Directors may require for the protection of the corporation or any transfer agent or registrar.
 
4.5                                Record Date .  The Board of Directors may fix in advance a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or to express consent (or dissent) to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, concession or exchange of stock, or for the purpose of any other lawful action.  Such record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action to which such record date relates.
 
If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held.  The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose.
 
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
 
ARTICLE V
GENERAL PROVISIONS
 
5.1                                Fiscal Year .  The fiscal year of the corporation shall be as fixed by the Board of Directors.
 
5.2                                Corporate Seal .  The corporate seal, if any, shall be in such form as shall be approved by the Board of Directors.
 
5.3                                Waiver of Notice .  Whenever any notice whatsoever is required to be given by law, by the Certificate of Incorporation or by these Bylaws, a waiver of such notice either in writing signed by the person entitled to such notice or such person’s duly authorized attorney, or by electronic transmission or any other method permitted under the Delaware General Corporation Law, whether before, at or after the time stated in such waiver, or the appearance of such person or persons at such meeting in person or by proxy, shall be deemed equivalent to such notice.
 
5.4                                Actions with Respect to Securities of Other Corporations .  Except as the Board of Directors may otherwise designate, the Chief Executive Officer or President or any officer of the corporation authorized by the Chief Executive Officer or President shall have the power to vote and otherwise act on behalf of the corporation, in person or proxy, and may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact to this corporation (with or without power of substitution) at any meeting of stockholders or shareholders (or with respect to any action of stockholders) of any other corporation or organization, the securities of which may be held by this corporation and otherwise to exercise any and all rights and powers which this corporation may possess by reason of this corporation’s ownership of securities in such other corporation or other organization.
 
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5.5                                Evidence of Authority .  A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action.
 
5.6                                Certificate of Incorporation .  All references in these Bylaws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the corporation, as amended and in effect from time to time.
 
5.7                                Severability .  Any determination that any provision of these Bylaws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these Bylaws.
 
5.8                                Pronouns .  All pronouns used in these Bylaws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require.
 
5.9                                Notices .  Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by facsimile or other electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law, or by commercial courier service.  Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the corporation.  The time when such notice shall be deemed to be given shall be the time such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if delivered by hand, facsimile, other electronic transmission or commercial courier service, or the time such notice is dispatched, if delivered through the mails.
 
5.10                         Reliance Upon Books, Reports and Records .  Each director, each member of any committee designated by the Board of Directors, and each officer of the corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the corporation, including reports made to the corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care.
 
5.11                         Time Periods .  In applying any provision of these Bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.
 
5.12                         Facsimile Signatures .  In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.
 
ARTICLE VI
AMENDMENTS
 
6.1                                By the Board of Directors .  Except as is otherwise set forth in these Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is
 
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present or by acts of the Board of Directors or the Corporation evidenced by a uniform course of proceeding or usage and acquiescence.
 
6.2                                By the Stockholders .  Except as otherwise set forth in the Certificate of Incorporation or these Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the affirmative vote of the holders of at least a majority of all of the outstanding shares of capital stock issued and outstanding and entitled to vote at any annual or special meeting of the stockholders, voting together as a single class at the next annual meeting or at a special meeting called in accordance with Section 1.3 above, provided notice of such alteration, amendment, repeal or adoption of new Bylaws shall have been stated in the notice of such special meeting.
 
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
7.1                                Right to Indemnification .  Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (“ proceeding ”), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation, or as a controlling person of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or officer, or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said Law permitted the corporation to provide prior to such amendment) against all expenses, liability and loss reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided , however , that except as provided in Section 7.2 of this Article VII , the corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if (a) such indemnification is expressly required to be made by law, (b) the proceeding (or part thereof) was authorized by the Board of Directors of the corporation, (c) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law, or (d) the proceeding (or part thereof) is brought to establish or enforce a right to indemnification under an indemnity agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law.  The rights hereunder shall be contract rights and shall include the right to be paid expenses incurred in defending any such proceeding in advance of its final disposition; provided , however , that, unless the Delaware General Corporation Law then so prohibits, the payment of such expenses incurred by a director or officer of the corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is tendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Section 7.1 or otherwise.
 
7.2                                Right of Claimant to Bring Suit .  If a claim under Section 7.1 is not paid in full by the corporation within ninety (90) days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the
 
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claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim.  It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed.  Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.
 
7.3                                Indemnification of Employees and Agents .  The corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to the advancement of related expenses, to any employee or agent of the corporation to the fullest extent of the provisions of this Article with respect to the indemnification of and advancement of expenses to directors and officers of the corporation.
 
7.4                                Non-Exclusivity of Rights .  The rights conferred on any person in this Article VII shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
 
7.5                                Indemnification Contracts .  The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the corporation, or any person serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article VII .
 
7.6                                Insurance .  The corporation shall maintain insurance to the extent reasonably available, at its expense, to protect itself and any such director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.
 
7.7                                Effect of Amendment .  Any amendment, repeal or modification of any provision of this Article VII by the stockholders and the directors of the corporation shall not adversely affect any right or protection of a director or officer of the corporation existing at the time of such amendment, repeal or modification.
 
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CERTIFICATE OF SECRETARY
 
OF
 
CBG HOLDINGS, INC.
 
(a Delaware corporation)
 
I, Robert H. Seale III, the Secretary of CBG Holdings, Inc., a Delaware corporation (the “ Corporation ”), hereby certify that the Bylaws to which this Certificate is attached are the Bylaws of the Corporation.
 
Executed effective on the 31st day of March, 2005.

 	 /s/ Robert H. Seale III	
 	Robert H. Seale III, Secretary	

Exhibit 4.1
 
EXECUTION COPY
 
Q2 HOLDINGS, INC. (F/K/A CBG HOLDINGS, INC.)
 
THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
 
March 1, 2013

 
TABLE OF CONTENTS

 	 	Page	
 	 	 	
SECTION 1	DEFINITIONS	1	
 	 	 	
1.1	Certain Definitions	1	
 	 	 	
SECTION 2	REGISTRATION RIGHTS	4	
 	 	 	
2.1	Requested Registration	4	
2.2	Company Registration	7	
2.3	Registration on Form S-3	8	
2.4	Expenses of Registration	9	
2.5	Registration Procedures	9	
2.6	Indemnification	10	
2.7	Information by Holder	12	
2.8	Restrictions on Transfer	12	
2.9	Rule 144 Reporting	14	
2.10	Market Stand-Off Agreement	14	
2.11	Delay of Registration	14	
2.12	Transfer or Assignment of Registration Rights	15	
2.13	Limitations on Subsequent Registration Rights	15	
2.14	Termination of Registration Rights	15	
 	 	 	
SECTION 3	INFORMATION COVENANTS OF THE COMPANY	15	
 	 	 	
3.1	Basic Financial Information and Inspection Rights	15	
3.2	Confidentiality	16	
3.3	Insurance	16	
3.4	Board of Director Meetings	17	
3.5	Board Observer Rights	17	
3.6	Annual Budget	17	
3.7	Termination of Covenants	17	
 	 	 	
SECTION 4	RIGHT OF FIRST REFUSAL	17	
 	 	 	
4.1	Right of First Refusal to Significant Holders	17	
4.2	Termination of Right of First Refusal	19	
4.3	Employee Stock	19	
 	 	 	
SECTION 5	INVESTOR DIRECTOR APPROVAL	19	
 	 	 	
5.1	Matters Requiring Approval of Battery Director	19	
 	 	 	
SECTION 6	MISCELLANEOUS	19	
 	 	 	
6.1	Amendment	19	
6.2	Notices	20	
6.3	Governing Law	20	
6.4	Successors and Assigns	20	
6.5	Entire Agreement	21	
6.6	Delays or Omissions	21	
6.7	Severability	21	
6.8	Titles and Subtitles	21	

 
TABLE OF CONTENTS
(continued)

 	 	Page	
 	 	 	
6.9	Counterparts	21	
6.10	Telecopy Execution and Delivery	21	
6.11	Jurisdiction; Venue	21	
6.12	Further Assurances	21	
6.13	Termination Upon a Sale of the Company	21	
6.14	Conflict	21	
6.15	Aggregation of Stock	21	
 
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Q2 HOLDINGS, INC. (F/K/A CBG HOLDINGS, INC.)
 
THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
 
THIS THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (this “ Agreement ”) is made as of March 1, 2013, by and among Q2 Holdings, Inc. (f/k/a CBG Holdings, Inc.), a Delaware corporation (the “ Company ”), the persons and entities (each, a “ Junior Investor ” and collectively, the “ Junior Investors ”) listed on Exhibit A hereto, and the persons and entities (each, a “ Senior Investor ” and collectively, the “ Senior Investors ” and together with the Junior Investors, the “ Investors ”) listed on Exhibit B hereto. Unless otherwise defined herein, capitalized terms used in this Agreement have the meanings ascribed to them in Section 1 .
 
RECITALS
 
WHEREAS , the Company and certain of the Investors are parties to the Second Amended and Restated Investors’ Rights Agreement dated as of December 29, 2011 (the “ Prior Agreement ”);
 
WHEREAS , the Company and certain of the Senior Investors are parties to that certain Series C Preferred Stock Purchase Agreement dated as of even date herewith (the “ Purchase Agreement ”) pursuant to which the Company has agreed to sell, and such Senior Investors have agreed to purchase, shares of Series C Preferred Stock; and it is a condition to the closing of the sale of the Series C Preferred Stock to the Senior Investors that the Senior Investors and the Company execute and deliver this Agreement;
 
WHEREAS , in order to induce certain of the Investors to purchase shares of Series C Preferred Stock and invest funds in the Company pursuant to the Purchase Agreement, the Investors and the Company hereby agree to amend and restate the Prior Agreement, as provided in this Agreement;
 
WHEREAS , pursuant to Section 5.1 of the Prior Agreement, the Prior Agreement may be amended by the written consent of (i) the Company, and (ii) the holders of at least two-thirds of the Registrable Securities (as defined therein); and
 
WHEREAS , the undersigned represent (i) the holders of at least two-thirds of the Registrable Securities (as defined in the Prior Agreement) currently outstanding and the Company and (ii) such parties desire to amend the Prior Agreement as set forth below on behalf of themselves and all other parties to the Prior Agreement.
 
AGREEMENT
 
NOW, THEREFORE , i n consideration of the mutual promises and covenants set forth herein, and other consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:
 
SECTION 1
 
Definitions.
 
1.1                                Certain Definitions .  As used in this Agreement, the following terms shall have the meanings set forth below:
 
(a)                                  “ ASP Director ” shall mean the director that is the ASP Designee as defined in Section 2(b)(i) of the Voting Agreement.

 
(b)                                  “ Battery Director ” means any director of the Company that Battery Ventures IX, LLC is entitled to appoint pursuant to the Voting Agreement.
 
(c)                                   “ C&B Capital ” shall mean C&B Capital II, L.P. and C&B Capital II (PF), L.P. together.
 
(d)                                  “ Closing ” shall mean the date of the sale of shares of the Company’s Series C Preferred Stock pursuant to the Purchase Agreement.
 
(e)                                   “ Commission ” shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.
 
(f)                                    “ Common Stock ” means the common stock of the Company.
 
(g)                                   “ Common Stock Purchase Agreement ” means the Common Stock Purchase Agreement dated as of the date hereof by and among certain holders of the Company’s Common Stock and certain Senior Investors.
 
(h)                                  “ Conversion Stock ” shall mean shares of Common Stock issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and the Junior Preferred Stock.
 
(i)                                      “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.
 
(j)                                     “ Holder ” shall mean any Investor who holds Registrable Securities and any holder of Registrable Securities to whom the registration rights conferred by this Agreement have been duly and validly transferred in accordance with Section 2.12 of this Agreement.
 
(k)                                  “ Indemnified Party ” shall have the meaning set forth in Section 2.6(c)  hereto.
 
(l)                                      “ Indemnifying Party ” shall have the meaning set forth in Section 2.6(c)  hereto.
 
(m)                              “ Initiating Holders ” shall mean any Holder or Holders who in the aggregate hold not less than two-thirds (2/3) of the outstanding Registrable Securities.
 
(n)                                  “ Junior Preferred Stock ” shall mean the Company’s Junior Convertible Preferred Stock, par value $0.0001 per share.
 
(o)                                  “ Major Investor ” means (i) any Senior Investor that, individually or together with such Senior Investor’s Affiliates, holds at least 1,500,000 shares of Registrable Securities (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof) and (ii) C&B Capital, so long as it holds at least 700,000 shares of Registrable Securities (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof).
 
(p)                                  “ New Securities ” shall have the meaning set forth in Section 4.1(a)  hereof.
 
(q)                                  “ Other Selling Stockholders ” shall mean persons other than Holders who, by virtue of agreements with the Company, are entitled to include their Other Shares in certain registrations hereunder.
 
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(r)                                     “ Other Shares ” shall mean shares of Common Stock, other than Registrable Securities (as defined below), with respect to which registration rights have been granted.
 
(s)                                    “ Purchase Agreement ” shall have the meaning set forth in the Recitals hereto.
 
(t)                                     “ Qualified Initial Public Offering ” shall mean the closing of the Company’s first firm commitment underwritten public offering of the Company’s Common Stock registered under the Securities Act.
 
(u)                                  “ Registrable Securities ” shall mean (i) shares of Common Stock issued or issuable pursuant to the conversion of the Shares, (ii) shares of Common Stock purchased by certain Senior Investors pursuant to the Common Stock Purchase Agreement and (ii) any Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in (i) or (ii) above; provided , however , that Registrable Securities shall not include any shares of Common Stock described in clause (i), (ii) or (iii) above which have previously been registered or which have been sold to the public either pursuant to a registration statement or Rule 144, or which have been sold in a private transaction in which the transferor’s rights under this Agreement are not validly assigned in accordance with this Agreement.
 
(v)                                  The terms “ register , ” “ registered ” and “ registration ” shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement.
 
(w)                                “ Registration Expenses ” shall mean all expenses incurred in connection with each registration requested under this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and one special counsel for the Holders, blue sky fees and expenses, and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses, fees and disbursements of other counsel for the Holders and the compensation of regular employees of the Company, which shall be paid in any event by the Company.
 
(x)                                  “ Restricted Securities ” shall mean any Registrable Securities required to bear the first legend set forth in Section 2.8(c ) hereof.
 
(y)                                  “ Rule 144 ” shall mean Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.
 
(z)                                   “ Rule 145 ” shall mean Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission
 
(aa)                           “ Rule 415 ” shall mean Rule 415 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.
 
(bb)                           “ Securities Act ” shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.
 
(cc)                             “ Selling Expenses ” shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities and fees and disbursements of
 
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counsel for any Holder (other than the fees and disbursements of one special counsel to the Holders included in Registration Expenses).
 
(dd)                           “ Series A Preferred Stock ” shall mean the shares of the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share originally issued pursuant to the Series A Stock Purchase Agreement dated July 27, 2007, as amended.
 
(ee)                             “ Series B Preferred Stock ” shall mean the shares of the Company’s Series B Convertible Preferred Stock, par value $0.0001 per share originally issued pursuant to the Series B Stock Purchase Agreement dated December 29, 2011.
 
(ff)                               “ Series C Preferred Stock ” shall mean the shares of the Company’s Series C Convertible Preferred Stock, par value $0.0001 per share originally issued pursuant to the Purchase Agreement.
 
(gg)                             “ Senior Director ” shall mean any of the directors that the holders of Senior Preferred Stock have the right to appoint pursuant to the Voting Agreement.
 
(hh)                           “ Senior Preferred Stock ” shall mean the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, collectively.
 
(ii)                                   “ Shares ” shall mean the Senior Preferred Stock and Junior Preferred Stock.
 
(jj)                                 “ Significant Holders ” shall have the meaning set forth in Section 4.1 hereof.
 
(kk)                           “ Voting Agreement ” shall mean the Company’ s Second Amended and Restated Voting Agreement dated as of the date hereof, as the same may be amended from time to time.
 
(ll)                                   “ Withdrawn Registration ” shall mean a forfeited demand registration under Section 2.1 in accordance with the terms and conditions of Section 2.4.
 
SECTION 2
 
Registration Rights.
 
2.1                                Requested Registration .
 
(a)                                  Request for Registration .  Subject to the conditions set forth in this Section 2.1 , if the Company shall receive from Initiating Holders a written request signed by such Initiating Holders that the Company effect any registration with respect to the Registrable Securities (such request shall state the number of shares of Registrable Securities to be disposed of by such Initiating Holders), the Company will:
 
(i)                                      promptly give written notice of the proposed registration to all other Holders;
 
(ii)                                   as soon as practicable, file and use its best efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) and to permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after such written notice from the Company is mailed.
 
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(b)                                  Limitations on Requested Registration.   The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 2.1 :
 
(i)                                      prior to the earlier of (A) July 27, 2013 or (B) one hundred and eighty (180) days following the effective date of the first registration statement filed by the Company covering an underwritten offering of any of its securities to the general public (or the subsequent date on which all market stand-off agreements applicable to the offering have terminated);
 
(ii)                                   if the Initiating Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration statement, propose to sell Registrable Securities and such other securities (if any) at an aggregate offering price, net of underwriters’ discounts and expenses, of less than $5.00 per share of Common Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) or the aggregate proceeds of which (after deduction for underwriter’s discounts and expenses related to the issuance) are less than twenty million dollars ($20,000,000);
 
(iii)                                in any particular jurisdiction in which the Company would be required to execute a general consent to the service of process in effecting such registration, qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act.
 
(iv)                               after the Company has initiated three (3) such registrations pursuant to this Section 2.1;
 
(v)                                  during the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a Company-initiated registration (or ending on the subsequent date on which all market stand-off agreements applicable to the offering have terminated); provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective;
 
(vi)                               if the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 2.3 hereof;
 
(vii)                            if the Initiating Holders do not request that such offering be firmly underwritten by underwriters selected by the Initiating Holders (subject to the consent of the Company); or
 
(viii)                         if the Company and the Initiating Holders are unable to obtain the commitment of the underwriter described in clause (b)(vii) above to firmly underwrite the offer.
 
(c)                                   Deferral .  If (i) in the good faith judgment of the Board of Directors of the Company, the filing of a registration statement covering the Registrable Securities would be seriously detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is in the best interests of the Company to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to such Holders a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be detrimental to the Company for such registration statement to be filed in the near future and that it is, therefore, in the best interests of the Company to defer the filing of such registration statement, then (in addition to the limitations set forth in Section 2.1(b)(iv) , above, the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders, and, provided further , that the Company shall not defer its obligation in this manner
 
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more than two (2) times in any twelve-month period.  The Company shall not register any securities for the account of itself or any other stockholder during such ninety (90) day period other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.
 
(d)                                  Other Shares .  The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 2.1(e) and 2.13, include Other Shares, and may include securities of the Company being sold for the account of the Company.
 
(e)                                   Underwriting .
 
(i)                                      The right of any Holder to include all or any portion of its Registrable Securities in a registration pursuant to this Section 2.1 shall be conditioned upon such Holder’s participation in a underwriting and the inclusion of such Holder’s Registrable Securities to the extent provided herein.  Subject to Section 2.1(e)(ii) , if the Company shall request inclusion in any registration pursuant to Section 2.1 of securities being sold for its own account, or if other persons shall request inclusion in any registration pursuant to Section 2.1, the Initiating Holders shall, on behalf of all Holders, offer to include such securities in the underwriting and such offer shall be conditioned upon the participation of the Company or such other persons in such underwriting and the inclusion of the Company’s and such person’s other securities of the Company; provided that such person shall have agreed to the applicable provisions of this Section 2 (including Section 2.10 ).  The Company shall (together with all Holders and other persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by the Company, which underwriters are reasonably acceptable to a majority-in-interest of the Initiating Holders.
 
(ii)                                   Notwithstanding any other provision of this Section 2.1 , if the underwriters advise the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the number of Registrable Securities and Other Shares that may be so included shall be allocated as follows:  (A) first, among all Holders who are Senior Investors and who are requesting to include their Registrable Securities in such registration statement based on the pro rata percentage of Registrable Securities held by such Holders, assuming conversion; (B) second, to the Other Selling Stockholders and Holders who are Junior Investors; and (C) third, to the Company, which the Company may allocate, at its discretion, for its own account, or for the account of other holders or employees of the Company.
 
(iii)                                If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall be excluded therefrom by written notice from the Company, the underwriter or the Initiating Holders.  The securities so excluded shall also be withdrawn from registration.  Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall also be withdrawn from such registration.  If shares are so withdrawn from the registration and if the number of shares to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 2.1(e) , then the Company shall then offer to all Holders and Other Selling Stockholders who have retained rights to include securities in the registration the right to include additional Registrable Securities or Other Shares in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Holders and Other Selling Stockholders requesting additional inclusion, as set forth above.
 
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(iv)                               A registration statement shall not be counted until such time as such registration statement has been declared effective by the SEC (unless the Initiating Holders withdraw their request for such registration (other than as a result of the Initiating Holders becoming aware of a material adverse change in the condition, business or prospects of the Company from that known to the Initiating Holders of at the time of their request and provided that the Initiating Holders have withdrawn their request with reasonable promptness following disclosure by the Company of such material adverse change)).
 
2.2                                Company Registration .
 
(a)                                  Company Registration .  If the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders, other than a registration pursuant to Section 2.1 , a registration relating solely to employee benefit plans, a registration relating to the offer and sale of debt securities, a registration relating to a corporate reorganization or other Rule 145 transaction, or a registration on any registration form that does not permit secondary sales, the Company will promptly give written notice of the proposed registration to all Holders and will afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder.  Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder shall, within fifteen (15) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement.
 
(b)                                  Underwriting .  If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2.2 .  In such event, the right of any Holder to registration pursuant to this Section 2.2 shall be conditioned upon such Holder’s participation in such underwriting to the extent provided herein.  All Holders proposing to distribute their securities through such underwriting shall (together with the Company, the Other Selling Stockholders and other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company.
 
Notwithstanding any other provision of this Section 2.2 , if the underwriters advise the Company in writing that they have determined in good faith that marketing factors require a limitation on the number of shares to be underwritten, the underwriters may (subject to the limitations set forth below) limit the number of Registrable Securities to be included in, the registration and underwriting.  The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated, as follows:  (i) first, to the Company for securities being sold for its own account, (ii) second, to the Holders who are Senior Investors requesting to include their Registrable Securities in such registration statement based on the pro rata percentage of Registrable Securities held by such Holders, assuming conversion and (iii) third, to the Other Selling Stockholders and Holders who are Junior Investors requesting to include Other Shares or their Registrable Securities in such registration statement based on the pro rata percentage of Other Shares and Registrable Securities held by such Other Selling Stockholders and Holders who are Junior Investors, assuming conversion.  Notwithstanding the foregoing, no such reduction shall reduce the value of the Registrable Securities of the Holders included in such registration below twenty percent (20%) of the total value of securities included in such registration, unless such offering is the (i) Company’s Qualified Initial Public Offering and (ii) such registration does not include shares of any other selling stockholders (excluding shares registered for the account of the Company), in which event any or all of the Registrable Securities of the Holders may be excluded.
 
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If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person may withdraw or be excluded therefrom by written notice from the Company or the underwriter.  The Registrable Securities or other securities so excluded shall also be withdrawn from such registration.  Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.
 
(c)                                   Right to Terminate Registration .  The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration.
 
2.3                                Registration on Form S-3 .
 
(a)                                  Request for Form S-3 Registration .  After its initial public offering, the Company shall use its best efforts to qualify for registration on Form S-3 or any comparable or successor form or forms.  After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Section 2 and subject to the conditions set forth in this Section 2.3 , if the Company shall receive from a Holder or Holders of at least 25% of the then outstanding Registrable Securities a written request that the Company effect any registration on Form S-3 or any similar short form registration statement with respect to all or part of the Registrable Securities (such request shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Holder or Holders), the Company will take all such action with respect to such Registrable Securities as required by Section 2.1(a)(i) and (ii) .
 
(b)                                  Limitations on Form S-3 Registration .  The Company shall not be obligated to effect, or take any action to effect, any such registration pursuant to this Section 2.3 :
 
(i)                                      In the circumstances described in either Sections 2.1(b)(i)  or 2.1(b)(iv) ;
 
(ii)                                   If the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) on Form S-3 at an aggregate price to the public of less than One Million Dollars ($1,000,000)
 
(iii)                                If, in a given twelve-month period, the Company has effected one (1) such registration in such period; or
 
(iv)                               After the Company has effected three (3) registrations pursuant to this Section 2.3 and such registrations have declared or ordered effective;
 
(c)                                   Deferral .  The provisions of Section 2.1(c)  shall apply to any registration pursuant to this Section 2.3 .
 
(d)                                  Underwriting .  If the Holders of Registrable Securities requesting registration under this Section 2.3 intend to distribute the Registrable Securities covered by their request by means of an underwriting, the provisions of Section 2.1(e)  shall apply to such registration.  Notwithstanding anything contained herein to the contrary, registrations effected pursuant to this Section 2.3 shall not be counted as requests for registration or registrations effected pursuant to Section 2.1 .  A registration statement shall not be counted until such time as such registration statement has been declared effective by the SEC (unless the Initiating Holders withdraw their request for such registration (other than as a result of the Initiating Holders becoming aware of a material adverse change in the condition, business or prospects of the Company from that known to the Initiating Holders at the time of their request and provided that the Initiating Holders have withdrawn their request with reasonable promptness following disclosure by the Company of such material adverse change)). A registration statement shall not be
 
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counted if, as a result of an exercise of the underwriter’s cut back provisions, fewer than thirty-five percent (35%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.
 
2.4                                Expenses of Registration .  All Registration Expenses incurred in connection with registrations pursuant to Sections 2.1, 2.2 and 2.3 hereof shall be borne by the Company; provided , however , that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Sections 2.1 and 2.3 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered or because a sufficient number of Holders shall have withdrawn so that the minimum offering conditions set forth in Sections 2.1 and 2.3 are no longer satisfied (in which case all participating Holders shall bear such expenses pro rata among each other based on the number of Registrable Securities requested to be so registered), unless the Holders of at least 75% of the Registrable Securities agree to forfeit their right to a demand registration pursuant to Section 2.1 ; provided , however , that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their right pursuant to this Article 2 .  All Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the holders of securities included in such registration pro rata among each other on the basis of the number of Registrable Securities so registered.
 
2.5                                Registration Procedures .  In the case of each registration effected by the Company pursuant to Section 2 , the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof.  At its expense, the Company will use its commercially reasonable efforts to:
 
(a)                                  (i) Prepare and file with the SEC a registration statement with respect to such Registrable Securities, and use its commercially reasonable efforts to cause such registration statement to become effective, and (ii) keep such registration effective for a period ending on the earlier of the date which is ninety (90) days from the effective date of the registration statement or such time as the Holder or Holders have completed the distribution described in the registration statement relating thereto;
 
(b)                                  Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in subsection (a) above;
 
(c)                                   Furnish such number of prospectuses, including any preliminary prospectuses, and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request;
 
(d)                                  Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdiction as shall be reasonably requested by the Holders; provided , that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;
 
(e)                                   Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in
 
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light of the circumstances then existing, and following such notification promptly prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus 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 or incomplete in light of the circumstances then existing;
 
(f)                                    Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;
 
(g)                                   Use its best efforts to cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and
 
(h)                                  In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 2.1 hereof, enter into an underwriting agreement in form reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains reasonable and customary provisions, and provided further , that each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.
 
2.6                                Indemnification .
 
(a)                               To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of its officers, directors, partners, limited partners, members, legal counsel and accountants and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 2 , and each underwriter, if any, and each person who controls within the meaning of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on:  (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation (or alleged violation) by the Company of the Securities Act, any state securities laws or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any offering covered by such registration, qualification or compliance, and the Company will reimburse, as incurred, each such Holder, each of its officers, directors, partners, members, managers, legal counsel and accountants and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or action arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder, any of such Holder’s officers, directors, partners, managers, members, legal counsel or accountants, any person controlling such Holder, such underwriter or any person who controls any such underwriter, and stated to be specifically for use therein; and provided , further that, the indemnity agreement contained in this Section 2.6(a)  shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld); provided further , however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Holder, officer, director, partner, member, manager, legal counsel, accountant, or any person controlling
 
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such Holder, from whom the person asserting any such losses, claims, damages or liabilities purchased shares in the offering, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Holder or underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the shares to such person, and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such preliminary prospectus was corrected in the final prospectus (as so amended or supplemented).
 
(b)                                  To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify and hold harmless the Company, each of its directors, officers, partners, members, managers, legal counsel and accountants and each underwriter, if any, of the Company’s securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder, and each of their officers, directors and partners, and each person controlling each other such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on:  (i) any untrue statement (or alleged untrue statement) made by such Holder of a material fact contained or incorporated by reference in any prospectus, offering circular or other document (including any related registration statement, notification, or the like) incident to any such registration, qualification or compliance, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading by such Holder, and will reimburse, as incurred, the Company and such Holders, directors, officers, partners, members, managers, legal counsel and accountants, persons, underwriters, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided , however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); and provided that in no event shall any indemnity under this Section 2.6 exceed the gross proceeds from the offering received by such Holder, except in the case of fraud or willful misconduct by such Holder.
 
(c)                                   Each party entitled to indemnification under this Section 2.6 (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 claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party’s expense; 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 2.6 , to the extent such failure is not prejudicial.  No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.  Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom.
 
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(d)                                  If the indemnification provided for in this Section 2.6 is held 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 herein, 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 fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense 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 relates 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.  No person or entity will be required under this Section 2.6(d)  to contribute any amount in excess of the gross proceeds from the offering received by such person or entity, except in the case of fraud or willful misconduct by such person or entity.  No person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.
 
(e)                                   Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
 
2.7                                Information by Holder .  Each Holder of Registrable Securities 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 reasonably required in connection with any registration, qualification, or compliance referred to in this Section 2 .
 
2.8                                Restrictions on Transfer .
 
(a)                                  The holder of each certificate representing Registrable Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 2.8 .  Other than with respect to a redemption pursuant to the Third Amended and Restated Certificate of Incorporation of the Company (as such may be amended from time to time, the “ Charter ”), a Deemed Liquidation Event (as defined in the Charter) and transfers permitted under Section 2.8(b) , each Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Restricted Securities, or any beneficial interest therein, unless and until (x) the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Restricted Securities subject to, and to be bound by, the terms and conditions set forth in this Agreement, including, without limitation, this Section 2.8 and Section 2.10 , except for transfers permitted under Section 2.8(b), and (y) :
 
(i)                                      There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or
 
(ii)                                   Such Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall have furnished the Company with a description of the manner and circumstances of the proposed disposition, and, if requested by the Company, such Holder shall have furnished the Company, at its expense, with (i) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such disposition will not require registration of such Restricted Securities under the Securities Act or (ii) a “no action” letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder of such Restricted
 
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Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the Holder to the Company.
 
(b)                                  Permitted transfers include (i) any sale, assignment, transfer, pledge or other disposition not involving a change in beneficial ownership; (ii) transactions involving the distribution of Restricted Securities by any Holder to (x) a parent, subsidiary or other affiliate of Holder that is a corporation, (y) any of its partners, managers, members or other equity owners, or retired partners, retired members or managers, or other equity owners, or to the estate of any of its partners, managers, members or other equity owners or retired partners, retired members or managers, or other equity owners, or (z) any “affiliate” (as that term is defined under Regulation D under the Securities Act) including a venture capital fund that is controlled by or under common control with one or more general partners or managing members of, or shares the same management company with, such Holder; or (iii) transfers in compliance with Rule 144(k), as long as the Company is furnished with satisfactory evidence of compliance with such Rule; provided , in each case, that the Holder thereof shall give written notice to the Company of such Holder’s intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.
 
(c)                                   Each certificate representing Registrable Securities shall (unless otherwise permitted by the provisions of this Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws):
 
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES.  THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM.  THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
 
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, INCLUDING A LOCK-UP PERIOD IN THE EVENT OF A PUBLIC OFFERING, AS SET FORTH IN AN INVESTORS’ RIGHTS AGREEMENT, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.
 
The Holders consent to the Company making a notation on its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer established in this Section 2.8 .
 
(d)                                  The first legend referring to federal and state securities laws identified in Section 2.8(c)  hereof stamped on a certificate evidencing the Restricted Securities and the stock transfer instructions and record notations with respect to such Restricted Securities shall be removed and the Company shall issue a certificate without such legend to the holder of such Restricted Securities if (i) such securities are registered under the Securities Act, (ii) such holder provides the Company with an
 
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opinion of counsel reasonably acceptable to the Company to the effect that a public sale or transfer of such securities may be made without registration under the Securities Act, or (iii) such holder provides the Company with reasonable assurances, which shall, at the option of the Company, include an opinion of counsel satisfactory to the Company, that such securities can be sold pursuant to Rule 144 under the Securities Act.
 
2.9                                Rule 144 Reporting .  With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of the Restricted Securities to the public without registration, the Company agrees to use its commercially reasonable efforts to:
 
(a)                                  Make and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after ninety (90) days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;
 
(b)                                  File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and
 
(c)                                   So long as a Holder owns any Restricted Securities, furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration.
 
2.10                         Market Stand-Off Agreement .  If requested by the Company and the underwriter of Common Stock (other securities) of the Company, each Holder shall not sell or otherwise transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, of any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) during the one hundred and eighty (180) day period following the effective date of a registration statement of the Company filed under the Securities Act (or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), provided that all officers and directors of the Company and all holders of at least one percent (1%) of the Company’s voting securities are bound by and have entered into similar agreements.  The obligations described in this Section 2.10 shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future.  The Company may impose stop-transfer instructions and may stamp each such certificate with the second legend set forth in Section 2.8(c)  hereof with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of such one hundred and eighty (180) day (or other) period.  Each Holder agrees to execute a market standoff agreement with said underwriters in customary form consistent with the provisions of this Section 2.10 .  Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.
 
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2.11                         Delay of Registration .  No Holder shall have any right to take any action to restrain, enjoin, or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2 .
 
2.12                         Transfer or Assignment of Registration Rights .  The rights to cause the Company to register securities granted to a Holder by the Company under this Section 2 may be transferred or assigned by a Holder only to a transferee or assignee of not less than 100,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like) or any partner, limited partner, member, manager or affiliated venture capital fund, provided that (i) the Company is given written notice prior to said transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are intended to be transferred or assigned and (ii) the transferee or assignee of such rights assumes in writing the obligations of such Holder under this Agreement, including without limitation the obligations set forth in Section 2.12.
 
2.13                         Limitations on Subsequent Registration Rights .  From and after the date of this Agreement, the Company shall not, without the prior written consent of Holders holding at least 75% of the Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder any registration rights the terms of which are senior to the registration rights granted to the Holders hereunder.
 
2.14                         Termination of Registration Rights .  The right of any Holder to request registration or inclusion in any registration pursuant to Sections   2.1, 2.2 or 2.3 shall terminate on the earlier of (i) such date, on or after the closing of the Company’s first registered public offering of Common Stock, on which all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 or Rule 145 and (ii) seven (7) years after the closing of a Qualified Initial Public Offering by the Company.
 
SECTION 3
 
Information Covenants of the Company.
 
The Company hereby covenants and agrees, as follows:
 
3.1                                Basic Financial Information and Inspection Rights .
 
(a)                                  Basic Financial Information .  The Company will furnish the following reports to each Major Investor:
 
(i)                                      As soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with U.S. generally accepted accounting principles consistently applied, certified by the independent public accountants selected by the Company, and as soon as practicable, and in any event in accordance with a timetable to be set by the Board of Directors in its reasonable discretion not to exceed one hundred eighty (180) days after each fiscal year of the Company, consolidated audited financial statements for the fiscal year then ended.
 
(ii)                                   (A) As soon as practicable after the end of each quarterly accounting period in each fiscal year of the Company, and in any event within forty five (45) days after the end of each quarterly accounting period in each fiscal year of the Company, an unaudited consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and
 
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unaudited consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such period, prepared in accordance with U.S. generally accepted accounting principles consistently applied, subject to changes resulting from normal year-end audit adjustments; provided that; this provision shall not apply to the fourth quarterly accounting period;
 
(iii)                                As soon as practicable after the end of each month, and in any event within thirty (30) days after the end of each month, an unaudited consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of such monthly period, and unaudited consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such period, prepared in accordance with U.S. generally accepted accounting principles consistently applied, subject to changes resulting from normal year-end audit adjustments; and
 
(iv)                               At least forty five (45) days prior to the beginning of each fiscal year an operating plan for such fiscal year, as approved by the Company’s Board of Directors.
 
(b)                                  Inspection Rights .  The Company will afford to each Major Investor, including such Major Investor’s accountants and counsel, reasonable access during normal business hours to all of the Company’s respective properties, books and records.  Each such Senior Investor and C&B Capital shall have such other access to management and information as is necessary for it to comply with applicable laws and regulations and reporting obligations.  The Company shall not be required to disclose details of contracts with or work performed for specific customers and other business partners where to do so would violate confidentiality obligations to those parties.  The Senior Investors and C&B Capital may exercise their rights under this Section 3.1(b)  only for purposes reasonably related to their interests under this Agreement and related agreements.  The rights granted pursuant to this Section 3.1(b)  may not be assigned or otherwise conveyed by the Senior Investors, C&B Capital or by any subsequent transferee of any such rights without the prior written consent of the Company except as authorized in this Section 3.1(b) .
 
(c)                                   Executive Summaries .  At the written request of any Major Investor, the Company will provide monthly executive summaries of the Company’s activities to such requesting party.
 
3.2                                Confidentiality .  Anything in this Agreement to the contrary notwithstanding, no Holder by reason of this Agreement shall have access to any trade secrets or classified information of the Company.  The Company shall not be required to comply with any information rights of Section 3.1 in respect of any Holder whom the Company reasonably determines to be a competitor or an officer, employee, director or holder of more than ten percent (10%) of a competitor of the Company provided however , that the Company covenants and agrees that it shall not consider any Major Investor to be a competitor or holder of more than ten percent (10%) of a competitor by virtue of any affiliated funds or funds under common control by an entity or by an affiliate of such entity being financial investment firms or other collectible investment vehicles that invest, consider investments or own interests in companies or other organizations that compete directly or indirectly with the Company.  Each Holder acknowledges that the information received by them pursuant to this Agreement may be confidential and for its use only, and it will not use such confidential information in violation of the Exchange Act or reproduce, disclose or disseminate such information to any other person (other than its employees or agents having a need to know the contents of such information, its attorneys, or any affiliated fund or funds under common control by an entity or by an affiliate of such entity, partner (general or limited) of it or such affiliated funds or funds under common control by an entity or by an affiliate of such entity or member of any Major Investor disclosed in the ordinary course of business of such Major Investor), except in connection with the exercise of rights under this Agreement, unless the Company has made such information available to the public generally or such Holder is required to disclose such information by a governmental authority.
 
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3.3                                Insurance .  From and after the Closing (as defined in the Purchase Agreement) the Company shall maintain, with financially sound and nationally reputable insurers directors’ and officers’ liability insurance in an amount and with terms approved by the Company’s Board of Directors.  The Company shall also maintain key man life insurance in the amount of two million dollars ($2,000,000) for R.H. “Hank” Seale, III, and maintain key man life insurance in the amount of three million dollars ($3,000,000) for Matt Flake, and each such policy shall name the Company as loss payee.
 
3.4                                Board of Director Meetings .  The Company will annually hold at least six Board of Director meetings, unless the Board of Directors in its reasonable discretion, changes the number of meetings required.  In advance of each Board of Director meeting, the Company’s management will prepare an update on the Company, including key metrics to measure the Company performance.
 
3.5                                Board Observer Rights .  The Company shall invite one (1) representative designated from time to time by C&B Capital (the “ Observer ”)  to attend in a nonvoting observer capacity all meetings of the Board of Directors of the Company or of the committees thereof and, in this respect, shall give the Observer copies of all notices and other materials that they provide generally to the members of the Board of Directors of the Company (or such committees thereof); provided , however , that the Company reserves the right to exclude the Observer from access to any material or meeting or portion thereof if a majority of the Board of Directors (or a committee thereof) believes that such exclusion is reasonably necessary in the performance of its duties, to preserve the attorney-client privilege, to protect highly confidential proprietary information or for other similar reasons.
 
3.6                                Annual Budget .  The Company prior to each fiscal year will prepare an annual budget which is subject to the Board of Directors approval.
 
3.7                                Termination of Covenants .  The covenants set forth in this Section 3 shall terminate and be of no further force and effect upon the earlier to occur of (i) closing of a Qualified Initial Public Offering by the Company or (ii) the date upon which the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act.
 
SECTION 4
 
Right of First Refusal
 
4.1                                Right of First Refusal to Significant Holders .  The Company hereby grants to (i) R.H. “Hank” Seale, III (or at his election, an affiliate of R.H. “Hank” Seale, III or RHS Investments) (collectively, “ Hank Seale ”) and (ii) each Major Investor (collectively, the “ Significant Holders ”), the right of first refusal to purchase its pro rata share of all shares of, or securities convertible into or exchangeable or exercisable for any shares of or any class of its capital stock (the “ New Securities ”) which the Company may, from time to time, propose to sell or issue after the date of this Agreement.  A Significant Holder’s pro rata share, for purposes of this right of first refusal, is equal to the ratio of (a) the number of shares of Common Stock owned by such Significant Holder immediately prior to the issuance of New Securities (assuming full conversion of the Shares and exercise of all outstanding convertible securities, rights, options and warrants, directly or indirectly, into Common Stock held by said Significant Holder) to (b) the total number of shares of Common Stock outstanding immediately prior to the issuance of New Securities (assuming full conversion of the Shares and exercise of all outstanding convertible securities, rights, options and warrants, directly or indirectly) and held by such Significant Holders.  Each Significant Holder shall have a right of over-allotment such that if any Significant Holder fails to exercise its right hereunder to purchase its pro rata share of New Securities, the other Significant Holders may purchase the non-purchasing Significant Holder’s portion on a pro rata basis.  This right of first refusal shall be subject to the following provisions:
 
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(a)                                  In the event the Company proposes to undertake an issuance of New Securities, it shall give each Significant Holder written notice (the “ ROFR Notice ”) of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same.  Each Significant Holder shall have twenty (20) business days after any such notice is delivered (the “ Election Period ”) to agree to purchase such Significant Holder’s pro rata share of such New Securities and to indicate whether such Holder desires to exercise its over-allotment option for the price and upon the terms specified in the notice by giving written notice to the Company, in substantially the form attached hereto as Schedule 1 , and stating therein the quantity of New Securities to be purchased.  The closing of each sale of New Securities pursuant to this Section 4.1 shall take place at the offices of the Company as soon as practicable.  Each such sale shall be effected by the Company’s delivery to the participating Significant Holders of an original certificate or certificates evidencing the New Securities to be purchased by them against payment in immediately available funds to the Company of the subscription price therefore by the relevant purchaser of the New Securities.
 
(b)                               In the event the Significant Holders fail to exercise fully the right of first refusal and over-allotment rights, if any, within the Election Period, the Company shall have ninety (90) days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within ninety (90) days from the date of said agreement) to issue that portion of the New Securities with respect to which the Significant Holders’ right of first refusal option set forth in this Section 4.1 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company’s notice to Significant Holders delivered pursuant to Section 4.1(a) .  In the event the Company has not sold within such ninety (90) day period following the Election Period, or such ninety (90) day period following the date of said agreement, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Significant Holders in the manner provided in this Section 4.1 .
 
(c)                                   The right of first refusal in this Section 4.1 shall not be applicable to (i) the sale of shares of Series C Preferred Stock pursuant to the Purchase Agreement; (ii) the issuance of shares of Common Stock upon the conversion of Preferred Stock in accordance with the Company’s Certificate of Incorporation, as amended and then in effect; (iii) the issuance of securities to vendors or customers or to other persons in similar commercial situations with the Company if such issuance is for other than primarily equity financing purposes and that has been approved by the Board of Directors, including two Senior Directors; (iv) the issuance or sale of securities in a public offering of the Company’s securities; (v) the issuance of securities in connection with any stock split, stock dividend, recapitalization or similar transaction of the Company or its subsidiaries; (vi) the issuance of securities in connection with corporate partnering transactions and that has been approved by the Board of Directors, including two Senior Directors; (vii) the issuance or sale of shares of Common Stock (or options therefor) to employees, directors and consultants pursuant to a stock option or purchase plan that has been approved by the Board of Directors, including two of the Senior Directors; (viii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities; (ix) the issuance of securities in connection with a bona fide business acquisition of or by the Company or its subsidiaries, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise and that has been approved by the Board of Directors, including two Senior Directors; (x) the issuance of stock, warrants or other securities or rights to banks, equipment lessors, guarantors or equipment vendors pursuant to lease or financing arrangements provided such issuances are for other than primarily equity financing purposes and that has been approved by the Board of Directors, including two Senior Directors; or (xi) the issuance of any right, option or warrant to acquire any security convertible into the securities excluded from the right of first refusal in Section 4.1 pursuant to subsection (i) through (x) above; provided , however , that any issuance of securities pursuant to subsections (iii), (vi), (ix) and (x) above to (A) any affiliate of RHS Investments or any affiliate or family member of R.H. “Hank” Seale, III or any employee, director or consultant of the Company or any of its subsidiaries or (B) in excess of 10% of Company’s outstanding capital stock, in the
 
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aggregate with all such issuances, as of the date hereof, in each case shall not be excluded from the right of first refusal in this Section 4.1 .
 
(d)                                  Notwithstanding anything in this Agreement to the contrary, each of Adams Street Partners, LLC and Battery Ventures IX, L.P. and each of the funds affiliated therewith or managed thereby may assign all or part of its rights pursuant to this Section 4 to any fund or funds affiliated therewith.
 
4.2                                Termination of Right of First Refusal .  The right of first refusal granted under this Agreement shall expire upon, and shall not be applicable to the first to occur of (i) the Company’s Qualified Initial Public Offering, or (ii) a sale of the Company (as defined in Section 6.13 ).
 
4.3                                Employee Stock .  Unless otherwise approved by the Board of Directors, including two of the Senior Directors, all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Company’s capital stock after the date hereof shall be required to execute restricted stock or option agreements, as applicable, providing for (i) vesting on terms approved by the Board of Directors, including the Battery Director, and (ii) a market stand-off provision substantially similar to that in Section 2.10 hereof.  In addition, unless otherwise approved by the Board of Directors, including the Battery Director, and without limiting any other rights of the Senior Investors, the Company shall retain a “right of first refusal” on employee transfers until the Company’s IPO and shall have the right to repurchase unvested shares at cost upon termination of employment of a holder of restricted stock.
 
SECTION 5
 
Investor Director Approval.
 
5.1                                Matters Requiring Approval of Battery Director .  So long as Battery Ventures IX, LLC, or any fund affiliated therewith or managed thereby is entitled to elect a Battery Director, the Company hereby covenants and agrees with each of the Investors that it shall not, without approval of the Board of Directors, which approval must include the affirmative vote of the Battery Director:
 
(a)                                  create, authorize or issue, or authorize or effect any reclassification of, or obligate itself to issue, any equity security, including any other security convertible into or exercisable for any equity security, which security is on parity with, or to have a preference over, the Series C Preferred Stock;
 
(b)                                  incur or permit any subsidiary to incur indebtedness in excess of $500,000 in the aggregate; and
 
(c)                                   increase or decrease the authorized number of directors constituting the Company’s Board of Directors.
 
SECTION 6
 
Miscellaneous.
 
6.1                             Amendment .  Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Agreement and signed by the Company and the Holders holding at least 75% of the Registrable Securities (excluding any of such shares that have been sold to the public or pursuant to Rule 144).  Any
 
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such amendment, waiver, discharge or termination effected in accordance with this paragraph shall be binding upon each Holder and each future holder of all such securities of such Holder.  EACH HOLDER ACKNOWLEDGES THAT BY THE OPERATION OF THIS PARAGRAPH, THE HOLDERS OF AT LEAST 75% OF THE REGISTRABLE SECURITIES (EXCLUDING ANY OF SUCH SHARES THAT HAVE BEEN SOLD TO THE PUBLIC OR PURSUANT TO RULE 144) WILL HAVE THE RIGHT AND POWER TO DIMINISH OR ELIMINATE ALL RIGHTS OF SUCH HOLDER UNDER THIS AGREEMENT.
 
6.2                                Notices .  All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail or otherwise delivered by hand or by messenger addressed:
 
(a)                                  if to a Senior Investor, at the Senior Investor’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof with a copy to (i) McDermott Will & Emery, LLP, 227 West Monroe Street, Chicago, Illinois 60606, Attn:  Ryan D. Harris and (ii) Nixon Peabody, LLP, 100 Summer Street, Boston, MA 02110, Attn: Christopher P. Keefe.
 
(b)                                  if to any Holder, at such address, facsimile number or electronic mail address as shown in the Company’s records, or, until any such holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of such shares for which the Company has contact information in its records; or
 
(c)                                   if to the Company, one copy should be sent to 9430 Research Blvd., Building IV, Suite 120, Austin, Texas 78759, Attn: Chief Financial Officer, or to such other address as the Company shall have furnished to the Investors, with a copy to John J. Gilluly III, P.C., DLA Piper LLP (US), 401 Congress Avenue, Suite 2500, Austin, Texas 78701.
 
With respect to any notice given by the Company under any provision of the Delaware General Corporation Law or the Company’s charter or bylaws, each party hereto agrees that such notice may be given by facsimile or by electronic mail.
 
Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or five (5) days after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid or, if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the electronic mail address set forth on the Schedule of Investors. In the event of any conflict between the Company’s books and records and this Agreement or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.
 
6.3                                Governing Law .  This Agreement shall be governed in all respects by the internal laws of the State of Delaware as applied to agreements entered into among Delaware residents to be performed entirely within Delaware, without regard to principles of conflicts of law.
 
6.4                                Successors and Assigns .  Except in compliance with Sections 2.8 , 2.12 and 4.1 this Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by any party (a “ Transferee ”) without the prior written consent of the Company and Investors holding 75% of the Registrable Securities held by the Investors per an executed Adoption Agreement substantially in the form of Exhibit C attached hereto.  Upon the execution and delivery of an Adoption Agreement by a Transferee reasonably acceptable to the Company, such Transferee shall be deemed to be a party hereto as if such Transferee’s signature appeared on the signature pages hereto.  Any attempt by a party without such permission to assign, transfer, delegate or sublicense any rights, duties or
 
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obligations that arise under this Agreement shall be void.  Subject to the foregoing and except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.
 
6.5                                Entire Agreement .  This Agreement and the exhibits hereto, and the Charter, the Purchase Agreements, and the other Transaction Agreements (as each defined in the Purchase Agreement) constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof. No party hereto shall be liable or bound to any other party hereto in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein or in the Charter, the Purchase Agreements or the other Transaction Agreements.
 
6.6                                Delays or Omissions .  Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such non-defaulting party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.  Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.  All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative.
 
6.7                                Severability .  If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement, and such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision.  The balance of this Agreement shall be enforceable in accordance with its terms.
 
6.8                                Titles and Subtitles .  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.  All references in this Agreement to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.
 
6.9                                Counterparts .  This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties that execute such counterparts, and all of which together shall constitute one instrument.
 
6.10                         Telecopy Execution and Delivery .  A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto and delivered by such party by facsimile or any similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen.  Such execution and delivery shall be considered valid, binding and effective for all purposes.  At the request of any party hereto, all parties hereto agree to execute and deliver an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof.
 
6.11                         Jurisdiction; Venue .  Any action, suit or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall only be brought in any federal court or state court located in the State of Delaware, and each party consents to the exclusive jurisdiction and venue of such courts (and of the appropriate appellate courts therefrom) in any such action, suit or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the
 
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venue of any such, action, suit or proceeding in any such court or that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.  Process in any such action, suit or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court.
 
6.12                         Further Assurances .  Each party hereto agrees to execute and deliver, by the proper exercise of its corporate, limited liability company, partnership or other powers, all such other and additional instruments and documents and do all such other acts and things as may be necessary to more fully effectuate this Agreement.
 
6.13                         Termination Upon a Sale of the Company .  Notwithstanding anything to the contrary herein, this Agreement (excluding any then-existing obligations) shall terminate upon either (i) an acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that would result in the transfer of fifty-one percent (51%) or more of the outstanding voting power of the Company other than a sale of equity securities (other than in connection with a public offering of the Company) to bona fide primarily financial investors with a primary purpose of raising capital or in which all the stockholders of the Company immediately prior to such transaction would own, as a result of such transaction, less than a majority of the voting securities, in the same relative proportions, of the successor or surviving corporation immediately thereafter or (ii) a sale of all or substantially all of the assets of the Company (such events described in subsections (i)  and (ii)  are referred to herein as a “ Sale of the Company ”.
 
6.14                         Conflict .  In the event of any conflict between the terms of this Agreement and the Company’s Certificate of Incorporation or its Bylaws, the terms of the Company’s Certificate of Incorporation or its Bylaws, as the case may be, will control.
 
6.15                         Aggregation of Stock .  All shares of Registrable Securities held or acquired by any Investor and its affiliated entities shall be aggregated together for purposes of determining the availability of any rights under this Agreement.  For purposes of the foregoing, the shares held by any Investor that is (a) a partnership or corporation, shall be deemed to include shares held by affiliated partnerships or the partners, retired partners, and stockholders of such holder or affiliated partnership, or members of the Immediate Family (as defined below) of any such partners, retired partners, and stockholders, and any custodian or trustee for the benefit of any of the foregoing persons; or (b) an individual, shall be deemed to include shares held by any members of the stockholder’s Immediate Family.  For purposes of this Agreement, “ Immediate Family ” shall include any spouse, father, mother, brother, sister, lineal descendant of spouse, or lineal descendant) or to any custodian or trustee for the benefit of any of the foregoing persons.
 
Signature Page Follows.
 
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IN WITNESS WHEREOF , the parties hereto have executed this Third Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 	COMPANY :	
 	 	
 	Q2 HOLDINGS, INC.	

 	By:	/s/ Mark Johnson	
 	 	Mark Johnson	
 	 	Chief Financial Officer	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 
IN WITNESS WHEREOF , the parties hereto have executed this Third Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 	INVESTORS:	
 	 	
 	ADAMS STREET 2006 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2006 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2007 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2007 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2008 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2008 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 
IN WITNESS WHEREOF , the parties hereto have executed this Third Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 	INVESTORS:	
 	 	
 	ADAMS STREET 2009 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2009 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2010 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2010 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2011 DIRECT FUND LP	
 	 	
 	By:	ASP 2011 DIRECT MANAGEMENT LP	
 	 	Its general partner	
 	 	
 	By:	ASP 2011 DIRECT MANAGEMENT LLC	
 	 	Its general partner	
 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 
IN WITNESS WHEREOF , the parties hereto have executed this Third Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 	INVESTORS:	
 	 	
 	BATTERY VENTURES IX, L.P.	
 	 	
 	By:	BATTERY PARTNERS IX, LLC	
 	 	General Partner	
 	 	
 	By:	/s/ Michael Brown	
 	Name:	Michael Brown	
 	Title:	Member Manager	

 	BATTERY INVESTMENT PARTNERS IX, LLC	
 	 	
 	By:	BATTERY PARTNERS IX, LLC	
 	 	Managing Member	
 	 	
 	By:	/s/ Michael Brown	
 	Name:	Michael Brown	
 	Title:	Member Manager	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 
IN WITNESS WHEREOF , the parties hereto have executed this Third Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 	INVESTORS:	
 	 	
 	C&B CAPITAL II, L.P.	
 	 	
 	By:	/s/ Steve B. Tye	
 	Name:	Steve B. Tye	
 	Title:	Member	

 	C&B CAPITAL II (PF), L.P.	
 	 	
 	By:	/s/ Steve B. Tye	
 	Name:	Steve B. Tye	
 	Title:	Member	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 
IN WITNESS WHEREOF , the parties hereto have executed this Third Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 	INVESTORS:	
 	 	
 	/s/ David H. Johnston	
 	David H. Johnston	

 	JOHNSTON 2007 EXEMPT TRUST	
 	 	
 	By:	/s/ David H. Johnston	
 	Name:	David H. Johnston	
 	Title:	Trustee	

 	MOJO GIRLS 2007 EXEMPT TRUST	
 	 	
 	By:	/s/ David H. Johnston	
 	Name:	David H. Johnston	
 	Title:	Trustee	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 
IN WITNESS WHEREOF , the parties hereto have executed this Third Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 	INVESTORS:	
 	 	
 	TEXAS INDEPENDENT BANCSHARES, INC.	
 	 	
 	By:	/s/ Charles T. Doyle	
 	Name:	Charles T. Doyle	
 	Title:	Chairman of the Board	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 
IN WITNESS WHEREOF , the parties hereto have executed this Third Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 	INVESTORS:	

 	/s/ David Nelson	
 	David Nelson	

 	/s/ Matt Flake	
 	Matt Flake	

 	/s/ Jim Offerdahl	
 	Jim Offerdahl	

 	/s/ Mark Maples	
 	Mark Maples, Sr.	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

 	Solely for purposes of Section 4	

 	/s/ R.H. Seale	
 	R.H. “Hank” Seale, III	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 
IN WITNESS WHEREOF , the parties hereto have executed this Third Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 	COMMON HOLDER:	
 	 	
 	RHS Investments-I, L.P., by and through Seale, Inc. ,	
 	a Texas corporation, its general partner	
 	 	
 	By:	/s/ R.H. Seale	
 	Name:	R.H. “Hank” Seale, III	
 	Title:	President	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 
THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
 
SIGNATURE PAGE

If the Investor is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY :	

Print Name	 	Social Security Number	

Signature	 	Date	

Phone:	 	 	Address:	 	
 	 	 	 	 	
Email:	 	 	Fax:	 	
 	 	
 	OR:	
 	 	
If the Investor is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or TRUST :	

Name of Entity	 	Employer Identification Number	

Date	 	State of Organization	
 	 	 	
Signed By:	 	 	 	
Name:	 	 	 	
Title:	 	 	 	
 	 	 	
Phone:	 	 	Address:	 	
 	 	 	 	 	
Email:	 	 	Fax:	 	

Q2 HOLDINGS, INC.
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

Exhibit 4.2
 
EXECUTION COPY
 
Q2 HOLDINGS, INC. (F/K/A CBG HOLDINGS, INC.)
 
SECOND AMENDED AND RESTATED RIGHT OF FIRST REFUSAL
 
AND CO-SALE AGREEMENT
 
March 1, 2013

 
SECOND AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
 
THIS SECOND AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT (this “ Agreement ”) is made and entered into as of March 1, 2013 by and among Q2 Holdings, Inc. (f/k/a CBG Holdings, Inc.), a Delaware corporation (the “ Company ”), the holders (other than the Investors) of the Company’s Common Stock, par value $0.0001 per share (“ Common Stock ”), set forth on Exhibit A , to this Agreement, as such Exhibit A may be amended from time to time with no further action on the part of the parties to this Agreement to add subsequent holders of Common Stock (individually a “ Common Holder ,” collectively, the “ Common Holders ”), and the undersigned holders of (i) the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share (“ Series A Preferred Stock ”), (ii) the Company’s Series B Convertible Preferred Stock, par value $0.0001 per share (“ Series B Preferred Stock ”) and (iii) the Company’s Series C Convertible Preferred Stock, par value $0.0001 per share (“ Series C Preferred Stock ” and, together with the Series A Preferred Stock and Series B Preferred Stock, the “ Senior Preferred Stock ”), set forth on Exhibit B attached to this Agreement (individually, an “ Investor ,” collectively, the “ Investors ,” and together with the Common Holders, the “ Stockholders ”).
 
RECITALS
 
WHEREAS , the Company and certain of the Investors are parties to the First Amended and Restated Right of First Refusal and Co-Sale Agreement dated as of December 29, 2011 (the “ Prior Agreement ”);
 
WHEREAS , the Company and the Investors are parties to the Series A Preferred Stock Purchase Agreement dated July 27, 2007 (the “ Series A Purchase Agreement ”) and/or the Series B Preferred Stock Purchase Agreement, dated as of December 29, 2011 (the “ Series B Purchase Agreement ”) and/or the Series C Preferred Stock Purchase Agreement, dated as of the date hereof (the “ Series C Purchase Agreement ” and together with the Series A Purchase Agreement and the Series B Purchase Agreement, the “ Purchase Agreements ”), pursuant to which the Company has sold or agreed to sell, and the Investors have purchased or agreed to purchase, shares of Senior Preferred Stock;
 
WHEREAS , the Investors’ obligations under the Series C Purchase Agreement are conditioned upon the execution and delivery of this Agreement;
 
WHEREAS , the parties to this Agreement deem it in their best interests to set forth certain rights and obligations of the Stockholders;
 
WHEREAS , pursuant to Section 5.2 of the Prior Agreement, the Prior Agreement may be amended by the written consent of (i) the Company, (ii) the holders of at least a majority of the Senior Preferred Stock then outstanding and held by the Investors, and (iii) the holders of at least a majority of the Common Stock held by the Common Holders; and

 
WHEREAS , the undersigned represent (i) the Company, (ii) the holders of at least a majority of the Senior Preferred Stock outstanding and held by the Investors, and (iii) the holders of at least a majority of the Common Stock held by the Common Holders.
 
AGREEMENT
 
NOW, THEREFORE , in consideration of the foregoing recitals and the mutual promises set forth in this Agreement, the parties to this Agreement agree as follows:
 
SECTION 1.                          RESTRICTIONS ON TRANSFER .
 
1.1                                General Prohibition on Transfers; Permitted Transfers .
 
(a)                                  Except as otherwise permitted by this Agreement, neither a Common Holder, nor any permitted transferee of such Common Holder pursuant to Section 1.1(b) , shall directly or indirectly sell, assign, transfer, pledge, encumber, hypothecate, convey in trust, transfer by gift, bequest or descent, or otherwise dispose of, whether voluntarily or by operation of law (a “ Transfer ”), to any person or entity (a “ Transferee ”) any shares of Common Stock unless such Common Holder has complied with all of the terms of this Agreement.  Any purported Transfer in violation of any provision of this Agreement shall be void and ineffectual and shall not operate to Transfer any interest or title to the purported Transferee.  The Company shall not (i) transfer on its books any Common Stock that has been Transferred in violation of this Agreement or (ii) treat as the owner of such Common Stock, or accord the right to vote or pay dividends to, any such Transferee.
 
(b)                                  Provided that the Transferee complies with the terms of Section 3 , the restrictions contained in this Section 1 shall not apply to:
 
(i)                                      any Transfer of Common Stock by a Common Holder to such Common Holder’s spouse, parents, siblings or lineal descendants (by blood, marriage or adoption);
 
(ii)                                   any Transfer of Common Stock by a Common Holder to a trust, partnership, corporation, limited liability company or other similar entity solely for the benefit of such Common Holder or such Common Holder’s spouse, parents, siblings or lineal descendants (by blood, marriage or adoption);
 
(iii)                                any Transfer of Common Stock by a Common Holder, upon such Common Holder’s death, to the executors, administrators, testamentary trustees, legatees or beneficiaries of such Common Holder; or
 
(iv)                               any Transfer of Common Stock by a Common Holder to the Company pursuant to a stock restriction agreement or other agreement under which the Company has the right to repurchase such Common Stock upon the occurrence of certain events, including termination of employment by or service to the Company or any subsidiary of the Company;
 
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provided that in each of clauses (i) and (ii) the Transferee grants to a Common Holder an irrevocable proxy coupled with an interest to vote all of the Common Stock so Transferred.  The exemptions set forth in Section 1.1(b)  from the Transfer restrictions contained in this Section 1 shall also be available to any permitted Transferee of a Common Holder as if such permitted Transferee was a Common Holder for the purposes of such Section 1.1(b) .
 
(c)                                   Notwithstanding any other terms of this Agreement, shares of Common Stock acquired pursuant to that certain Common Stock Purchase Agreement dated on or about the date hereof (the “ Selected Common Stock ”) shall not be subject to any restrictions under this Agreement, and the holders of Selected Common Stock shall not be Common Holders hereunder as a result of the ownership of shares of Selected Common Stock.
 
1.2                                Notice of Proposed Transfer .  Except as otherwise permitted in Section 1.1(b)  of this Agreement, before a Common Holder or permitted Transferee of a Common Holder (each, a “ Seller ”) may effect any Transfer of Common Stock, the Seller shall deliver to the Company and the Investors a written notice signed by the Seller (the “ Seller’s Notice ”) stating (a) the Seller’s bona fide intention to Transfer such Common Stock; (b) the name and address of each proposed Transferee; (c) the number of shares of the Common Stock to be Transferred to each Transferee (the “ Transfer Shares ”); and (d) the bona fide cash price or other consideration for which the Seller proposes to Transfer such Common Stock (the “ Offered Price ”).  A copy of any written offer, if available, shall be attached to the Seller’s Notice.  If a copy of a written offer is not available, a statement of the terms of the offer and any material facts shall be attached to the Seller’s Notice.  Upon the request of the Company or an Investor, the Seller will promptly furnish such information to the Company and to the Investor as may be reasonably requested to establish that the offer and proposed Transferee are bona fide.
 
1.3                                Right of First Refusal .
 
(a)                                  Upon receipt of a Seller’s Notice, the Company shall have the irrevocable and exclusive option to purchase all or any portion of the Transfer Shares.  The Company shall deliver a written notice (the “ Company Notice ”) to the Seller and each Investor of its election to purchase all or any part of such Transfer Shares within thirty (30) days of the receipt of the Seller’s Notice.  The delivery of the Company Notice under this Section shall constitute an irrevocable commitment to purchase such Transfer Shares unless there is a legal prohibition as to a party’s consummation thereof.
 
(b)                                  To the extent that the Company does not elect to purchase all of the Transfer Shares or fails to deliver the Company Notice within the applicable period, each Investor shall have the irrevocable and exclusive option to purchase up to that number of the Transfer Shares equal to the product of (i) the number of Transfer Shares not elected to be purchased by the Company multiplied by (ii) a fraction (the “ Proportionate Share ”), the numerator of which shall be the number of shares of Senior Preferred Stock and Selected Common Stock owned by such Investor and the denominator of which shall be the number of shares of Senior Preferred Stock and Selected Common Stock owned by all of the Investors.  Within thirty (30) days after delivery of the Company Notice, each Investor desiring to participate in the purchase of the Transfer Shares shall deliver a written notice to the Seller, the Company and each other Investor of its election to purchase such Transfer Shares.  To the extent
 
3 

 
any Investor does not elect to purchase its full Proportionate Share of such remaining Transfer Shares or fails to deliver a notice within the applicable period, each Investor that has elected to purchase its full Proportionate Share shall be entitled, by delivering written notice to the Seller within forty-five (45) days following the delivery of the Company Notice, to purchase up to all of the remaining Transfer Shares.  If there is an oversubscription, the oversubscribed amount shall be allocated among the fully electing Investors pro rata based on the number of shares of Senior Preferred Stock owned by each of them.  The delivery of a notice of election under this Section shall constitute an irrevocable commitment to purchase such Transfer Shares (unless there is a legal prohibition as to a party’s consummation thereof).
 
(c)                                   For the purposes of calculating an Investor’s Proportionate Share pursuant to Section 1.3(b) , all Common Stock and Senior Preferred Stock held by an Investor and its partners, officers, employees and affiliates shall be aggregated and such persons may allocate such Proportionate Share in any manner among them.
 
1.4                                Closing of Right of First Refusal .  The purchase price for the Transferred Shares to be purchased by the Company or an Investor shall be the Offered Price.  If the Offered Price includes consideration other than cash, the cash equivalent value of the non cash consideration shall be determined by the Board of Directors of the Company in good faith, which determination shall be binding upon the Company, each Stockholder, and the Seller, absent fraud or material error.  Payment of the purchase price shall be made within five (5) days after expiration of all applicable periods set forth above.  Payment of the purchase price shall be made, at the option of the Company or the exercising Investor, as the case may be, (a) in cash (by wire transfer or check), (b) by cancellation of all or a portion of any outstanding indebtedness of the Seller to the Company or the Investor, as the case may be, or (c) by any combination of the foregoing.  Upon delivery of the purchase price, the Seller shall have no further rights as a holder of the Transfer Shares, and the Seller shall immediately cause all certificate(s) evidencing such Transfer Shares to be surrendered for transfer to the Company or the purchasing Investor, as the case may be.
 
1.5                                Seller’s Right To Transfer .  If the Company and the Investors have not elected to purchase all of the Transfer Shares, then, subject to the Investors’ right of co-sale set forth in Section 1.6 , the Seller may transfer the remaining Transfer Shares to any person named as a Transferee in the Seller’s Notice, at the Offered Price or a higher price, provided that such Transfer (a) is consummated within ninety (90) days after the expiration of all applicable periods set forth above in Section 1.3(b) , (b) is on terms no more favorable than the terms proposed in the Seller’s Notice, and (c) is in accordance with all the terms of this Agreement.  If the Transfer Shares are not so Transferred during such period, then the Seller may not Transfer any of such Transfer Shares without complying again in full with the provisions of this Agreement.
 
1.6                                Right of Co-Sale .  If all of the Transfer Shares proposed to be sold by a Seller are not purchased by the Company or the Investors as provided in Section 1.3 , the Seller shall deliver a notice to each non-purchasing Investor informing it of the number of Transfer Shares not elected to be purchased by the purchasing Investors and the number of Transfer Shares still held by the Seller (the “ Co-Sale Shares ”) and proposed to be Transferred to the Transferee.  Each such non-purchasing Investor shall have the right, exercisable upon written
 
4 

 
notice to the Seller within five (5) days after the receipt of such notice from the Seller, to elect to sell all or any part of the Senior Preferred Stock, Common Stock, other capital stock of the Company or any securities convertible into, exchangeable for or exercisable for capital stock of the Company (collectively, “ Stock ”) held by such Investor with the Seller to the Transferee.  The delivery of the notice of election under this Section shall constitute an irrevocable commitment to sell the indicated Stock unless there is a legal prohibition as to a party’s consummation hereof.  The Seller shall use all commercially reasonable efforts to arrange for the sale to the Transferee of all Stock requested by such Investors to be sold in such Transfer; provided that if the Transferee is unwilling to purchase all such Stock, then the number of shares of Stock that may be sold by the Seller and each such Investor in such Transfer shall be reduced to the product obtained by multiplying (a) the aggregate number of shares of Stock that the Transferee is willing to acquire by (b) a fraction the numerator of which is the number of shares of Stock requested to be Transferred by the Seller in the Seller’s Notice or by such Investor in the notice delivered under this Section, as applicable, and the denominator of which is the combined number of shares of Stock of the Company so requested be Transferred by the Seller and all participating Investors.  The Stock to be sold shall be transferred by the Seller and the participating Investors to the Transferee in consummation of the sale of the Stock pursuant to the terms and conditions specified in the Seller’s Notice, and after such transfer the Seller shall promptly remit to each participating Investor that portion of the sale proceeds to which such Investor is entitled by reason of its participation in such sale.  To the extent that any prospective Transferee prohibits such assignment or otherwise refuses to purchase shares or other securities from any participating Investor, the Seller shall not sell to such prospective Transferee any Stock unless and until, simultaneously with such sale, the Seller shall have complied with Section 2 .
 
1.7                                Multiple Series or Classes of Stock .  If the Transfer Shares consists of more than one series, class, or type of Stock, the Seller has the right to Transfer under this Agreement each such series, class, or type; provided that if, as to the right of co-sale set forth in Section 1.6 an Investor does not hold the requisite number of shares of such series, class, or type, and the proposed Transferee is not willing to purchase the series, class, or type of Stock held by such Investor, then such Investor shall have the put right set forth in Section 2 .
 
1.8                                Additional Transactions .  The exercise or non-exercise of the rights of a Stockholder under this Agreement to participate in one or more sales of Stock made by the Seller shall not adversely affect their rights to participate in subsequent sales by a Seller.
 
SECTION 2.                          PUT RIGHT .
 
If a Seller Transfers any Stock in contravention of the Company’s and the Investors’ right of co-sale under Section 1.6 (a “ Prohibited Transfer ”), or if the proposed Transferee of Transfer Shares desires to purchase a class, series, or type of stock offered by the Seller and not held by an Investor, or is unwilling to purchase any Stock from an Investor, such Investor may, by delivery of written notice to such Seller (a “ Put Notice ”) within ten (10) days after the later of (a) the consummation of the Transfer pursuant to Section 1.6 or (b) the date on which an Investor becomes aware of the Prohibited Transfer or the terms of such Prohibited Transfer, require such Seller to purchase from the Investor, for cash or such other consideration as the Seller received in the Prohibited Transfer, a number of shares of Stock (of the same class or type as transferred in
 
5 

 
the Prohibited Transfer if such Investor then owns Stock of such class or type; otherwise of Stock having as close to the same economic consequences of ownership as is possible) having a purchase price equal to the aggregate purchase price the Investor would have received in the closing of such Prohibited Transfer if such Investor had been able to exercise its right of co-sale with respect to such Prohibited Transfer.  The closing of such sale to the Seller shall occur within thirty (30) days after the date of such Investor’s Put Notice to such Seller.  If a Seller Transfers any Stock in contravention of the Company’s and the Investor’s right of co-sale undo this Section 1.6 , the Seller shall reimburse each Investor exercising or attempting to exercise this put right for reasonable fees and expenses, including legal fees and expenses, incurred in connection with the exercise or the attempted exercise of such Investor’s rights under this Section 2.1 .
 
SECTION 3.                          PURCHASERS OR TRANSFEREES OF RESTRICTED STOCK; LOCKUP
 
3.1                                Transfers .   Except as set forth in Section 1.3(c), notwithstanding any Transfer of Common Stock by a Common Holder (including any Transfer pursuant to Section 1.1(b) ), all Stock shall remain subject to this Agreement and any person who shall acquire (either voluntarily or involuntarily, by operation of law or otherwise) any shares of Common Stock shall be bound by all of the terms and conditions of this Agreement and deemed a Common Holder to the same extent as the transferor and, prior to registration of the Transfer of any such securities on the books of the Company, any purchaser or other transferee shall execute an Adoption Agreement substantially in the form of Exhibit C .  Notwithstanding the failure of any such person to execute such Adoption Agreement, by acceptance of the certificate for Common Stock, such person shall take the securities subject to this Agreement and shall be bound by this Agreement.  Other than with respect to a Deemed Liquidation Event (as defined in the Charter) and transfers permitted under Section 1.1(b) and with stock transferred pursuant to Section 1.1(c), and each Common Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of Common Stock, or any beneficial interest therein, unless and until such Common Holder shall have given prior written notice to the Company, at its expense, with (i) an opinion of counsel, reasonably satisfactory to the Board of Directors of the Company, to the effect that such disposition will not require registration of such Common Stock under the Securities Act or (ii) a “no action” letter from the Securities and Exchange Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto.
 
3.2                                Agreement to Lock-Up .   If requested by the Company and the underwriter of Common Stock (other securities) of the Company, each Common Holder shall not sell or otherwise transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, of any Common Stock (or other securities) of the Company held by such Common Holder (other than those included in the registration) during the one hundred and eighty (180) day period following the effective date of a registration statement of the Company filed under the Securities Act (or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), provided that all officers and directors of the Company and all holders
 
6 

 
of at least one percent (1%) of the Company’s voting securities are bound by and have entered into similar agreements.  The obligations described in this Section 3.2 shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future.  The Company may impose stop-transfer instructions and may stamp each such certificate with the legend set forth in Section 4 with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of such one hundred and eighty (180) day (or other) period.  Each Common Holder agrees to execute a market standoff agreement with said underwriters in customary form consistent with the provisions of this Section 3.2.  Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Common Holders subject to such agreements, based on the number of shares subject to such agreements.
 
3.3              Stop Transfer Instructions .   In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the shares of Common Stock of each Common Holder (and transferees and assignees thereof) until the end of such restricted period.
 
SECTION 4.                          RESTRICTIVE LEGEND .
 
Each Common Holder and permitted Transferee of a Common Holder understands and agrees that the Company shall cause the legend set forth below, or a legend substantially equivalent to the legend set forth below, to be placed upon any certificate(s) or other documents or instruments evidencing ownership of Common Stock by such Common Holder or permitted Transferee of the Common Holder:
 
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RIGHTS OF FIRST REFUSAL AND RIGHTS OF CO-SALE AND RESTRICTIONS ON TRANSFERABILITY AND RESALE, INCLUDING A LOCK-UP PERIOD IN THE EVENT OF A PUBLIC OFFERING, IN EACH CASE AS SET FORTH IN A RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT, ENTERED INTO BY THE HOLDER OF THESE SHARES, THE COMPANY, AND CERTAIN OTHER STOCKHOLDERS OF THE COMPANY.  A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
 
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES.  THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM.  THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
 
7 

 
SECTION 5.                          GENERAL PROVISIONS .
 
5.1                                Termination .  This Agreement shall terminate on the earlier of (a) the consummation by the Company of a bona fide, firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, covering the offer and sale of the Company’s Common Stock at a public offering; (b) the written agreement of the Company, the holders of a majority of the shares of Common Stock then outstanding, and the holders of 75% of the sum of shares of (i) Senior Preferred Stock and (i) Selected Common Stock, voting together as a single class on an as converted to Common Stock basis; (c) a Deemed Liquidation Event (as defined in the Company’s Certificate of Incorporation as amended from time to time); or (d) the effective time of any liquidation, winding up, or dissolution of the Company.
 
5.2                                Amendment; Waiver .  This Agreement may be amended or modified and the observance of any term hereof may be waived (either generally or specifically and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written consent executed by (a) the Company, (b) the holders of at least 75% of the sum of shares of (i) the Senior Preferred Stock and (ii) Selected Common Stock, voting together as a single class on an as converted to Common Stock basis, and (c) the holders of at least a majority of the Common Stock held by the Common Holders.  Any amendment or waiver so effected shall be binding upon the Company and the Stockholders and all of their respective successors and permitted assigns whether or not such party, assignee or other stockholder entered into or approved such amendment or waiver.  Notwithstanding the foregoing, (a) this Agreement may not be amended or terminated and the observance of any term of this Agreement may not be waived with respect to any Investor without the written consent of such Investor to the extent such amendment, termination or waiver adversely affects such Investor in a manner different than other Investors, and (b) the consent of a Stockholder shall not be required for any amendment or waiver if such amendment or waiver does not apply to such Stockholder.  Notwithstanding the foregoing, Exhibit A hereto may be amended from time to time with no further action on the part of the parties hereto to add subsequent holders of Common Stock (a “ New Party ”), provided that such New Party shall have executed and delivered an Adoption Agreement substantially in the form attached hereto as Exhibit C.  Upon the execution and delivery of an Adoption Agreement by a New Party reasonably acceptable to the Company, such New Party shall be deemed to be a party hereto as if such New Party’s signature appeared on the signature pages hereto.  By their execution hereof or any Adoption Agreement, each of the parties hereto appoints the Company as its attorney-in-fact for the purpose of executing any Adoption Agreement which may be required to be delivered hereunder.
 
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, construed as, a further or continuing waiver of any such term, condition or provision.
 
5.3                                Successors and Assigns .  Except as otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.  Notwithstanding anything in this Agreement to the contrary, (i) Adams Street Partners, LLC and each of the funds affiliated
 
8 

 
therewith or managed thereby and (ii) Battery Partners IX, LLC and each of the funds affiliated therewith or managed thereby may assign all or part of its rights under this Agreement to any fund or funds affiliated therewith.  Except as set forth above, no party may transfer its rights or obligations hereunder, other than in connection with the sale or other transfer of shares of capital stock in the Company which hold such rights or are subject to such obligations (and otherwise in accordance with any requirements relating to such transfer) other than with the consent of the Company and Investors holding 75% of the sum of shares of (i) the Senior Preferred Stock and (ii) Selected Common Stock, voting together as a single class on an as converted to Common Stock basis.
 
5.4                                Third Parties .  Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties to this Agreement and their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement except as expressly provided in this Agreement.
 
5.5                                Governing Law .  This Agreement shall be governed by and construed exclusively in accordance with the internal laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware, excluding that body of law relating to conflict of laws.
 
5.6                                Counterparts .  This Agreement may be executed in two or more counterparts (including, without limitation, electronic and facsimile counterparts), each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.
 
5.7                                Headings .  The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.  All references in this Agreement to sections, paragraphs, exhibits, and schedules shall, unless otherwise provided, refer to sections and paragraphs of this Agreement and exhibits and schedules attached to this Agreement, all of which exhibits and schedules are incorporated in this Agreement by this reference.
 
5.8                                Notices .  All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be delivered personally or by facsimile transmission or by nationally recognized overnight delivery service or by first class certified or registered mail, return receipt requested, postage prepaid:
 
(a)                                  if to the Company, one copy should be sent to 9430 Research Blvd., Building IV, Suite 120, Austin, Texas 78759, Attn: Chief Financial Officer, or to such other address as the Company shall have furnished to the Investors, with a copy to John J. Gilluly III, P.C., DLA Piper LLP (US), 401 Congress Avenue, Suite 2500, Austin, Texas 78701.
 
(b)                                  If to a Common Holder, at the address set forth on Exhibit A , or at such other address or addresses as may have been furnished to the Company by giving five days advance written notice.
 
(c)                                   If to an Investor, at its address set forth on Exhibit B , or at such other address or addresses as may have been furnished to the Company by giving five days advance written notice, with a copy (which shall not constitute notice) to (i) McDermott Will & Emery,
 
9 

LLP, 227 West Monroe Street, Chicago, Illinois 60606, Attn:  Ryan D. Harris and (ii) Nixon Peabody, LLP, 100 Summer Street, Boston, MA 02110, Attn: Christopher P. Keefe.
 
Notices provided in accordance with this Section 5.8 shall be deemed delivered upon personal delivery or five business days after deposit in the mail.
 
5.9                                Costs And Attorneys’ Fees .  If any action, suit, or other proceeding is instituted concerning or arising out of this Agreement or any transaction contemplated under this Agreement, the prevailing party shall recover all of such party’s costs and attorneys’ fees incurred in each such action, suit, or other proceeding, including any and all appeals or petitions from any such action, suit, or other proceeding.
 
5.10                         Severability .  If one or more provisions of this Agreement are held to be unenforceable under applicable law, then such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms.
 
5.11                         Entire Agreement .  This Agreement, together with all exhibits and schedules to this Agreement, the Charter, the Purchase Agreements and the other Transaction Agreements (as defined in the Series C Purchase Agreement) constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement and supersede any and all prior negotiations, correspondence, agreements, understandings, duties, or obligations between the parties with respect to the subject matter of this Agreement.
 
5.12                         Further Assurances .  From and after the date of this Agreement, upon the request of the Investors, Common Holders or the Company, the Company and the Stockholders shall execute and deliver such instruments, documents, or other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.
 
5.13                         Adjustments for Stock Splits .  Wherever in this Agreement there is a reference to a specific number of shares of Stock, or a price per share of such stock, then, upon the occurrence of any subdivision, combination, or stock dividend of such class or series of stock, the specific number of shares or the price so referenced in this Agreement shall automatically be proportionally adjusted to reflect the effect on the outstanding shares of such class or series of stock by such subdivision, combination, or stock dividend.  Wherever in this Agreement a pro ration or other calculation is based on the number of shares of Stock held, then such calculation shall be determined on the basis of the number of shares of Common Stock so held or deemed to be held on a fully diluted basis assuming full conversion and exercise of all convertible securities, warrants, options or other rights to acquire shares of Common Stock.
 
5.14                         Aggregation of Stock .  All shares of the Common Stock and the Senior Preferred Stock held or acquired by an Investor and its affiliated entities shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.  For purposes of the foregoing, the shares held by any Investor that is (a) a partnership or corporation, shall be deemed to include shares held by affiliated partnerships or the partners,
 
10 

 
retired partners, and stockholders of such holder or affiliated partnership, or members of the Immediate Family (as defined below) of any such partners, retired partners, and stockholders, and any custodian or trustee for the benefit of any of the foregoing persons; or (b) an individual, shall be deemed to include shares held by any members of the stockholder’s Immediate Family.  For purposes of this Agreement, “ Immediate Family ” shall include any spouse, father, mother, brother, sister, lineal descendant of spouse, or lineal descendant) or to any custodian or trustee for the benefit of any of the foregoing persons.
 
5.15                         Delays or Omissions .  No delay or omission to exercise any right, power, or remedy accruing to any party, upon any breach or default of the Company or a Stockholder under this Agreement shall impair any such right, power, or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence in any such breach or default, or of or in any similar breach or default occurring after such breach or default; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after any such breach or default.  Any waiver, permit, consent, or approval of any kind or character on the part of any party of any breach or default under this Agreement or any waiver on the part of any party of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing.  All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
 
5.16                         Specific Enforcement .  It is agreed and understood that monetary damages would not adequately compensate an injured party for the breach of this Agreement by any other party to this Agreement, that this Agreement shall be specifically enforceable, and that any breach or threatened breach of this Agreement shall be the proper subject of a temporary or permanent injunction or restraining order.  Further, each of the Company, Common Holders and the Investors waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach.
 
[Signature Pages Follow]
 
11 

 
IN WITNESS WHEREOF , the parties to this Agreement have executed this Agreement as of the date first written above.

 	COMPANY :	
 	 	
 	Q2 HOLDINGS, INC.	

 	By:	/s/ Mark Johnson	
 	 	Mark Johnson	
 	 	Chief Financial Officer	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 
IN WITNESS WHEREOF , the parties to this Agreement have executed this Agreement as of the date first written above.

 	INVESTORS:	
 	 	
 	ADAMS STREET 2006 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2006 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2007 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2007 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2008 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2008 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 
IN WITNESS WHEREOF , the parties to this Agreement have executed this Agreement as of the date first written above.

 	INVESTORS:	
 	 	
 	ADAMS STREET 2009 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2009 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2010 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2010 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2011 DIRECT FUND LP	
 	 	
 	By:	ASP 2011 DIRECT MANAGEMENT LP	
 	 	Its general partner	
 	 	 	
 	By:	ASP 2011 DIRECT MANAGEMENT LLC	
 	 	Its general partner	
 	 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 
IN WITNESS WHEREOF , the parties to this Agreement have executed this Agreement as of the date first written above.

 	INVESTORS:	
 	 	
 	BATTERY VENTURES IX, L.P.	
 	 	
 	By:	BATTERY PARTNERS IX, LLC	
 	 	General Partner	
 	 	 	
 	By:	/s/ Michael Brown	
 	Name:	Michael Brown	
 	Title:	Member Manager	

 	BATTERY INVESTMENT PARTNERS IX, LLC	
 	 	
 	By:	BATTERY PARTNERS IX, LLC	
 	 	Managing Member	
 	 	 	
 	By:	/s/ Michael Brown	
 	Name:	Michael Brown	
 	Title:	Member Manager	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 
IN WITNESS WHEREOF , the parties to this Agreement have executed this Agreement as of the date first written above.

 	INVESTORS:	
 	 	
 	C&B CAPITAL II, L.P.	
 	 	
 	By:	/s/ Steve B. Tye	
 	Name:	Steve B. Tye	
 	Title:	Member	

 	C&B CAPITAL II (PF), L.P.	
 	 	
 	By:	/s/ Steve B. Tye	
 	Name:	Steve B. Tye	
 	Title:	Member	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 
IN WITNESS WHEREOF , the parties to this Agreement have executed this Agreement as of the date first written above.

 	INVESTORS:	
 	 	
 	/s/ David H. Johnston	
 	David H. Johnston	

 	JOHNSTON 2007 EXEMPT TRUST	
 	 	
 	By:	/s/ David H. Johnston	
 	Name:	David H. Johnston	
 	Title:	Trustee	

 	MOJO GIRLS 2007 EXEMPT TRUST	
 	 	
 	By:	/s/ David H. Johnston	
 	Name:	David H. Johnston	
 	Title:	Trustee	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 
IN WITNESS WHEREOF , the parties to this Agreement have executed this Agreement as of the date first written above.

 	INVESTORS:	
 	 	
 	TEXAS INDEPENDENT BANCSHARES, INC.	
 	 	
 	By:	/s/ Charles T. Doyle	
 	Name:	Charles T. Doyle	
 	Title:	Chairman of the Board	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 
IN WITNESS WHEREOF , the parties to this Agreement have executed this Agreement as of the date first written above.

 	INVESTORS:	

 	/s/ David Nelson	
 	David Nelson	

 	/s/ Matt Flake	
 	Matt Flake	

 	/s/ Jim Offerdahl	
 	Jim Offerdahl	

 	/s/ Mark Maples	
 	Mark Maples, Sr.	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 
IN WITNESS WHEREOF , the parties to this Agreement have executed this Agreement as of the date first written above.

 	COMMON HOLDER:	
 	 	
 	RHS Investments-I, L.P., by and through Seale, Inc. , a Texas corporation, its general partner	
 	 	
 	By:	/s/ R.H. Seale	
 	Name:	R.H. “Hank” Seale, III	
 	Title:	President	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 
SECOND AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
 
SIGNATURE PAGE

If the Investor is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY:	

Print Name	 	Social Security Number	

Signature	 	Date	
 	 	 	 	 	
Phone:	 	 	Address:	 	
 	 	 	 	 	
Email:	 	 	Fax:	 	
 	 	 	 	 	
If the Investor is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or TRUST:	

Name of Entity	 	Employer Identification Number	

Date	 	State of Organization	
 	 	 	
Signed By::	 	 	 	
Name:	 	 	 	
 	 	 	
Phone:	 	 	Address:	 	
 	 	 	
Email:	 	 	Fax:	 	

Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

Exhibit 4.3
 
EXECUTION COPY

 
Q2 HOLDINGS, INC. (F/K/A CBG HOLDINGS, INC.)
 
SECOND AMENDED AND RESTATED VOTING AGREEMENT
 
March 1, 2013

 

 
TABLE OF CONTENTS

 	 	Page	
 	 	 	
1.	SHARES	2	
 	 	 	
2.	ELECTION OF BOARDS OF DIRECTORS	2	
 	 	 	
3.	INCREASE IN AUTHORIZED CAPITAL STOCK	4	
 	 	 	
4.	DRAG ALONG RIGHTS	4	
 	 	 	
5.	TERMINATION	4	
 	 	 	
6.	ADDITIONAL SHARES	5	
 	 	 	
7.	RESTRICTIVE LEGEND	5	
 	 	 	
8.	MISCELLANEOUS	5	

 
SECOND AMENDED AND RESTATED VOTING AGREEMENT
 
This Second Amended and Restated Voting Agreement (this “ Agreement ”) is made as of March 1, 2013 by and among Q2 Holdings, Inc. (f/k/a CBG Holdings, Inc.), a Delaware corporation (the “ Company ”), and the persons and entities listed on Exhibit A attached hereto (each an “ Investor ,” and collectively, the “ Investors ”) and all holders of Common Stock (as hereinafter defined) of the Company (each a “ Common Holder ” and together the “ Common Holders ”) listed on Exhibit B attached hereto, as such Exhibit B may be amended from time to time with no further action on the parties hereto to add subsequent holders of Common Stock of the Company.  The Investors and Common Holders are referred to herein collectively as the “ Voting Parties .”
 
RECITALS
 
WHEREAS, the Company and certain of the Investors are parties to the First Amended and Restated Voting Agreement dated as of December 29, 2011 (the “ Prior Agreement ”);
 
WHEREAS, the Company has sold (i) shares of the Company’s Junior Convertible Preferred Stock, par value $0.0001 per share (the “ Junior Preferred Stock ”) pursuant to a Subscription Agreement, , (ii) shares of (the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share (the “ Series A Preferred Stock ”), to certain Investors pursuant to the Series A Stock Purchase Agreement dated as of July 27, 2007 (the “ Series A Purchase Agreement ”) and (iii) shares of the Company’s Series B Convertible Preferred Stock, par value $0.0001 per share (the “ Series B Preferred Stock ”), to certain Investors pursuant to the Series B Stock Purchase Agreement dated as of December 29, 2011 (the “ Series B Purchase Agreement ”), and, in connection with this Agreement, the Company is selling shares of its Series C Convertible Preferred Stock par value $0.0001 per share (the “ Series C Preferred Stock ” and together with the Series A Preferred Stock and the Series B Preferred Stock, the “ Senior Preferred Stock ”), to certain Investors pursuant to the Series C Stock Purchase Agreement dated as of the date hereof (as amended or otherwise modified from time to time, the “ Series C Purchase Agreement ” and together with the Series A Purchase Agreement and Series B Purchase Agreement, the “ Purchase Agreements ”);
 
WHEREAS, pursuant to Section 8(l)  of the Prior Agreement, the Prior Agreement may be amended by the written consent of (i) the Company, (ii) the holders of at least a majority of the Series A Preferred Stock, Series B Preferred Stock and Junior Preferred Stock then outstanding and held by the Investors, voting as a single class on an as converted basis, and (iii) the holders of at least a majority of the Common Stock held by the Common Holders, voting as a separate class;
 
WHEREAS, the undersigned represent (i) the Company, (ii) the holders of at least a majority of the Series A Preferred Stock, Series B Preferred Stock and Junior Preferred Stock then outstanding and held by the Investors, and (iii) the holders of at least a majority of the Common Stock held by the Common Holders; and
 
WHEREAS, as a condition to the Series C Purchase Agreement, the Voting Parties have agreed to enter into this Agreement.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, and other consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

 
1.                                       Shares .  During the term of this Agreement, the Voting Parties each agree to vote all shares of the Company’s voting securities now or hereafter owned by them, whether beneficially or otherwise, or as to which they have voting power (the “ Shares ”) in accordance with the provisions of this Agreement.  The holders of Senior Preferred Stock and Junior Preferred Stock will vote together with the holders of Common Stock and not as a separate class except as specifically provided herein, in the Charter (as such may be amended from time to time) or any of the agreements entered into in connection with the sale of the Senior Preferred Stock or as otherwise required by law.  Each share of Senior Preferred Stock and Junior Preferred Stock shall have a number of votes equal to the number of Common Stock then issuable upon conversion of such Senior Preferred Stock or Junior Preferred Stock, as applicable.
 
2.                                       Election of Boards of Directors .
 
(a)                                  Voting .  During the term of this Agreement, each Voting Party agrees to vote or caused to be voted all Shares in such manner as may be necessary to elect (and maintain in office) as members of the Company’s Board of Directors (the “ Board ”) the following individuals:
 
(i)                                      Three Senior Designees (as defined below);
 
(ii)                                   Three Common Designees (as defined below); and
 
(iii)                                One Mutual Designee (as defined below).
 
(b)                                  Designation of Directors .   The designees to the Board described above (each a “ Designee ”) shall be selected as follows:
 
(i)                                      Each “ Senior Designee ” shall be chosen by the holders of at least 75% of the sum of shares of (i) Senior Preferred Stock and (ii) shares of Common Stock owned by holders of Series C Preferred Stock (the “ Selected Common Stock ”), voting together as a single class on an as converted basis; provided , however , that (A) one Senior Designee shall be an outside independent director with expertise in the Company’s industry, (B) for so long as any of Adams Street Partners LLC, Adams Street Partners 2006 Direct Fund, L.P., Adams Street Partners 2007 Direct Fund, L.P., Adams Street Partners 2008 Direct Fund, L.P., Adams Street Partners 2009 Direct Fund, L.P., Adams Street Partners 2010 Direct Fund, L.P., and/or Adams Street Partners 2011 Direct Fund L.P. or any of their affiliated funds own any shares of the Senior Preferred Stock, one Senior Designee shall be designated by Adams Street Partners, LLC on behalf of such funds (together, “ ASP ”) (the “ ASP Designee ”), appointed solely in the discretion of ASP and (C) for so long as any of Battery Ventures IX, L.P., Battery Investment Partners IX, LLC or any of their affiliated funds own any shares of the Senior Preferred Stock, one Senior Designee shall be designated by Battery Ventures IX, LLC on behalf of such funds (together, “ Battery ”) (the “ Battery Designee ”), appointed solely in the discretion of Battery.
 
(ii)                                   The “ Common Designees ” shall be approved by the holders of a majority of the Common Stock of the Company, voting as a separate class; provided, however, that one of the Common Designees shall be the CEO Director and one of the Common Designees shall be an unaffiliated independent outside director.  The “ CEO Director ” shall be the Company’s Chief Executive Officer, provided that if for any reason the CEO Director shall cease to serve as the Chief Executive Officer of the Company, the Voting Parties shall promptly vote their respective Common Stock (i) to remove the former Chief Executive Officer from the Board if such person has not resigned as a member of the Company’s Board and (ii) to elect such person’s replacement as Chief Executive Officer of the Company as the new CEO Director.
 
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(iii)                                The “ Mutual Designee ” shall be approved by the holders of a majority of the outstanding shares of Common Stock and Senior Preferred Stock, voting together as a single class (on an as converted to common stock basis).
 
(c)                                   Current Designees .  For the purpose of this Agreement, the directors of the Company immediately following the Financing pursuant to the Series C Purchase Agreement shall be deemed to include the following Designees:
 
(i)                                      the Senior Designees shall initially be Jim Schaper, Jeffrey Diehl (serving as the ASP Designee) and Michael M. Brown (serving as the Battery Designee);
 
(ii)                                   the Common Designees shall initially be Jim Offerdahl, Charles Doyle, and R.H. “Hank” Seale, III (serving as the CEO Director); and
 
(iii)                                the Mutual Designee shall initially be Mike Maples, Sr.
 
(d)                                  Changes in Designees .  From time to time during the term of this Agreement, Investors who hold sufficient Shares to select a Designee pursuant to this Agreement may, in their sole discretion:
 
(i)                                      notify the Company in writing of an intention to remove from the Company’s Board any incumbent Designee who occupies a Board seat for which such Voting Parties are entitled to designate the Designee; or
 
(ii)                                   notify the Company in writing of an intention to select a new Designee for election to a Board seat for which such Voting Parties are entitled to designate the Designee (whether to replace a prior Designee or to fill a vacancy in such Board seat).
 
In the event of such an initiation of a removal or selection of a Designee under this section, the Company shall take commercially reasonable actions as are necessary to facilitate such removals or elections, including, without limitation, soliciting the votes of the appropriate stockholders, and the Voting Parties shall vote their Shares to cause: (a) the removal from the Company’s Board of the Designee or Designees so designated for removal, provided that no director elected pursuant to Sections 2(b)(i)(B) or 2(b)(i)(C) of this Agreement may be removed from office unless such removal is directed or approved by ASP or Battery, respectively; and (b) the election to the Company’s Board of any new Designee or Designees so designated, provided that any director elected pursuant to Sections 2(b)(i)(B) or 2(b)(i)(C) of this Agreement shall be designated by ASP or Battery, respectively.  To the extent permissible under the Delaware General Corporation Law, the Charter and the Company’s Bylaws, any vacancies created by the resignation, removal or death of a director elected pursuant to Sections 2(b)(i)(B) or 2(b)(i)(C) of this Agreement shall be filled pursuant to the provisions of such sections.
 
(e)                                   Size of Board .  During the term of this Agreement, and except pursuant to the Charter, each Voting Party agrees to vote all Shares to maintain the authorized number of members of the Board of the Company at seven (7) directors.
 
(f)                                    Committees .  So long as ASP owns any shares of Senior Preferred Stock, each authorized committee of the Board shall include the ASP Designee and so long as Battery owns any shares of Senior Preferred Stock, each authorized committee of the Board shall include the Battery Designee.
 
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(g)                                   Compensation . The Company shall promptly reimburse each member of the Board (or any committee thereof) for all reasonable out-of-pocket expenses and costs incurred by such member in connection with attending each regular or special meeting of the Board (or any committee thereof).
 
3.                                       Increase in Authorized Capital Stock; Adjustment .  Each Voting Party also agrees to vote all of his, her or its Shares from time to time and at all times, in whatever manner shall be necessary (i) to authorize an increase in the authorized capital stock of the Company so that there will be sufficient shares of Common Stock available for conversion of all of the then outstanding shares of Senior Preferred Stock, including without limitation at any time that an adjustment to the Conversion Price (as defined in the Company’s Third Amended and Restated Certificate of Incorporation as such may be amended from time to time (the “ Charter ”)) of the Senior Preferred Stock is made pursuant to the Charter and (ii) if and to the extent an Indemnified Person (as defined in the Series C Purchase Agreement) shall become entitled to and elects an adjustment of the Conversion Price of the Series C Preferred Stock pursuant to Section 7.10(e) of the Series C Purchase Agreement, to amend the Charter to provide for such adjustment in form and substance reasonably acceptable to such Indemnified Person.
 
4.                                       Drag Along Rights .
 
(a)                                  In the event that (a) the Board, (b) the holders of at least a majority of the outstanding shares of Common Stock (voting as a separate class), (c) the holders of at least a majority of the outstanding shares of Senior Preferred Stock (voting together as single class on an as-converted basis) and (d) in the event of a Deemed Liquidation Event (as defined in the Charter) that would result in proceeds per share of Series C Preferred Stock that are less than 1.75 times the Series C Issue Price (as defined in the Charter), a majority of the outstanding shares of Series C Preferred Stock (voting as a separate class), approve a Deemed Liquidation Event, then each Investor hereby agrees with respect to all securities of the Company which it own(s) or otherwise exercises voting or dispositive authority:
 
(i)                                      to vote such Voting Parties’ shares in favor thereof, and otherwise consent and raise no objection to such transaction, including, executing a merger or acquisition agreement or similar arrangement, and waive any dissenters’ rights, appraisal rights or similar rights that such Investor may have in connection therewith; and/or
 
(ii)                                   to sell such Voting Parties’ shares, and take all necessary and desirable actions as directed by the Board in connection with the consummation of such transaction, including, to the extent applicable, executing a purchase agreement (including agreeing to indemnification provisions therein) and selling, exchanging or otherwise transferring all of such Investor’s shares of the Company’s capital stock (including securities convertible into or exercisable for Common Stock).
 
5.                                       Termination .  This Agreement shall terminate on the earlier of (a) the consummation by the Company of a bona fide, firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, covering the offer and sale of the Company’s Common Stock at a public offering; (b) (i) the written agreement of the Company, (ii) the holders of a majority of the shares of Common Stock then outstanding (voting as a separate class) and (iii) the holders of at least 75% of the sum of (A) the shares of Senior Preferred Stock and (B) Selected Common Stock, voting together as a single class on an as-converted basis; (c) the acquisition of the Company by another person or entity by means of any transaction or series of related transactions (including, without limitation, any stock sale, reorganization, merger, or consolidation), unless the Company’s stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the
 
4 

 
Corporation’s acquisition or sale or otherwise) hold at least 51% of the voting power of the surviving or acquiring entity; or (d) the effective time of any liquidation, winding up, or dissolution of the Company.
 
6.                                       Additional Shares .  In the event that subsequent to the date of this Agreement any shares or other securities (other than pursuant to a Sale of the Company) are issued on, or in exchange for, any of the Shares by reason of any stock dividend, stock split, consolidation of shares, reclassification or consolidation involving the Company, such shares or securities shall be deemed to be Shares for purposes of this Agreement.
 
7.                                       Restrictive Legend .  Each certificate representing any of the Shares subject to this Agreement shall be marked by the Company with a legend reading substantially as follows:
 
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT ENTERED INTO BY THE HOLDER OF THESE SHARES AND THE COMPANY.  A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.  SUCH VOTING AGREEMENT IS BINDING ON CERTAIN TRANSFEREES OF THESE SHARES.
 
8.                                       Miscellaneous .
 
(a)                                  Certain Definitions .  Shares “ held ” by a Voting Party shall mean any Shares directly or indirectly owned (of record or beneficially) by such Voting Party or as to which such Voting Party has voting power.  “ Vote ” shall include any exercise of voting rights whether at an annual or special meeting or by written consent or in any other manner permitted by applicable law.
 
(b)                                  Notices .  All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail or otherwise delivered by hand or by messenger addressed:
 
(i)                                      if to a Voting Party, at such Voting Party’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof, or, until any such Voting Party so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of the relevant Shares for which the Company has contact information in its records, and if to an Investor, with a copy to (i) McDermott Will & Emery, LLP, 227 West Monroe Street, Chicago, Illinois 60606, Attn:  Ryan D. Harris and (ii) Nixon Peabody, LLP, 100 Summer Street, Boston, MA 02110, Attn: Christopher P. Keefe, or
 
(ii)                                   if to the Company, one copy should be sent to 9430 Research Blvd., Suite 120, Austin, TX 78759, or at such other address as the Company shall have furnished to the Voting Party’s, with a copy to John J. Gilluly III, P.C., DLA Piper LLP (US), 401 Congress Avenue, Suite 2500,  Austin, Texas 78701.
 
With respect to any notice given by the Company under any provision of the Delaware General Corporation Law or the Company’s charter or bylaws, each party hereto agrees that such notice may be given by facsimile or by electronic mail.
 
Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by registered or certified mail, return receipt requested, postage prepaid, at the earlier of its receipt or five (5) days after the same
 
5 

 
has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid or, if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the electronic mail address set forth on the Schedule of Investors, attached hereto as Exhibit A . In the event of any conflict between the Company’s books and records and this Agreement or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.
 
(c)                                   Successors and Assigns .  The provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. The Company shall not permit the transfer of any Shares on its books or issue a new certificate representing any Shares unless and until the person to whom such security is to be transferred shall have executed an Adoption Agreement substantially in the form attached as Exhibit C , pursuant to which such person becomes a party to this Agreement and agrees to be bound by all the provisions hereof as if such person was a Voting Party hereunder.
 
(d)                                  Governing Law .  This Agreement shall be governed in all respects by the internal laws of the State of Delaware as applied to agreements entered into among Delaware residents to be performed entirely within Delaware, without regard to principles of conflicts of law.
 
(e)                                   Titles and Subtitles .  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.
 
(f)                                    Further Assurances .  Each party hereto agrees to execute and deliver, by the proper exercise of its corporate, limited liability company, partnership or other powers, all such other and additional instruments and documents and do all such other acts and things as may be necessary to more fully effectuate this Agreement.
 
(g)                                   Entire Agreement .  This Agreement, the Charter, the Purchase Agreements and the other Transaction Agreements (as defined in the Series C Purchase Agreement) and the exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof. No party hereto shall be liable or bound to any other party hereto in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein or in the Charter, the Purchase Agreements, or other the Transaction Agreements.
 
(h)                                  Covenants of the Company . The Company agrees to use commercially reasonable efforts to ensure that the rights granted under this Agreement are effective and that the Voting Parties enjoy the benefits of this Agreement.  Such actions include, without limitation, the use of the Company’s commercially reasonable efforts to cause the nomination and election of the Directors as provided above.  The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be performed hereunder by the Company, but will at all times in good faith assist in the carrying out of the provisions of this Agreement and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Voting Parties against impairment.
 
(i)                                      Manner of Voting; Grant of Proxy .  The voting of Shares pursuant to this Agreement may be effected in person, by proxy, by written consent or in any other manner permitted by applicable law.  Each party hereby grants to the Secretary of the Company (other than with respect to Adams Street’s right to designate or remove directors as set forth in Sections 2(b)(i)  or 2(d) ), in the event
 
6 

 
that such party or parties fail to vote their Shares as required by this Agreement, a proxy coupled with an interest in all Shares beneficially owned by such party, which proxy is irrevocable until this Agreement terminates pursuant to its terms or is otherwise amended to remove such grant of proxy in accordance with this Agreement.
 
(j)                                     Not a Voting Trust .  This Agreement is not a voting trust governed by Section 218 of the Delaware General Corporation Law and should not be interpreted as such.
 
(k)                                  Specific Performance .  It is agreed and understood that monetary damages would not adequately compensate an injured party for the breach of this Agreement by any party, that this Agreement shall be specifically enforceable, and that any breach or threatened breach of this Agreement shall be the proper subject of a temporary or permanent injunction or restraining order. Further, each party hereto waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach.
 
(l)                                      Amendment .  This Agreement may be amended or modified and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written consent executed by the Company, the holders of at least 75% of the sum of shares of (a) Senior Preferred Stock and (b) Selected Common Stock, voting together as a single class on an as converted basis, and the holders of at least a majority of the Junior Preferred Stock and Common Stock held by the Common Holders, voting together as a single class on an as converted basis.  Any amendment or waiver so effected shall be binding upon the Company and the Voting Parties and all of their respective successors and permitted assigns whether or not such a party, assignee or other stockholder entered into or approved such amendment or waiver.  Notwithstanding the foregoing, (x) this Agreement may not be amended or terminated and the observance of any term of this Agreement may not be waived with respect to any Investor without the written consent of such Investor to the extent such amendment, termination or waiver adversely affects such Investor in a manner different than other Investors, (y) the consent of a Voting Party shall not be required for any amendment or waiver if such amendment or waiver does not apply to such Voting Party and (z)  Sections 2(b)(i)(B)  and 2(b)(i)(C)  shall not be amended without the written consent of ASP and Battery, respectively.  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, construed as, a further or continuing waiver of any such term, condition or provision.  Notwithstanding the foregoing, Exhibit A and Exhibit B hereto may be amended from time to time with no further action on the part of the parties hereto to add subsequent holders of Common Stock and Preferred Stock (each a “ New Party ”), provided that such New Party shall have executed and delivered an Adoption Agreement substantially in the form attached hereto as Exhibit C .  Upon the execution and delivery of an Adoption Agreement by a New Party reasonably acceptable to the Company, such New Party shall be deemed to be a party hereto as if such New Party’s signature appeared on the signature pages hereto.  By their execution hereof or any Adoption Agreement, each of the parties hereto appoints the Company as its attorney-in-fact for the purpose of executing any Adoption Agreement which may be required to be delivered hereunder.
 
(m)                              No Waiver .  The failure or delay by a party to enforce any provision of this Agreement will not in any way be construed as a waiver of any such provision or prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted both parties hereunder are cumulative and will not constitute a waiver of either party’s right to assert any other legal remedy available to it.
 
(n)                                  Jurisdiction and Venue .  Any action, suit or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall only be brought in any federal court or state court located in the
 
7 

State of Delaware, and each party consents to the exclusive jurisdiction and venue of such courts (and of the appropriate appellate courts therefrom) in any such action, suit or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such, action, suit or proceeding in any such court or that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.  Process in any such action, suit or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court.
 
(o)           Attorney’s Fees .  In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.
 
(p)           Severability .  If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement, and such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Agreement shall be enforceable in accordance with its terms.
 
(q)           Counterparts .  This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement. Electronic and facsimile copies of signed signature pages will be deemed binding originals.
 
(r)            Adoption Agreement .  Each transferee or assignee of any Shares subject to this Agreement shall continue to be subject to the terms hereof, and, as a condition precedent to the Company’s recognizing such transfer, each transferee or assignee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an Adoption Agreement substantially in the form attached hereto as Exhibit C .  Upon the execution and delivery of an Adoption Agreement by any transferee, such transferee shall be deemed to be a party hereto as if such transferee were the transferor and such transferee’s signature appeared on the signature pages of this Agreement and shall be deemed to be an Investor or Common Holder.  The Company shall not permit the transfer of the Shares subject to this Agreement on its books or issue a new certificate representing any such Shares unless and until such transferee shall have complied with the terms of this Section 7(r) .  Each certificate representing the Shares subject to this Agreement if issued on or after the date of this Agreement shall be endorsed by the Company with the legend set forth in Section 7 .
 
(s)            Consent of Spouse .  If any individual Voting Party is married on the date of this Agreement, such Voting Party’s spouse shall execute and deliver to the Company a consent of spouse in the form of Exhibit D hereto (“ Consent of Spouse ”), effective on the date hereof.  Notwithstanding the execution and delivery thereof, such consent shall not be deemed to confer or convey to the spouse any rights in such Voting Party s Shares that do not otherwise exist by operation of law or the agreement of the parties.  If any individual Voting Party should marry or remarry subsequent to the date of this Agreement, such Voting Party shall within thirty (30) days thereafter obtain his/her new spouse’s acknowledgement of and consent to the existence and binding effect of all restrictions contained in this Agreement by causing such spouse to execute and deliver a Consent of Spouse acknowledging the restrictions and obligations contained in this Agreement and agreeing and consenting to the same.
 
Signature Pages Follow.
 
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IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Voting Agreement as of the date first above written.

 	COMPANY :	
 	 	
 	Q2 HOLDINGS, INC.	

 	By:	/s/ Mark Johnson	
 	 	Mark Johnson	
 	 	Chief Financial Officer	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
VOTING AGREEMENT

 
IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Voting Agreement as of the date first above written.

 	INVESTORS:	
 	 	
 	ADAMS STREET 2006 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2006 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2007 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2007 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2008 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2008 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
VOTING AGREEMENT

 
IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Voting Agreement as of the date first above written.

 	INVESTORS:	
 	 	
 	ADAMS STREET 2009 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2009 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2010 DIRECT FUND, L.P.	
 	 	
 	By:	ASP 2010 DIRECT MANAGEMENT, LLC,	
 	 	Its general partner	
 	 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	

 	ADAMS STREET 2011 DIRECT FUND LP	
 	 	
 	By:	ASP 2011 DIRECT MANAGEMENT LP	
 	 	Its general partner	
 	 	 	
 	By:	ASP 2011 DIRECT MANAGEMENT LLC	
 	 	Its general partner	
 	 	
 	 	By:	ADAMS STREET PARTNERS, LLC,	
 	 	 	Its managing member	
 	 	
 	By:	/s/ Jeffrey T. Diehl	
 	Name:	Jeffrey T. Diehl	
 	Title:	Partner	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
VOTING AGREEMENT

 
IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Voting Agreement as of the date first above written.

 	INVESTORS:	
 	 	
 	BATTERY VENTURES IX, L.P.	
 	 	
 	By:	BATTERY PARTNERS IX, LLC	
 	 	General Partner	
 	 	
 	By:	/s/ Michael Brown	
 	Name:	Michael Brown	
 	Title:	Member Manager	

 	BATTERY INVESTMENT PARTNERS IX, LLC	
 	 	
 	By:	BATTERY PARTNERS IX, LLC	
 	 	Managing Member	
 	 	
 	By:	/s/ Michael Brown	
 	Name:	Michael Brown	
 	Title:	Member Manager	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
VOTING AGREEMENT

 
IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Voting Agreement as of the date first above written.

 	INVESTORS:	
 	 	
 	C&B CAPITAL II, L.P.	
 	 	
 	By:	/s/ Steve B. Tye	
 	Name:	Steve B. Tye	
 	Title:	Member	

 	C&B CAPITAL II (PF), L.P.	
 	 	
 	By:	/s/ Steve B. Tye	
 	Name:	Steve B. Tye	
 	Title:	Member	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
VOTING AGREEMENT

 
IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Voting Agreement as of the date first above written.

 	INVESTORS:	
 	 	
 	/s/ David H. Johnston	
 	David H. Johnston	

 	JOHNSTON 2007 EXEMPT TRUST	
 	 	
 	By:	/s/ David H. Johnston	
 	Name:	David H. Johnston	
 	Title:	Trustee	

 	MOJO GIRLS 2007 EXEMPT TRUST	
 	 	
 	By:	/s/ David H. Johnston	
 	Name:	David H. Johnston	
 	Title:	Trustee	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
VOTING AGREEMENT

 
IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Voting Agreement as of the date first above written.

 	INVESTORS:	
 	 	
 	TEXAS INDEPENDENT BANCSHARES, INC.	
 	 	
 	By:	/s/ Charles T. Doyle	
 	Name:	Charles T. Doyle	
 	Title:	Chairman of the Board	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
VOTING AGREEMENT

 
IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Voting Agreement as of the date first above written.

 	INVESTORS:	

 	/s/ David Nelson	
 	David Nelson	

 	/s/ Matt Flake	
 	Matt Flake	

 	/s/ Jim Offerdahl	
 	Jim Offerdahl	

 	/s/ Mark Maples	
 	Mark Maples, Sr.	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
VOTING AGREEMENT

 
IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Voting Agreement as of the date first above written.

 	COMMON HOLDER:	
 	 	
 	RHS Investments-I, L.P., by and through Seale, Inc. , a Texas corporation, its general partner	
 	 	
 	By:	/s/ R.H. Seale	
 	Name:	R.H. “Hank” Seale, III	
 	Title:	President	
 
Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
VOTING AGREEMENT

 
SECOND AMENDED AND RESTATED VOTING AGREEMENT
SIGNATURE PAGE
 
If the Investor is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY :

 	 	 	 	
Print Name	 	 	Social Security Number	

Signature	 	 	Date	

Phone:	 	 	Address:	 	
 	 	 	 	 	
Email:	 	 	Fax:	 	
 
OR:
 
If the Investor is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or TRUST :

 	 	 	 	
Name of Entity	 	 	Employer Identification Number	

Date	 	 	State of Organization	
 	 	 	
Signed By:	 	 	 	
Name:	 	 	 	
Title:	 	 	 	
 	 	 	
Phone:	 	 	Address:	 	
 	 	 	 	 	
Email:	 	 	Fax:	 	

Q2 HOLDINGS, INC.
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
VOTING AGREEMENT

Exhibit 10.2.1
 
Q2 HOLDINGS, INC.
2007 STOCK PLAN
 
1.                                       ESTABLISHMENT, PURPOSE AND TERM OF PLAN .
 
1.1                                Establishment .  Q2 Holdings, Inc. 2007 Stock Plan (the “ Plan ” ) is hereby established effective as of July 27, 2007.
 
1.2                                Purpose .   The purpose of the Plan is to advance the interests of the Participating Company Group and its shareholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group.
 
1.3                                Term of Plan.   The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Awards granted under the Plan have lapsed.  However, all Awards shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the shareholders of the Company.  The Company intends that the Plan comply with Section 409A of the Code (including any amendments or replacements of such section), and the Plan shall be so construed.
 
2.                                       DEFINITIONS AND CONSTRUCTION .
 
2.1                                Definitions.  Whenever used herein, the following terms shall have their respective meanings set forth below:
 
(a)                                  “ Affiliate ” means (i) an entity, other than a Parent Corporation, that directly, or indirectly through one or more intermediary entities, controls the Company or (ii) an entity, other than a Subsidiary Corporation, that is controlled by the Company directly or indirectly through one or more intermediary entities.  For this purpose, the term “control” (including the term “controlled by”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the relevant entity, whether through the ownership of voting securities, by contract or otherwise; or shall have such other meaning assigned such term for the purposes of registration on Form S-8 under the Securities Act.
 
(b)                                  “ Award ” means an Option or Stock Purchase Right granted under the Plan.
 
(c)                                   “ Board ” means the Board of Directors of the Company.  If one or more Committees have been appointed by the Board to administer the Plan, “ Board ” also means such Committee(s).
 
(d)                                  “ Cause ” means, unless such term or an equivalent term is otherwise defined with respect to an Award by the Participant’s Option Agreement, Stock Purchase Agreement or written contract of employment or service, any of the following: (i) the Participant’s theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Participating Company documents or records; (ii) the Participant’s material failure to abide by a Participating Company’s code of conduct or other policies (including, without limitation, policies relating to
 
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confidentiality and reasonable workplace conduct); (iii) the Participant’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of a Participating Company (including, without limitation, the Participant’s improper use or disclosure of a Participating Company’s confidential or proprietary information); (iv) any intentional act by the Participant which has a material detrimental effect on a Participating Company’s reputation or business; (v) the Participant’s repeated failure or inability to perform any reasonable assigned duties after written notice from a Participating Company of, and a reasonable opportunity to cure, such failure or inability; (vi) any material breach by the Participant of any employment or service agreement between the Participant and a Participating Company, which breach is not cured pursuant to the terms of such agreement; or (vii) the Participant’s conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the Participant’s ability to perform his or her duties with a Participating Company.
 
(e)                                   “ Change in Control ” means, unless such term or an equivalent term is otherwise defined with respect to an Award by the Participant’s Option Agreement, Stock Purchase Agreement or written contract of employment or service, the occurrence of any of the following:
 
(i)                                      an Ownership Change Event or a series of related Ownership Change Events (collectively, a “ Transaction ” ) in which the shareholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of an Ownership Change Event described in Section 2.1(u)(iii) , the entity to which the assets of the Company were transferred (the “ Transferee ” ), as the case may be; or
 
(ii)                                   the liquidation or dissolution of the Company.
 
For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities.  The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.
 
(f)                                    “ Code ” means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.
 
(g)                                   “ Committee ” means the compensation committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board.  Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law.
 
(h)                                  “ Company ” means Q2 Holdings, Inc., a Delaware corporation, or any successor corporation thereto.
 
(i)                                      “ Consultant ” means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to a Participating Company, provided that the identity of such person, the nature of such services or the entity to which such services are provided would not preclude the Company from offering or selling securities to such person pursuant to the Plan in reliance
 
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on either the exemption from registration provided by Rule 701 under the Securities Act or, if the Company is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act, registration on a Form S-8 Registration Statement under the Securities Act.
 
(j)                                     “ Director ” means a member of the Board or of the board of directors of any other Participating Company.
 
(k)                                  “ Disability ” means the inability of the Participant, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of the Participant’s position with the Participating Company Group because of the sickness or injury of the Participant.
 
(l)                                      “ Employee ” means any person treated as an employee (including an Officer or a Director who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director’s fee shall be sufficient to constitute employment for purposes of the Plan.  The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual’s employment or termination of employment, as the case may be.  For purposes of an individual’s rights, if any, under the terms of the Plan as of the time of the Company’s determination of whether or not the individual is an Employee, all such determinations by the Company shall be final, binding and conclusive as to such rights, if any, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination as to such individual’s status as an Employee.
 
(m)                              “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
 
(n)                                  “ Fair Market Value ” means, as of any date, the value of a share of Stock or other property as determined by the Board, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:
 
(i)                                      If, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in The Wall Street Journal or such other source as the Company deems reliable.  If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its discretion.
 
(ii)                                   If, on such date, the Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be as determined by the Board in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse, and subject to compliance with Section 409A of the Code. .
 
(o)                                  “ Incentive Stock Option ” means an Option intended to be (as set forth in the Option Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code.
 
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(p)                                  “ Insider ” means an Officer, a Director of the Company or other person whose transactions in Stock are subject to Section 16 of the Exchange Act.
 
(q)                                  “ Nonstatutory Stock Option ” means an Option not intended to be (as set forth in the Option Agreement) or which does not qualify as an Incentive Stock Option.
 
(r)                                     “ Officer ” means any person designated by the Board as an officer of the Company.
 
(s)                                    “ Option ” means a right granted under Section 6 to purchase Stock pursuant to the terms and conditions of the Plan.  An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.
 
(t)                                     “ Option Agreement ” means a written agreement between the Company and a Participant setting forth the terms, conditions and restrictions of the Option granted to the Participant and any shares acquired upon the exercise thereof.  An Option Agreement may consist of a form of “Notice of Grant of Stock Option” and a form of “Stock Option Agreement” incorporated therein by reference, or such other form or forms as the Board may approve from time to time.
 
(u)                                  “ Ownership Change Event ” means the occurrence of any of the following with respect to the Company:  (i) the direct or indirect sale or exchange in a single or series of related transactions by the shareholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company.
 
(v)                                  “ Parent Corporation ” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.
 
(w)                                “ Participant” means any eligible person who has been granted one or more Awards.
 
(x)                                  “ Participating Company ” means the Company or any Parent Corporation, Subsidiary Corporation or Affiliate.
 
(y)                                  “ Participating Company Group ” means, at any point in time, all entities collectively which are then Participating Companies.
 
(z)                                   “ Rule 16b-3 ” means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.
 
(aa)                           “ Securities Act ” means the Securities Act of 1933, as amended.
 
(bb)                           “ Service ” means a Participant’s employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant.  A Participant’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders Service to the Participating Company Group or a change in the Participating Company for which the Participant renders such Service, provided that there is no interruption or termination of the Participant’s Service.  Furthermore, a Participant’s Service shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the one hundred eighty-first (181st) day following the commencement of such leave any Incentive
 
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Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Nonstatutory Stock Option unless the Participant’s right to return to Service is guaranteed by statute or contract.  Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Participant’s Option Agreement or Stock Purchase Agreement.  Except as otherwise provided by the Board, in its discretion, the Participant’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Participant performs Service ceasing to be a Participating Company.  Subject to the foregoing, the Company, in its discretion, shall determine whether the Participant’s Service has terminated and the effective date of and reason for such termination.
 
(cc)                             “ Stock ” means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2 .
 
(dd)                           “Stock Purchase Agreement” means a written agreement between the Company and a Participant setting forth the terms, conditions and restrictions of the Stock Purchase Right granted to the Participant and any shares acquired upon the exercise thereof.  A Stock Purchase Agreement may consist of a form of “Notice of Grant of Stock Purchase Right” and a form of “Stock Purchase Agreement” incorporated therein by reference, or such other form or forms as the Board may approve from time to time.
 
(ee)                             “Stock Purchase Right” means a right granted under Section 7 to purchase Stock pursuant to the terms and conditions of the Plan.
 
(ff)                               “ Subsidiary Corporation ” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.
 
(gg)                             “ Ten Percent Shareholder ” means a person who, at the time an Award is granted to such person, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company (other than an Affiliate) within the meaning of Section 422(b)(6) of the Code.
 
2.2                                Construction.   Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan.  Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular.  Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
 
3.                                       ADMINISTRATION .
 
3.1                                Administration by the Board.   The Plan shall be administered by the Board.  All questions of interpretation of the Plan or of any Award shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Award.
 
3.2                                Authority of Officers.   Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, determination or election.
 
3.3                                Powers of the Board .   In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its discretion:
 
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(a)                                  to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock to be subject to each Award;
 
(b)                                  to designate Options as Incentive Stock Options or Nonstatutory Stock Options;
 
(c)                                   to determine the Fair Market Value of shares of Stock or other property;
 
(d)                                  to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Award, (ii) the method of payment for shares purchased upon the exercise of the Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Award or such shares, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability of the Award or the vesting of any shares acquired upon the exercise thereof, (v) the time of the expiration of the Award, (vi) the effect of the Participant’s termination of Service on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Award or such shares not inconsistent with the terms of the Plan;
 
(e)                                   to approve one or more forms of Option Agreement and Stock Purchase Agreement;
 
(f)                                    to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired upon the exercise thereof;
 
(g)                                   to accelerate, continue, extend or defer the exercisability of any Award or the vesting of any shares acquired upon the exercise thereof, including with respect to the period following a Participant’s termination of Service;
 
(h)                                  to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of, the Plan, including, without limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Awards; and
 
(i)                                      to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement or Stock Purchase Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Board may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law.
 
3.4                                Administration with Respect to Insiders.   With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.
 
3.5                                Indemnification.   In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement
 
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is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
 
4.                                       SHARES SUBJECT TO PLAN .
 
4.1                                Maximum Number of Shares Issuable.   Subject to adjustment as provided in Section 4.2 , the maximum aggregate number of shares of Stock that may be issued under the Plan shall be 2,238,159 (after giving effect to the reverse three to one Common Stock split on July 27, 2007) which shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.  If an outstanding Award for any reason expires or is terminated or canceled or if shares of Stock are acquired upon the exercise of an Award subject to a Company repurchase option and are repurchased by the Company at the Participant’s exercise or purchase price, the shares of Stock allocable to the unexercised portion of such Award or such repurchased shares of Stock shall again be available for issuance under the Plan.  However, except as adjusted pursuant to Section 4.2 , in no event shall more than three million (3,000,000) shares of Stock be available for issuance pursuant to the exercise of Incentive Stock Options (the “ ISO Share Limit ” ).
 
4.2                                Adjustments for Changes in Capital Structure .   Subject to any required action by the shareholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the shareholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Awards, in the ISO Share Limit set forth in Section 4.1 , and in the exercise or purchase price per share of any outstanding Awards in order to prevent dilution or enlargement of Participants’ rights under the Plan.  For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.”  Any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may the exercise price of any Award be decreased to an amount less than the par value, if any, of the stock subject to the Award.  Such adjustments shall be determined by the Board, and its determination shall be final, binding and conclusive.
 
5.                                       ELIGIBILITY AND OPTION LIMITATIONS .
 
5.1                                Persons Eligible for Awards .   Awards may be granted only to Employees, Consultants and Directors of a Participating Company.  Eligible persons may be granted more than one (1) Award.  However, eligibility in accordance with this Section 5.1 shall not entitle any person to be granted an Award, or, having been granted an Award, to be granted an additional Award.
 
5.2                                Option Grant Restrictions .   An Incentive Stock Option may be granted only to a person who is an Employee on the effective date of grant of the Option to such person.  Any person who is not an Employee on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock Option.
 
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5.3                                Fair Market Value Limitation .   To the extent that options designated as Incentive Stock Options (granted under all stock plans of the Participating Company Group, including the Plan) become exercisable by a Participant for the first time during any calendar year for stock having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portions of such options which exceed such amount shall be treated as Nonstatutory Stock Options.  For purposes of this Section 5.3 , options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted.  If the Code is amended to provide for a different limitation from that set forth in this Section 5.3 , such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code.  If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 5.3 , the Participant may designate which portion of such Option the Participant is exercising.  In the absence of such designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option first.  Separate certificates representing each such portion shall be issued upon the exercise of the Option.
 
6.                                       TERMS AND CONDITIONS OF OPTIONS .
 
Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish.  No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Option Agreement.  Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
6.1                                Exercise Price .   The exercise price for each Option shall be established in the discretion of the Board, subject to compliance with Section 409A of the Code; provided, however, that (a) the exercise price per share shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option and (b) no Option granted to a Ten Percent Shareholder shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option.  Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code.
 
6.2                                Exercisability and Term of Options .   Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Shareholder shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, and (c) with the exception of an Option granted to an Officer, a Director or a Consultant, no Option shall become exercisable at a rate less than twenty percent (20%) per year over a period of five (5) years from the effective date of grant of such Option, subject to the Participant’s continued Service.  Subject to the foregoing, unless otherwise specified by the Board in the grant of an Option, any Option granted hereunder shall terminate ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.
 
6.3                                Payment of Exercise Price .
 
(a)                                  Forms of Consideration Authorized.   Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any
 
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Option shall be made (i) in cash, by check or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant having a Fair Market Value not less than the exercise price, (iii) by delivery of a properly executed notice together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a “ Cashless Exercise ” ), (iv) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (v) by any combination thereof.  The Board may at any time or from time to time, by approval of or by amendment to the standard forms of Option Agreement described in Section 8 , or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration.
 
(b)                                  Limitations on Forms of Consideration .
 
(i)                                      Tender of Stock.   Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.  Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Participant for more than six (6) months (and were not used for another Option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.
 
(ii)                                   Cashless Exercise.   The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise.
 
6.4                                Effect of Termination of Service .
 
(a)                                  Option Exercisability .   Subject to earlier termination of the Option as otherwise provided herein and unless otherwise provided by the Board in the grant of an Option and set forth in the Option Agreement, an Option shall be exercisable after a Participant’s termination of Service only during the applicable time period determined in accordance with this Section 6.4 and thereafter shall terminate:
 
(i)                                      Disability.   If the Participant’s Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the date of expiration of the Option’s term as set forth in the Option Agreement evidencing such Option (the “ Option Expiration Date ” ).
 
(ii)                                   Death.   If the Participant’s Service terminates because of the death of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.  The Participant’s Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months (or such longer period of time as determined by the Board, in its discretion) after the Participant’s termination of Service.
 
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(iii)                                Termination for Cause.   Notwithstanding any other provision of the Plan to the contrary, if the Participant’s Service with the Participating Company Group is terminated for Cause, the Option shall terminate and cease to be exercisable immediately upon such termination of Service.
 
(iv)                               Other Termination of Service.   If the Participant’s Service terminates for any reason, except Disability, death or Cause, the Option, to the extent unexercised and exercisable by the Participant on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
 
(b)                                  Extension if Exercise Prevented by Law .   Notwithstanding the foregoing other than termination for Cause, if the exercise of an Option within the applicable time periods set forth in Section 6.4(a)  is prevented by the provisions of Section 11 below, the Option shall remain exercisable until three (3) months (or such longer period of time as determined by the Board, in its discretion) after the date the Participant is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.
 
(c)                                   Extension if Participant Subject to Section 16(b ).   Notwithstanding the foregoing other than termination for Cause, if a sale within the applicable time periods set forth in Section 6.4(a)  of shares acquired upon the exercise of the Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participant’s termination of Service, or (iii) the Option Expiration Date.
 
6.5                                Transferability of Options.   During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participant’s guardian or legal representative.  No Option shall be assignable or transferable by the Participant, except by will or by the laws of descent and distribution.  Notwithstanding the foregoing, to the extent permitted by the Board, in its discretion, and set forth in the Option Agreement evidencing such Option, a Nonstatutory Stock Option shall be assignable or transferable subject to the applicable limitations, if any, described in Rule 701 under the Securities Act, and the General Instructions to Form S-8 Registration Statement under the Securities Act.
 
7.                                       TERMS AND CONDITIONS OF STOCK PURCHASE RIGHTS .
 
Stock Purchase Rights shall be evidenced by Stock Purchase Agreements, specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish.  No Stock Purchase Right or purported Stock Purchase Right shall be a valid and binding obligation of the Company unless evidenced by a fully executed Stock Purchase Agreement.  Stock Purchase Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
7.1                                Purchase Price .   The purchase price under each Stock Purchase Right shall be established by the Board; provided, however, that (a) the purchase price per share shall be at least eighty-five percent (85%) of the Fair Market Value of a share of Stock either on the effective date of grant of the Stock Purchase Right or on the date on which the purchase is consummated and (b) the purchase price per share under a Stock Purchase Right granted to a Ten Percent Shareholder shall be at least one hundred percent (100%) of the Fair Market Value of a share of Stock either on the effective date of grant of the Stock Purchase Right or on the date on which the purchase is consummated.
 
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7.2                                Purchase Period .   A Stock Purchase Right shall be exercisable within a period established by the Board, which shall in no event exceed thirty (30) days from the effective date of the grant of the Stock Purchase Right.
 
7.3                                Payment of Purchase Price.  Except as otherwise provided below, payment of the purchase price for the number of shares of Stock being purchased pursuant to any Stock Purchase Right shall be made (a) in cash, by check, or cash equivalent, (b) in the form of the Participant’s past service rendered to a Participating Company or for its benefit having a value not less than the aggregate purchase price of the shares being acquired, (c) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (d) by any combination thereof.  The Board may at any time or from time to time, by adoption of or by amendment to the standard form of Stock Purchase Agreement described in Section 8 , or by other means, grant Stock Purchase Rights which do not permit all of the foregoing forms of consideration to be used in payment of the purchase price or which otherwise restrict one or more forms of consideration.
 
7.4                                Vesting and Restrictions on Transfer.   Shares issued pursuant to any Stock Purchase Right may or may not be made subject to vesting conditioned upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria (the “ Vesting Conditions ” ) as shall be established by the Board and set forth in the Stock Purchase Agreement evidencing such Award.  During any period (the “ Restriction Period ” ) in which shares acquired pursuant to a Stock Purchase Right remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than pursuant to an Ownership Change Event or as provided in Section 7.5 .  Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
 
7.5                                Effect of Termination of Service.   Unless otherwise provided by the Board in the grant of a Stock Purchase Right and set forth in the Stock Purchase Agreement, if a Participant’s Service terminates for any reason, whether voluntary or involuntary (including the Participant’s death or disability), then the Company shall have the option to repurchase for the purchase price paid by the Participant any shares acquired by the Participant pursuant to a Stock Purchase Right which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service; provided, however, that with the exception of shares acquired pursuant to a Stock Purchase Right by an Officer, a Director or a Consultant, the Company’s repurchase option must lapse at the rate of at least twenty percent (20%) of the shares per year over the period of five (5) years from the effective date of grant of the Stock Purchase Right (without regard to the date on which the Stock Purchase Right was exercised) and the repurchase option must be exercised, if at all, for cash or cancellation of purchase money indebtedness for the shares within ninety (90) days following the Participant’s termination of Service.  The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company.
 
7.6                                Nontransferability of Stock Purchase Rights .  Rights to acquire shares of Stock pursuant to a Stock Purchase Right may not be assigned or transferred in any manner except by will or the laws of descent and distribution, and, during the lifetime of the Participant, shall be exercisable only by the Participant.
 
8.                                       STANDARD FORMS OF AGREEMENTS .
 
8.1                                Option Agreement .   Unless otherwise provided by the Board at the time the Option is granted, an Option shall comply with and be subject to the terms and conditions set forth in the
 
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form of Option Agreement approved by the Board concurrently with its adoption of the Plan and as amended from time to time.
 
8.2                                Stock Purchase Agreement.  Unless otherwise provided by the Board at the time the Stock Purchase Right is granted, a Stock Purchase Right shall be subject to the terms and conditions set forth in the form of Stock Purchase Agreement approved by the Board concurrently with its adoption of the Plan and as amended from time to time.
 
8.3                                Authority to Vary Terms .   The Board shall have the authority from time to time to vary the terms of any standard form of agreement described in this Section 8 either in connection with the grant or amendment of an individual Award or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of agreement are not inconsistent with the terms of the Plan.
 
9.                                       CHANGE IN CONTROL .
 
9.1                                Effect of Change in Control on Options .
 
(a)                                  Accelerated Vesting .  Notwithstanding any other provision of the Plan to the contrary, the Board, in its sole discretion, may provide in any Award Agreement or, in the event of a Change in Control, may take such actions as it deems appropriate to provide for the acceleration of the exercisability and vesting in connection with such Change in Control of any or all outstanding Options and shares acquired upon the exercise of such Options, subject to compliance with Section 409A of the Code.
 
(b)                                  Assumption or Substitution of Options .  In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “ Acquiror ” ), may, without the consent of any Participant, either assume or continue the Company’s rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiror’s stock.  Any Options which are neither assumed or continued by the Acquiror in connection with the Change in Control nor exercised as of the time of consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control.  Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement.
 
(c)                                   Cash-Out of Options .  The Board may, in its sole discretion and without the consent of any Participant, determine that, upon the occurrence of a Change in Control, each or any Option outstanding immediately prior to the Change in Control shall be canceled in exchange for a payment with respect to each vested share (and each unvested share, if so determined by the Board) of Stock subject to such canceled Option in (i) cash, (ii) stock of the Company or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control over the exercise price per share under such Option (the “ Spread ” ).  In the event such determination is made by the Board, the Spread (reduced by applicable withholding taxes, if any) shall be paid to Participants in respect of their canceled Options as soon as practicable following the date of the Change in Control and in respect of the unvested portion of their canceled Options in accordance with the vesting schedule applicable to such Options as in effect prior to the Change in Control.
 
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9.2                                Effect of Change in Control on Stock Purchase Right.   In the event of a Change in Control, the Acquiror, may, without the consent of any Participant, either assume or continue the Company’s rights and obligations under outstanding Stock Purchase Rights or substitute for outstanding Stock Purchase Rights substantially equivalent purchase rights for the Acquiror’s stock.  Any Stock Purchase Rights which are neither assumed or continued by the Acquiror in connection with the Change in Control nor exercised as of the date of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control.  Notwithstanding the foregoing, shares acquired upon exercise of a Stock Purchase Right prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of the Stock Purchase Agreement evidencing such Stock Purchase Right except as otherwise provided in such Stock Purchase Agreement.
 
9.3                                Federal Excise Tax Under Section 4999 of the Code.
 
(a)                                  Excess Parachute Payment.   In the event that any acceleration of vesting pursuant to an Award and any other payment or benefit received or to be received by a Participant would subject the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization of such acceleration of vesting, payment or benefit as an “excess parachute payment” under Section 280G of the Code, the Participant may elect, in his or her sole discretion, to reduce the amount of any acceleration of vesting called for under the Award in order to avoid such characterization.
 
(b)                                  Determination by Independent Accountants.   To aid the Participant in making any election called for under Section 9.3(a) , no later than the date of the occurrence of any event that might reasonably be anticipated to result in an “excess parachute payment” to the Participant as described in Section 9.3(a) , the Company shall request a determination in writing by independent public accountants selected by the Company (the “ Accountants ” ).  As soon as practicable thereafter, the Accountants shall determine and report to the Company and the Participant the amount of such acceleration of vesting, payments and benefits which would produce the greatest after-tax benefit to the Participant.  For the purposes of such determination, the Accountants may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code.  The Company and the Participant shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make their required determination.  The Company shall bear all fees and expenses the Accountants may reasonably charge in connection with their services contemplated by this Section 9.3(b) .
 
10.                                TAX WITHHOLDING .
 
10.1                         Tax Withholding in General.   The Company shall have the right to deduct from any and all payments made under the Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise of an Option, to make adequate provision for, the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to an Award or the shares acquired pursuant thereto.  The Company shall have no obligation to deliver shares of Stock or to release shares of Stock from an escrow established pursuant to an Option Agreement or Stock Purchase Agreement until the Participating Company Group’s tax withholding obligations have been satisfied by the Participant.
 
10.2                         Withholding in Shares.   The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable to a Participant upon the exercise of an Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of the Participating Company Group.  The Fair Market Value of any shares of Stock withheld or tendered to
 
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satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates.
 
11.                                COMPLIANCE WITH SECURITIES LAW .
 
The grant of Awards and the issuance of shares of Stock upon exercise of Awards shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities.  Awards may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed.  In addition, no Award may be exercised unless (a) a registration statement under the Securities Act shall at the time of exercise of the Award be in effect with respect to the shares issuable upon exercise of the Award or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act.  The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.  As a condition to the exercise of any Award, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
 
12.                                AMENDMENT OR TERMINATION OF PLAN .
 
The Board may amend, suspend or terminate the Plan at any time.  However, subject to changes in applicable law, regulations or rules that would permit otherwise, without the approval of the Company’s shareholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2 ), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require approval of the Company’s shareholders under any applicable law, regulation or rule, including the rules of any stock exchange or market system upon which the Stock may then be listed.  No amendment, suspension or termination of the Plan shall affect any then outstanding Award unless expressly provided by the Board. Except as provided by the next sentence, no amendment, suspension or termination of the Plan may adversely affect any then outstanding Award without the consent of the Participant.  Notwithstanding any other provision of the Plan to the contrary, the Board may, in its sole and absolute discretion and without the consent of any participant, amend the Plan or any Award agreement, to take effect retroactively or otherwise, as it deems necessary or advisable for the purpose of conforming the Plan or such Award agreement to any present or future law, regulation or rule applicable to the Plan, including, but not limited to, Section 409A of the Code.
 
13.                                MISCELLANEOUS PROVISIONS .
 
13.1                         Repurchase Rights .   Shares issued under the Plan may be subject to a right of first refusal, one or more repurchase options, or other conditions and restrictions as determined by the Board in its discretion at the time the Award is granted.  The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company.  Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock
 
14 

 
acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
 
13.2                         Provision of Information . At least annually, copies of the Company’s balance sheet and income statement for the just completed fiscal year shall be made available to each Participant and purchaser of shares of Stock upon the exercise of an Award.  The Company shall not be required to provide such information to key employees whose duties in connection with the Company assure them access to equivalent information.  Furthermore, the Company shall deliver to each Participant such disclosures as are required in accordance with Rule 701 under the Securities Act.
 
13.3                         Shareholder Approval .  The Plan or any increase in the maximum aggregate number of shares of Stock issuable thereunder as provided in Section 4.1 (the “ Authorized Shares” ) shall be approved by a majority of the outstanding securities of the Company entitled to vote within twelve (12) months before or after the date of adoption thereof by the Board.  Awards granted prior to security holder approval of the Plan or in excess of the Authorized Shares previously approved by the security holders shall become exercisable no earlier than the date of security holder approval of the Plan or such increase in the Authorized Shares, as the case may be.
 
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing sets forth the Q2 Holdings, Inc. 2007 Stock Plan as duly adopted by the Board on July 27, 2007.

 	 	
 	/s/ R.H. Seale	
 	R.H. “Hank” Seale, III	
 	Secretary	
 
15 

AMENDMENT TO THE
CBG HOLDINGS, INC.
2007 STOCK PLAN
 
This Amendment (this “ Amendment ”) to the CBG Holdings, Inc. (the “ Company ”) 2007 Stock Plan, attached hereto as Exhibit A (the “ Existing Plan ”), is effective as of October 26, 2007 (the “ Effective Date ”).  Capitalized terms not otherwise defined in this Amendment shall have the meanings ascribed to such terms in the Existing Plan.
 
RECITALS
 
A.                                     Pursuant to the powers vested in the Board in Section 12 of the Existing Plan, the Company wishes to amend Section 4.1 therein to reflect certain changes in the maximum number of shares of Stock issuable under the Plan.
 
B.                                     The Board duly approved and adopted this Amendment on October 26, 2007.
 
C.                                     The Company’s stockholders duly approved and adopted this Amendment on October 29, 2007.
 
AMENDMENT TO THE EXISTING PLAN
 
In consideration of the recitals referenced above and effective upon the Effective Date, Section 4.1 of the Existing Plan is hereby deleted in its entirety and the following is hereby inserted in lieu thereof:
 
“Maximum Number of Shares Issuable.   Subject to adjustment as provided in Section 4.2 , the maximum aggregate number of shares of Stock that may be issued under the Plan shall be two million three hundred thousand six hundred thirty-nine (2,300,639) (after giving effect to the reverse three to one Common Stock split on July 27, 2007) which shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.  If an outstanding Award for any reason expires or is terminated or canceled or if shares of Stock are acquired upon the exercise of an Award subject to a Company repurchase option and are repurchased by the Company at the Participant’s exercise or purchase price, the shares of Stock allocable to the unexercised portion of such Award or such repurchased shares of Stock shall again be available for issuance under the Plan.  However, except as adjusted pursuant to Section 4.2 , in no event shall more than three million (3,000,000) shares of Stock be available for issuance pursuant to the exercise of Incentive Stock Options (the “ ISO Share Limit ” ).”
 
Signature page follows.

 
IN WITNESS WHEREOF, the undersigned officer of the Company certifies that this Amendment was duly adopted by the Board and the Company’s stockholders as of the respective dates set forth above.  The Company hereby executes the Amendment as of the Effective Date.

 	CBG HOLDINGS, INC.	

 	By:	/s/ R. H. Seale	
 	 	R. H. “Hank” Seale, III	
 	 	Chief Executive Officer and President	
 
SIGNATURE PAGE TO AMENDMENT TO CBG HOLDINGS, INC. 2007 STOCK PLAN

 
SECOND AMENDMENT TO THE
CBG HOLDINGS, INC.
2007 STOCK PLAN
 
This Second Amendment (this “ Amendment ”) to the CBG Holdings, Inc. (the “ Company ”) 2007 Stock Plan, attached hereto as Exhibit A (the “ Existing Plan ”), is effective as of February 17, 2009 (the “ Effective Date ”).  Capitalized terms not otherwise defined in this Amendment shall have the meanings ascribed to such terms in the Existing Plan.
 
RECITALS
 
A.                                     The Existing Plan was amended on October 26, 2007.
 
B.                                     On June 27, 2007, the Company acquired 100% of the outstanding stock of Q2 Software, Inc. (“ Q2 ”) and Cardinal Software, Inc. (“ Cardinal ”) and assumed all outstanding options under the Q2 Software, Inc. 2005 Stock Plan and Cardinal Software, Inc. 2005 Stock Option Plan (the “ Mergers ”);
 
C.                                     The options of Cardinal and Q2 assumed by CBG in the Mergers, in accordance with the terms and conversion rates of the respective Mergers were exercisable for an aggregate of 1,546,332 shares of Common Stock of the Company (the “ Assumed Options ”);
 
D.                                     In connection with the Mergers, the Company adopted the CBG Holdings, Inc. 2007 Stock Plan (the “ Plan ”) with 2,238,159 shares reserved under the Plan (which was soon thereafter increased to 2,300,639 shares) and believed that the Assumed Options would be assumed into the Plan and such shares would be additive to the initial share reserve under the Plan;
 
E.                                      Pursuant to the powers vested in the Board in Section 12 of the Existing Plan, the Company wishes to further amend Section 4.1 therein to clarify that the Assumed Options were assumed by the Company into the Plan and increase the Company’s common stock share reserve under the Plan and the ISO Share Limit (as define below) to specifically include the number of Assumed Options;
 
F.                                       Pursuant to the powers vested in the Board in Section 12 of the Existing Plan, the Company also wishes to further amend Section 4.1 therein to increase the number of shares the Company may issue pursuant to the Plan and the ISO Share Limit by an additional 1,000,000 shares;
 
G.                                     The Board duly approved and adopted this Amendment on December 12, 2008 and on February 17, 2009.
 
H.                                    The Company’s stockholders duly approved and adopted this Amendment on February 17, 2009.
 
AMENDMENT TO THE EXISTING PLAN
 
In consideration of the recitals referenced above and effective upon the Effective Date, Section 4.1 of the Existing Plan is hereby deleted in its entirety and the following is hereby inserted in lieu thereof:

 
“Maximum Number of Shares Issuable.   Subject to adjustment as provided in Section 4.2 , the maximum aggregate number of shares of Stock that may be issued under the Plan shall be four million eight hundred forty-six thousand nine hundred seventy-one (4,846,971) which shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.  If an outstanding Award for any reason expires or is terminated or canceled or if shares of Stock are acquired upon the exercise of an Award subject to a Company repurchase option and are repurchased by the Company at the Participant’s exercise or purchase price, the shares of Stock allocable to the unexercised portion of such Award or such repurchased shares of Stock shall again be available for issuance under the Plan.  However, except as adjusted pursuant to Section 4.2 , in no event shall more than four million eight hundred forty-six thousand nine hundred seventy-one (4,846,971) shares of Stock be available for issuance pursuant to the exercise of Incentive Stock Options (the “ ISO Share Limit ” ).”
 
Signature page follows.

 
IN WITNESS WHEREOF, the undersigned officer of the Company certifies that this Amendment was duly adopted by the Board and the Company’s stockholders as of the respective dates set forth above.  The Company hereby executes the Amendment as of the Effective Date.

 	CBG HOLDINGS, INC.	

 	By:	/s/ R. H. Seale	
 	 	R. H. “Hank” Seale, III	
 	 	Chief Executive Officer and President	
 
SIGNATURE PAGE TO SECOND AMENDMENT TO CBG HOLDINGS, INC. 2007 STOCK PLAN

 
THIRD AMENDMENT TO THE
CBG HOLDINGS, INC.
2007 STOCK PLAN
 
This Third Amendment (this “ Amendment ”) to the 2007 Stock Plan, as amended, attached hereto as Exhibit A (the “ Existing Plan ”) of CBG Holdings, Inc. (the “ Corporation ”), is effective as of November 17, 2011 (the “ Effective Date ”).  Capitalized terms not otherwise defined in this Amendment shall have the meanings ascribed to such terms in the Existing Plan.
 
RECITALS
 
A.                                     Pursuant to the powers vested in the Board in Section 12 of the Existing Plan, the Corporation wishes to amend Section 4.1 therein to reflect certain changes in the maximum number of shares of Stock issuable under the Plan.
 
B.                                     The Board duly approved and adopted this Amendment on July 13, 2011.
 
C.                                     The Corporation’s stockholders duly approved and adopted this Amendment on November 17, 2011.
 
AMENDMENT TO THE EXISTING PLAN
 
In consideration of the recitals referenced above and effective upon the Effective Date, Section 4.1 of the Existing Plan is hereby deleted in its entirety and the following is hereby inserted in lieu thereof:
 
“ Maximum Number of Shares Issuable.   Subject to adjustment as provided in Section 4.2 , the maximum aggregate number of shares of Stock that may be issued under the Plan shall be six million four hundred twenty-eight thousand four hundred thirty-three (6,428,433) which shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.  If an outstanding Award for any reason expires or is terminated or canceled or if shares of Stock are acquired upon the exercise of an Award subject to a Company repurchase option and are repurchased by the Company at the Participant’s exercise or purchase price, the shares of Stock allocable to the unexercised portion of such Award or such repurchased shares of Stock shall again be available for issuance under the Plan.  However, except as adjusted pursuant to Section 4.2 , in no event shall more than six million four hundred twenty-eight thousand four hundred thirty-three (6,428,433) shares of Stock be available for issuance pursuant to the exercise of Incentive Stock Options (the “ ISO Share Limit ” ).”
 
Signature page follows.

 
IN WITNESS WHEREOF, the undersigned officer of the Corporation certifies that this Amendment was duly adopted by the Board and the Corporation’s stockholders as of the respective dates set forth above.  The Corporation hereby executes the Amendment as of the Effective Date.

 	CBG HOLDINGS, INC.	

 	By:	/s/ R. H. Seale	
 	 	R. H. “Hank” Seale, III	
 	 	Chief Executive Officer and President	

 
FOURTH AMENDMENT TO THE
CBG HOLDINGS, INC.
2007 STOCK PLAN
 
This Fourth Amendment (this “ Amendment ”) to the 2007 Stock Plan, as amended, attached hereto as Exhibit A (the “ Existing Plan ”) of CBG Holdings, Inc. (the “ Corporation ”), is effective as of February 8, 2012 (the “ Effective Date ”).  Capitalized terms not otherwise defined in this Amendment shall have the meanings ascribed to such terms in the Existing Plan.
 
RECITALS
 
A.                                     Pursuant to the powers vested in the Board in Section 12 of the Existing Plan, the Corporation wishes to amend Section 4.1 therein to reflect certain changes in the maximum number of shares of Stock issuable under the Plan and amend Section 9.1 to allow for immediate vesting of options issued to the Corporation’s directors on or after the Effective Date upon a change in control of the Corporation.
 
B.                                     The Board duly approved and adopted this Amendment on February 8, 2012.
 
C.                                     The requisite stockholders duly approved and adopted this Amendment on February 8, 2012.
 
AMENDMENTS TO THE EXISTING PLAN
 
In consideration of the recitals referenced above and effective upon the Effective Date, Section 4.1 of the Existing Plan is hereby deleted in its entirety and the following is hereby inserted in lieu thereof:
 
“ Maximum Number of Shares Issuable.   Subject to adjustment as provided in Section 4.2 , the maximum aggregate number of shares of Stock that may be issued under the Plan shall be seven million six hundred seventy-eight thousand four hundred thirty-three (7,678,433) which shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.  If an outstanding Award for any reason expires or is terminated or canceled or if shares of Stock are acquired upon the exercise of an Award subject to a Company repurchase option and are repurchased by the Company at the Participant’s exercise or purchase price, the shares of Stock allocable to the unexercised portion of such Award or such repurchased shares of Stock shall again be available for issuance under the Plan.  However, except as adjusted pursuant to Section 4.2 , in no event shall more than seven million six hundred seventy-eight thousand four hundred thirty-three (7,678,433) shares of Stock be available for issuance pursuant to the exercise of Incentive Stock Options (the “ ISO Share Limit ” ).”
 
In consideration of the recitals referenced above and effective upon the Effective Date, shall be added to the end of Section 9.1(a):
 
“Notwithstanding any other provision set forth in this Section 9.1, any Option granted to a member of the Board on or after February 8, 2012 shall become fully vested and exercisable the day immediately prior to, but contingent upon, a Change in Control.”
 
Signature page follows.

 
IN WITNESS WHEREOF, the undersigned officer of the Corporation certifies that this Amendment was duly adopted by the Board and the Corporation’s stockholders as of the respective dates set forth above.  The Corporation hereby executes the Amendment as of the Effective Date.

 	CBG HOLDINGS, INC.	

 	By:	/s/ R. H. Seale	
 	 	R. H. “Hank” Seale, III	
 	 	Chief Executive Officer and President	
 
[ Signature Page to Fourth Amendment to the CBG Holdings, Inc. 2007 Stock Plan ]

 
FIFTH AMENDMENT TO THE
CBG HOLDINGS, INC.
2007 STOCK PLAN
 
This Fifth Amendment (this “ Amendment ”) to the 2007 Stock Plan, as amended, attached hereto as Exhibit A (the “ Existing Plan ”) of CBG Holdings, Inc. (the “ Corporation ”), is effective as of February 28, 2013 (the “ Effective Date ”).  Capitalized terms not otherwise defined in this Amendment shall have the meanings ascribed to such terms in the Existing Plan.
 
RECITALS
 
A.                                     Pursuant to the powers vested in the Board in Section 12 of the Existing Plan, the Corporation wishes to amend Section 1.1 therein to change the name of the Plan from the “CBG Holdings, Inc. 2007 Stock Plan” to the “Q2 Holdings, Inc. 2007 Stock Plan.”
 
B.                                     The Board duly approved and adopted this Amendment on February 28, 2013.
 
C.                                     The requisite stockholders duly approved and adopted this Amendment on February 28, 2013.
 
AMENDMENTS TO THE EXISTING PLAN
 
In consideration of the recitals referenced above and effective upon the Effective Date, Section 1.1 of the Existing Plan is hereby deleted in its entirety and the following is hereby inserted in lieu thereof:
 
Establishment .  Q2 Holdings, Inc. 2007 Stock Plan (the “ Plan ” ) is hereby established effective as of July 27, 2007.
 
Signature page follows.

 
IN WITNESS WHEREOF, the undersigned officer of the Corporation certifies that this Amendment was duly adopted by the Board and the Corporation’s stockholders as of the respective dates set forth above.  The Corporation hereby executes the Amendment as of the Effective Date.

 	Q2 HOLDINGS, INC.	

 	By:	/s/ Barry Benton	
 	 	Barry Benton	
 	 	Assistant Secretary	

 
SIXTH AMENDMENT TO THE
Q2 HOLDINGS, INC.
2007 STOCK PLAN
 
This Sixth Amendment (this “ Amendment ”) to the 2007 Stock Plan, as amended, attached hereto as Exhibit A (the “ Existing Plan ”) of Q2 Holdings, Inc. (the “ Corporation ”), is effective as of December 11, 2013 (the “ Effective Date ”).  Capitalized terms not otherwise defined in this Amendment shall have the meanings ascribed to such terms in the Existing Plan.
 
RECITALS
 
A.                                     Pursuant to the powers vested in the Board in Section 12 of the Existing Plan, the Corporation wishes to amend Section 4.1 therein to reflect certain changes in the maximum number of shares of Stock issuable under the Plan.
 
B.                                     The Board duly approved and adopted this Amendment on December 11, 2013.
 
C.                                     The requisite stockholders duly approved and adopted this Amendment on December 11, 2013.
 
AMENDMENTS TO THE EXISTING PLAN
 
In consideration of the recitals referenced above and effective upon the Effective Date, Section 4.1 of the Existing Plan is hereby deleted in its entirety and the following is hereby inserted in lieu thereof:
 
“ Maximum Number of Shares Issuable.   Subject to adjustment as provided in Section 4.2 , the maximum aggregate number of shares of Stock that may be issued under the Plan shall be seven million nine hundred twenty-eight thousand four hundred thirty-three (7,928,433) which shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.  If an outstanding Award for any reason expires or is terminated or canceled or if shares of Stock are acquired upon the exercise of an Award subject to a Company repurchase option and are repurchased by the Company at the Participant’s exercise or purchase price, the shares of Stock allocable to the unexercised portion of such Award or such repurchased shares of Stock shall again be available for issuance under the Plan.  However, except as adjusted pursuant to Section 4.2 , in no event shall more than seven million nine hundred twenty-eight thousand four hundred thirty-three (7,928,433) shares of Stock be available for issuance pursuant to the exercise of Incentive Stock Options (the “ ISO Share Limit ” ).”
 
Signature page follows.

 
IN WITNESS WHEREOF, the undersigned officer of the Corporation certifies that this Amendment was duly adopted by the Board and the Corporation’s stockholders as of the respective dates set forth above.  The Corporation hereby executes the Amendment as of the Effective Date.

 	Q2 HOLDINGS, INC.	

 	By:	/s/ Matt Flake	
 	 	Matt Flake	
 	 	Chief Executive Officer and President	

Exhibit 10.2.2
 
CBG HOLDINGS, INC.
STOCK OPTION AGREEMENT
 
CBG Holdings, Inc. (the “ Company ”) has granted to the individual (the “ Participant ”) named in the Notice of Grant of Stock Option (the “ Notice ” ) to which this Stock Option Agreement (this “ Option Agreement ” ) is attached, an option (the “ Option ” ) to purchase certain shares of Stock upon the terms and conditions set forth in the Notice and this Option Agreement.  The Option has been granted pursuant to and shall in all respects be subject to the terms and conditions of the CBG Holding, Inc. 2007 Stock Plan (the “ Plan ” ), as amended to the Date of Option Grant and as interpreted from time to time by the Board of Directors of the Company, the provisions of which are incorporated herein by reference.  By signing the Notice, the Participant: (a) represents that the Participant has received copies of, and has read and is familiar with the terms and conditions of, the Notice, the Plan and this Option Agreement, (b) accepts the Option subject to all of the terms and conditions of the Notice, the Plan and this Option Agreement, and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Notice, the Plan or this Option Agreement.
 
1.               DEFINITIONS AND CONSTRUCTION .
 
1.1        Definitions .   Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Notice or the Plan.
 
1.2        Construction .   Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement.  Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular.  Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
 
2.               TAX CONSEQUENCES .
 
2.1        Tax Status of Option .   This Option is intended to have the tax status designated in the Notice.
 
(a)          Incentive Stock Option .   If the Notice so designates, this Option is intended to be an Incentive Stock Option within the meaning of Section 422(b) of the Code, but the Company does not represent or warrant that this Option qualifies as such.  The Participant should consult with the Participant’s own tax advisor regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements.
 
NOTE TO PARTICIPANT: If the Option is exercised more than three (3) months after the date on which you cease to be an Employee (other than by reason of your death or permanent and total disability as defined in Section 22(e)(3) of the Code), the Option will be treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to the extent required by Section 422 of the Code.
 
(b)          Nonstatutory Stock Option.   If the Notice so designates, this Option is intended to be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the meaning of Section 422(b) of the Code.
 
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2.2        ISO Fair Market Value Limitation.   If the Notice designates this Option as an Incentive Stock Option, then to the extent that the Option (together with all Incentive Stock Options granted to the Participant under all stock option plans of the Participating Company Group, including the Plan) becomes exercisable for the first time during any calendar year for shares having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount will be treated as Nonstatutory Stock Options.  For purposes of this Section 2.2 , options designated as Incentive Stock Options are taken into account in the order in which they were granted, and the Fair Market Value of stock is determined as of the time the option with respect to such stock is granted.  If the Code is amended to provide for a different limitation from that set forth in this Section 2.2 , such different limitation shall be deemed incorporated herein effective as of the date required or permitted by such amendment to the Code.  If the Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 2.2 , the Participant may designate which portion of such Option the Participant is exercising.  In the absence of such designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option first.  Separate certificates representing each such portion shall be issued upon the exercise of the Option.
 
NOTE TO PARTICIPANT: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other Incentive Stock Options you hold (whether granted pursuant to the Plan or any other stock option plan of the Participating Company Group) is greater than $100,000, you should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an Incentive Stock Option.
 
3.               ADMINISTRATION .
 
All questions of interpretation concerning this Option Agreement shall be determined by the Board.  All determinations by the Board shall be final and binding upon all persons having an interest in the Option.  Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.
 
4.               EXERCISE OF THE OPTION .
 
4.1        Right to Exercise .   Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Vesting Date and prior to the termination of the Option (as provided in Section 6 ) in an amount not to exceed the number of Vested Shares less the number of shares previously acquired upon exercise of the Option, subject to the Company’s repurchase rights set forth in Section 11 .  In no event shall the Option be exercisable for more shares than the Number of Option Shares, as adjusted pursuant to Section 9 .
 
4.2        Method of Exercise .   Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Participant’s investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement.  The written notice must be signed by the Participant and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Executive Officer or Chief Financial Officer of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in Section 6 , accompanied by full payment of the aggregate Exercise Price for
 
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the number of shares of Stock being purchased.  The Option shall be deemed to be exercised upon receipt by the Company of such written notice and the aggregate Exercise Price.
 
4.3        Payment of Exercise Price.
 
(a)          Forms of Consideration Authorized .   Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Participant having a Fair Market Value not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(b) , or (iv) by any combination of the foregoing.
 
(b)          Limitations on Forms of Consideration.
 
(i)                                      Tender of Stock.   Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.  The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Participant for more than six (6) months or were not acquired, directly or indirectly, from the Company.
 
(ii)                                   Cashless Exercise.   A “ Cashless Exercise ” means the delivery of a properly executed notice together with irrevocable instructions to a broker in a form acceptable to the Company providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System).  The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to decline to approve or terminate any such program or procedure.
 
4.4        Tax Withholding .   At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option or (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option.  The Option is not exercisable unless the tax withholding obligations of the Participating Company Group are satisfied.  Accordingly, the Company shall have no obligation to deliver shares of Stock until the tax withholding obligations of the Participating Company Group have been satisfied by the Participant.
 
4.5        Certificate Registration .   Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
 
4.6        Restrictions on Grant of the Option and Issuance of Shares .   The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities.  The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of
 
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any stock exchange or market system upon which the Stock may then be listed.  In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act.  THE PARTICIPANT IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.  ACCORDINGLY, THE PARTICIPANT MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.  The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.  As a condition to the exercise of the Option, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
 
4.7        Fractional Shares .   The Company shall not be required to issue fractional shares upon the exercise of the Option.
 
5.               NONTRANSFERABILITY OF THE OPTION .
 
The Option may be exercised during the lifetime of the Participant only by the Participant or the Participant’s guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution.  Following the death of the Participant, the Option, to the extent provided in Section 7 , may be exercised by the Participant’s legal representative or by any person empowered to do so under the deceased Participant’s will or under the then applicable laws of descent and distribution.
 
6.               TERMINATION OF THE OPTION .
 
The Option shall terminate and may no longer be exercised after the first to occur of (a) the close of business on the Option Expiration Date, (b) the close of business on the last date for exercising the Option following termination of the Participant’s Service as described in Section 7 , or (c) a Change in Control to the extent provided in Section 8 .
 
7.               EFFECT OF TERMINATION OF SERVICE .
 
7.1        Option Exercisability.
 
(a)          Disability .   If the Participant’s Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
 
(b)          Death .   If the Participant’s Service terminates because of the death of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any
 
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event no later than the Option Expiration Date.  The Participant’s Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months after the Participant’s termination of Service.
 
(c)           Termination After Change in Control.   If the Participant’s Service ceases as a result of Termination After Change in Control (as defined below), (i) the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of six (6) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date, and (ii) the Option shall become immediately vested and exercisable in full and the Vested Ratio shall be deemed to be 1/1 as of the date on which the Participant’s Service terminated.
 
(d)          Termination for Cause.   Notwithstanding any other provision of this Option Agreement, if the Participant’s Service is terminated for Cause (as defined below), the Option shall terminate and cease to be exercisable on the effective date of such termination of Service.  Unless otherwise defined in a contract of employment or service between the Participant and a Participating Company, for purposes of this Option Agreement “ Cause ” shall mean any of the following: (i) the Participant’s theft, dishonesty, or falsification of any Participating Company documents or records; (ii) the Participant’s improper use or disclosure of a Participating Company’s confidential or proprietary information; (iii) any action by the Participant which has a material detrimental effect on a Participating Company’s reputation or business; (iv) the Participant’s failure or inability to perform any reasonable assigned duties after written notice from a Participating Company of, and a reasonable opportunity to cure, such failure or inability; (v) any material breach by the Participant of any employment agreement between the Participant and a Participating Company, which breach is not cured pursuant to the terms of such agreement; or (vi) the Participant’s conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the Participant’s ability to perform his or her duties with a Participating Company.
 
(e)           Other Termination of Service .   If the Participant’s Service with the Participating Company Group terminates for any reason, except Disability, death or Cause or Termination After Change in Control, the Option, to the extent unexercised and exercisable by the Participant on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months (or such other longer period of time as determined by the Board, in its discretion) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
 
7.2        Extension if Exercise Prevented by Law .   Notwithstanding the foregoing other than termination for Cause, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6 , the Option shall remain exercisable until thirty (30) days after the date the Participant is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.
 
7.3        Extension if Participant Subject to Section 16(b).   Notwithstanding the foregoing other than termination for Cause, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participant’s termination of Service, or (iii) the Option Expiration Date.
 
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8.               CHANGE IN CONTROL .
 
8.1        Definitions.
 
(a)          An “ Ownership Change Event ” shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company.
 
(b)          A “ Change in Control ” shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, a “ Transaction ” ) wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of a Transaction described in Section 8.1(a)(iii) , the corporation or other business entity to which the assets of the Company were transferred (the “ Transferee ” ), as the case may be.  For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities.  The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.  Unless otherwise determined by the Board, an initial public offering of any member of the Participating Company Group shall not be a “Change in Control” for any purpose under this Agreement.
 
(c)           “ Good Reason ” shall mean any one or more of the following:
 
(i)                                      any failure by the Participating Company Group to pay, or any material reduction by the Participating Company Group of, the Participant’s base salary in effect immediately prior to the date of the Change in Control (unless reductions comparable in amount and duration are concurrently made for all other employees of the Participating Company Group with responsibilities, organizational level and title comparable to the Participant’s); or
 
(ii)                                   any failure by the Participating Company Group to (1) continue to provide the Participant with the opportunity to participate, on terms no less favorable than those in effect for the benefit of any employee or service provider group which customarily includes a person holding the employment or service provider position or a comparable position with the Participating Company Group then held by the Participant, in any benefit or compensation plans and programs, including, but not limited to, the Participating Company Group’s life, disability, health, dental, medical, savings, profit sharing, stock purchase and retirement plans, if any, in which the Participant was participating immediately prior to the date of the Change in Control, or their equivalent, or (2) provide the Participant with all other fringe benefits (or their equivalent) from time to time in effect for the benefit of any employee or service provider group which customarily includes a person holding the employment or service provider position or a comparable position with the Participating Company Group then held by the Participant.
 
(d)          “ Termination After Change in Control ” shall mean either of the following events occurring within twelve (12) months after a Change in Control:
 
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(i)                                      termination by the Participating Company Group of the Participant’s Service with the Participating Company Group for any reason other than for Cause (as defined below); or
 
(ii)                                   the Participant’s resignation for Good Reason (as defined above) from all capacities in which the Participant is then rendering Service to the Participating Company Group within a reasonable period of time following the event constituting Good Reason; provided, however that Participant will not resign for Good Reason without first providing the Company with written notice of the acts or omissions constituting the grounds for “Good Reason” within 30 days of the initial existence of the grounds for “Good Reason” and providing Company with a reasonable cure period of 30 days following the date of such notice.
 
Notwithstanding any provision herein to the contrary, Termination After Change in Control shall not include any termination of the Participant’s Service with the Participating Company Group which (1) is for Cause (as defined below); (2) is a result of the Participant’s death or disability; (3) is a result of the Participant’s voluntary termination of Service other than for Good Reason; or (4) occurs prior to the effectiveness of a Change in Control.
 
8.2        Effect of Change in Control on Option .
 
(a)          In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “ Acquiror ” ), may, without the consent of the Participant, either assume the Company’s rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiror’s stock.  In the event the Acquiror elects not to assume the Company’s rights and obligations under the Option or substitute for the Option in connection with the Change in Control, and provided that the Participant’s Service has not terminated prior to such date, the Vested Ratio shall be deemed to be 1/1 and all shares acquired upon exercise of the Option shall be Vested Shares as of the date ten (10) days prior to the date of the Change in Control.  Any vesting of the Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control.  The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiror in connection with the Change in Control nor exercised as of the date of the Change in Control.  Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of this Option Agreement except as otherwise provided herein.  Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i)  constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its discretion.
 
(b)          The Board may, in its discretion, determine that upon a Change in Control each Option outstanding immediately prior to the Change in Control shall be canceled in exchange for payment with respect to each vested share of Stock subject to such Option immediately prior to its cancellation in (a) cash, (b) stock of the Company or the Acquiror or (c) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the excess of the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control over the exercise price per share
 
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under the Option (subject to any required tax withholding).  Such payment shall be made as soon as practicable following the Change in Control.
 
9.               ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE .
 
Subject to any required action by the stockholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number, Exercise Price and class of shares subject to the Option, in order to prevent dilution or enlargement of the Participant’s rights under the Option.  For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.”  If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the “ New Shares ” ), the Board may unilaterally amend the outstanding Options to provide that such Options are for New Shares.  In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its discretion.  Any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded down to the nearest whole number, and in no event may the purchase price of the Option be decreased to an amount less than the par value, if any, of the stock subject to the Option.  Such adjustments shall be determined by the Board, and its determination shall be final, binding and conclusive.
 
10.        RIGHTS AS A STOCKHOLDER, DIRECTOR, EMPLOYEE OR CONSULTANT .
 
The Participant shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9 .  If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Participant, the Participant’s employment is “at will” and is for no specified term.  Nothing in this Option Agreement shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Participant’s Service as a Director, an Employee or Consultant, as the case may be, at any time.
 
11.        RIGHT OF FIRST REFUSAL .
 
11.1                         Grant of Right of First Refusal .   Except as provided in Section 11.7 and Section 17 below, in the event the Participant, the Participant’s legal representative, or other holder of shares acquired upon exercise of the Option proposes to sell, exchange, transfer, pledge, or otherwise dispose of any shares acquired upon exercise of the Option (the “ Transfer Shares ” ) to any person or entity, including, without limitation, any stockholder of a Participating Company, the Company shall have the right to repurchase the Transfer Shares under the terms and subject to the conditions set forth in this Section 11 (the “ Right of First Refusal ” ).
 
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11.2                         Notice of Proposed Transfer .   Prior to any proposed transfer of the Transfer Shares, the Participant shall deliver written notice (the “ Transfer Notice ” ) to the Company describing fully the proposed transfer, including the number of Transfer Shares, the name and address of the proposed transferee (the “ Proposed Transferee ” ) and, if the transfer is voluntary, the proposed transfer price, and containing such information necessary to show the bona fide nature of the proposed transfer.  In the event of a bona fide gift or involuntary transfer, the proposed transfer price shall be deemed to be the Fair Market Value of the Transfer Shares, as determined by the Board in good faith.  If the Participant proposes to transfer any Transfer Shares to more than one Proposed Transferee, the Participant shall provide a separate Transfer Notice for the proposed transfer to each Proposed Transferee.  The Transfer Notice shall be signed by both the Participant and the Proposed Transferee and must constitute a binding commitment of the Participant and the Proposed Transferee for the transfer of the Transfer Shares to the Proposed Transferee subject only to the Right of First Refusal
 
11.3                         Bona Fide Transfer .   If the Company determines that the information provided by the Participant in the Transfer Notice is insufficient to establish the bona fide nature of a proposed voluntary transfer, the Company shall give the Participant written notice of the Participant’s failure to comply with the procedure described in this Section 11 , and the Participant shall have no right to transfer the Transfer Shares without first complying with the procedure described in this Section 11 .  The Participant shall not be permitted to transfer the Transfer Shares if the proposed transfer is not bona fide.
 
11.4                         Exercise of Right of First Refusal .   If the Company determines the proposed transfer to be bona fide, the Company shall have the right to purchase all, but not less than all, of the Transfer Shares (except as the Company and the Participant otherwise agree) at the purchase price and on the terms set forth in the Transfer Notice by delivery to the Participant of a notice of exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered to the Company.  The Company’s exercise or failure to exercise the Right of First Refusal with respect to any proposed transfer described in a Transfer Notice shall not affect the Company’s right to exercise the Right of First Refusal with respect to any proposed transfer described in any other Transfer Notice, whether or not such other Transfer Notice is issued by the Participant or issued by a person other than the Participant with respect to a proposed transfer to the same Proposed Transferee.  If the Company exercises the Right of First Refusal, the Company and the Participant shall thereupon consummate the sale of the Transfer Shares to the Company on the terms set forth in the Transfer Notice within sixty (60) days after the date the Transfer Notice is delivered to the Company (unless a longer period is offered by the Proposed Transferee); provided, however, that in the event the Transfer Notice provides for the payment for the Transfer Shares other than in cash, the Company shall have the option of paying for the Transfer Shares by the present value cash equivalent of the consideration described in the Transfer Notice as reasonably determined by the Company.  For purposes of the foregoing, cancellation of any indebtedness of the Participant to any Participating Company shall be treated as payment to the Participant in cash to the extent of the unpaid principal and any accrued interest canceled.
 
11.5                         Failure to Exercise Right of First Refusal .   If the Company fails to exercise the Right of First Refusal in full (or to such lesser extent as the Company and the Participant otherwise agree) within the period specified in Section 11.4 above, the Participant may conclude a transfer to the Proposed Transferee of the Transfer Shares on the terms and conditions described in the Transfer Notice, provided such transfer occurs not later than ninety (90) days following delivery to the Company of the Transfer Notice.  The Company shall have the right to demand further assurances from the Participant and the Proposed Transferee (in a form satisfactory to the Company) that the transfer of the Transfer Shares was actually carried out on the terms and conditions described in the Transfer Notice.  No Transfer Shares shall be transferred on the books of the Company until the Company has received such assurances, if so demanded, and has approved the proposed transfer as bona fide.  Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed
 
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transfer by the Participant, shall again be subject to the Right of First Refusal and shall require compliance by the Participant with the procedure described in this Section 11 .
 
11.6                         Transferees of Transfer Shares .   All transferees of the Transfer Shares or any interest therein, other than the Company, shall be required as a condition of such transfer to agree in writing (in a form satisfactory to the Company) that such transferee shall receive and hold such Transfer Shares or interest therein subject to all of the terms and conditions of this Option Agreement, including this Section 11 providing for the Right of First Refusal with respect to any subsequent transfer.  Any sale or transfer of any shares acquired upon exercise of the Option shall be void unless the provisions of this Section 11 are met.
 
11.7                         Transfers Not Subject to Right of First Refusal .   The Right of First Refusal shall not apply to any transfer or exchange of the shares acquired upon exercise of the Option if such transfer or exchange is in connection with an Ownership Change Event.  If the consideration received pursuant to such transfer or exchange consists of stock of a Participating Company, such consideration shall remain subject to the Right of First Refusal unless the provisions of Section 11.9 below result in a termination of the Right of First Refusal.
 
11.8                         Assignment of Right of First Refusal .   The Company shall have the right to assign the Right of First Refusal at any time, whether or not there has been an attempted transfer, to one or more persons as may be selected by the Company.
 
11.9                         Early Termination of Right of First Refusal .   The other provisions of this Option Agreement notwithstanding, the Right of First Refusal shall terminate and be of no further force and effect upon (a) the occurrence of a Change in Control, unless the Acquiror assumes the Company’s rights and obligations under the Option or substitutes a substantially equivalent option for the Acquiror’s stock for the Option, or (b) the existence of a public market for the class of shares subject to the Right of First Refusal.  A “ public market ” shall be deemed to exist if (i) such stock is listed on a national securities exchange (as that term is used in the Exchange Act) or (ii) such stock is traded on the over-the-counter market and prices therefor are published daily on business days in a recognized financial journal.
 
12.        STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT .
 
If, from time to time, there is any stock dividend, stock split or other change, as described in Section 9 , in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, then in such event any and all new, substituted or additional securities to which the Participant is entitled by reason of the Participant’s ownership of the shares acquired upon exercise of the Option shall be immediately subject to the Right of First Refusal with the same force and effect as the shares subject to the Right of First Refusal immediately before such event.
 
13.        NOTICE OF SALES UPON DISQUALIFYING DISPOSITION .
 
The Participant shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement.  In addition, if the Notice designates this Option as an Incentive Stock Option, the Participant shall (a) promptly notify the Chief Financial Officer of the Company if the Participant disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Participant exercises all or part of the Option or within two (2) years after the Date of Option Grant and (b) provide the Company with a description of the circumstances of such disposition.  Until such time as the Participant disposes of such shares in a manner consistent with the
 
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provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Participant shall hold all shares acquired pursuant to the Option in the Participant’s name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Option Grant.  At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company’s stock to notify the Company of any such transfers.  The obligation of the Participant to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence.
 
14.        LEGENDS .
 
The Company may at any time place legends referencing the Right of First Refusal and any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement.  The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Participant in order to carry out the provisions of this Section 14 .  Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following:
 
14.1 “THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.”
 
14.2 “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER’S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.”
 
14.3 “THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (“ISO ” ).  IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO [ INSERT DISQUALIFYING DISPOSITION DATE HERE ].  SHOULD THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY.  THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER’S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE.”
 
15.        LOCK-UP AGREEMENT .
 
The Participant hereby agrees that in the event of any underwritten public offering of stock, including an initial public offering of stock, made by the Company pursuant to an effective registration statement filed under the Securities Act, the Participant shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of stock of the Company or any rights to acquire stock of the Company for such period of time
 
11 

 
from and after the effective date of such registration statement as may be established by the underwriter for such public offering; provided, however, that such period of time shall not exceed one hundred eighty (180) days from the effective date of the registration statement to be filed in connection with such public offering.  The foregoing limitation shall not apply to shares registered in the public offering under the Securities Act.
 
16.        RESTRICTIONS ON TRANSFER OF SHARES .
 
No shares acquired upon exercise of the Option may be sold, exchanged, transferred (including, without limitation, any transfer to a nominee or agent of the Participant), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, (a) unless a public market (as defined in Section 11.9 ) then exists for the Stock, prior to the first to occur of an Ownership Change Event or the date occurring six (6) months after the Participant acquired such shares or (b) in any manner which violates any of the provisions of this Option Agreement, and any such attempted disposition shall be void.  The Company shall not be required (a) to transfer on its books any shares which will have been transferred in violation of any of the provisions set forth in this Option Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares will have been so transferred.
 
17.        MISCELLANEOUS PROVISIONS .
 
17.1                         Further Instruments.   The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.
 
17.2                         Binding Effect.   Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.
 
17.3                         Termination or Amendment.   The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Participant unless such termination or amendment is necessary to comply with any applicable law or government regulation.  No amendment or addition to this Option Agreement shall be effective unless in writing.
 
17.4                         Notices.  Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, upon deposit in the United States Post Office, by registered or certified mail, or with an overnight courier service with postage and fees prepaid, addressed to the other party at the address shown below that party’s signature or at such other address as such party may designate in writing from time to time to the other party.
 
17.5                         Integrated Agreement.   The Notice, this Option Agreement and the Plan constitute the entire understanding and agreement of the Participant and the Participating Company Group with respect to the subject matter contained herein or therein and supersedes any prior agreements, understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein or therein.  To the extent contemplated herein or therein, the provisions of the Notice and the Option Agreement shall survive any exercise of the Option and shall remain in full force and effect.
 
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17.6                         Applicable Law.   This Option Agreement shall be governed by the laws of the State of Texas as such laws are applied to agreements between Texas residents entered into and to be performed entirely within the State of Texas.
 
17.7                         Counterparts.   The Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
Remainder of Page Intentionally Left Blank.
 
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o Incentive Stock Option	Participant:	 	
 	 	
o Nonstatutory Stock Option	Date:	 	

STOCK OPTION EXERCISE NOTICE

CBG Holdings, Inc.	 	
Attention: President	 	

 
Ladies and Gentlemen:
 
1.               Option .   I was granted an option (the “ Option ” ) to purchase shares of the common stock (the “ Shares ” ) of CBG Holdings, Inc. (the “ Company ” ) pursuant to the Company’s 2007 Stock Plan (the “ Plan ” ), my Notice of Grant of Stock Option (the “ Notice ” ) and my Stock Option Agreement (the “ Option Agreement ” ) as follows:

Date of Option Grant:	 	
 	 	
Number of Option Shares:	 	
 	 	 	
Exercise Price per Share:	$	 	
 
2.               Exercise of Option .   I hereby elect to exercise the Option to purchase the following number of Shares, all of which are Vested Shares in accordance with the Notice and the Option Agreement:

Total Shares Purchased:	 	
 	 	 	
Total Exercise Price (Total Shares X Price per Share)	$	 	
 
3.               Payments .   I enclose payment in full of the total exercise price for the Shares in the following form(s), as authorized by my Option Agreement:

o Cash:	$	 	
 	 	 	
o Check	$	 	
 	 	
o Tender of Company Stock:	Contact Plan	
 	Administrator	
 
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4.               Tax Withholding .   I authorize payroll withholding and otherwise will make adequate provision for the federal, state, local and foreign tax withholding obligations of the Company, if any, in connection with the Option.  If I am exercising a Nonstatutory Stock Option, I enclose payment in full of my withholding taxes, if any, as follows:
 
(Contact Plan Administrator for amount of tax due.)

o Cash:	$	 	
 	 	 	
o Check:	$	 	
 
5.               Participant Information .

My address is:	                                               	

My Social Security Number is:	                                              	

6.               Notice of Disqualifying Disposition .   If the Option is an Incentive Stock Option, I agree that I will promptly notify the Chief Financial Officer of the Company if I transfer any of the Shares within one (1) year from the date I exercise all or part of the Option or within two (2) years of the Date of Option Grant.
 
7.               Binding Effect .   I agree that the Shares are being acquired in accordance with and subject to the terms, provisions and conditions of the Option Agreement, including the Right of First Refusal set forth therein, to all of which I hereby expressly assent.  This Agreement shall inure to the benefit of and be binding upon my heirs, executors, administrators, successors and assigns.
 
8.               Transfer .   I understand and acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the “ Securities Act ” ), and that consequently the Shares must be held indefinitely unless they are subsequently registered under the Securities Act, an exemption from such registration is available, or they are sold in accordance with Rule 144 or Rule 701 under the Securities Act.  I further understand and acknowledge that the Company is under no obligation to register the Shares.  I understand that the certificate or certificates evidencing the Shares will be imprinted with legends which prohibit the transfer of the Shares unless they are registered or such registration is not required in the opinion of legal counsel satisfactory to the Company.
 
I am aware that Rule 144 under the Securities Act, which permits limited public resale of securities acquired in a nonpublic offering, is not currently available with respect to the Shares and, in any event, is available only if certain conditions are satisfied.  I understand that any sale of the Shares that might be made in reliance upon Rule 144 may only be made in limited amounts in accordance with the terms and conditions of such rule and that a copy of Rule 144 will be delivered to me upon request.
 
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I understand that I am purchasing the Shares pursuant to the terms of the Plan, the Notice and my Option Agreement, copies of which I have received and carefully read and understand.

 	Very truly yours,	
 	 	
 	Signature:	 	
 	 	
 	Printed Name:	 	

 	 	
Receipt of the above is hereby acknowledged.	 	
 	 	
CBG HOLDINGS, INC.	 	

By:	 	 	
Name:	 	 	
Title:	 	 	
Dated:	 	 	
 
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Exhibit 10.2.3
 
Q2 HOLDINGS, INC.
STOCK OPTION AGREEMENT
(For Executive Officers)
 
Q2 Holdings, Inc. (the “ Company ”) has granted to the individual (the “ Participant ”) named in the Notice of Grant of Stock Option (the “ Notice ” ) to which this Stock Option Agreement (this “ Option Agreement ” ) is attached, an option (the “ Option ” ) to purchase certain shares of Stock upon the terms and conditions set forth in the Notice and this Option Agreement.  The Option has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Q2 Holding, Inc. 2007 Stock Plan (the “ Plan ” ), as amended to the Date of Option Grant and as interpreted from time to time by the Board of Directors of the Company, the provisions of which are incorporated herein by reference.  By signing the Notice, the Participant: (a) represents that the Participant has received copies of, and has read and is familiar with the terms and conditions of, the Notice, the Plan and this Option Agreement, (b) accepts the Option subject to all of the terms and conditions of the Notice, the Plan and this Option Agreement, and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Notice, the Plan or this Option Agreement.
 
1.               DEFINITIONS AND CONSTRUCTION .
 
1.1        Definitions .   Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Notice or the Plan.
 
1.2        Construction .   Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement.  Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular.  Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
 
2.               TAX CONSEQUENCES .
 
2.1        Tax Status of Option .   This Option is intended to have the tax status designated in the Notice.
 
(a)          Incentive Stock Option .   If the Notice so designates, this Option is intended to be an Incentive Stock Option within the meaning of Section 422(b) of the Code, but the Company does not represent or warrant that this Option qualifies as such.  The Participant should consult with the Participant’s own tax advisor regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements.
 
NOTE TO PARTICIPANT: If the Option is exercised more than three (3) months after the date on which you cease to be an Employee (other than by reason of your death or permanent and total disability as defined in Section 22(e)(3) of the Code), the Option will be treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to the extent required by Section 422 of the Code.
 
(b)          Nonstatutory Stock Option.   If the Notice so designates, this Option is intended to be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the meaning of Section 422(b) of the Code.
 
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2.2        ISO Fair Market Value Limitation.   If the Notice designates this Option as an Incentive Stock Option, then to the extent that the Option (together with all Incentive Stock Options granted to the Participant under all stock option plans of the Participating Company Group, including the Plan) becomes exercisable for the first time during any calendar year for shares having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount will be treated as Nonstatutory Stock Options.  For purposes of this Section 2.2 , options designated as Incentive Stock Options are taken into account in the order in which they were granted, and the Fair Market Value of stock is determined as of the time the option with respect to such stock is granted.  If the Code is amended to provide for a different limitation from that set forth in this Section 2.2 , such different limitation shall be deemed incorporated herein effective as of the date required or permitted by such amendment to the Code.  If the Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 2.2 , the Participant may designate which portion of such Option the Participant is exercising.  In the absence of such designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option first.  Separate certificates representing each such portion shall be issued upon the exercise of the Option.
 
NOTE TO PARTICIPANT: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other Incentive Stock Options you hold (whether granted pursuant to the Plan or any other stock option plan of the Participating Company Group) is greater than $100,000, you should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an Incentive Stock Option.
 
3.               ADMINISTRATION .
 
All questions of interpretation concerning this Option Agreement shall be determined by the Board.  All determinations by the Board shall be final and binding upon all persons having an interest in the Option.  Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.
 
4.               EXERCISE OF THE OPTION .
 
4.1        Right to Exercise .   Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Vesting Date and prior to the termination of the Option (as provided in Section 6 ) in an amount not to exceed the number of Vested Shares less the number of shares previously acquired upon exercise of the Option, subject to the Company’s repurchase rights set forth in Section 11 .  In no event shall the Option be exercisable for more shares than the Number of Option Shares, as adjusted pursuant to Section 9 .
 
4.2        Method of Exercise .   Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Participant’s investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement.  The written notice must be signed by the Participant and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Executive Officer or Chief Financial Officer of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in Section 6 , accompanied by full payment of the aggregate Exercise Price for
 
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the number of shares of Stock being purchased.  The Option shall be deemed to be exercised upon receipt by the Company of such written notice and the aggregate Exercise Price.
 
4.3        Payment of Exercise Price.
 
(a)          Forms of Consideration Authorized .   Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Participant having a Fair Market Value not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(b) , or (iv) by any combination of the foregoing.
 
(b)          Limitations on Forms of Consideration.
 
(i)                                      Tender of Stock.   Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.  The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Participant for more than six (6) months or were not acquired, directly or indirectly, from the Company.
 
(ii)                                   Cashless Exercise.   A “ Cashless Exercise ” means the delivery of a properly executed notice together with irrevocable instructions to a broker in a form acceptable to the Company providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System).  The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to decline to approve or terminate any such program or procedure.
 
4.4        Tax Withholding .   At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option or (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option.  The Option is not exercisable unless the tax withholding obligations of the Participating Company Group are satisfied.  Accordingly, the Company shall have no obligation to deliver shares of Stock until the tax withholding obligations of the Participating Company Group have been satisfied by the Participant.
 
4.5        Certificate Registration .   Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
 
4.6        Restrictions on Grant of the Option and Issuance of Shares .   The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities.  The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of
 
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any stock exchange or market system upon which the Stock may then be listed.  In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act.  THE PARTICIPANT IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.  ACCORDINGLY, THE PARTICIPANT MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.  The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.  As a condition to the exercise of the Option, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
 
4.7        Fractional Shares .   The Company shall not be required to issue fractional shares upon the exercise of the Option.
 
5.               NONTRANSFERABILITY OF THE OPTION .
 
The Option may be exercised during the lifetime of the Participant only by the Participant or the Participant’s guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution.  Following the death of the Participant, the Option, to the extent provided in Section 7 , may be exercised by the Participant’s legal representative or by any person empowered to do so under the deceased Participant’s will or under the then applicable laws of descent and distribution.
 
6.               TERMINATION OF THE OPTION .
 
The Option shall terminate and may no longer be exercised after the first to occur of (a) the close of business on the Option Expiration Date, (b) the close of business on the last date for exercising the Option following termination of the Participant’s Service as described in Section 7 , or (c) a Change in Control to the extent provided in Section 8 .
 
7.               EFFECT OF TERMINATION OF SERVICE .
 
7.1        Option Exercisability.
 
(a)          Disability .   If the Participant’s Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
 
(b)          Death .   If the Participant’s Service terminates because of the death of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any
 
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event no later than the Option Expiration Date.  The Participant’s Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months after the Participant’s termination of Service.
 
(c)           Termination After Change in Control.   If the Participant’s Service ceases as a result of Termination After Change in Control (as defined below), (i) the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of six (6) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date, and (ii) the Option shall become immediately vested and exercisable in full and the Vested Ratio shall be deemed to be 1/1 as of the date on which the Participant’s Service terminated.
 
(d)          Termination for Cause.   Notwithstanding any other provision of this Option Agreement, if the Participant’s Service is terminated for Cause (as defined below), the Option shall terminate and cease to be exercisable on the effective date of such termination of Service.  Unless otherwise defined in a contract of employment or service between the Participant and a Participating Company, for purposes of this Option Agreement “ Cause ” shall mean any of the following: (i) the Participant’s theft, dishonesty, or falsification of any Participating Company documents or records; (ii) the Participant’s improper use or disclosure of a Participating Company’s confidential or proprietary information; (iii) any action by the Participant which has a material detrimental effect on a Participating Company’s reputation or business; (iv) the Participant’s failure or inability to perform any reasonable assigned duties after written notice from a Participating Company of, and a reasonable opportunity to cure, such failure or inability; (v) any material breach by the Participant of any employment agreement between the Participant and a Participating Company, which breach is not cured pursuant to the terms of such agreement; or (vi) the Participant’s conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the Participant’s ability to perform his or her duties with a Participating Company.
 
(e)           Other Termination of Service .   If the Participant’s Service with the Participating Company Group terminates for any reason, except Disability, death or Cause or Termination After Change in Control, the Option, to the extent unexercised and exercisable by the Participant on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months (or such other longer period of time as determined by the Board, in its discretion) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
 
7.2        Extension if Exercise Prevented by Law .   Notwithstanding the foregoing other than termination for Cause, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6 , the Option shall remain exercisable until thirty (30) days after the date the Participant is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.
 
7.3        Extension if Participant Subject to Section 16(b).   Notwithstanding the foregoing other than termination for Cause, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participant’s termination of Service, or (iii) the Option Expiration Date.
 
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8.               CHANGE IN CONTROL .
 
8.1        Definitions.
 
(a)          An “ Ownership Change Event ” shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company.
 
(b)          A “ Change in Control ” shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, a “ Transaction ” ) wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of a Transaction described in Section 8.1(a)(iii) , the corporation or other business entity to which the assets of the Company were transferred (the “ Transferee ” ), as the case may be.  For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities.  The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.  Unless otherwise determined by the Board, an initial public offering of any member of the Participating Company Group shall not be a “Change in Control” for any purpose under this Agreement.
 
(c)           “ Good Reason ” shall mean any one or more of the following:
 
(i)                                      the Participating Company Group materially reduces Participant’s title or position or an assignment to Participant of operational authority or duties which are materially inconsistent with the usual and customary operational authority and duties of a person in Participant’s position in similarly-situated companies; or
 
(ii)                                   Participating Company Group materially reduces Participant’s base compensation; or
 
(iii)                                Participating Company Group requires Participant to relocate to any place outside a fifty (50) mile radius of the Participating Company Group’s current headquarters.
 
(d)          “ Termination After Change in Control ” shall mean either of the following events occurring within twelve (12) months after a Change in Control:
 
(i)                                      termination by the Participating Company Group of the Participant’s Service with the Participating Company Group for any reason other than for Cause (as defined below); or
 
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(ii)                                   the Participant’s resignation for Good Reason (as defined below) from all capacities in which the Participant is then rendering Service to the Participating Company Group within a reasonable period of time following the event constituting Good Reason.
 
Notwithstanding any provision herein to the contrary, Termination After Change in Control shall not include any termination of the Participant’s Service with the Participating Company Group which (1) is for Cause (as defined below); (2) is a result of the Participant’s death or disability; (3) is a result of the Participant’s voluntary termination of Service other than for Good Reason; or (4) occurs prior to the effectiveness of a Change in Control; provided, however that Participant will not resign for Good Reason without first providing the Company with written notice of the acts or omissions constituting the grounds for “Good Reason” within 30 days of the initial existence of the grounds for “Good Reason” and providing Company with a reasonable cure period of 30 days following the date of such notice.
 
8.2        Effect of Change in Control on Option .
 
(a)          In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “ Acquiror ” ), may, without the consent of the Participant, either assume the Company’s rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiror’s stock.  In the event the Acquiror elects not to assume the Company’s rights and obligations under the Option or substitute for the Option in connection with the Change in Control, and provided that the Participant’s Service has not terminated prior to such date, the Vested Ratio shall be deemed to be 1/1 and all shares acquired upon exercise of the Option shall be Vested Shares as of the date ten (10) days prior to the date of the Change in Control.  Any vesting of the Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control.  The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiror in connection with the Change in Control nor exercised as of the date of the Change in Control.  Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of this Option Agreement except as otherwise provided herein.  Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i)  constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its discretion.
 
(b)          The Board may, in its discretion, determine that upon a Change in Control each Option outstanding immediately prior to the Change in Control shall be canceled in exchange for payment with respect to each vested share of Stock subject to such Option immediately prior to its cancellation in (a) cash, (b) stock of the Company or the Acquiror or (c) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the excess of the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control over the exercise price per share under the Option (subject to any required tax withholding).  Such payment shall be made as soon as practicable following the Change in Control.
 
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9.               ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE .
 
Subject to any required action by the stockholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number, Exercise Price and class of shares subject to the Option, in order to prevent dilution or enlargement of the Participant’s rights under the Option.  For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.”  If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the “ New Shares ” ), the Board may unilaterally amend the outstanding Options to provide that such Options are for New Shares.  In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its discretion.  Any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded down to the nearest whole number, and in no event may the purchase price of the Option be decreased to an amount less than the par value, if any, of the stock subject to the Option.  Such adjustments shall be determined by the Board, and its determination shall be final, binding and conclusive.
 
10.        RIGHTS AS A STOCKHOLDER, DIRECTOR, EMPLOYEE OR CONSULTANT .
 
The Participant shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9 .  If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Participant, the Participant’s employment is “at will” and is for no specified term.  Nothing in this Option Agreement shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Participant’s Service as a Director, an Employee or Consultant, as the case may be, at any time.
 
11.        RIGHT OF FIRST REFUSAL .
 
11.1                         Grant of Right of First Refusal .   Except as provided in Section 11.7 and Section 17 below, in the event the Participant, the Participant’s legal representative, or other holder of shares acquired upon exercise of the Option proposes to sell, exchange, transfer, pledge, or otherwise dispose of any shares acquired upon exercise of the Option (the “ Transfer Shares ” ) to any person or entity, including, without limitation, any stockholder of a Participating Company, the Company shall have the right to repurchase the Transfer Shares under the terms and subject to the conditions set forth in this Section 11 (the “ Right of First Refusal ” ).
 
11.2                         Notice of Proposed Transfer .   Prior to any proposed transfer of the Transfer Shares, the Participant shall deliver written notice (the “ Transfer Notice ” ) to the Company describing fully the proposed transfer, including the number of Transfer Shares, the name and address of the proposed transferee (the “ Proposed Transferee ” ) and, if the transfer is voluntary, the proposed transfer
 
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price, and containing such information necessary to show the bona fide nature of the proposed transfer.  In the event of a bona fide gift or involuntary transfer, the proposed transfer price shall be deemed to be the Fair Market Value of the Transfer Shares, as determined by the Board in good faith.  If the Participant proposes to transfer any Transfer Shares to more than one Proposed Transferee, the Participant shall provide a separate Transfer Notice for the proposed transfer to each Proposed Transferee.  The Transfer Notice shall be signed by both the Participant and the Proposed Transferee and must constitute a binding commitment of the Participant and the Proposed Transferee for the transfer of the Transfer Shares to the Proposed Transferee subject only to the Right of First Refusal
 
11.3                         Bona Fide Transfer .   If the Company determines that the information provided by the Participant in the Transfer Notice is insufficient to establish the bona fide nature of a proposed voluntary transfer, the Company shall give the Participant written notice of the Participant’s failure to comply with the procedure described in this Section 11 , and the Participant shall have no right to transfer the Transfer Shares without first complying with the procedure described in this Section 11 .  The Participant shall not be permitted to transfer the Transfer Shares if the proposed transfer is not bona fide.
 
11.4                         Exercise of Right of First Refusal .   If the Company determines the proposed transfer to be bona fide, the Company shall have the right to purchase all, but not less than all, of the Transfer Shares (except as the Company and the Participant otherwise agree) at the purchase price and on the terms set forth in the Transfer Notice by delivery to the Participant of a notice of exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered to the Company.  The Company’s exercise or failure to exercise the Right of First Refusal with respect to any proposed transfer described in a Transfer Notice shall not affect the Company’s right to exercise the Right of First Refusal with respect to any proposed transfer described in any other Transfer Notice, whether or not such other Transfer Notice is issued by the Participant or issued by a person other than the Participant with respect to a proposed transfer to the same Proposed Transferee.  If the Company exercises the Right of First Refusal, the Company and the Participant shall thereupon consummate the sale of the Transfer Shares to the Company on the terms set forth in the Transfer Notice within sixty (60) days after the date the Transfer Notice is delivered to the Company (unless a longer period is offered by the Proposed Transferee); provided, however, that in the event the Transfer Notice provides for the payment for the Transfer Shares other than in cash, the Company shall have the option of paying for the Transfer Shares by the present value cash equivalent of the consideration described in the Transfer Notice as reasonably determined by the Company.  For purposes of the foregoing, cancellation of any indebtedness of the Participant to any Participating Company shall be treated as payment to the Participant in cash to the extent of the unpaid principal and any accrued interest canceled.
 
11.5                         Failure to Exercise Right of First Refusal .   If the Company fails to exercise the Right of First Refusal in full (or to such lesser extent as the Company and the Participant otherwise agree) within the period specified in Section 11.4 above, the Participant may conclude a transfer to the Proposed Transferee of the Transfer Shares on the terms and conditions described in the Transfer Notice, provided such transfer occurs not later than ninety (90) days following delivery to the Company of the Transfer Notice.  The Company shall have the right to demand further assurances from the Participant and the Proposed Transferee (in a form satisfactory to the Company) that the transfer of the Transfer Shares was actually carried out on the terms and conditions described in the Transfer Notice.  No Transfer Shares shall be transferred on the books of the Company until the Company has received such assurances, if so demanded, and has approved the proposed transfer as bona fide.  Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Participant, shall again be subject to the Right of First Refusal and shall require compliance by the Participant with the procedure described in this Section 11 .
 
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11.6                         Transferees of Transfer Shares .   All transferees of the Transfer Shares or any interest therein, other than the Company, shall be required as a condition of such transfer to agree in writing (in a form satisfactory to the Company) that such transferee shall receive and hold such Transfer Shares or interest therein subject to all of the terms and conditions of this Option Agreement, including this Section 11 providing for the Right of First Refusal with respect to any subsequent transfer.  Any sale or transfer of any shares acquired upon exercise of the Option shall be void unless the provisions of this Section 11 are met.
 
11.7                         Transfers Not Subject to Right of First Refusal .   The Right of First Refusal shall not apply to any transfer or exchange of the shares acquired upon exercise of the Option if such transfer or exchange is in connection with an Ownership Change Event.  If the consideration received pursuant to such transfer or exchange consists of stock of a Participating Company, such consideration shall remain subject to the Right of First Refusal unless the provisions of Section 11.9 below result in a termination of the Right of First Refusal.
 
11.8                         Assignment of Right of First Refusal .   The Company shall have the right to assign the Right of First Refusal at any time, whether or not there has been an attempted transfer, to one or more persons as may be selected by the Company.
 
11.9                         Early Termination of Right of First Refusal .   The other provisions of this Option Agreement notwithstanding, the Right of First Refusal shall terminate and be of no further force and effect upon (a) the occurrence of a Change in Control, unless the Acquiror assumes the Company’s rights and obligations under the Option or substitutes a substantially equivalent option for the Acquiror’s stock for the Option, or (b) the existence of a public market for the class of shares subject to the Right of First Refusal.  A “ public market ” shall be deemed to exist if (i) such stock is listed on a national securities exchange (as that term is used in the Exchange Act) or (ii) such stock is traded on the over-the-counter market and prices therefor are published daily on business days in a recognized financial journal.
 
12.        STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT .
 
If, from time to time, there is any stock dividend, stock split or other change, as described in Section 9 , in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, then in such event any and all new, substituted or additional securities to which the Participant is entitled by reason of the Participant’s ownership of the shares acquired upon exercise of the Option shall be immediately subject to the Right of First Refusal with the same force and effect as the shares subject to the Right of First Refusal immediately before such event.
 
13.        NOTICE OF SALES UPON DISQUALIFYING DISPOSITION .
 
The Participant shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement.  In addition, if the Notice designates this Option as an Incentive Stock Option, the Participant shall (a) promptly notify the Chief Financial Officer of the Company if the Participant disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Participant exercises all or part of the Option or within two (2) years after the Date of Option Grant and (b) provide the Company with a description of the circumstances of such disposition.  Until such time as the Participant disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Participant shall hold all shares acquired pursuant to the Option in the Participant’s name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-
 
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year period immediately after Date of Option Grant.  At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company’s stock to notify the Company of any such transfers.  The obligation of the Participant to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence.
 
14.        LEGENDS .
 
The Company may at any time place legends referencing the Right of First Refusal and any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement.  The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Participant in order to carry out the provisions of this Section 14 .  Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following:
 
14.1 “THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.”
 
14.2 “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER’S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.”
 
14.3 “THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (“ISO ” ).  IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO [ INSERT DISQUALIFYING DISPOSITION DATE HERE ].  SHOULD THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY.  THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER’S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE.”
 
15.        LOCK-UP AGREEMENT .
 
The Participant hereby agrees that in the event of any underwritten public offering of stock, including an initial public offering of stock, made by the Company pursuant to an effective registration statement filed under the Securities Act, the Participant shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of stock of the Company or any rights to acquire stock of the Company for such period of time from and after the effective date of such registration statement as may be established by the underwriter for such public offering; provided, however, that such period of time shall not exceed one hundred eighty (180) days from the effective date of the registration statement to be filed in connection with such public
 
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offering.  The foregoing limitation shall not apply to shares registered in the public offering under the Securities Act.
 
16.        RESTRICTIONS ON TRANSFER OF SHARES .
 
No shares acquired upon exercise of the Option may be sold, exchanged, transferred (including, without limitation, any transfer to a nominee or agent of the Participant), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, (a) unless a public market (as defined in Section 11.9 ) then exists for the Stock, prior to the first to occur of an Ownership Change Event or the date occurring six (6) months after the Participant acquired such shares or (b) in any manner which violates any of the provisions of this Option Agreement, and any such attempted disposition shall be void.  The Company shall not be required (a) to transfer on its books any shares which will have been transferred in violation of any of the provisions set forth in this Option Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares will have been so transferred.
 
17.        MISCELLANEOUS PROVISIONS .
 
17.1                         Further Instruments.   The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.
 
17.2                         Binding Effect.   Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.
 
17.3                         Termination or Amendment.   The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Participant unless such termination or amendment is necessary to comply with any applicable law or government regulation.  No amendment or addition to this Option Agreement shall be effective unless in writing.
 
17.4                         Notices.   Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, upon deposit in the United States Post Office, by registered or certified mail, or with an overnight courier service with postage and fees prepaid, addressed to the other party at the address shown below that party’s signature or at such other address as such party may designate in writing from time to time to the other party.
 
17.5                         Integrated Agreement.   The Notice, this Option Agreement and the Plan constitute the entire understanding and agreement of the Participant and the Participating Company Group with respect to the subject matter contained herein or therein and supersedes any prior agreements, understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein or therein.  To the extent contemplated herein or therein, the provisions of the Notice and the Option Agreement shall survive any exercise of the Option and shall remain in full force and effect.
 
17.6                         Applicable Law.   This Option Agreement shall be governed by the laws of the State of Texas as such laws are applied to agreements between Texas residents entered into and to be performed entirely within the State of Texas.
 
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17.7                         Counterparts.   The Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
Remainder of Page Intentionally Left Blank.
 
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o Incentive Stock Option	Participant:	 	
 	 	
o Nonstatutory Stock Option	Date:	 	

STOCK OPTION EXERCISE NOTICE

Q2 Holdings, Inc.	 	
Attention: President	 	

 
Ladies and Gentlemen:
 
1.               Option .   I was granted an option (the “ Option ” ) to purchase shares of the common stock (the “ Shares ” ) of Q2 Holdings, Inc. (the “ Company ” ) pursuant to the Company’s 2007 Stock Plan (the “ Plan ” ), my Notice of Grant of Stock Option (the “ Notice ” ) and my Stock Option Agreement (the “ Option Agreement ” ) as follows:

Date of Option Grant:	 	
 	 	
Number of Option Shares:	 	
 	 	
Exercise Price per Share:	$	
 
2.               Exercise of Option .   I hereby elect to exercise the Option to purchase the following number of Shares, all of which are Vested Shares in accordance with the Notice and the Option Agreement:

Total Shares Purchased:	 	
 	 	
Total Exercise Price (Total Shares X Price per Share)	$	
 
3.               Payments .   I enclose payment in full of the total exercise price for the Shares in the following form(s), as authorized by my Option Agreement:

o Cash:	$	
 	 	
o Check:	$	
 	 	
o Tender of Company Stock:	Contact Plan	
 	Administrator	
 
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4.               Tax Withholding .   I authorize payroll withholding and otherwise will make adequate provision for the federal, state, local and foreign tax withholding obligations of the Company, if any, in connection with the Option.  If I am exercising a Nonstatutory Stock Option, I enclose payment in full of my withholding taxes, if any, as follows:
 
(Contact Plan Administrator for amount of tax due.)

o Cash:	$	
 	 	
o Check:	$	
 
5.               Participant Information .

My address is:	 	

My Social Security Number is:	 	
 
6.               Notice of Disqualifying Disposition .   If the Option is an Incentive Stock Option, I agree that I will promptly notify the Chief Financial Officer of the Company if I transfer any of the Shares within one (1) year from the date I exercise all or part of the Option or within two (2) years of the Date of Option Grant.
 
7.               Binding Effect .   I agree that the Shares are being acquired in accordance with and subject to the terms, provisions and conditions of the Option Agreement, including the Right of First Refusal set forth therein, to all of which I hereby expressly assent.  This Agreement shall inure to the benefit of and be binding upon my heirs, executors, administrators, successors and assigns.
 
8.               Transfer .   I understand and acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the “ Securities Act ” ), and that consequently the Shares must be held indefinitely unless they are subsequently registered under the Securities Act, an exemption from such registration is available, or they are sold in accordance with Rule 144 or Rule 701 under the Securities Act.  I further understand and acknowledge that the Company is under no obligation to register the Shares.  I understand that the certificate or certificates evidencing the Shares will be imprinted with legends which prohibit the transfer of the Shares unless they are registered or such registration is not required in the opinion of legal counsel satisfactory to the Company.
 
I am aware that Rule 144 under the Securities Act, which permits limited public resale of securities acquired in a nonpublic offering, is not currently available with respect to the Shares and, in any event, is available only if certain conditions are satisfied.  I understand that any sale of the Shares that might be made in reliance upon Rule 144 may only be made in limited amounts in accordance with the terms and conditions of such rule and that a copy of Rule 144 will be delivered to me upon request.
 
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I understand that I am purchasing the Shares pursuant to the terms of the Plan, the Notice and my Option Agreement, copies of which I have received and carefully read and understand.

 	Very truly yours,	

 	Signature:	 	
 	 	
 	Printed Name:	 	

Receipt of the above is hereby acknowledged.	 	
 	 	
Q2 HOLDINGS, INC.	 	

By:	 	 	
Name:	 	 	
Title:	 	 	
Dated:	 	 	

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Exhibit 10.2.4
 
Q2 HOLDINGS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
For Non-Employee Member of Board of Directors
 
Q2 Holdings, Inc. (the “ Company ”) has granted to the individual (the “ Participant ”) named in the Notice of Grant of Stock Option (the “ Notice ” ) to which this Nonstatutory Stock Option Agreement (this “ Option Agreement ” ) is attached, an option (the “ Option ” ) to purchase certain shares of Stock upon the terms and conditions set forth in the Notice and this Option Agreement.  The Option has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Q2 Holding, Inc. 2007 Stock Plan (the “ Plan ” ), as amended to the Date of Option Grant and as interpreted from time to time by the Board of Directors of the Company, the provisions of which are incorporated herein by reference.  By signing the Notice, the Participant: (a) represents that the Participant has received copies of, and has read and is familiar with the terms and conditions of, the Notice, the Plan and this Option Agreement, (b) accepts the Option subject to all of the terms and conditions of the Notice, the Plan and this Option Agreement, and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Notice, the Plan or this Option Agreement.
 
1.                                       DEFINITIONS AND CONSTRUCTION .
 
1.1                                Definitions .   Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Notice or the Plan.
 
1.2                                Construction .   Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement.  Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular.  Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
 
2.                                       TAX STATUS OF OPTION .
 
Tax Status of Option.  This Option is intended to be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the meaning of Section 422(b) of the Code.
 
3.                                       ADMINISTRATION .
 
All questions of interpretation concerning this Option Agreement shall be determined by the Board.  All determinations by the Board shall be final and binding upon all persons having an interest in the Option.  Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.
 
4.                                       EXERCISE OF THE OPTION .
 
4.1                                Right to Exercise .   Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Vesting Date and prior to the termination of the Option (as provided in Section 6 ) in an amount not to exceed the number of Vested Shares less the number of shares previously acquired upon exercise of the Option, subject to the Company’s repurchase rights set forth in Section 11 .

 
In no event shall the Option be exercisable for more shares than the Number of Option Shares, as adjusted pursuant to Section 9 .
 
4.2                                Method of Exercise .   Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Participant’s investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement.  The written notice must be signed by the Participant and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Executive Officer or Chief Financial Officer of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in Section 6 , accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased.  The Option shall be deemed to be exercised upon receipt by the Company of such written notice and the aggregate Exercise Price.
 
4.3                                Payment of Exercise Price.
 
(a)                                  Forms of Consideration Authorized .   Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Participant having a Fair Market Value not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(b) , or (iv) by any combination of the foregoing.
 
(b)                                  Limitations on Forms of Consideration.
 
(i)                                      Tender of Stock.   Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.  The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Participant for more than six (6) months or were not acquired, directly or indirectly, from the Company.
 
(ii)                                   Cashless Exercise.   A “ Cashless Exercise ” means the delivery of a properly executed notice together with irrevocable instructions to a broker in a form acceptable to the Company providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System).  The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to decline to approve or terminate any such program or procedure.
 
4.4                                Tax Withholding .   At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option or (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option.  The Option is not exercisable unless the tax withholding obligations of the Participating Company Group are satisfied.  Accordingly,
 
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the Company shall have no obligation to deliver shares of Stock until the tax withholding obligations of the Participating Company Group have been satisfied by the Participant.
 
4.5                                Certificate Registration .   Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
 
4.6                                Restrictions on Grant of the Option and Issuance of Shares .   The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities.  The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed.  In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act.  THE PARTICIPANT IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.  ACCORDINGLY, THE PARTICIPANT MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.  The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.  As a condition to the exercise of the Option, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
 
4.7                                Fractional Shares .   The Company shall not be required to issue fractional shares upon the exercise of the Option.
 
5.                                       NONTRANSFERABILITY OF THE OPTION .
 
The Option may be exercised during the lifetime of the Participant only by the Participant or the Participant’s guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution.  Following the death of the Participant, the Option, to the extent provided in Section 7 , may be exercised by the Participant’s legal representative or by any person empowered to do so under the deceased Participant’s will or under the then applicable laws of descent and distribution.
 
6.                                       TERMINATION OF THE OPTION .
 
The Option shall terminate and may no longer be exercised after the first to occur of (a) the close of business on the Option Expiration Date, (b) the close of business on the last date for exercising the Option following termination of the Participant’s Service as described in Section 7 , or (c) a Change in Control to the extent provided in Section 8 .
 
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7.                                       EFFECT OF TERMINATION OF SERVICE .
 
7.1                                Option Exercisability.
 
(a)                                  Disability .   If the Participant’s Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
 
(b)                                  Death .   If the Participant’s Service terminates because of the death of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.  The Participant’s Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months after the Participant’s termination of Service.
 
(c)                                   Other Termination of Service .   If the Participant’s Service with the Participating Company Group terminates for any reason, except Disability or death, the Option, to the extent unexercised and exercisable by the Participant on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months (or such other longer period of time as determined by the Board, in its discretion) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
 
7.2                                Extension if Exercise Prevented by Law .   Notwithstanding the foregoing other than termination for Cause, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6 , the Option shall remain exercisable until thirty (30) days after the date the Participant is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.
 
7.3                                Extension if Participant Subject to Section 16(b).   Notwithstanding the foregoing other than termination for Cause, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participant’s termination of Service, or (iii) the Option Expiration Date.
 
8.                                       CHANGE IN CONTROL .
 
8.1                                Definitions.
 
(a)                                  An “ Ownership Change Event ” shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company.
 
(b)                                  A “ Change in Control ” shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, a “ Transaction ” ) wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in
 
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substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of a Transaction described in Section 8.1(a)(iii) , the corporation or other business entity to which the assets of the Company were transferred (the “ Transferee ” ), as the case may be.  For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities.  The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.
 
8.2                                Effect of Change in Control on Option .
 
(a)                                  Accelerated Vesting.   Notwithstanding any other provision of the Notice or this Option Agreement to the contrary, the Option shall become 100% vested and exercisable in full on the day immediately prior to, but contingent upon, the Change in Control, provided that the Participant’s Service has not terminated prior to such day.
 
(b)                                  Assumption or Substitution of Option.   In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “ Acquiror ” ), may, without the consent of the Participant, either assume the Company’s rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiror’s stock.  The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiror in connection with the Change in Control nor exercised as of the date of the Change in Control.  Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of this Option Agreement except as otherwise provided herein.  Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i)  constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its discretion.
 
(c)                                   Cash-Out of Option .  The Board may, in its discretion, determine that upon a Change in Control the Option shall be canceled in exchange for payment with respect to each vested share of Stock subject to such Option immediately prior to its cancellation in (a) cash, (b) stock of the Company or the Acquiror or (c) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the excess of the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control over the exercise price per share under the Option (subject to any required tax withholding).  Such payment shall be made as soon as practicable following the Change in Control.
 
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9.                                       ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE .
 
Subject to any required action by the stockholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number, Exercise Price and class of shares subject to the Option, in order to prevent dilution or enlargement of the Participant’s rights under the Option.  For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.”  If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the “ New Shares ” ), the Board may unilaterally amend the outstanding Options to provide that such Options are for New Shares.  In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its discretion.  Any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded down to the nearest whole number, and in no event may the purchase price of the Option be decreased to an amount less than the par value, if any, of the stock subject to the Option.  Such adjustments shall be determined by the Board, and its determination shall be final, binding and conclusive.
 
10.                                RIGHTS AS A STOCKHOLDER, DIRECTOR, EMPLOYEE OR CONSULTANT .
 
The Participant shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9 .  If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Participant, the Participant’s employment is “at will” and is for no specified term.  Nothing in this Option Agreement shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Participant’s Service as a Director, an Employee or Consultant, as the case may be, at any time.
 
11.                                RIGHT OF FIRST REFUSAL .
 
11.1                         Grant of Right of First Refusal .   Except as provided in Section 11.7 and Section 17 below, in the event the Participant, the Participant’s legal representative, or other holder of shares acquired upon exercise of the Option proposes to sell, exchange, transfer, pledge, or otherwise dispose of any shares acquired upon exercise of the Option (the “ Transfer Shares ” ) to any person or entity, including, without limitation, any stockholder of a Participating Company, the Company shall have the right to repurchase the Transfer Shares under the terms and subject to the conditions set forth in this Section 11 (the “ Right of First Refusal ” ).
 
11.2                         Notice of Proposed Transfer .   Prior to any proposed transfer of the Transfer Shares, the Participant shall deliver written notice (the “ Transfer Notice ” ) to the Company describing fully the proposed transfer, including the number of Transfer Shares, the name and address of the proposed transferee (the “ Proposed Transferee ” ) and, if the transfer is voluntary, the proposed transfer
 
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price, and containing such information necessary to show the bona fide nature of the proposed transfer.  In the event of a bona fide gift or involuntary transfer, the proposed transfer price shall be deemed to be the Fair Market Value of the Transfer Shares, as determined by the Board in good faith.  If the Participant proposes to transfer any Transfer Shares to more than one Proposed Transferee, the Participant shall provide a separate Transfer Notice for the proposed transfer to each Proposed Transferee.  The Transfer Notice shall be signed by both the Participant and the Proposed Transferee and must constitute a binding commitment of the Participant and the Proposed Transferee for the transfer of the Transfer Shares to the Proposed Transferee subject only to the Right of First Refusal
 
11.3                         Bona Fide Transfer .   If the Company determines that the information provided by the Participant in the Transfer Notice is insufficient to establish the bona fide nature of a proposed voluntary transfer, the Company shall give the Participant written notice of the Participant’s failure to comply with the procedure described in this Section 11 , and the Participant shall have no right to transfer the Transfer Shares without first complying with the procedure described in this Section 11 .  The Participant shall not be permitted to transfer the Transfer Shares if the proposed transfer is not bona fide.
 
11.4                         Exercise of Right of First Refusal .   If the Company determines the proposed transfer to be bona fide, the Company shall have the right to purchase all, but not less than all, of the Transfer Shares (except as the Company and the Participant otherwise agree) at the purchase price and on the terms set forth in the Transfer Notice by delivery to the Participant of a notice of exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered to the Company.  The Company’s exercise or failure to exercise the Right of First Refusal with respect to any proposed transfer described in a Transfer Notice shall not affect the Company’s right to exercise the Right of First Refusal with respect to any proposed transfer described in any other Transfer Notice, whether or not such other Transfer Notice is issued by the Participant or issued by a person other than the Participant with respect to a proposed transfer to the same Proposed Transferee.  If the Company exercises the Right of First Refusal, the Company and the Participant shall thereupon consummate the sale of the Transfer Shares to the Company on the terms set forth in the Transfer Notice within sixty (60) days after the date the Transfer Notice is delivered to the Company (unless a longer period is offered by the Proposed Transferee); provided, however, that in the event the Transfer Notice provides for the payment for the Transfer Shares other than in cash, the Company shall have the option of paying for the Transfer Shares by the present value cash equivalent of the consideration described in the Transfer Notice as reasonably determined by the Company.  For purposes of the foregoing, cancellation of any indebtedness of the Participant to any Participating Company shall be treated as payment to the Participant in cash to the extent of the unpaid principal and any accrued interest canceled.
 
11.5                         Failure to Exercise Right of First Refusal .   If the Company fails to exercise the Right of First Refusal in full (or to such lesser extent as the Company and the Participant otherwise agree) within the period specified in Section 11.4 above, the Participant may conclude a transfer to the Proposed Transferee of the Transfer Shares on the terms and conditions described in the Transfer Notice, provided such transfer occurs not later than ninety (90) days following delivery to the Company of the Transfer Notice.  The Company shall have the right to demand further assurances from the Participant and the Proposed Transferee (in a form satisfactory to the Company) that the transfer of the Transfer Shares was actually carried out on the terms and conditions described in the Transfer Notice.  No Transfer Shares shall be transferred on the books of the Company until the Company has received such assurances, if so demanded, and has approved the proposed transfer as bona fide.  Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Participant, shall again be subject to the Right of First Refusal and shall require compliance by the Participant with the procedure described in this Section 11 .
 
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11.6                         Transferees of Transfer Shares .   All transferees of the Transfer Shares or any interest therein, other than the Company, shall be required as a condition of such transfer to agree in writing (in a form satisfactory to the Company) that such transferee shall receive and hold such Transfer Shares or interest therein subject to all of the terms and conditions of this Option Agreement, including this Section 11 providing for the Right of First Refusal with respect to any subsequent transfer.  Any sale or transfer of any shares acquired upon exercise of the Option shall be void unless the provisions of this Section 11 are met.
 
11.7                         Transfers Not Subject to Right of First Refusal .   The Right of First Refusal shall not apply to any transfer or exchange of the shares acquired upon exercise of the Option if such transfer or exchange is in connection with an Ownership Change Event.  If the consideration received pursuant to such transfer or exchange consists of stock of a Participating Company, such consideration shall remain subject to the Right of First Refusal unless the provisions of Section 11.9 below result in a termination of the Right of First Refusal.
 
11.8                         Assignment of Right of First Refusal .   The Company shall have the right to assign the Right of First Refusal at any time, whether or not there has been an attempted transfer, to one or more persons as may be selected by the Company.
 
11.9                         Early Termination of Right of First Refusal .   The other provisions of this Option Agreement notwithstanding, the Right of First Refusal shall terminate and be of no further force and effect upon (a) the occurrence of a Change in Control, unless the Acquiror assumes the Company’s rights and obligations under the Option or substitutes a substantially equivalent option for the Acquiror’s stock for the Option, or (b) the existence of a public market for the class of shares subject to the Right of First Refusal.  A “ public market ” shall be deemed to exist if (i) such stock is listed on a national securities exchange (as that term is used in the Exchange Act) or (ii) such stock is traded on the over-the-counter market and prices therefor are published daily on business days in a recognized financial journal.
 
12.                                STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT .
 
If, from time to time, there is any stock dividend, stock split or other change, as described in Section 9 , in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, then in such event any and all new, substituted or additional securities to which the Participant is entitled by reason of the Participant’s ownership of the shares acquired upon exercise of the Option shall be immediately subject to the Right of First Refusal with the same force and effect as the shares subject to the Right of First Refusal immediately before such event.
 
13.                                LEGENDS .
 
The Company may at any time place legends referencing the Right of First Refusal and any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement.  The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Participant in order to carry out the provisions of this Section 14 .  Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following:
 
13.1                         “THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
 
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TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.”
 
13.2                         “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER’S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.”
 
14.                                LOCK-UP AGREEMENT .
 
The Participant hereby agrees that in the event of any underwritten public offering of stock, including an initial public offering of stock, made by the Company pursuant to an effective registration statement filed under the Securities Act, the Participant shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of stock of the Company or any rights to acquire stock of the Company for such period of time from and after the effective date of such registration statement as may be established by the underwriter for such public offering; provided, however, that such period of time shall not exceed one hundred eighty (180) days from the effective date of the registration statement to be filed in connection with such public offering.  The foregoing limitation shall not apply to shares registered in the public offering under the Securities Act.
 
15.                                RESTRICTIONS ON TRANSFER OF SHARES .
 
No shares acquired upon exercise of the Option may be sold, exchanged, transferred (including, without limitation, any transfer to a nominee or agent of the Participant), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, (a) unless a public market (as defined in Section 11.9 ) then exists for the Stock, prior to the first to occur of an Ownership Change Event or the date occurring six (6) months after the Participant acquired such shares or (b) in any manner which violates any of the provisions of this Option Agreement, and any such attempted disposition shall be void.  The Company shall not be required (a) to transfer on its books any shares which will have been transferred in violation of any of the provisions set forth in this Option Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares will have been so transferred.
 
16.                                MISCELLANEOUS PROVISIONS .
 
16.1                         Further Instruments.   The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.
 
16.2                         Binding Effect.   Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.
 
16.3                         Termination or Amendment.   The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any
 
9 

 
unexercised portion hereof without the consent of the Participant unless such termination or amendment is necessary to comply with any applicable law or government regulation.  No amendment or addition to this Option Agreement shall be effective unless in writing.
 
16.4                         Notices.   Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, upon deposit in the United States Post Office, by registered or certified mail, or with an overnight courier service with postage and fees prepaid, addressed to the other party at the address shown below that party’s signature or at such other address as such party may designate in writing from time to time to the other party.
 
16.5                         Integrated Agreement.   The Notice, this Option Agreement and the Plan constitute the entire understanding and agreement of the Participant and the Participating Company Group with respect to the subject matter contained herein or therein and supersedes any prior agreements, understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein or therein.  To the extent contemplated herein or therein, the provisions of the Notice and the Option Agreement shall survive any exercise of the Option and shall remain in full force and effect.
 
16.6                         Applicable Law.   This Option Agreement shall be governed by the laws of the State of Texas as such laws are applied to agreements between Texas residents entered into and to be performed entirely within the State of Texas.
 
16.7                         Counterparts.   The Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
Remainder of Page Intentionally Left Blank.
 
10 

 

 	Participant:	 	
 	 	
 	Date:	 	

STOCK OPTION EXERCISE NOTICE

Q2 Holdings, Inc.	 	
Attention: President	 	

 
Ladies and Gentlemen:
 
1.               Option .   I was granted an option (the “ Option ” ) to purchase shares of the common stock (the “ Shares ” ) of Q2 Holdings, Inc. (the “ Company ” ) pursuant to the Company’s 2007 Stock Plan (the “ Plan ” ), my Notice of Grant of Stock Option (the “ Notice ” ) and my Nonstatutory Stock Option Agreement (the “ Option Agreement ” ) as follows:

Date of Option Grant:	 	
 	 	
Number of Option Shares:	 	
 	 	
Exercise Price per Share:	$	
 
2.               Exercise of Option .   I hereby elect to exercise the Option to purchase the following number of Shares, all of which are Vested Shares in accordance with the Notice and the Option Agreement:

Total Shares Purchased:	 	
 	 	
Total Exercise Price (Total Shares X Price per Share)	$	
 
3.               Payments .   I enclose payment in full of the total exercise price for the Shares in the following form(s), as authorized by my Option Agreement:

o Cash:	$	
 	 	
o Check:	$	
 	 	
o Tender of Company Stock:	Contact Plan	
 	Administrator	
 
4.               Participant Information .

My address is:	 	

My Social Security Number is:	 	
 
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5.               Binding Effect .   I agree that the Shares are being acquired in accordance with and subject to the terms, provisions and conditions of the Option Agreement, including the Right of First Refusal set forth therein, to all of which I hereby expressly assent.  This Agreement shall inure to the benefit of and be binding upon my heirs, executors, administrators, successors and assigns.
 
6.               Transfer .   I understand and acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the “ Securities Act ” ), and that consequently the Shares must be held indefinitely unless they are subsequently registered under the Securities Act, an exemption from such registration is available, or they are sold in accordance with Rule 144 or Rule 701 under the Securities Act.  I further understand and acknowledge that the Company is under no obligation to register the Shares.  I understand that the certificate or certificates evidencing the Shares will be imprinted with legends which prohibit the transfer of the Shares unless they are registered or such registration is not required in the opinion of legal counsel satisfactory to the Company.
 
I am aware that Rule 144 under the Securities Act, which permits limited public resale of securities acquired in a nonpublic offering, is not currently available with respect to the Shares and, in any event, is available only if certain conditions are satisfied.  I understand that any sale of the Shares that might be made in reliance upon Rule 144 may only be made in limited amounts in accordance with the terms and conditions of such rule and that a copy of Rule 144 will be delivered to me upon request.
 
I understand that I am purchasing the Shares pursuant to the terms of the Plan, the Notice and my Option Agreement, copies of which I have received and carefully read and understand.

 	Very truly yours,	

 	Signature:	 	
 	 	
 	Printed Name:	 	

 

Receipt of the above is hereby acknowledged.	 	
 	 	
Q2 HOLDINGS, INC.	 	
 	 	 	
By:	 	 	
Name:	 	 	
Title:	 	 	
Dated:	 	 	

2 

Exhibit 10.3.1

 	

CREDIT AGREEMENT
 
by and among
 
WELLS FARGO BANK, NATIONAL ASSOCIATION,
 
as Administrative Agent,
 
THE LENDERS THAT ARE PARTIES HERETO
 
as the Lenders,
 
Q2 HOLDINGS, INC.,
 
as Parent, and
 
Q2 SOFTWARE, INC.
 
as Borrower
 
Dated as of April 11, 2013

 	

 
TABLE OF CONTENTS

 	 	Page	
 	 	 	
1.	DEFINITIONS AND CONSTRUCTION	1	
 	 	 	
 	1.1	Definitions	1	
 	1.2	Accounting Terms	1	
 	1.3	Code	1	
 	1.4	Construction	1	
 	1.5	Time References	2	
 	1.6	Schedules and Exhibits	2	
 	 	 	
2.	LOANS AND TERMS OF PAYMENT	2	
 	 	 	
 	2.1	Revolving Loans	2	
 	2.2	[Reserved]	3	
 	2.3	Borrowing Procedures and Settlements	3	
 	2.4	Payments; Reductions of Commitments; Prepayments	9	
 	2.5	Promise to Pay; Promissory Notes	12	
 	2.6	Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations	12	
 	2.7	Crediting Payments	14	
 	2.8	Designated Account	14	
 	2.9	Maintenance of Loan Account; Statements of Obligations	14	
 	2.10	Fees	14	
 	2.11	Letters of Credit	15	
 	2.12	LIBOR Option	22	
 	2.13	Capital Requirements	24	
 	 	 	
3.	CONDITIONS; TERM OF AGREEMENT	25	
 	 	 	
 	3.1	Conditions Precedent to the Initial Extension of Credit	25	
 	3.2	Conditions Precedent to all Extensions of Credit	25	
 	3.3	Maturity	25	
 	3.4	Effect of Maturity	26	
 	3.5	Early Termination by Borrower	26	
 	3.6	Conditions Subsequent	26	
 	 	 	
4.	REPRESENTATIONS AND WARRANTIES	26	
 	 	 	
 	4.1	Due Organization and Qualification; Subsidiaries	26	
 	4.2	Due Authorization; No Conflict	27	
 	4.3	Governmental Consents	27	
 	4.4	Binding Obligations; Perfected Liens	28	
 	4.5	Title to Assets; No Encumbrances	28	
 	4.6	Litigation	28	
 	4.7	Compliance with Laws	28	
 	4.8	No Material Adverse Effect	29	
 	4.9	Solvency	29	
 	4.10	Employee Benefits	29	
 	4.11	Environmental Condition	29	
 
i 

 

 	4.12	Complete Disclosure	29	
 	4.13	Patriot Act	30	
 	4.14	Indebtedness	30	
 	4.15	Payment of Taxes	30	
 	4.16	Margin Stock	30	
 	4.17	Governmental Regulation	31	
 	4.18	OFAC	31	
 	4.19	Employee and Labor Matters	31	
 	4.20	Parent as a Holding Company	31	
 	4.21	[Reserved]	31	
 	4.22	[Reserved]	31	
 	4.23	Leases	31	
 	4.24	[Reserved]	31	
 	4.25	Hedge Agreements	32	
 	 	 	 	
5.	AFFIRMATIVE COVENANTS	32	
 	 	 	
 	5.1	Financial Statements, Reports, Certificates	32	
 	5.2	Reporting	32	
 	5.3	Existence	32	
 	5.4	Maintenance of Properties	32	
 	5.5	Taxes	32	
 	5.6	Insurance	32	
 	5.7	Inspection	33	
 	5.8	Compliance with Laws	33	
 	5.9	Environmental	33	
 	5.10	Disclosure Updates	34	
 	5.11	Formation of Subsidiaries	34	
 	5.12	Further Assurances	34	
 	5.13	Lender Meetings	35	
 	5.14	Bank Products	35	
 	5.15	Hedge Agreements	35	
 	5.16	Minimum Revolver Usage	35	
 	 	 	 	
6.	NEGATIVE COVENANTS	35	
 	 	 	
 	6.1	Indebtedness	35	
 	6.2	Liens	35	
 	6.3	Restrictions on Fundamental Changes	35	
 	6.4	Disposal of Assets	36	
 	6.5	Nature of Business	36	
 	6.6	Prepayments and Amendments	36	
 	6.7	Restricted Payments	37	
 	6.8	Accounting Methods	37	
 	6.9	Investments	37	
 	6.10	Transactions with Affiliates	37	
 	6.11	Use of Proceeds	38	
 	6.12	Limitation on Issuance of Equity Interests	38	
 	6.13	Parent as Holding Company	38	
 	 	 	 	
7.	FINANCIAL COVENANTS	38	
 
ii 

 

8.	EVENTS OF DEFAULT	40	
 	 	 	
 	8.1	Payments	40	
 	8.2	Covenants	40	
 	8.3	Judgments	40	
 	8.4	Voluntary Bankruptcy, etc.	40	
 	8.5	Involuntary Bankruptcy, etc.	40	
 	8.6	Default Under Other Agreements	41	
 	8.7	Representations, etc.	41	
 	8.8	Guaranty	41	
 	8.9	Security Documents	41	
 	8.10	Loan Documents	41	
 	8.11	Change of Control	41	
 	 	 	 	
9.	RIGHTS AND REMEDIES	41	
 	 	 	
 	9.1	Rights and Remedies	41	
 	9.2	Remedies Cumulative	42	
 	 	 	 	
10.	WAIVERS; INDEMNIFICATION	42	
 	 	 	
 	10.1	Demand; Protest; etc.	42	
 	10.2	The Lender Group’s Liability for Collateral	42	
 	10.3	Indemnification	43	
 	 	 	 	
11.	NOTICES	43	
 	 	 	
12.	CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE PROVISION	44	
 	 	 	
13.	ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS	47	
 	 	 	
 	13.1	Assignments and Participations	47	
 	13.2	Successors	50	
 	 	 	 	
14.	AMENDMENTS; WAIVERS	50	
 	 	 	
 	14.1	Amendments and Waivers	50	
 	14.2	Replacement of Certain Lenders	52	
 	14.3	No Waivers; Cumulative Remedies	53	
 	 	 	 	
15.	AGENT; THE LENDER GROUP	53	
 	 	 	
 	15.1	Appointment and Authorization of Agent	53	
 	15.2	Delegation of Duties	54	
 	15.3	Liability of Agent	54	
 	15.4	Reliance by Agent	54	
 	15.5	Notice of Default or Event of Default	54	
 	15.6	Credit Decision	55	
 	15.7	Costs and Expenses; Indemnification	55	
 	15.8	Agent in Individual Capacity	56	
 
iii 

 

 	15.9	Successor Agent	56	
 	15.10	Lender in Individual Capacity	57	
 	15.11	Collateral Matters	57	
 	15.12	Restrictions on Actions by Lenders; Sharing of Payments	58	
 	15.13	Agency for Perfection	59	
 	15.14	Payments by Agent to the Lenders	59	
 	15.15	Concerning the Collateral and Related Loan Documents	59	
 	15.16	Financial Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information	59	
 	15.17	Several Obligations; No Liability	60	
 	 	 	 	
16.	WITHHOLDING TAXES	61	
 	 	 	
 	16.1	Payments	61	
 	16.2	Exemptions	61	
 	16.3	Reductions	62	
 	16.4	Refunds	63	
 	 	 	 	
17.	GENERAL PROVISIONS	63	
 	 	 	
 	17.1	Effectiveness	63	
 	17.2	Section Headings	63	
 	17.3	Interpretation	63	
 	17.4	Severability of Provisions	63	
 	17.5	Bank Product Providers	63	
 	17.6	Debtor-Creditor Relationship	64	
 	17.7	Counterparts; Electronic Execution	64	
 	17.8	Revival and Reinstatement of Obligations; Certain Waivers	65	
 	17.9	Confidentiality	65	
 	17.10	Survival	66	
 	17.11	Patriot Act	66	
 	17.12	Integration	67	
 
iv 

 
CREDIT AGREEMENT
 
THIS CREDIT AGREEMENT (this “ Agreement ”), is entered into as of April 11, 2013, by and among the lenders identified on the signature pages hereof (each of such lenders, together with its successors and permitted assigns, is referred to hereinafter as a “ Lender ”, as that term is hereinafter further defined), WELLS FARGO BANK, NATIONAL ASSOCIATION , a national banking association, as administrative agent for each member of the Lender Group and the Bank Product Providers (in such capacity, together with its successors and assigns in such capacity, “ Agent ”), Q2 Holdings, Inc., a Delaware corporation (“ Parent ”), and Q2 Software, Inc., a Delaware corporation (“ Borrower ”).
 
The parties agree as follows:
 
1.                                       DEFINITIONS AND CONSTRUCTION.
 
1.1                                Definitions .  Capitalized terms used in this Agreement shall have the meanings specified therefor on Schedule 1.1.
 
1.2                                Accounting Terms .  All accounting terms not specifically defined herein shall be construed in accordance with GAAP; provided , that if Borrower notifies Agent that Borrower requests an amendment to any provision hereof to eliminate the effect of any Accounting Change occurring after the Closing Date or in the application thereof on the operation of such provision (or if Agent notifies Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such Accounting Change or in the application thereof, then Agent and Borrower agree that they will negotiate in good faith amendments to the provisions of this Agreement that are directly affected by such Accounting Change with the intent of having the respective positions of the Lenders and Borrower after such Accounting Change conform as nearly as possible to their respective positions as of the date of this Agreement and, until any such amendments have been agreed upon and agreed to by the Required Lenders, the provisions in this Agreement shall be calculated as if no such Accounting Change had occurred.  When used herein, the term “financial statements” shall include the notes and schedules thereto.  Whenever the term “Parent” is used in respect of a financial covenant or a related definition, it shall be understood to mean Parent and its Subsidiaries on a consolidated basis, unless the context clearly requires otherwise.  Notwithstanding anything to the contrary contained herein, (a) all financial statements delivered hereunder shall be prepared, and all financial covenants contained herein shall be calculated, without giving effect to any election under the Statement of Financial Accounting Standards No. 159  (or any similar accounting principle) permitting a Person to value its financial liabilities or Indebtedness at the fair value thereof, and (b) the term “unqualified opinion” as used herein to refer to opinions or reports provided by accountants shall mean an opinion or report that is (i) unqualified, and (ii) does not include any explanation, supplemental comment, or other comment concerning the ability of the applicable Person to continue as a going concern or concerning the scope of the audit
 
1.3                                Code .  Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein; provided , that to the extent that the Code is used to define any term herein and such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern.
 
1.4                                Construction .  Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms “includes” and “including” are not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.”  The words “hereof,”
 
1 

 
“herein,” “hereby,” “hereunder,” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be.  Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified.  Any reference in this Agreement or in any other Loan Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein).  The words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties.  Any reference herein or in any other Loan Document to the satisfaction, repayment, or payment in full of the Obligations shall mean (a) the payment or repayment in full in immediately available funds of (i) the principal amount of, and interest accrued and unpaid with respect to, all outstanding Loans, together with the payment of any premium applicable to the repayment of the Loans, (ii) all Lender Group Expenses that have accrued and are unpaid regardless of whether demand has been made therefor, (iii) all fees or charges that have accrued hereunder or under any other Loan Document (including the Letter of Credit Fee and the Unused Line Fee) and are unpaid, (b) in the case of contingent reimbursement obligations with respect to Letters of Credit, providing Letter of Credit Collateralization, (c) in the case of obligations with respect to Bank Products (other than Hedge Obligations), providing Bank Product Collateralization, (d) the receipt by Agent of cash collateral in order to secure any other contingent Obligations for which a claim or demand for payment has been made on or prior to such time or in respect of matters or circumstances known to Agent or a Lender at such time that are reasonably expected to result in any loss, cost, damage, or expense (including attorneys’ fees and legal expenses), such cash collateral to be in such amount as Agent reasonably determines is appropriate to secure such contingent Obligations, (e) the payment or repayment in full in immediately available funds of all other outstanding Obligations (including the payment of any termination amount then applicable (or which would or could become applicable as a result of the repayment of the other Obligations) under Hedge Agreements provided by Hedge Providers) other than (i) unasserted contingent indemnification Obligations, (ii) any Bank Product Obligations (other than Hedge Obligations) that, at such time, are allowed by the applicable Bank Product Provider to remain outstanding without being required to be repaid or cash collateralized, and (iii) any Hedge Obligations that, at such time, are allowed by the applicable Hedge Provider to remain outstanding without being required to be repaid, and (f) the termination of all of the Commitments of the Lenders.  Any reference herein to any Person shall be construed to include such Person’s successors and assigns.  Any requirement of a writing contained herein or in any other Loan Document shall be satisfied by the transmission of a Record.
 
1.5                                Time References .  Unless the context of this Agreement or any other Loan Document clearly requires otherwise, all references to time of day refer to Pacific standard time or Pacific daylight saving time, as in effect in Los Angeles, California on such day.  For purposes of the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to and including”; provided that, with respect to a computation of fees or interest payable to Agent or any Lender, such period shall in any event consist of at least one full day.
 
1.6                                Schedules and Exhibits .  All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.
 
2 

 
2.                                       LOANS AND TERMS OF PAYMENT.
 
2.1                                Revolving Loans .
 
(a)                                  Subject to the terms and conditions of this Agreement, and during the term of this Agreement, each Revolving Lender agrees (severally, not jointly or jointly and severally) to make revolving loans (“ Revolving Loans ”) to Borrower in an amount at any one time outstanding not to exceed the lesser of:
 
(i)                                      such Lender’s Revolver Commitment, or
 
(ii)                                   such Lender’s Pro Rata Share of an amount equal to the lesser of:
 
(A)                                the amount equal to the (1) Maximum Revolver Amount less (2) the Letter of Credit Usage at such time, less (3) the principal amount of Swing Loans outstanding at such time; and
 
(B)                                the amount equal to the (1) Credit Amount as of such date (based upon the most recent Credit Amount Certificate delivered by Borrower to Agent less (2) the Letter of Credit Usage at such time, less (3) the principal amount of Swing Loans outstanding at such time.
 
(b)                                  Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement.  The outstanding principal amount of the Revolving Loans, together with interest accrued and unpaid thereon, shall constitute Obligations and shall be due and payable on the Maturity Date or, if earlier, on the date on which they are declared due and payable pursuant to the terms of this Agreement.
 
(c)                                   Anything to the contrary in this Section 2.1 notwithstanding, Agent shall have the right (but not the obligation) to establish Bank Product Reserves from time to time against the Maximum Revolver Amount or the Credit Amount.
 
2.2                                [Reserved] .
 
2.3                                Borrowing Procedures and Settlements .
 
(a)                                  Procedure for Borrowing Revolving Loans.   Each Borrowing shall be made by a written request by an Authorized Person delivered to Agent and received by Agent no later than 10:00 a.m. (i) on the Business Day that is the requested Funding Date in the case of a request for a Swing Loan, and (ii) on the Business Day that is 1 Business Day prior to the requested Funding Date in the case of all other requests, specifying (A) the amount of such Borrowing, and (B) the requested Funding Date (which shall be a Business Day); provided, that Agent may, in its sole discretion, elect to accept as timely requests that are received later than 10:00 a.m. on the applicable Business Day.  At Agent’s election, in lieu of delivering the above-described written request, any Authorized Person may give Agent telephonic notice of such request by the required time.  In such circumstances, Borrower agrees that any such telephonic notice will be confirmed in writing within 24 hours of the giving of such telephonic notice, but the failure to provide such written confirmation shall not affect the validity of the request.
 
(b)                                  Making of Swing Loans.   In the case of a request for a Revolving Loan and so long as either (i) the aggregate amount of Swing Loans made since the last Settlement Date, minus all payments or other amounts applied to Swing Loans since the last Settlement Date, plus the amount of the requested Swing Loan does not exceed $5,000,000, or (ii) Swing Lender, in its sole discretion, agrees to make a Swing Loan notwithstanding the foregoing limitation, Swing Lender shall make a Revolving Loan (any such Revolving Loan made by Swing Lender pursuant to this Section 2.3(b)  being referred to as a “Swing Loan” and all such Revolving Loans being referred to as “Swing Loans”) available to Borrower on the Funding Date applicable thereto by transferring immediately available funds in the amount of such
 
3 

 
requested Borrowing to the Designated Account.  Each Swing Loan shall be deemed to be a Revolving Loan hereunder and shall be subject to all the terms and conditions (including Section 3 ) applicable to other Revolving Loans, except that all payments (including interest) on any Swing Loan shall be payable to Swing Lender solely for its own account.  Subject to the provisions of Section 2.3(d)(ii) , Swing Lender shall not make and shall not be obligated to make any Swing Loan if Swing Lender has actual knowledge that (i) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing, or (ii) the requested Borrowing would exceed the Availability on such Funding Date.  Swing Lender shall not otherwise be required to determine whether the applicable conditions precedent set forth in Section 3 have been satisfied on the Funding Date applicable thereto prior to making any Swing Loan.  The Swing Loans shall be secured by Agent’s Liens, constitute Revolving Loans and Obligations, and bear interest at the rate applicable from time to time to Revolving Loans that are Base Rate Loans.
 
(c)                                   Making of Revolving Loans.
 
(i)                                      In the event that Swing Lender is not obligated to make a Swing Loan, then after receipt of a request for a Borrowing pursuant to Section 2.3(a) , Agent shall notify the Lenders by telecopy, telephone, email, or other electronic form of transmission, of the requested Borrowing; such notification to be sent on the Business Day that is 1 Business Day prior to the requested Funding Date.  If Agent has notified the Lenders of a requested Borrowing on the Business Day that is 1 Business Day prior to the Funding Date, then each Lender shall make the amount of such Lender’s Pro Rata Share of the requested Borrowing available to Agent in immediately available funds, to Agent’s Account, not later than 10:00 a.m. on the Business Day that is the requested Funding Date.  After Agent’s receipt of the proceeds of such Revolving Loans from the Lenders, Agent shall make the proceeds thereof available to Borrower on the applicable Funding Date by transferring immediately available funds equal to such proceeds received by Agent to the Designated Account; provided , that, subject to the provisions of Section 2.3(d)(ii) , no Lender shall have an obligation to make any Revolving Loan, if (1) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has been waived, or (2) the requested Borrowing would exceed the Availability on such Funding Date.
 
(ii)                                   Unless Agent receives notice from a Lender prior to 9:30 a.m. on the Business Day that is the requested Funding Date relative to a requested Borrowing as to which Agent has notified the Lenders of a requested Borrowing that such Lender will not make available as and when required hereunder to Agent for the account of Borrower the amount of that Lender’s Pro Rata Share of the Borrowing, Agent may assume that each Lender has made or will make such amount available to Agent in immediately available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrower a corresponding amount.  If, on the requested Funding Date, any Lender shall not have remitted the full amount that it is required to make available to Agent in immediately available funds and if Agent has made available to Borrower such amount on the requested Funding Date, then such Lender shall make the amount of such Lender’s Pro Rata Share of the requested Borrowing available to Agent in immediately available funds, to Agent’s Account, no later than 10:00 a.m. on the Business Day that is the first Business Day after the requested Funding Date (in which case, the interest accrued on such Lender’s portion of such Borrowing for the Funding Date shall be for Agent’s separate account).  If any Lender shall not remit the full amount that it is required to make available to Agent in immediately available funds as and when required hereby and if Agent has made available to Borrower such amount, then that Lender shall be obligated to immediately remit such amount to Agent, together with interest at the Defaulting Lender Rate for each day until the date on which such amount is so remitted.  A notice submitted by Agent to any Lender with respect to amounts owing under this Section 2.3(c)(ii)  shall be conclusive, absent manifest error.  If the amount that a Lender is required to remit is made available to Agent, then such payment to Agent shall constitute such
 
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Lender’s Revolving Loan for all purposes of this Agreement.  If such amount is not made available to Agent on the Business Day following the Funding Date, Agent will notify Borrower of such failure to fund and, upon demand by Agent, Borrower shall pay such amount to Agent for Agent’s account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Revolving Loans composing such Borrowing.
 
(d)                                  Protective Advances.
 
(i)                                      Any contrary provision of this Agreement or any other Loan Document notwithstanding, at any time (A) after the occurrence and during the continuance of a Default or an Event of Default, or (B) that any of the other applicable conditions precedent set forth in Section 3 are not satisfied, Agent hereby is authorized by Borrower and the Lenders, from time to time, in Agent’s sole discretion, to make Revolving Loans to, or for the benefit of, Borrower, on behalf of the Revolving Lenders, that Agent, in its Permitted Discretion, deems necessary or desirable (1) to preserve or protect the Collateral, or any portion thereof, or (2) to enhance the likelihood of repayment of the Obligations (other than the Bank Product Obligations) (the Revolving Loans described in this Section 2.3(d)(i)  shall be referred to as “ Protective Advances ”).  Notwithstanding the foregoing, the aggregate amount of all Protective Advances outstanding at any one time shall not exceed $5,000,000.
 
(ii)                                   Each Protective Advance shall be deemed to be a Revolving Loan hereunder, except that no Protective Advance shall be eligible to be a LIBOR Rate Loan and, prior to Settlement therefor, all payments on the Protective Advances shall be payable to Agent solely for its own account.  The Protective Advances shall be repayable on demand, secured by Agent’s Liens, constitute Obligations hereunder, and bear interest at the rate applicable from time to time to Revolving Loans that are Base Rate Loans.  The provisions of this Section 2.3(d)  are for the exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended to benefit Borrower (or any other Loan Party) in any way.
 
(e)                                   Settlement.   It is agreed that each Lender’s funded portion of the Revolving Loans is intended by the Lenders to equal, at all times, such Lender’s Pro Rata Share of the outstanding Revolving Loans.  Such agreement notwithstanding, Agent, Swing Lender, and the other Lenders agree (which agreement shall not be for the benefit of Borrower) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among the Lenders as to the Revolving Loans, the Swing Loans, and the Protective Advances shall take place on a periodic basis in accordance with the following provisions:
 
(i)                                      Agent shall request settlement (“ Settlement ”) with the Lenders on a weekly basis, or on a more frequent basis if so determined by Agent in its sole discretion (1) on behalf of Swing Lender, with respect to the outstanding Swing Loans, (2) for itself, with respect to the outstanding Protective Advances, and (3) with respect to Borrower’s or its Subsidiaries’ payments or other amounts received, as to each by notifying the Lenders by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no later than 2:00 p.m. on the Business Day immediately prior to the date of such requested Settlement (the date of such requested Settlement being the “ Settlement Date ”).  Such notice of a Settlement Date shall include a summary statement of the amount of outstanding Revolving Loans, Swing Loans, and Protective Advances for the period since the prior Settlement Date.  Subject to the terms and conditions contained herein (including Section 2.3(g) ):  (y) if the amount of the Revolving Loans (including Swing Loans, and Protective Advances) made by a Lender that is not a Defaulting Lender exceeds such Lender’s Pro Rata Share of the Revolving Loans (including Swing Loans, and Protective Advances) as of a Settlement Date, then Agent shall, by no later than 12:00 p.m. on the Settlement Date, transfer in immediately available funds to a Deposit Account of such Lender (as such Lender may designate), an amount such that each such Lender shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Revolving Loans (including Swing Loans, and Protective
 
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Advances), and (z) if the amount of the Revolving Loans (including Swing Loans, and Protective Advances) made by a Lender is less than such Lender’s Pro Rata Share of the Revolving Loans (including Swing Loans, and Protective Advances) as of a Settlement Date, such Lender shall no later than 12:00 p.m. on the Settlement Date transfer in immediately available funds to Agent’s Account, an amount such that each such Lender shall, upon transfer of such amount, have as of the Settlement Date, its Pro Rata Share of the Revolving Loans (including Swing Loans and Protective Advances).  Such amounts made available to Agent under clause (z) of the immediately preceding sentence shall be applied against the amounts of the applicable Swing Loans or Protective Advances and, together with the portion of such Swing Loans or Protective Advances representing Swing Lender’s Pro Rata Share thereof, shall constitute Revolving Loans of such Lenders.  If any such amount is not made available to Agent by any Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate.
 
(ii)                                   In determining whether a Lender’s balance of the Revolving Loans, Swing Loans, and Protective Advances is less than, equal to, or greater than such Lender’s Pro Rata Share of the Revolving Loans, Swing Loans, and Protective Advances as of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to such balance the portion of payments actually received in good funds by Agent with respect to principal, interest, fees payable by Borrower and allocable to the Lenders hereunder, and proceeds of Collateral.
 
(iii)                                Between Settlement Dates, Agent, to the extent Protective Advances or Swing Loans are outstanding, may pay over to Agent or Swing Lender, as applicable, any payments or other amounts received by Agent that in accordance with the terms of this Agreement would be applied to the reduction of the Revolving Loans, for application to the Protective Advances or Swing Loans.  Between Settlement Dates, Agent, to the extent no Protective Advances or Swing Loans are outstanding, may pay over to Swing Lender any payments or other amounts received by Agent that in accordance with the terms of this Agreement would be applied to the reduction of the Revolving Loans, for application to Swing Lender’s Pro Rata Share of the Revolving Loans.  If, as of any Settlement Date, payments or other amounts of Parent or its Subsidiaries received since the then immediately preceding Settlement Date have been applied to Swing Lender’s Pro Rata Share of the Revolving Loans other than to Swing Loans, as provided for in the previous sentence, Swing Lender shall pay to Agent for the accounts of the Lenders, and Agent shall pay to the Lenders (other than a Defaulting Lender if Agent has implemented the provisions of Section 2.3(g) ), to be applied to the outstanding Revolving Loans of such Lenders, an amount such that each such Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Revolving Loans.  During the period between Settlement Dates, Swing Lender with respect to Swing Loans, Agent with respect to Protective Advances, and each Lender with respect to the Revolving Loans other than Swing Loans and Protective Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the daily amount of funds employed by Swing Lender, Agent, or the Lenders, as applicable.
 
(iv)                               Anything in this Section 2.3(e)  to the contrary notwithstanding, in the event that a Lender is a Defaulting Lender, Agent shall be entitled to refrain from remitting settlement amounts to the Defaulting Lender and, instead, shall be entitled to elect to implement the provisions set forth in Section 2.3(g) .
 
(f)                                    Notation.   Agent, as a non-fiduciary agent for Borrower, shall maintain a register showing the principal amount of the Revolving Loans, owing to each Lender, including the Swing Loans owing to Swing Lender, and Protective Advances owing to Agent, and the interests therein of each Lender, from time to time and such register shall, absent manifest error, conclusively be presumed to be correct and accurate.
 
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(g)                                   Defaulting Lenders.
 
(i)                                      Notwithstanding the provisions of Section 2.4(b)(ii) , Agent shall not be obligated to transfer to a Defaulting Lender any payments made by Borrower to Agent for the Defaulting Lender’s benefit or any proceeds of Collateral that would otherwise be remitted hereunder to the Defaulting Lender, and, in the absence of such transfer to the Defaulting Lender, Agent shall transfer any such payments (A) first, to Swing Lender to the extent of any Swing Loans that were made by Swing Lender and that were required to be, but were not, paid by the Defaulting Lender, (B) second, to Issuing Bank, to the extent of the portion of a Letter of Credit Disbursement that was required to be, but was not, paid by the Defaulting Lender, (C) third, to each Non-Defaulting Lender ratably in accordance with their Commitments (but, in each case, only to the extent that such Defaulting Lender’s portion of a Revolving Loan (or other funding obligation) was funded by such other Non-Defaulting Lender), (D) to a suspense account maintained by Agent, the proceeds of which shall be retained by Agent and may be made available to be re-advanced to or for the benefit of Borrower (upon the request of Borrower and subject to the conditions set forth in Section 3.2 ) as if such Defaulting Lender had made its portion of Revolving Loans (or other funding obligations) hereunder, and (E) from and after the date on which all other Obligations have been paid in full, to such Defaulting Lender in accordance with tier (L) of Section 2.4(b)(ii).  Subject to the foregoing, Agent may hold and, in its discretion, re-lend to Borrower for the account of such Defaulting Lender the amount of all such payments received and retained by Agent for the account of such Defaulting Lender.  Solely for the purposes of voting or consenting to matters with respect to the Loan Documents (including the calculation of Pro Rata Share in connection therewith) and for the purpose of calculating the fee payable under Section 2.10(b) , such Defaulting Lender shall be deemed not to be a “Lender” and such Lender’s Commitment shall be deemed to be zero; provided , that the foregoing shall not apply to any of the matters governed by Section 14.1(a)(i)  through (iii) .  The provisions of this Section 2.3(g) shall remain effective with respect to such Defaulting Lender until the earlier of (y) the date on which all of the Non-Defaulting Lenders, Agent, Issuing Bank, and Borrower shall have waived, in writing, the application of this Section 2.3(g)  to such Defaulting Lender, or (z) the date on which such Defaulting Lender makes payment of all amounts that it was obligated to fund hereunder, pays to Agent all amounts owing by Defaulting Lender in respect of the amounts that it was obligated to fund hereunder, and, if requested by Agent, provides adequate assurance of its ability to perform its future obligations hereunder (on which earlier date, so long as no Event of Default has occurred and is continuing, any remaining cash collateral held by Agent pursuant to Section 2.3(g)(ii) shall be released to Borrower).  The operation of this Section 2.3(g) shall not be construed to increase or otherwise affect the Commitment of any Lender, to relieve or excuse the performance by such Defaulting Lender or any other Lender of its duties and obligations hereunder, or to relieve or excuse the performance by Borrower of its duties and obligations hereunder to Agent, Issuing Bank, or to the Lenders other than such Defaulting Lender.  Any failure by a Defaulting Lender to fund amounts that it was obligated to fund hereunder shall constitute a material breach by such Defaulting Lender of this Agreement and shall entitle Borrower, at its option, upon written notice to Agent, to arrange for a substitute Lender to assume the Commitment of such Defaulting Lender, such substitute Lender to be reasonably acceptable to Agent.  In connection with the arrangement of such a substitute Lender, the Defaulting Lender shall have no right to refuse to be replaced hereunder, and agrees to execute and deliver a completed form of Assignment and Acceptance in favor of the substitute Lender (and agrees that it shall be deemed to have executed and delivered such document if it fails to do so) subject only to being paid its share of the outstanding Obligations (other than Bank Product Obligations, but including (1) all interest, fees, and other amounts that may be due and payable in respect thereof, and (2) an assumption of its Pro Rata Share of its participation in the Letters of Credit); provided , that any such assumption of the Commitment of such Defaulting Lender shall not be deemed to constitute a waiver of any of the Lender Groups’ or Borrower’s rights or remedies against any such Defaulting Lender arising out of or in relation to such failure to fund.  In the event of a direct conflict between the priority provisions of this Section 2.3(g) and any other provision contained in this Agreement or any other Loan Document, it is the
 
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intention of the parties hereto that such provisions be read together and construed, to the fullest extent possible, to be in concert with each other.  In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.3(g)  shall control and govern.
 
(ii)                                   If any Swing Loan or Letter of Credit is outstanding at the time that a Lender becomes a Defaulting Lender then:
 
(A)                                such Defaulting Lender’s Swing Loan Exposure and Letter of Credit Exposure shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Pro Rata Shares but only to the extent (x) the sum of all Non-Defaulting Lenders’ Revolving Loan Exposures plus such Defaulting Lender’s Swing Loan Exposure and Letter of Credit Exposure does not exceed the total of all Non-Defaulting Lenders’ Revolver Commitments and (y) the conditions set forth in Section 3.2 are satisfied at such time;
 
(B)                                if the reallocation described in clause (A) above cannot, or can only partially, be effected, Borrower shall within one Business Day following notice by the Agent (x) first, prepay such Defaulting Lender’s Swing Loan Exposure (after giving effect to any partial reallocation pursuant to clause (A) above) and (y) second, cash collateralize such Defaulting Lender’s Letter of Credit Exposure (after giving effect to any partial reallocation pursuant to clause (A) above), pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Agent, for so long as such Letter of Credit Exposure is outstanding; provided , that Borrower shall not be obligated to cash collateralize any Defaulting Lender’s Letter of Credit Exposure if such Defaulting Lender is also the Issuing Bank;
 
(C)                                if Borrower cash collateralizes any portion of such Defaulting Lender’s Letter of Credit Exposure pursuant to this Section 2.3(g)(ii) , Borrower shall not be required to pay any Letter of Credit Fees to Agent for the account of such Defaulting Lender pursuant to Section 2.6(b)  with respect to such cash collateralized portion of such Defaulting Lender’s Letter of Credit Exposure during the period such Letter of Credit Exposure is cash collateralized;
 
(D)                                to the extent the Letter of Credit Exposure of the Non-Defaulting Lenders is reallocated pursuant to this Section 2.3(g)(ii) , then the Letter of Credit Fees payable to the Non-Defaulting Lenders pursuant to Section 2.6(b)  shall be adjusted in accordance with such Non-Defaulting Lenders’ Letter of Credit Exposure;
 
(E)                                 to the extent any Defaulting Lender’s Letter of Credit Exposure is neither cash collateralized nor reallocated pursuant to this Section 2.3(g)(ii) , then, without prejudice to any rights or remedies of the Issuing Bank or any Lender hereunder, all Letter of Credit Fees that would have otherwise been payable to such Defaulting Lender under Section 2.6(b)  with respect to such portion of such Letter of Credit Exposure shall instead be payable to the Issuing Bank until such portion of such Defaulting Lender’s Letter of Credit Exposure is cash collateralized or reallocated;
 
(F)                                  so long as any Lender is a Defaulting Lender, the Swing Lender shall not be required to make any Swing Loan and the Issuing Bank shall not be required to issue, amend, or increase any Letter of Credit, in each case, to the extent (x) the Defaulting Lender’s Pro Rata Share of such Swing Loans or Letter of Credit cannot be reallocated pursuant to this Section 2.3(g)(ii)  or (y) the Swing Lender or Issuing Bank, as applicable, has not otherwise entered into arrangements reasonably satisfactory to the Swing Lender or Issuing Bank, as applicable, and Borrower to eliminate the Swing Lender’s or Issuing Bank’s risk with respect to the Defaulting Lender’s participation in Swing Loans or Letters of Credit; and
 
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(G)                                Agent may release any cash collateral provided by Borrower pursuant to this Section 2.3(g)(ii)  to the Issuing Bank and the Issuing Bank may apply any such cash collateral to the payment of such Defaulting Lender’s Pro Rata Share of any Letter of Credit Disbursement that is not reimbursed by Borrower pursuant to Section 2.11(d) .
 
(h)                                  Independent Obligations.   All Revolving Loans (other than Swing Loans and Protective Advances) shall be made by the Lenders contemporaneously and in accordance with their Pro Rata Shares.  It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Revolving Loan (or other extension of credit) hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligations hereunder, and (ii) no failure by any Lender to perform its obligations hereunder shall excuse any other Lender from its obligations hereunder.
 
2.4                                Payments; Reductions of Commitments; Prepayments .
 
(a)                                  Payments by Borrower.
 
(i)                                      Except as otherwise expressly provided herein, all payments by Borrower shall be made to Agent’s Account for the account of the Lender Group and shall be made in immediately available funds, no later than 1:30 p.m. on the date specified herein.  Any payment received by Agent later than 1:30 p.m. shall be deemed to have been received (unless Agent, in its sole discretion, elects to credit it on the date received) on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.
 
(ii)                                   Unless Agent receives notice from Borrower prior to the date on which any payment is due to the Lenders that Borrower will not make such payment in full as and when required, Agent may assume that Borrower has made (or will make) such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender.  If and to the extent Borrower does not make such payment in full to Agent on the date when due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender, together with interest thereon at the Defaulting Lender Rate for each day from the date such amount is distributed to such Lender until the date repaid.
 
(b)                                  Apportionment and Application.
 
(i)                                      So long as no Application Event has occurred and is continuing and except as otherwise provided herein with respect to Defaulting Lenders, all principal and interest payments received by Agent shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) and all payments of fees and expenses received by Agent (other than fees or expenses that are for Agent’s separate account or for the separate account of Issuing Bank) shall be apportioned ratably among the Lenders having a Pro Rata Share of the type of Commitment or Obligation to which a particular fee or expense relates.  Subject to Section 2.4(b)(iv)  and Section 2.4(e) , all payments to be made hereunder by Borrower shall be remitted to Agent and all such payments, and all proceeds of Collateral received by Agent, shall be applied, so long as no Application Event has occurred and is continuing and except as otherwise provided herein with respect to Defaulting Lenders, to reduce the balance of the Revolving Loans outstanding and, thereafter, to Borrower (to be wired to the Designated Account) or such other Person entitled thereto under applicable law.
 
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(ii)                                   At any time that an Application Event has occurred and is continuing and except as otherwise provided herein with respect to Defaulting Lenders, all payments remitted to Agent and all proceeds of Collateral received by Agent shall be applied as follows:
 
(A)                                first , to pay any Lender Group Expenses (including cost or expense reimbursements) or indemnities then due to Agent under the Loan Documents, until paid in full,
 
(B)                                second , to pay any fees or premiums then due to Agent under the Loan Documents until paid in full,
 
(C)                                third , to pay interest due in respect of all Protective Advances until paid in full,
 
(D)                                fourth , to pay the principal of all Protective Advances until paid in full,
 
(E)                                 fifth , ratably, to pay any Lender Group Expenses (including cost or expense reimbursements) or indemnities then due to any of the Lenders under the Loan Documents, until paid in full,
 
(F)                                  sixth , ratably, to pay any fees or premiums then due to any of the Lenders under the Loan Documents until paid in full,
 
(G)                                seventh , to pay interest accrued in respect of the Swing Loans until paid in full,
 
(H)                               eighth , to pay the principal of all Swing Loans until paid in full,
 
(I)                                    ninth , ratably, to pay interest accrued in respect of the Revolving Loans (other than Protective Advances) until paid in full,
 
(J)                                    tenth , ratably (i) to pay the principal of all Revolving Loans until paid in full, (ii) to Agent, to be held by Agent, for the benefit of Issuing Bank (and for the ratable benefit of each of the Lenders that have an obligation to pay to Agent, for the account of Issuing Bank, a share of each Letter of Credit Disbursement), as cash collateral in an amount up to 105% of the Letter of Credit Usage (to the extent permitted by applicable law, such cash collateral shall be applied to the reimbursement of any Letter of Credit Disbursement as and when such disbursement occurs and, if a Letter of Credit expires undrawn, the cash collateral held by Agent in respect of such Letter of Credit shall, to the extent permitted by applicable law, be reapplied pursuant to this Section 2.4(b)(ii) , beginning with tier (A) hereof), and (iii) ratably, to the Bank Product Providers based upon amounts then certified by the applicable Bank Product Provider to Agent (in form and substance satisfactory to Agent) to be due and payable to such Bank Product Providers on account of Bank Product Obligations,
 
(K)                               eleventh , to pay any other Obligations other than Obligations owed to Defaulting Lenders (including being paid, ratably, to the Bank Product Providers on account of all amounts then due and payable in respect of Bank Product Obligations, with any balance to be paid to Agent, to be held by Agent, for the ratable benefit of the Bank Product Providers, as cash collateral (which cash collateral may be released by Agent to the applicable Bank Product Provider and applied by such Bank Product Provider to the payment or reimbursement of any amounts due and payable with respect to Bank Product Obligations owed to the applicable Bank Product Provider as and when such amounts first become due and payable and, if and at such time as all such Bank Product Obligations are
 
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paid or otherwise satisfied in full, the cash collateral held by Agent in respect of such Bank Product Obligations shall be reapplied pursuant to this Section 2.4(b)(ii) , beginning with tier (A) hereof),
 
(L)                                 twelfth , ratably to pay any Obligations owed to Defaulting Lenders; and
 
(M)                             thirteenth , to Borrower (to be wired to the Designated Account) or such other Person entitled thereto under applicable law.
 
(iii)                                Agent promptly shall distribute to each Lender, pursuant to the applicable wire instructions received from each Lender in writing, such funds as it may be entitled to receive, subject to a Settlement delay as provided in Section 2.3(e) .
 
(iv)                               In each instance, so long as no Application Event has occurred and is continuing, Section 2.4(b)(i)  shall not apply to any payment made by Borrower to Agent and specified by Borrower to be for the payment of specific Obligations then due and payable (or prepayable) under any provision of this Agreement or any other Loan Document.
 
(v)                                  For purposes of Section 2.4(b)(ii) , “paid in full” of a type of Obligation means payment in cash or immediately available funds of all amounts owing on account of such type of Obligation, including interest accrued after the commencement of any Insolvency Proceeding, default interest, interest on interest, and expense reimbursements, irrespective of whether any of the foregoing would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding.
 
(vi)                               In the event of a direct conflict between the priority provisions of this Section 2.4 and any other provision contained in this Agreement or any other Loan Document, it is the intention of the parties hereto that such provisions be read together and construed, to the fullest extent possible, to be in concert with each other.  In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, if the conflict relates to the provisions of Section 2.3(g) and this Section 2.4 , then the provisions of Section 2.3(g)  shall control and govern, and if otherwise, then the terms and provisions of this Section 2.4 shall control and govern.
 
(c)                                   Reduction of Revolver Commitments.  The Revolver Commitments shall terminate on the Maturity Date.  Borrower may reduce the Revolver Commitments to an amount not less than the sum of (A) the Revolver Usage as of such date, plus (B) the principal amount of all Revolving Loans not yet made as to which a request has been given by Borrower under Section 2.3(a) , plus (C) the amount of all Letters of Credit not yet issued as to which a request has been given by Borrower pursuant to Section 2.11(a) .  Each such reduction shall be in an amount which is not less than $1,000,000 (unless the Revolver Commitments are being reduced to zero and the amount of the Revolver Commitments in effect immediately prior to such reduction are less than $1,000,000), shall be made by providing not less than 10 Business Days prior written notice to Agent, and shall be irrevocable.  Once reduced, the Revolver Commitments may not be increased.  Each such reduction of the Revolver Commitments shall reduce the Revolver Commitments of each Lender proportionately in accordance with its ratable share thereof.  Notwithstanding the foregoing, unless the Revolver Commitments are being reduced to zero in respect of an early termination pursuant to Section 3.5 , the Revolver Commitments may not be reduced to less than $5,000,000.
 
(d)                                  Optional Prepayments.   Borrower may prepay the principal of any Revolving Loan at any time in whole or in part.
 
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(e)                                   Mandatory Prepayments.  If, at any time, the Revolver Usage on such date exceeds the lesser of (1) the Maximum Revolver Amount, or (2) the Credit Amount as of such date (based upon the most recent Credit Amount Certificate delivered by Borrower to Agent), then Borrower shall immediately prepay the Obligations in accordance with Section 2.4(f)  in an amount equal to the amount of such excess.
 
(f)                                    Application of Payments.  Each prepayment pursuant to Section 2.4(e)  shall, (A) so long as no Application Event shall have occurred and be continuing, be applied, first , to the outstanding principal amount of the Revolving Loans until paid in full, and second , to cash collateralize the Letters of Credit in an amount equal to 105% of the then outstanding Letter of Credit Usage, and (B) if an Application Event shall have occurred and be continuing, be applied in the manner set forth in Section 2.4(b)(ii) .
 
2.5                                Promise to Pay; Promissory Notes .
 
(a)                                  Borrower agrees to pay the Lender Group Expenses on the earlier of (i) the first day of the month following the date on which the applicable Lender Group Expenses were first incurred or (ii) the date on which demand therefor is made by Agent (it being acknowledged and agreed that any charging of such costs, expenses or Lender Group Expenses to the Loan Account pursuant to the provisions of Section 2.6(d)  shall be deemed to constitute a demand for payment thereof for the purposes of this subclause (ii)).  Borrower promises to pay all of the Obligations (including principal, interest, premiums, if any, fees, costs, and expenses (including Lender Group Expenses)) in full on the Maturity Date or, if earlier, on the date on which the Obligations (other than the Bank Product Obligations) become due and payable pursuant to the terms of this Agreement.  Borrower agrees that its obligations contained in the first sentence of this Section 2.5(a)  shall survive payment or satisfaction in full of all other Obligations.
 
(b)                                  Any Lender may request that any portion of its Commitments or the Loans made by it be evidenced by one or more promissory notes.  In such event, Borrower shall execute and deliver to such Lender the requested promissory notes payable to the order of such Lender in a form furnished by Agent and reasonably satisfactory to Borrower.  Thereafter, the portion of the Commitments and Loans evidenced by such promissory notes and interest thereon shall at all times be represented by one or more promissory notes in such form payable to the order of the payee named therein.
 
2.6                                Interest Rates and Letter of Credit Fee:  Rates, Payments, and Calculations .
 
(a)                                  Interest Rates.   Except as provided in Section 2.6(c) , all Obligations (except for undrawn Letters of Credit) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest as follows:
 
(i)                                      if the relevant Obligation is a LIBOR Rate Loan, at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin, and
 
(ii)                                   otherwise, at a per annum rate equal to the Base Rate plus the Base Rate Margin.
 
(b)                                  Letter of Credit Fee.   Borrower shall pay Agent (for the ratable benefit of the Revolving Lenders), a Letter of Credit fee (the “ Letter of Credit Fee ”) (which fee shall be in addition to the fronting fees and commissions, other fees, charges and expenses set forth in Section 2.11(k) ) that shall accrue at a per annum rate equal to the LIBOR Rate Margin times the undrawn amount of all outstanding Letters of Credit.
 
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(c)                                   Default Rate.   Upon the occurrence and during the continuation of an Event of Default and at the election of Agent or the Required Lenders,
 
(i)                                      all Obligations (except for undrawn Letters of Credit) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest at a per annum rate equal to 2 percentage points above the per annum rate otherwise applicable thereunder, and
 
(ii)                                   the Letter of Credit Fee shall be increased to 2 percentage points above the per annum rate otherwise applicable hereunder.
 
(d)                                  Payment.   Except to the extent provided to the contrary in Section 2.10 , Section 2.11(k) , or Section 2.12(a) , (i) all interest, all Letter of Credit Fees and all other fees payable hereunder or under any of the other Loan Documents shall be due and payable, in arrears, on the first day of each month, and (ii) all costs and expenses payable hereunder or under any of the other Loan Documents, and all Lender Group Expenses shall be due and payable on the earlier of (x) the first day of the month following the date on which the applicable costs, expenses, or Lender Group Expenses were first incurred or (y) the date on which demand therefor is made by Agent (it being acknowledged and agreed that any charging of such costs, expenses or Lender Group Expenses to the Loan Account pursuant to the provisions of the following sentence shall be deemed to constitute a demand for payment thereof for the purposes of this subclause (y)).  Borrower hereby authorizes Agent, from time to time without prior notice to Borrower, to charge to the Loan Account (A) on the first day of each month, all interest accrued during the prior month on the Revolving Loans hereunder, (B) on the first day of each month, all Letter of Credit Fees accrued or chargeable hereunder during the prior month, (C) as and when incurred or accrued, all fees and costs provided for in Section 2.10 (a)  or (d) , (D) on the first day of each month, the Unused Line Fee accrued during the prior month pursuant to Section 2.10(b)  and the Minimum Interest Fee accrued during the prior month pursuant to Section 2.10(c) , (E) as and when due and payable, all other fees payable hereunder or under any of the other Loan Documents, (F) as and when incurred or accrued, the fronting fees and all commissions, other fees, charges and expenses provided for in Section 2.11(k) , (G) as and when incurred or accrued, all other Lender Group Expenses; provided , however , that so long as no Event of Default exists, Agent shall provide 5 Business Days’ prior notice to Borrower before charging the Loan Account for any amounts in respect of Lender Group Expenses owing to third parties, and (H) as and when due and payable all other payment obligations payable under any Loan Document or any Bank Product Agreement (including any amounts due and payable to the Bank Product Providers in respect of Bank Products).  All amounts (including interest, fees, costs, expenses, Lender Group Expenses, or other amounts payable hereunder or under any other Loan Document or under any Bank Product Agreement) charged to the Loan Account shall thereupon constitute Revolving Loans hereunder, shall constitute Obligations hereunder, and shall initially accrue interest at the rate then applicable to Revolving Loans that are Base Rate Loans (unless and until converted into LIBOR Rate Loans in accordance with the terms of this Agreement).
 
(e)                                   Computation .  All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year, in each case, for the actual number of days elapsed in the period during which the interest or fees accrue.   In the event the Base Rate is changed from time to time hereafter, the rates of interest hereunder based upon the Base Rate automatically and immediately shall be increased or decreased by an amount equal to such change in the Base Rate.
 
(f)                                    Intent to Limit Charges to Maximum Lawful Rate .  In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable.  Borrower and the Lender Group, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within
 
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it; provided , that, anything contained herein to the contrary notwithstanding, if such rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto , as of the date of this Agreement, Borrower is and shall be liable only for the payment of such maximum amount as is allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess.
 
2.7                                Crediting Payments .  The receipt of any payment item by Agent shall not be required to be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to Agent’s Account or unless and until such payment item is honored when presented for payment.  Should any payment item not be honored when presented for payment, then Borrower shall be deemed not to have made such payment and interest shall be calculated accordingly.  Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Agent only if it is received into Agent’s Account on a Business Day on or before 1:30 p.m.  If any payment item is received into Agent’s Account on a non-Business Day or after 1:30 p.m. on a Business Day (unless Agent, in its sole discretion, elects to credit it on the date received), it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day.
 
2.8                                Designated Account .  Agent is authorized to make the Revolving Loans, and Issuing Bank is authorized to issue the Letters of Credit, under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person or, without instructions, if pursuant to Section 2.6(d) .  Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Revolving Loans requested by Borrower and made by Agent or the Lenders hereunder.  Unless otherwise agreed by Agent and Borrower, any Revolving Loan or Swing Loan requested by Borrower and made by Agent or the Lenders hereunder shall be made to the Designated Account.
 
2.9                                Maintenance of Loan Account; Statements of Obligations .  Agent shall maintain an account on its books in the name of Borrower (the “ Loan Account ”) on which Borrower will be charged with all Revolving Loans (including Protective Advances and Swing Loans) made by Agent, Swing Lender, or the Lenders to Borrower or for Borrower’s account, the Letters of Credit issued or arranged by Issuing Bank for Borrower’s account, and with all other payment Obligations hereunder or under the other Loan Documents, including, accrued interest, fees and expenses, and Lender Group Expenses.  In accordance with Section 2.7 , the Loan Account will be credited with all payments received by Agent from Borrower or for Borrower’s account.  Agent shall make available to Borrower monthly statements regarding the Loan Account, including the principal amount of the Revolving Loans, interest accrued hereunder, fees accrued or charged hereunder or under the other Loan Documents, and a summary itemization of all charges and expenses constituting Lender Group Expenses accrued hereunder or under the other Loan Documents, and each such statement, absent manifest error, shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and the Lender Group unless, within 60 days after Agent first makes such a statement available to Borrower, Borrower shall deliver to Agent written objection thereto describing the error or errors contained in such statement.
 
2.10                         Fees .
 
(a)                                  Agent Fees .  Borrower shall pay to Agent, for the account of Agent, as and when due and payable under the terms of the Fee Letter, the fees set forth in the Fee Letter.
 
(b)                                  Unused Line Fee .  Borrower shall pay to Agent, for the ratable account of the Revolving Lenders, an unused line fee (the “ Unused Line Fe e”) in an amount equal to 0.375 % per annum
 
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times the result of (i) the aggregate amount of the Revolver Commitments, less (ii) the average amount of the Revolver Usage during the immediately preceding month (or portion thereof), which Unused Line Fee shall be due and payable on the first day of each month from and after the Closing Date up to the first day of the month prior to the date on which the Obligations are paid in full and on the date on which the Obligations are paid in full.
 
(c)                                   Minimum Interest Fee .  Commencing May 1, 2013 and if required pursuant to Section 5.16 of this Agreement, Borrower shall pay to Agent, for the ratable account of the Revolving Lenders, a minimum interest fee (the “ Minimum Interest Fee ”) in an amount equal to (i) the interest rate applicable to LIBOR Rate Loans times (ii) the positive difference, if any, between (1) $5,000,000 less (2) the average amount of the Revolver Usage during the immediately preceding month (or portion thereof), which Minimum Interest Fee shall be due and payable on the first day of each month from and after June 1, 2013  up to the first day of the month prior to the date on which the Obligations are paid in full and on the date on which the Obligations are paid in full.
 
(d)                                  Financial Examination and Other Fees .  Borrower shall pay to Agent, financial examination, appraisal, and valuation fees and charges, as and when incurred or chargeable, as follows (i) a fee of $1,000 per day, per examiner, plus out-of-pocket expenses (including travel, meals, and lodging) for each financial examination of Borrower performed by personnel employed by Agent, and (ii) the fees or charges paid or incurred by Agent (but, in any event, no less than a charge of $1,000 per day, per Person, plus out-of-pocket expenses (including travel, meals, and lodging)) if it elects to employ the services of one or more third Persons to perform financial examinations of Parent or its Subsidiaries, to appraise the Collateral, or any portion thereof, or to assess Parent’s or its Subsidiaries’ business/recurring revenue valuation; provided , so long as no Event of Default shall have occurred and be continuing, Borrower shall not be obligated to reimburse Agent for more than 2 field examinations, appraisals or valuations during any calendar year.
 
2.11                         Letters of Credit .
 
(a)                                  Subject to the terms and conditions of this Agreement, upon the request of Borrower made in accordance herewith, and prior to the Maturity Date, Issuing Bank agrees to issue a requested Letter of Credit for the account of Borrower, including without limitation a Letter of Credit in connection with Borrower’s lease of the Chief Executive Office.  By submitting a request to Issuing Bank for the issuance of a Letter of Credit, Borrower shall be deemed to have requested that Issuing Bank issue the requested Letter of Credit.  Each request for the issuance of a Letter of Credit, or the amendment, renewal, or extension of any outstanding Letter of Credit, shall be irrevocable and shall be made in writing by an Authorized Person and delivered to Issuing Bank via telefacsimile or other electronic method of transmission reasonably acceptable to Issuing Bank and reasonably in advance of the requested date of issuance, amendment, renewal, or extension.  Each such request shall be in form and substance reasonably satisfactory to Issuing Bank and (i) shall specify (A) the amount of such Letter of Credit, (B) the date of issuance, amendment, renewal, or extension of such Letter of Credit, (C) the proposed expiration date of such Letter of Credit, (D) the name and address of the beneficiary of the Letter of Credit, and (E) such other information (including, the conditions to drawing, and, in the case of an amendment, renewal, or extension, identification of the Letter of Credit to be so amended, renewed, or extended) as shall be necessary to prepare, amend, renew, or extend such Letter of Credit, and (ii) shall be accompanied by such Issuer Documents as Agent or Issuing Bank may request or require, to the extent that such requests or requirements are consistent with the Issuer Documents that Issuing Bank generally requests for Letters of Credit in similar circumstances.  Bank’s records of the content of any such request will be conclusive.  Anything contained herein to the contrary notwithstanding, Issuing Bank may, but shall not be obligated to, issue a Letter of Credit that supports the obligations of Parent or its Subsidiaries
 
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in respect of (x) a lease of real property (other than those for which it is has agreed to provide pursuant to this Section 2.11(a) ), or (y) an employment contract.
 
(b)                                  Issuing Bank shall have no obligation to issue a Letter of Credit if any of the following would result after giving effect to the requested issuance:
 
(i)                                      the Letter of Credit Usage would exceed $5,000,000, or
 
(ii)                                   the Letter of Credit Usage would exceed the Maximum Revolver Amount less the outstanding amount of Revolving Loans (including Swing Loans), or
 
(iii)                                the Letter of Credit Usage would exceed the Credit Amount at such time less the outstanding principal balance of the Revolving Loans (inclusive of Swing Loans) at such time.
 
(c)                                   In the event there is a Defaulting Lender as of the date of any request for the issuance of a Letter of Credit, the Issuing Bank shall not be required to issue or arrange for such Letter of Credit to the extent (i) the Defaulting Lender’s Letter of Credit Exposure with respect to such Letter of Credit may not be reallocated pursuant to Section 2.3(g)(ii) , or (ii) the Issuing Bank has not otherwise entered into arrangements reasonably satisfactory to it and Borrower to eliminate the Issuing Bank’s risk with respect to the participation in such Letter of Credit of the Defaulting Lender, which arrangements may include Borrower cash collateralizing such Defaulting Lender’s Letter of Credit Exposure in accordance with Section 2.3(g)(ii) .  Additionally, Issuing Bank shall have no obligation to issue a Letter of Credit if (A) any order, judgment, or decree of any Governmental Authority or arbitrator shall, by its terms, purport to enjoin or restrain Issuing Bank from issuing such Letter of Credit, or any law applicable to Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over Issuing Bank shall prohibit or request that Issuing Bank refrain from the issuance of letters of credit generally or such Letter of Credit in particular, (B) the issuance of such Letter of Credit would violate one or more policies of Issuing Bank applicable to letters of credit generally, or (C) if amounts demanded to be paid under any Letter of Credit will or may not be in United States Dollars.
 
(d)                                  Any Issuing Bank (other than Wells Fargo or any of its Affiliates) shall notify Agent in writing no later than the Business Day immediately following the Business Day on which such Issuing Bank issued any Letter of Credit; provided that (i) until Agent advises any such Issuing Bank that the provisions of Section 3.2 are not satisfied, or (ii) unless the aggregate amount of the Letters of Credit issued in any such week exceeds such amount as shall be agreed by Agent and such Issuing Bank, such Issuing Bank shall be required to so notify Agent in writing only once each week of the Letters of Credit issued by such Issuing Bank during the immediately preceding week as well as the daily amounts outstanding for the prior week, such notice to be furnished on such day of the week as Agent and such Issuing Bank may agree.  Each Letter of Credit shall be in form and substance reasonably acceptable to Issuing Bank, including the requirement that the amounts payable thereunder must be payable in Dollars.  If Issuing Bank makes a payment under a Letter of Credit, Borrower shall pay to Agent an amount equal to the applicable Letter of Credit Disbursement on the Business Day such Letter of Credit Disbursement is made and, in the absence of such payment, the amount of the Letter of Credit Disbursement immediately and automatically shall be deemed to be a Revolving Loan hereunder (notwithstanding any failure to satisfy any condition precedent set forth in Section 3 ) and, initially, shall bear interest at the rate then applicable to Revolving Loans that are Base Rate Loans. If a Letter of Credit Disbursement is deemed to be a Revolving Loan hereunder, Borrower’s obligation to pay the amount of such Letter of Credit Disbursement to Issuing Bank shall be automatically converted into an obligation to pay the resulting Revolving Loan.  Promptly following receipt by Agent of any payment from Borrower pursuant to this paragraph, Agent shall distribute such payment to Issuing Bank or, to the extent that Revolving
 
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Lenders have made payments pursuant to Section 2.11(e)  to reimburse Issuing Bank, then to such Revolving Lenders and Issuing Bank as their interests may appear.
 
(e)                                   Promptly following receipt of a notice of a Letter of Credit Disbursement pursuant to Section 2.11(d) , each Revolving Lender agrees to fund its Pro Rata Share of any Revolving Loan deemed made pursuant to Section 2.11(d)  on the same terms and conditions as if Borrower had requested the amount thereof as a Revolving Loan and Agent shall promptly pay to Issuing Bank the amounts so received by it from the Revolving Lenders.  By the issuance of a Letter of Credit (or an amendment, renewal, or extension of a Letter of Credit) and without any further action on the part of Issuing Bank or the Revolving Lenders, Issuing Bank shall be deemed to have granted to each Revolving Lender, and each Revolving Lender shall be deemed to have purchased, a participation in each Letter of Credit issued by Issuing Bank, in an amount equal to its Pro Rata Share of such Letter of Credit, and each such Revolving Lender agrees to pay to Agent, for the account of Issuing Bank, such Revolving Lender’s Pro Rata Share of any Letter of Credit Disbursement made by Issuing Bank under the applicable Letter of Credit.  In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to Agent, for the account of Issuing Bank, such Revolving Lender’s Pro Rata Share of each Letter of Credit Disbursement made by Issuing Bank and not reimbursed by Borrower on the date due as provided in Section 2.11(d) , or of any reimbursement payment that is required to be refunded (or that Agent or Issuing Bank elects, based upon the advice of counsel, to refund) to Borrower for any reason.  Each Revolving Lender acknowledges and agrees that its obligation to deliver to Agent, for the account of Issuing Bank, an amount equal to its respective Pro Rata Share of each Letter of Credit Disbursement pursuant to this Section 2.11(e)  shall be absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuation of an Event of Default or Default or the failure to satisfy any condition set forth in Section 3 .  If any such Revolving Lender fails to make available to Agent the amount of such Revolving Lender’s Pro Rata Share of a Letter of Credit Disbursement as provided in this Section, such Revolving Lender shall be deemed to be a Defaulting Lender and Agent (for the account of Issuing Bank) shall be entitled to recover such amount on demand from such Revolving Lender together with interest thereon at the Defaulting Lender Rate until paid in full.
 
(f)                                    Borrower agrees to indemnify, defend and hold harmless each member of the Lender Group (including Issuing Bank and its branches, Affiliates, and correspondents) and each such Person’s respective directors, officers, employees, attorneys and agents (each, including Issuing Bank, a “ Letter of Credit Related Person ”) (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, liabilities, fines, costs, penalties, and damages, and all reasonable fees and disbursements of attorneys, experts, or consultants and all other costs and expenses actually incurred in connection therewith or in connection with the enforcement of this indemnification (as and when they are incurred and irrespective of whether suit is brought), which may be incurred by or awarded against any such Letter of Credit Related Person (other than Taxes, which shall be governed by Section 16 ) (the “ Letter of Credit Indemnified Costs ”), and which arise out of or in connection with, or as a result of:
 
(i)                                      any Letter of Credit or any pre-advice of its issuance;
 
(ii)                                   any transfer, sale, delivery, surrender or endorsement of any Drawing Document at any time(s) held by any such Letter of Credit Related Person in connection with any Letter of Credit;
 
(iii)                                any action or proceeding arising out of, or in connection with, any Letter of Credit (whether administrative, judicial or in connection with arbitration), including any action or
 
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proceeding to compel or restrain any presentation or payment under any Letter of Credit, or for the wrongful dishonor of, or honoring a presentation under, any Letter of Credit;
 
(iv)                               any independent undertakings issued by the beneficiary of any Letter of Credit;
 
(v)                                  any unauthorized instruction or request made to Issuing Bank in connection with any Letter of Credit or requested Letter of Credit or error in computer or electronic transmission;
 
(vi)                               an adviser, confirmer or other nominated person seeking to be reimbursed, indemnified or compensated;
 
(vii)                            any third party seeking to enforce the rights of an applicant, beneficiary, nominated person, transferee, assignee of Letter of Credit proceeds or holder of an instrument or document;
 
(viii)                         the fraud, forgery or illegal action of parties other than the Letter of Credit Related Person;
 
(ix)                               Issuing Bank’s performance of the obligations of a confirming institution or entity that wrongfully dishonors a confirmation; or
 
(x)                                  the acts or omissions, whether rightful or wrongful, of any present or future de jure or de facto governmental or regulatory authority or cause or event beyond the control of the Letter of Credit Related Person;
 
in each case, including that resulting from the Letter of Credit Related Person’s own negligence; provided, however , that, notwithstanding anything to the contrary in this Agreement, such indemnity shall not be available to any Letter of Credit Related Person claiming indemnification under clauses (i) through (x) above to the extent that such Letter of Credit Indemnified Costs may be finally determined in a final, non-appealable judgment of a court of competent jurisdiction to have resulted directly from the bad faith, gross negligence or willful misconduct of the Letter of Credit Related Person claiming indemnity.  Borrower hereby agrees to pay the Letter of Credit Related Person claiming indemnity on demand from time to time all amounts owing under this Section 2.11(f) .  If and to the extent that the obligations of Borrower under this Section 2.11(f)  are unenforceable for any reason, Borrower agrees to make the maximum contribution to the Letter of Credit Indemnified Costs permissible under applicable law.  This indemnification provision shall survive termination of this Agreement and all Letters of Credit.
 
(g)                                   The liability of Issuing Bank (or any other Letter of Credit Related Person) under, in connection with or arising out of any Letter of Credit (or pre-advice), regardless of the form or legal grounds of the action or proceeding, shall be limited to direct damages suffered by Borrower that are caused directly by Issuing Bank’s gross negligence or willful misconduct in (i) honoring a presentation under a Letter of Credit that on its face does not at least substantially comply with the terms and conditions of such Letter of Credit, (ii) failing to honor a presentation under a Letter of Credit that strictly complies with the terms and conditions of such Letter of Credit or (iii) retaining Drawing Documents presented under a Letter of Credit.  Issuing Bank shall be deemed to have acted with due diligence and reasonable care if Issuing Bank’s conduct is in accordance with Standard Letter of Credit Practice or in accordance with this Agreement.  Borrower’s aggregate remedies against Issuing Bank and any Letter of Credit Related Person for wrongfully honoring a presentation under any Letter of Credit or wrongfully retaining honored Drawing Documents shall in no event exceed the aggregate amount paid by Borrower
 
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to Issuing Bank in respect of the honored presentation in connection with such Letter of Credit under Section 2.11(d) , plus interest at the rate then applicable to Base Rate Loans hereunder.  Borrower shall take action to avoid and mitigate the amount of any damages claimed against Issuing Bank or any other Letter of Credit Related Person, including by enforcing its rights against the beneficiaries of the Letters of Credit.  Any claim by Borrower under or in connection with any Letter of Credit shall be reduced by an amount equal to the sum of (x) the amount (if any) saved by Borrower as a result of the breach or alleged wrongful conduct complained of; and (y) the amount (if any) of the loss that would have been avoided had Borrower taken all reasonable steps to mitigate any loss, and in case of a claim of wrongful dishonor, by specifically and timely authorizing Issuing Bank to effect a cure.
 
(h)                                  Borrower is responsible for preparing or approving the final text of the Letter of Credit as issued by Issuing Bank, irrespective of any assistance Issuing Bank may provide such as drafting or recommending text or by Issuing Bank’s use or refusal to use text submitted by Borrower.  Borrower is solely responsible for the suitability of the Letter of Credit for Borrower’s purposes.  With respect to any Letter of Credit containing an “automatic amendment” to extend the expiration date of such Letter of Credit, Issuing Bank, in its sole and absolute discretion, may give notice of nonrenewal of such Letter of Credit and, if Borrower does not at any time want such Letter of Credit to be renewed, Borrower will so notify Agent and Issuing Bank at least 15 calendar days before Issuing Bank is required to notify the beneficiary of such Letter of Credit or any advising bank of such nonrenewal pursuant to the terms of such Letter of Credit.
 
(i)                                      Borrower’s reimbursement and payment obligations under this Section 2.11 are absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever, including:
 
(i)                                      any lack of validity, enforceability or legal effect of any Letter of Credit or this Agreement or any term or provision therein or herein;
 
(ii)                                   payment against presentation of any draft, demand or claim for payment under any Drawing Document that does not comply in whole or in part with the terms of the applicable Letter of Credit or which proves to be fraudulent, forged or invalid in any respect or any statement therein being untrue or inaccurate in any respect, or which is signed, issued or presented by a Person or a transferee of such Person purporting to be a successor or transferee of the beneficiary of such Letter of Credit;
 
(iii)                                Issuing Bank or any of its branches or Affiliates being the beneficiary of any Letter of Credit;
 
(iv)                               Issuing Bank or any correspondent honoring a drawing against a Drawing Document up to the amount available under any Letter of Credit even if such Drawing Document claims an amount in excess of the amount available under the Letter of Credit;
 
(v)                                  the existence of any claim, set-off, defense or other right that Borrower or any other Person may have at any time against any beneficiary, any assignee of proceeds, Issuing Bank or any other Person;
 
(vi)                               any other event, circumstance or conduct whatsoever, whether or not similar to any of the foregoing that might, but for this Section 2.11(i) , constitute a legal or equitable defense to or discharge of, or provide a right of set-off against, Borrower’s reimbursement and other payment obligations and liabilities, arising under, or in connection with, any Letter of Credit, whether against Issuing Bank, the beneficiary or any other Person; or
 
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(vii)                            the fact that any Default or Event of Default shall have occurred and be continuing;
 
provided , however , that subject to Section 2.11(g)  above, the foregoing shall not release Issuing Bank from such liability to Borrower as may be finally determined in a final, non-appealable judgment of a court of competent jurisdiction against Issuing Bank following reimbursement or payment of the obligations and liabilities, including reimbursement and other payment obligations, of Borrower to Issuing Bank arising under, or in connection with, this Section 2.11 or any Letter of Credit.
 
(j)                                     Without limiting any other provision of this Agreement, Issuing Bank and each other Letter of Credit Related Person (if applicable) shall not be responsible to Borrower for, and Issuing Bank’s rights and remedies against Borrower and the obligation of Borrower to reimburse Issuing Bank for each drawing under each Letter of Credit shall not be impaired by:
 
(i)                                      honor of a presentation under any Letter of Credit that on its face substantially complies with the terms and conditions of such Letter of Credit, even if the Letter of Credit requires strict compliance by the beneficiary;
 
(ii)                                   honor of a presentation of any Drawing Document that appears on its face to have been signed, presented or issued (A) by any purported successor or transferee of any beneficiary or other Person required to sign, present or issue such Drawing Document or (B) under a new name of the beneficiary;
 
(iii)                                acceptance as a draft of any written or electronic demand or request for payment under a Letter of Credit, even if nonnegotiable or not in the form of a draft or notwithstanding any requirement that such draft, demand or request bear any or adequate reference to the Letter of Credit;
 
(iv)                               the identity or authority of any presenter or signer of any Drawing Document or the form, accuracy, genuineness or legal effect of any Drawing Document (other than Issuing Bank’s determination that such Drawing Document appears on its face substantially to comply with the terms and conditions of the Letter of Credit);
 
(v)                                  acting upon any instruction or request relative to a Letter of Credit or requested Letter of Credit that Issuing Bank in good faith believes to have been given by a Person authorized to give such instruction or request;’
 
(vi)                               any errors, omissions, interruptions or delays in transmission or delivery of any message, advice or document (regardless of how sent or transmitted) or for errors in interpretation of technical terms or in translation or any delay in giving or failing to give notice to Borrower;
 
(vii)                            any acts, omissions or fraud by, or the insolvency of, any beneficiary, any nominated person or entity or any other Person or any breach of contract between the beneficiary and Borrower or any of the parties to the underlying transaction to which the Letter of Credit relates;
 
(viii)                         assertion or waiver of any provision of the ISP or UCP that primarily benefits an issuer of a letter of credit, including any requirement that any Drawing Document be presented to it at a particular hour or place;
 
(ix)                               payment to any paying or negotiating bank (designated or permitted by the terms of the applicable Letter of Credit) claiming that it rightfully honored or is entitled to reimbursement or indemnity under Standard Letter of Credit Practice applicable to it;
 
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(x)                                  acting or failing to act as required or permitted under Standard Letter of Credit Practice applicable to where Issuing Bank has issued, confirmed, advised or negotiated such Letter of Credit, as the case may be;
 
(xi)                               honor of a presentation after the expiration date of any Letter of Credit notwithstanding that a presentation was made prior to such expiration date and dishonored by Issuing Bank if subsequently Issuing Bank or any court or other finder of fact determines such presentation should have been honored;
 
(xii)                            dishonor of any presentation that does not strictly comply or that is fraudulent, forged or otherwise not entitled to honor; or
 
(xiii)                         honor of a presentation that is subsequently determined by Issuing Bank to have been made in violation of international, federal, state or local restrictions on the transaction of business with certain prohibited Persons.
 
(k)                                  Borrower shall pay immediately upon demand to Agent for the account of Issuing Bank as non-refundable fees, commissions, and charges (it being acknowledged and agreed that any charging of such fees, commissions, and charges to the Loan Account pursuant to the provisions of Section 2.6(d)  shall be deemed to constitute a demand for payment thereof for the purposes of this Section 2.11(k) ): (i) a fronting fee which shall be imposed by Issuing Bank upon the issuance of each Letter of Credit of 0.375% per annum of the face amount thereof, plus (ii) any and all other customary commissions, fees and charges then in effect imposed by, and any and all expenses incurred by, Issuing Bank, or by any adviser, confirming institution or entity or other nominated person, relating to Letters of Credit, at the time of issuance of any Letter of Credit and upon the occurrence of any other activity with respect to any Letter of Credit (including transfers, assignments of proceeds, amendments, drawings, renewals or cancellations).
 
(l)                                      If by reason of (x) any Change in Law, or (y) compliance by Issuing Bank or any other member of the Lender Group with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, Regulation D of the Board of Governors as from time to time in effect (and any successor thereto):
 
(i)                                      any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued or caused to be issued hereunder or hereby, or
 
(ii)                                   there shall be imposed on Issuing Bank or any other member of the Lender Group any other condition regarding any Letter of Credit,
 
and the result of the foregoing is to increase, directly or indirectly, the cost to Issuing Bank or any other member of the Lender Group of issuing, making, participating in, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof, then, and in any such case, Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Borrower, and Borrower shall pay within 30 days after demand therefor, such amounts as Agent may specify to be necessary to compensate Issuing Bank or any other member of the Lender Group for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Base Rate Loans hereunder; provided , that (A) Borrower shall not be required to provide any compensation pursuant to this Section 2.11(l)  for any such amounts incurred more than 180 days prior to the date on which the demand for payment of such amounts is first made to Borrower, and (B) if an event or circumstance giving rise to such amounts is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect
 
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thereof.  The determination by Agent of any amount due pursuant to this Section 2.11(l) , as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto.
 
(i)                                      Unless otherwise expressly agreed by Issuing Bank and Borrower when a Letter of Credit is issued, (i) the rules of the ISP and the UCP shall apply to each standby Letter of Credit, and (ii) the rules of the UCP shall apply to each commercial Letter of Credit.
 
(j)                                     In the event of a direct conflict between the provisions of this Section 2.11 and any provision contained in any Issuer Document, it is the intention of the parties hereto that such provisions be read together and construed, to the fullest extent possible, to be in concert with each other.  In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.11 shall control and govern.
 
2.12                         LIBOR Option .
 
(a)                                  Interest and Interest Payment Dates .  In lieu of having interest charged at the rate based upon the Base Rate, Borrower shall have the option, subject to Section 2.12(b)  below (the “ LIBOR Option ”) to have interest on all or a portion of the Revolving Loans be charged (whether at the time when made (unless otherwise provided herein), upon conversion from a Base Rate Loan to a LIBOR Rate Loan, or upon continuation of a LIBOR Rate Loan as a LIBOR Rate Loan) at a rate of interest based upon the LIBOR Rate.  Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the last day of the Interest Period applicable thereto, (ii) the date on which all or any portion of the Obligations are accelerated pursuant to the terms hereof, or (iii) the date on which this Agreement is terminated pursuant to the terms hereof.  On the last day of each applicable Interest Period, unless Borrower properly has exercised the LIBOR Option with respect thereto, the interest rate applicable to such LIBOR Rate Loan automatically shall convert to the rate of interest then applicable to Base Rate Loans of the same type hereunder.  At any time that an Event of Default has occurred and is continuing, Borrower no longer shall have the option to request that Revolving Loans bear interest at a rate based upon the LIBOR Rate.
 
(b)                                  LIBOR Election .
 
(i)                                      Borrower may, at any time and from time to time, so long as no Event of Default has occurred and is continuing, elect to exercise the LIBOR Option by notifying Agent prior to 11:00 a.m. at least 1 Business Day prior to the commencement of the proposed Interest Period (the “ LIBOR Deadline ”).  Notice of Borrower’s election of the LIBOR Option for a permitted portion of the Revolving Loans and an Interest Period pursuant to this Section shall be made by delivery to Agent of a LIBOR Notice received by Agent before the LIBOR Deadline, or by telephonic notice received by Agent before the LIBOR Deadline (to be confirmed by delivery to Agent of a LIBOR Notice received by Agent prior to 5:00 p.m. on the same day).  Promptly upon its receipt of each such LIBOR Notice, Agent shall provide a copy thereof to each of the affected Lenders.
 
(ii)                                   Each LIBOR Notice shall be irrevocable and binding on Borrower.  In connection with each LIBOR Rate Loan, Borrower shall indemnify, defend, and hold Agent and the Lenders harmless against any loss, cost, or expense actually incurred by Agent or any Lender as a result of (A) the payment of any principal of any LIBOR Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (B) the conversion of any LIBOR Rate Loan other than on the last day of the Interest Period applicable thereto, or (C) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice delivered pursuant hereto (such losses, costs, or expenses, “ Funding Losses ”).  A certificate of Agent or a Lender delivered to Borrower setting forth in reasonable detail any amount or amounts that Agent or such Lender
 
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is entitled to receive pursuant to this Section 2.12 shall be conclusive absent manifest error.  Borrower shall pay such amount to Agent or the Lender, as applicable, within 30 days of the date of its receipt of such certificate.  If a payment of a LIBOR Rate Loan on a day other than the last day of the applicable Interest Period would result in a Funding Loss, Agent may, in its sole discretion at the request of Borrower, hold the amount of such payment as cash collateral in support of the Obligations until the last day of such Interest Period and apply such amounts to the payment of the applicable LIBOR Rate Loan on such last day, it being agreed that Agent has no obligation to so defer the application of payments to any LIBOR Rate Loan and that, in the event that Agent does not defer such application, Borrower shall be obligated to pay any resulting Funding Losses.
 
(iii)                                Unless Agent, in its sole discretion, agrees otherwise, Borrower shall have not more than 7 LIBOR Rate Loans in effect at any given time.  Borrower only may exercise the LIBOR Option for proposed LIBOR Rate Loans of at least $500,000.
 
(c)                                   Conversion .  Borrower may convert LIBOR Rate Loans to Base Rate Loans at any time; provided , that in the event that LIBOR Rate Loans are converted or prepaid on any date that is not the last day of the Interest Period applicable thereto, including as a result of any prepayment through the required application by Agent of any payments or proceeds of Collateral in accordance with Section 2.4(b)  or for any other reason, including early termination of the term of this Agreement or acceleration of all or any portion of the Obligations pursuant to the terms hereof, Borrower shall indemnify, defend, and hold Agent and the Lenders and their Participants harmless against any and all Funding Losses in accordance with Section 2.12 (b)(ii) .
 
(d)                                  Special Provisions Applicable to LIBOR Rate .
 
(i)                                      The LIBOR Rate may be adjusted by Agent with respect to any Lender on a prospective basis to take into account any additional or increased costs to such Lender of maintaining or obtaining any eurodollar deposits or increased costs, in each case, due to changes in applicable law occurring subsequent to the commencement of the then applicable Interest Period, including any Changes in Law (including any changes in tax laws (except changes of general applicability in corporate income tax laws)) and changes in the reserve requirements imposed by the Board of Governors, which additional or increased costs would increase the cost of funding or maintaining loans bearing interest at the LIBOR Rate.  In any such event, the affected Lender shall give Borrower and Agent notice of such a determination and adjustment and Agent promptly shall transmit the notice to each other Lender and, upon its receipt of the notice from the affected Lender,  Borrower may, by notice to such affected Lender (A) require such Lender to furnish to Borrower a statement setting forth in reasonable detail the basis for adjusting such LIBOR Rate and the method for determining the amount of such adjustment, or (B) repay the LIBOR Rate Loans of such Lender with respect to which such adjustment is made (together with any amounts due under Section 2.12(b)(ii) ).
 
(ii)                                   In the event that any change in market conditions or any Change in Law shall at any time after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for such Lender to fund or maintain LIBOR Rate Loans or to continue such funding or maintaining, or to determine or charge interest rates at the LIBOR Rate, such Lender shall give notice of such changed circumstances to Agent and Borrower and Agent promptly shall transmit the notice to each other Lender and (y) in the case of any LIBOR Rate Loans of such Lender that are outstanding, the date specified in such Lender’s notice shall be deemed to be the last day of the Interest Period of such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender thereafter shall accrue interest at the rate then applicable to Base Rate Loans, and (z) Borrower shall not be entitled to elect the LIBOR Option until such Lender determines that it would no longer be unlawful or impractical to do so.
 
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(e)                                   No Requirement of Matched Funding .  Anything to the contrary contained herein notwithstanding, neither Agent, nor any Lender, nor any of their Participants, is required actually to acquire eurodollar deposits to fund or otherwise match fund any Obligation as to which interest accrues at the LIBOR Rate.
 
2.13                         Capital Requirements .
 
(a)                                  If, after the date hereof, Issuing Bank or any Lender determines that (i) any Change in Law regarding capital or reserve requirements for banks or bank holding companies, or (ii) compliance by Issuing Bank or such Lender, or their respective parent bank holding companies, with any guideline, request or directive of any Governmental Authority regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on Issuing Bank’s, such Lender’s, or such holding companies’ capital as a consequence of Issuing Bank’s or such Lender’s commitments hereunder to a level below that which Issuing Bank, such Lender, or such holding companies could have achieved but for such Change in Law or compliance (taking into consideration Issuing Bank’s, such Lender’s, or such holding companies’ then existing policies with respect to capital adequacy and assuming the full utilization of such entity’s capital) by any amount deemed by Issuing Bank or such Lender to be material, then Issuing Bank or such Lender may notify Borrower and Agent thereof.  Following receipt of such notice, Borrower agrees to pay Issuing Bank or such Lender on demand the amount of such reduction of return of capital as and when such reduction is determined, payable within 30 days after presentation by Issuing Bank or such Lender of a statement in the amount and setting forth in reasonable detail Issuing Bank’s or such Lender’s calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error).  In determining such amount, Issuing Bank or such Lender may use any reasonable averaging and attribution methods.  Failure or delay on the part of Issuing Bank or any Lender to demand compensation pursuant to this Section shall not constitute a waiver of Issuing Bank’s or such Lender’s right to demand such compensation; provided that Borrower shall not be required to compensate Issuing Bank or a Lender pursuant to this Section for any reductions in return incurred more than 180 days prior to the date that Issuing Bank or such Lender notifies Borrower of such Change in Law giving rise to such reductions and of such Lender’s intention to claim compensation therefor; provided further that if such claim arises by reason of the Change in Law that is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
 
(b)                                  If Issuing Bank or any Lender requests additional or increased costs referred to in Section 2.11(l)  or Section 2.12(d)(i)  or amounts under Section 2.13(a)  or sends a notice under Section 2.12(d)(ii)  relative to changed circumstances (such Issuing Bank or Lender, an “ Affected Lender ”), then such Affected Lender shall use reasonable efforts to promptly designate a different one of its lending offices or to assign its rights and obligations hereunder to another of its offices or branches, if (i) in the reasonable judgment of such Affected Lender, such designation or assignment would eliminate or reduce amounts payable pursuant to Section 2.11(l) , Section 2.12(d)(i)  or Section 2.13(a) , as applicable, or would eliminate the illegality or impracticality of funding or maintaining LIBOR Rate Loans and (ii) in the reasonable judgment of such Affected Lender, such designation or assignment would not subject it to any material unreimbursed cost or expense and would not otherwise be materially disadvantageous to it.  Borrower agrees to pay all reasonable out-of-pocket costs and expenses incurred by such Affected Lender in connection with any such designation or assignment.  If, after such reasonable efforts, such Affected Lender does not so designate a different one of its lending offices or assign its rights to another of its offices or branches so as to eliminate Borrower’s obligation to pay any future amounts to such Affected Lender pursuant to Section 2.11(l) , Section 2.12(d)(i)  or Section 2.13(a) , as applicable, or to enable Borrower to obtain LIBOR Rate Loans, then Borrower (without prejudice to any amounts then due to such Affected Lender under Section 2.11(l) , Section 2.12(d)(i)  or Section 2.13(a) , as applicable) may, unless prior to the effective date of any such assignment the Affected Lender withdraws its request for
 
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such additional amounts under Section 2.11(l) , Section 2.12(d)(i)  or Section 2.13(a) , as applicable, or indicates that it is no longer unlawful or impractical to fund or maintain LIBOR Rate Loans, may designate a different Issuing Bank or substitute a Lender, in each case, reasonably acceptable to Agent to purchase the Obligations owed to such Affected Lender and such Affected Lender’s commitments hereunder (a “ Replacement Lender ”), and if such Replacement Lender agrees to such purchase, such Affected Lender shall assign to the Replacement Lender its Obligations and commitments, and upon such purchase by the Replacement Lender, which such Replacement Lender shall be deemed to be “ Issuing Bank ” or a “Lender” (as the case may be) for purposes of this Agreement and such Affected Lender shall cease to be “Issuing Bank” or a “Lender” (as the case may be) for purposes of this Agreement.
 
(c)                                   Notwithstanding anything herein to the contrary, the protection of Sections 2.11(l), 2.12(d) , and 2.13 shall be available to Issuing Bank and each Lender (as applicable) regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, judicial ruling, judgment, guideline, treaty or other change or condition which shall have occurred or been imposed, so long as it shall be customary for issuing banks or lenders affected thereby to comply therewith.  Notwithstanding any other provision herein, neither Issuing Bank nor any Lender shall demand compensation pursuant to this Section 2.13 if it shall not at the time be the general policy or practice of Issuing Bank or such Lender (as the case may be) to demand such compensation in similar circumstances under comparable provisions of other credit agreements, if any.
 
3.                                       CONDITIONS; TERM OF AGREEMENT.
 
3.1                                Conditions Precedent to the Initial Extension of Credit .  The obligation of each Lender to make the initial extensions of credit provided for hereunder is subject to the fulfillment, to the satisfaction of Agent and each Lender, of each of the conditions precedent set forth on Schedule 3.1 (the making of such initial extensions of credit by a Lender being conclusively deemed to be its satisfaction or waiver of the conditions precedent ).
 
3.2                                Conditions Precedent to all Extensions of Credit .  The obligation of the Lender Group (or any member thereof) to make any Revolving Loans hereunder (or to extend any other credit hereunder) at any time shall be subject to the following conditions precedent:
 
(a)                                  the representations and warranties of Parent or its Subsidiaries contained in this Agreement or in the other Loan Documents shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) as of such earlier date);
 
(b)                                  no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof; and
 
(c)                                   Borrower shall have delivered to Agent, in form and substance satisfactory to Agent, a certificate demonstrating Borrower’s compliance with Section 7(b)  after giving effect to the extension of the Revolving Loans.
 
3.3                                Maturity .  This Agreement shall continue in full force and effect for a term ending on the Maturity Date.
 
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3.4                                Effect of Maturity .  On the Maturity Date, all commitments of the Lender Group to provide additional credit hereunder shall automatically be terminated and all of the Obligations immediately shall become due and payable without notice or demand and Borrower shall be required to repay all of the Obligations in full.  No termination of the obligations of the Lender Group (other than payment in full of the Obligations and termination of the Commitments) shall relieve or discharge any Loan Party of its duties, obligations, or covenants hereunder or under any other Loan Document and Agent’s Liens in the Collateral shall continue to secure the Obligations and shall remain in effect until all Obligations have been paid in full and the Commitments have been terminated.  When all of the Obligations have been paid in full and the Lender Group’s obligations to provide additional credit under the Loan Documents have been terminated irrevocably, Agent will, at Borrower’s sole expense, execute and deliver any termination statements, lien releases, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, Agent’s Liens and all notices of security interests and liens previously filed by Agent.
 
3.5                                Early Termination by Borrower .  Borrower has the option, at any time upon 10 Business Days prior written notice to Agent, to terminate this Agreement and terminate the Commitments hereunder by repaying to Agent all of the Obligations in full.  The foregoing notwithstanding, (a) Borrower may rescind termination notices relative to proposed payments in full of the Obligations with the proceeds of third party Indebtedness if the closing for such issuance or incurrence does not happen on or before the date of the proposed termination (in which case, a new notice shall be required to be sent in connection with any subsequent termination), and (b) Borrower may extend the date of termination at any time with the consent of Agent (which consent shall not be unreasonably withheld or delayed).
 
3.6                                Conditions Subsequent .  The obligation of the Lender Group (or any member thereof) to continue to make Revolving Loans (or otherwise extend credit hereunder) is subject to the fulfillment, on or before the date applicable thereto, of the conditions subsequent set forth on Schedule 3.6 (the failure by Borrower to so perform or cause to be performed such conditions subsequent as and when required by the terms thereof (unless such date is extended, in writing, by Agent, which Agent may do without obtaining the consent of the other members of the Lender Group), shall constitute an Event of Default).
 
4.                                       REPRESENTATIONS AND WARRANTIES.
 
In order to induce the Lender Group to enter into this Agreement, each of Parent and Borrower makes the following representations and warranties to the Lender Group which shall be true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof), as of the Closing Date, and shall be true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof), as of the date of the making of each Revolving Loan (or other extension of credit) made thereafter, as though made on and as of the date of such Revolving Loan (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) as of such earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement:
 
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4.1                                Due Organization and Qualification; Subsidiaries .
 
(a)                                  Each Loan Party (i) is duly organized and existing and in good standing under the laws of the jurisdiction of its organization, (ii) is qualified to do business in any state where the failure to be so qualified could reasonably be expected to result in a Material Adverse Effect, and (iii) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents to which it is a party and to carry out the transactions contemplated thereby.
 
(b)                                  Set forth on Schedule 4.1(b)  (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under this Agreement) is a complete and accurate description of the authorized Equity Interests of Borrower, by class, and, as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding.  Borrower is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its Equity Interests or any security convertible into or exchangeable for any of its Equity Interests.
 
(c)                                   Set forth on Schedule 4.1(c)  (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under this Agreement), is a complete and accurate list of the Loan Parties’ direct and indirect Subsidiaries, showing: (i) the number of shares of each class of common and preferred Equity Interests authorized for each of such Subsidiaries, and (ii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by Parent.  All of the outstanding Equity Interests of each such Subsidiary has been validly issued and is fully paid and non-assessable.
 
(d)                                  Except as set forth on Schedule 4.1(d) , there are no subscriptions, options, warrants, or calls relating to any shares of Borrower’s or its Subsidiaries’ Equity Interests, including any right of conversion or exchange under any outstanding security or other instrument.
 
4.2                                Due Authorization; No Conflict .
 
(a)                                  As to each Loan Party, the execution, delivery, and performance by such Loan Party of the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Loan Party.
 
(b)                                  As to each Loan Party, the execution, delivery, and performance by such Loan Party of the Loan Documents to which it is a party do not and will not (i) violate any material provision of federal, state, or local law or regulation applicable to any Loan Party or its Subsidiaries, the Governing Documents of any Loan Party or its Subsidiaries, or any order, judgment, or decree of any court or other Governmental Authority binding on any Loan Party or its Subsidiaries, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material agreement to which a Loan Party or its Subsidiaries are bound where any such conflict, breach or default could individually or in the aggregate reasonably be expected to have a Material Adverse Effect, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any assets of any Loan Party, other than Permitted Liens, or (iv) require any approval of any holder of Equity Interests of a Loan Party or any approval or consent of any Person under any material agreement to which a Loan Party is bound, other than consents or approvals that have been obtained and that are still in force and effect and except, in the case of material agreements to which a Loan Party is bound, for consents or approvals, the failure to obtain could not individually or in the aggregate reasonably be expected to cause a Material Adverse Effect.
 
4.3                                Governmental Consents .  The execution, delivery, and performance by each Loan Party of the Loan Documents to which such Loan Party is a party and the consummation of the transactions contemplated by the Loan Documents do not and will not require any registration with,
 
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consent, or approval of, or notice to, or other action with or by, any Governmental Authority, other than registrations, consents, approvals, notices, or other actions that have been obtained and that are still in force and effect, except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to Agent for filing or recordation, as of the Closing Date, and except where the failure to obtain any such registration, consents, approvals, notices, or other actions could not reasonably be expected to cause a Material Adverse Effect.
 
4.4                                Binding Obligations; Perfected Liens .
 
(a)                                  Each Loan Document has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.
 
(b)                                  Agent’s Liens are validly created, perfected (other than (i) in respect of motor vehicles that are subject to a certificate of title, (ii) money, (iii) letter-of-credit rights (other than supporting obligations), (iv) commercial tort claims (other than those that, by the terms of the Guaranty and Security Agreement, are required to be perfected), and (v) any Deposit Accounts and Securities Accounts not subject to a Control Agreement as permitted by Section 7(k)(iv)  of the Guaranty and Security Agreement, and subject only to the filing of financing statements, the recordation of the Copyright Security Agreement, and the recordation of the Mortgages, in each case, in the appropriate filing offices), and first priority Liens, subject only to Permitted Liens which are non-consensual Permitted Liens, permitted purchase money Liens, or the interests of lessors under Capital Leases.
 
4.5                                Title to Assets; No Encumbrances .  Each of the Loan Parties and its Subsidiaries has (a) good, sufficient and legal title to (in the case of fee interests in Real Property), (b) valid leasehold interests in (in the case of leasehold interests in real or personal property), and (c) good and marketable title to (in the case of all other personal property), all of their respective assets reflected in their most recent financial statements delivered pursuant to Section 5.1, in each case except for assets disposed of since the date of such financial statements to the extent permitted hereby.  All of such assets are free and clear of Liens except for Permitted Liens.
 
4.6                                Litigation .
 
(a)                                  There are no actions, suits, or proceedings pending or, to the knowledge of Borrower, after due inquiry, threatened in writing against a Loan Party or any of its Subsidiaries that either individually or in the aggregate could reasonably be expected to result in a Material Adverse Effect.
 
(b)                                  Schedule 4.6(b)  sets forth a complete and accurate description, with respect to each of the actions, suits, or proceedings with asserted liabilities in excess of, or that could reasonably be expected to result in liabilities in excess of, $250,000 that, as of the Closing Date, is pending or, to the knowledge of Borrower, after due inquiry, threatened against a Loan Party or any of its Subsidiaries, of (i) the parties to such actions, suits, or proceedings, (ii) the nature of the dispute that is the subject of such actions, suits, or proceedings, (iii) the procedural status, as of the Closing Date, with respect to such actions, suits, or proceedings, and (iv) whether any liability of the Loan Parties’ and their Subsidiaries in connection with such actions, suits, or proceedings is covered by insurance.
 
4.7                                Compliance with Laws .  No Loan Party nor any of its Subsidiaries (a) is in violation of any applicable laws, rules, regulations, executive orders, or codes (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse
 
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Effect, or (b) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.
 
4.8                                No Material Adverse Effect .  All historical financial statements relating to the Loan Parties and their Subsidiaries that have been delivered by Borrower to Agent have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, the Loan Parties’ and their Subsidiaries’ consolidated financial condition as of the date thereof and results of operations for the period then ended.  Since December 31, 2011, no event, circumstance, or change has occurred that has or could reasonably be expected to result in a Material Adverse Effect with respect to the Loan Parties and their Subsidiaries.
 
4.9                                Solvency .
 
(a)                                  The Loan Parties, on a consolidated basis, are Solvent.
 
(b)                                  No transfer of property is being made by any Loan Party and no obligation is being incurred by any Loan Party in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of such Loan Party.
 
4.10                         Employee Benefits .  No Loan Party, none of its Subsidiaries, or any of their respective ERISA Affiliates maintains or contributes to any Benefit Plan.
 
4.11                         Environmental Condition .  Except as set forth on Schedule 4.11 , (a) to Parent’s and Borrower’s knowledge, none of Parent’s or any of its Subsidiaries’ properties or assets has ever been used by a Loan Party, its Subsidiaries, or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such disposal, production, storage, handling, treatment, release or transport was in violation, in any material respect, of any applicable Environmental Law and reasonably could be expected to result in a Material Adverse Effect, (b) to Parent’s and Borrower’s knowledge, after due inquiry, none of Parent’s or any of its Subsidiaries’ properties or assets has ever been designated or identified in any manner pursuant to any Environmental Law as a Hazardous Materials disposal site, which designation or identification reasonably could be expected to result in a Material Adverse Effect, (c) neither Parent nor any of its Subsidiaries has received any written notice that an Environmental Lien has attached to any revenues or to any Real Property owned or operated by a Loan Party or its Subsidiaries, and (d) neither Parent nor any of its Subsidiaries nor any of their respective facilities or operations is subject to any outstanding written order, consent decree, or settlement agreement with any Person relating to any Environmental Law or Environmental Liability that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.
 
4.12                         Complete Disclosure .  All factual information taken as a whole (other than forward-looking information and projections and information of a general economic nature and general information about Borrower’s industry) furnished by or on behalf of a Loan Party or its Subsidiaries in writing to Agent or any Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement or the other Loan Documents, and all other such factual information taken as a whole (other than forward-looking information and projections and information of a general economic nature and general information about Borrower’s industry) hereafter furnished by or on behalf of a Loan Party or its Subsidiaries in writing to
 
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Agent or any Lender for purposes of or in connection with this Agreement or the other Loan Documents, or the transactions contemplated hereby or thereby, will be, true and accurate, in all material respects, on the date as of which such information is certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided.  The Projections delivered to Agent on March 4, 2013 represent, and as of the date on which any other Projections are delivered to Agent, such additional Projections represent, Borrower’s good faith estimate, on the date such Projections are delivered, of the Loan Parties’ and their Subsidiaries’ future performance for the periods covered thereby based upon assumptions believed by Borrower to be reasonable at the time of the delivery thereof to Agent (it being understood that such Projections are subject to significant uncertainties and contingencies, many of which are beyond the control of the Loan Parties and their Subsidiaries, and no assurances can be given that such Projections will be realized, and may differ materially from projected or estimated results).
 
4.13                         Patriot Act .  To the extent applicable, each Loan Party is in compliance, in all material respects, with the (a) Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (b) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001) (the “ Patriot Act ”).  No part of the proceeds of the loans made hereunder will be used by any Loan Party or any of their Affiliates, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.
 
4.14                         Indebtedness .  Set forth on Schedule 4.14 is a true and complete list of all Indebtedness of each Loan Party and each of its Subsidiaries outstanding immediately prior to the Closing Date that is to remain outstanding immediately after giving effect to the closing hereunder on the Closing Date and such Schedule accurately sets forth the aggregate principal amount of such Indebtedness as of the Closing Date.
 
4.15                         Payment of Taxes .  Except as otherwise permitted under Section 5.5, all tax returns and reports of each Loan Party and its Subsidiaries required to be filed by any of them have been timely filed (after giving effect to any duly filed extension), and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon a Loan Party and its Subsidiaries and upon their respective assets, income, businesses and franchises that are due and payable have been paid when due and payable other than taxes subject to a Permitted Protest.  Each Loan Party and each of its Subsidiaries have made adequate provision in accordance with GAAP for all taxes not yet due and payable.  Borrower does not know of any proposed tax assessment against a Loan Party or any of its Subsidiaries that is not being actively contested by appropriate proceedings by such Loan Party or such Subsidiary diligently, and in good faith, and; provided such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor.
 
4.16                         Margin Stock .  No Loan Party or any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock.  No part of the proceeds of the loans made to Borrower will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock or for any purpose that violates the provisions of Regulation T, U or X of the Board of Governors of the United States Federal Reserve.
 
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4.17                         Governmental Regulation .  No Loan Party or any of its Subsidiaries is subject to regulation under the Federal Power Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable.  No Loan Party or any of its Subsidiaries is a “registered investment company” or a company “controlled” by a “registered investment company” or a “principal underwriter” of a “registered investment company” as such terms are defined in the Investment Company Act of 1940.
 
4.18                         OFAC .  No Loan Party or any of its Subsidiaries is in violation of any of the country or list based economic and trade sanctions administered and enforced by OFAC.  No Loan Party or any of its Subsidiaries (a) is a Sanctioned Person or a Sanctioned Entity, (b) has its assets located in Sanctioned Entities, or (c) derives revenues from investments in, or transactions with Sanctioned Persons or Sanctioned Entities.  No proceeds of any loan made hereunder will be used to fund any operations in, finance any investments or activities in, or make any payments to, a Sanctioned Person or a Sanctioned Entity.
 
4.19                         Employee and Labor Matters .  There is (i) no unfair labor practice complaint pending or, to the knowledge of Borrower, threatened against Parent or its Subsidiaries before any Governmental Authority and no grievance or arbitration proceeding pending or threatened against Parent or its Subsidiaries which arises out of or under any collective bargaining agreement and that could reasonably be expected to result in a material liability, (ii) no strike, labor dispute, slowdown, stoppage or similar action or grievance pending or threatened in writing against Parent or its Subsidiaries that could reasonably be expected to result in a material liability, or (iii) to the knowledge of Borrower, after due inquiry, no union representation question existing with respect to the employees of Parent or its Subsidiaries and no union organizing activity taking place with respect to any of the employees of Parent or its Subsidiaries.  Neither Parent nor any of its Subsidiaries has incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act or similar state law, which remains unpaid or unsatisfied.  The hours worked and payments made to employees of Parent or its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable legal requirements, except to the extent such violations could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.  All material payments due from Parent or its Subsidiaries on account of wages and employee health and welfare insurance and other benefits have been paid or accrued as a liability on the books of Parent, except where the failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
 
4.20                         Parent as a Holding Company .  Parent is a holding company and does not have any material liabilities (other than liabilities arising under the Loan Documents), own any material assets (other than the Equity Interests of Borrower) or engage in any operations or business (other than the ownership of Borrower and its Subsidiaries).
 
4.21                         [Reserved] .
 
4.22                         [Reserved] .
 
4.23                         Leases .  Each Loan Party and its Subsidiaries enjoy peaceful and undisturbed possession under all leases material to their business and to which they are parties or under which they are operating, and, subject to Permitted Protests, all of such material leases are valid and subsisting and no material default by the applicable Loan Party or its Subsidiaries exists under any of them.
 
4.24                         [ Reserved ] .
 
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4.25                         Hedge Agreements .  On each date that any Hedge Agreement is executed by any Hedge Provider, Borrower and each other Loan Party satisfy all eligibility, suitability and other requirements under the Commodity Exchange Act (7 U.S.C. § 1, et seq., as in effect from time to time) and the Commodity Futures Trading Commission regulations.
 
5.                                       AFFIRMATIVE COVENANTS.
 
Borrower covenants and agrees that, until termination of all of the Commitments and payment in full of the Obligations:
 
5.1                                Financial Statements, Reports, Certificates .  Borrower (a) will deliver to Agent, with copies to each Lender, each of the financial statements, reports, and other items set forth on Schedule 5.1 no later than the times specified therein, (b) agrees that no Subsidiary of a Loan Party will have a fiscal year different from that of Borrower, (c) agrees to maintain a system of accounting that enables Borrower to produce financial statements in accordance with GAAP, and (d) agrees that it will, and will cause each other Loan Party to, maintain its billing systems and practices substantially as in effect as of the Closing Date and shall only make material modifications thereto with notice to, and with the consent of, Agent.
 
5.2                                Reporting .  Borrower will deliver to Agent (and if so requested by Agent, with copies for each Lender) each of the reports set forth on Schedule 5.2 at the times specified therein.
 
5.3                                Existence .  Except as otherwise permitted under Section 6.3 or Section 6.4 , Borrower will, and will cause each of its Subsidiaries and Parent to, at all times preserve and keep in full force and effect such Person’s valid existence and good standing in its jurisdiction of organization and, except as could not reasonably be expected to result in a Material Adverse Effect, good standing with respect to all other jurisdictions in which it is qualified to do business and any rights, franchises, permits, licenses, accreditations, authorizations, or other approvals material to their businesses.
 
5.4                                Maintenance of Properties .  Borrower will, and will cause each of its Subsidiaries and Parent to, maintain and preserve all of its assets that are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear, tear, casualty, and condemnation and Permitted Dispositions excepted .
 
5.5                                Taxes .  Borrower will, and will cause each of its Subsidiaries and Parent to, pay in full before delinquency or before the expiration of any extension period all material governmental assessments and taxes imposed, levied, or assessed against it, or any of its assets or in respect of any of its income, businesses, or franchises, except to the extent that the validity of such governmental assessment or tax is the subject of a Permitted Protest.
 
5.6                                Insurance .  Borrower will, and will cause each of its Subsidiaries and Parent to, at Borrower’s expense, (a) maintain insurance respecting each of Borrower’s and its Subsidiaries’ assets wherever located, covering liabilities, losses or damages as are customarily are insured against by other Persons engaged in same or similar businesses.  All such policies of insurance shall be with financially sound and reputable insurance companies acceptable to Agent and in such amounts as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated and located and, in any event, in amount, adequacy, and scope reasonably satisfactory to Agent (it being agreed that the insurance companies, and the amount, adequacy, and scope of the policies of insurance of Borrower in effect as of the Closing Date are acceptable to Agent).  All property insurance policies covering the Collateral are to be made payable to Agent for the benefit of Agent and the Lenders, as their interests may appear, in case of loss, pursuant to a standard loss payable endorsement with a standard
 
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noncontributory “lender” or “secured party” clause and are to contain such other provisions as Agent may reasonably require to fully protect the Lenders’ interest in the Collateral and to any payments to be made under such policies .  All certificates of property and general liability insurance are to be delivered to Agent, with the loss payable (but only in respect of Collateral) and additional insured endorsements in favor of Agent and shall provide for not less than 30 days (20 days in the case of non-payment) prior written notice to Agent of the exercise of any right of cancellation.  Borrower shall give Agent prompt notice of any loss exceeding $250,000 covered by its or its Subsidiaries’ casualty or business interruption insurance.  Upon the occurrence and during the continuance of an Event of Default, Agent shall have the sole right to file claims under any property and general liability insurance policies in respect of the Collateral, to receive, receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies.
 
5.7                                Inspection .
 
(a)                                  Borrower will, and will cause each of its Subsidiaries and Parent to, permit Agent, any Lender, and each of their respective duly authorized representatives or agents to visit any of its properties and inspect any of its assets or books and records, to examine and make copies of its books and records, and to discuss its affairs, finances, and accounts with, and to be advised as to the same by, its officers and employees (provided an authorized representative of Borrower shall be allowed to be present) at such reasonable times and intervals as Agent or any Lender, as applicable, may designate and, so long as no Default or Event of Default has occurred and is continuing, with reasonable prior notice to Borrower and during regular business hours.
 
(b)                                  Borrower will, and will cause each of its Subsidiaries and Parent to, permit Agent and each of its duly authorized representatives or agents to conduct appraisals and valuations at such reasonable times and intervals as Agent may designate.  Agent agrees to provide Borrower with a copy of the report for any such valuation upon request by Borrower so long as (i) such report exists, (ii) the third person employed by Agent to perform such valuation consents to such disclosure, and (iii) Borrower executes and delivers to Agent a non-reliance letter reasonably satisfactory to Agent.
 
5.8                                Compliance with Laws .  Borrower will, and will cause each of its Subsidiaries and Parent to, comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
 
5.9                                Environmental .  Borrower will, and will cause each of its Subsidiaries and Parent to,
 
(a)                                  Keep any property either owned or operated by Parent or its Subsidiaries free of any Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens,
 
(b)                                  Comply, in all material respects, with Environmental Laws and provide to Agent documentation of such compliance which Agent reasonably requests,
 
(c)                                   Promptly notify Agent of any release of which Borrower has knowledge of a Hazardous Material in any reportable quantity from or onto property owned or operated by Parent or its Subsidiaries and take any Remedial Actions required to abate said release or otherwise to come into compliance, in all material respects, with applicable Environmental Law, and
 
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(d)                                  Promptly, but in any event within 10 Business Days of its receipt thereof, provide Agent with written notice of any of the following:  (i) notice that an Environmental Lien has been filed against any of the real or personal property of Parent or its Subsidiaries, (ii) commencement of any Environmental Action or written notice that an Environmental Action will be filed against Parent or its Subsidiaries, and (iii) written notice of a violation, citation, or other administrative order from a Governmental Authority to any Loan Party.
 
5.10                         Disclosure Updates .  Borrower will, promptly and in no event later than 5 Business Days after obtaining knowledge thereof, notify Agent if any written information, exhibit, or report furnished to Agent or the Lenders contained, at the time it was furnished, any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made.  The foregoing to the contrary notwithstanding, any notification pursuant to the foregoing provision will not cure or remedy the effect of the prior untrue statement of a material fact or omission of any material fact nor shall any such notification have the effect of amending or modifying this Agreement or any of the Schedules hereto.
 
5.11                         Formation of Subsidiaries .  Borrower will, at the time that any Loan Party forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Closing Date, within 20 days of such formation or acquisition (or such later date as permitted by Agent in its sole discretion) (a) cause such new Subsidiary to provide to Agent a joinder to the Guaranty and Security Agreement, together with such other security agreements (including mortgages with respect to any Real Property owned in fee of such new Subsidiary with a fair market value greater than $1,000,000), as well as appropriate financing statements (and with respect to all property subject to a mortgage, fixture filings), all in form and substance reasonably satisfactory to Agent (including being sufficient to grant Agent a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide, or cause the applicable Loan Party to provide, to Agent a pledge agreement (or an addendum to the Guaranty and Security Agreement) and appropriate certificates and powers or financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary in form and substance reasonably satisfactory to Agent, and (c) provide to Agent all other documentation, including one or more opinions of counsel reasonably satisfactory to Agent, which, in its opinion, is appropriate with respect to the execution and delivery of the applicable documentation referred to above (including policies of title insurance or other documentation with respect to all Real Property owned in fee and subject to a mortgage).  Any document, agreement, or instrument executed or issued pursuant to this Section 5.11 shall be a Loan Document.
 
5.12                         Further Assurances .  Borrower will, and will cause each of the other Loan Parties to, at any time upon the reasonable request of Agent, execute or deliver to Agent any and all financing statements, fixture filings, security agreements, pledges, assignments, mortgages, deeds of trust, opinions of counsel, and all other documents (the “ Additional Documents ”) that Agent may reasonably request in form and substance reasonably satisfactory to Agent, to create, perfect, and continue perfected or to better perfect Agent’s Liens in all of the assets of Parent and its Subsidiaries (whether now owned or hereafter arising or acquired, tangible or intangible, real or personal), to create and perfect Liens in favor of Agent in any Real Property acquired by Borrower or any other Loan Party with a fair market value in excess of $1,000,000, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents.  To the maximum extent permitted by applicable law, if Borrower or any other Loan Party refuses or fails to execute or deliver any reasonably requested Additional Documents within a reasonable period of time following the request to do so, Borrower and each other Loan Party hereby authorizes Agent to execute any such Additional Documents in the applicable Loan Party’s name and authorizes Agent to file such executed Additional Documents in any appropriate filing office.  In furtherance of, and not in limitation of, the foregoing, each Loan Party shall take such actions as Agent may reasonably request from time to time to ensure that the Obligations are guaranteed by the Guarantors
 
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and are secured by substantially all of the assets of Parent and its Subsidiaries, including all of the outstanding capital Equity Interests of Borrower and Borrower’s Subsidiaries.
 
5.13                         Lender Meetings .  Parent will, within 120 days after the close of each fiscal year of Parent, at the request of Agent or of the Required Lenders and upon reasonable prior notice, hold a meeting (at a mutually agreeable location and time or, at the option of Agent, by conference call) with all Lenders who choose to attend such meeting at which meeting shall be reviewed the financial results of the previous fiscal year and the financial condition of Parent and its Subsidiaries and the projections presented for the current fiscal year of Parent.
 
5.14                         Bank Products .  On or before the 90th day after the Closing Date, except those accounts listed on Schedule 5.14 hereto (the “ Outside Accounts ”), the Loan Parties shall establish their primary depository and treasury management relationships with Wells Fargo or one or more of its Affiliates and will maintain such depository and treasury management relationships at all times during the term of the Agreement.  The Loan Parties may maintain the Outside Accounts at the institutions set forth on Schedule 5.14 so long as (i) commencing on the 30th day after the Closing Date, each Outside Account is subject to a Control Agreement, (ii) commencing on the 90th day after the Closing Date, there are no more than 10 Outside Accounts (or some greater number as permitted by Agent in its sole discretion) at any one time, and (iii) commencing on the 90th day after the Closing Date, the aggregate balance of the Outside Accounts does not exceed $2,000,000 (or some greater balance as permitted by Agent in its sole discretion) at any one time.
 
5.15                         Hedge Agreements .  Each Loan Party will offer Wells Fargo (or one of its Affiliates) the first opportunity to bid for all interest rate protection, currency hedge agreements, or commodity hedge agreements during the term of this Agreement.  This Section 5.15 does not constitute a recommendation, solicitation, commitment or offer by Wells Fargo to provide any interest rate protection, currency hedge or commodities hedge product to any Loan Party.  Wells Fargo may be unable under Commodities Futures Trading Commission regulations to recommend or offer any Loan Party an interest rate protection, currency hedge agreement, or commodity hedge agreement.
 
5.16                         Minimum Revolver Usage .  Commencing May 1, 2013 and at all times during the term of this Agreement, Borrower shall maintain an Average Revolver Usage of at least $5,000,000 or pay the Agent the Minimum Interest Fee on the terms and on the dates specified in Section 2.10(c) of this Agreement.
 
6.                                       NEGATIVE COVENANTS.
 
Borrower covenants and agrees that, until termination of all of the Commitments and payment in full of the Obligations:
 
6.1                                Indebtedness .  Borrower will not, and will not permit any of its Subsidiaries or Parent to create, incur, assume, suffer to exist, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except for Permitted Indebtedness.
 
6.2                                Liens .  Borrower will not, and will not permit any of its Subsidiaries or Parent to create, incur, assume, or suffer to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens.
 
6.3                                Restrictions on Fundamental Changes .  Borrower will not, and will not permit any of its Subsidiaries or Parent to,
 
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(a)                                  Other than in order to consummate a Permitted Acquisition, enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its Equity Interests, except for (i) any merger between Loan Parties, provided , that Borrower must be the surviving entity of any such merger to which it is a party, (ii) any merger between a Loan Party and a Subsidiary of such Loan Party that is not a Loan Party so long as such Loan Party is the surviving entity of any such merger, and (iii) any merger between Subsidiaries of Parent that are not Loan Parties,
 
(b)                                  liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), except for (i) the liquidation or dissolution of non-operating Subsidiaries of Parent with nominal assets and nominal liabilities, (ii) the liquidation or dissolution of a Loan Party (other than Parent or Borrower) or any of its wholly-owned Subsidiaries so long as all of the assets (including any interest in any Equity Interests) of such liquidating or dissolving Loan Party or Subsidiary are transferred to a Loan Party that is not liquidating or dissolving, or (iii) the liquidation or dissolution of a Subsidiary of Parent that is not a Loan Party (other than any such Subsidiary the Equity Interests of which (or any portion thereof) is subject to a Lien in favor of Agent) so long as all of the assets of such liquidating or dissolving Subsidiary are transferred to a Subsidiary of Parent that is not liquidating or dissolving, or
 
(c)                                   suspend or cease operating a substantial portion of its or their business, except as permitted pursuant to clauses (a) or (b) above or in connection with a transaction permitted under Section 6.4 .
 
6.4                                Disposal of Assets .  Other than Permitted Dispositions or transactions expressly permitted by Sections 6.3 or 6.9 , Borrower will not, and will not permit any of its Subsidiaries or Parent to convey, sell, lease, license, assign, transfer, or otherwise dispose of (or enter into an agreement to convey, sell, lease, license, assign, transfer, or otherwise dispose of) any of its or their assets.
 
6.5                                Nature of Business .  Borrower will not, and will not permit any of its Subsidiaries or Parent to make any change in the nature of its or their business as described in Schedule 6.5 or acquire any properties or assets that are not reasonably related to the conduct of such business activities; provided , that the foregoing shall not prevent Parent and its Subsidiaries from engaging in any business that is reasonably related or ancillary to its or their business.
 
6.6                                Prepayments and Amendments .  Borrower will not, and will not permit any of its Subsidiaries or Parent to,
 
(a)                                  Except in connection with Refinancing Indebtedness permitted by Section 6.1 ,
 
(i)                                      optionally prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of Parent or its Subsidiaries, other than (A) the Obligations in accordance with this Agreement, and (B) Permitted Intercompany Advances, or
 
(ii)                                   make any payment on account of Indebtedness that has been contractually subordinated in right of payment to the Obligations if such payment is not permitted at such time under the subordination terms and conditions, or
 
(b)                                  Directly or indirectly, amend, modify, or change any of the terms or provisions of
 
(i)                                      any agreement, instrument, document, indenture, or other writing evidencing or concerning Permitted Indebtedness other than (A) the Obligations in accordance with this Agreement, (B) Permitted Intercompany Advances, and (C) Indebtedness permitted under clauses (c) , (h), (j)  and (k)  of the definition of Permitted Indebtedness, or
 
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(ii)                                   the Governing Documents of any Loan Party or any of its Subsidiaries if the effect thereof, either individually or in the aggregate, could reasonably be expected to be materially adverse to the interests of the Lenders.
 
6.7                                Restricted Payments .  Borrower will not, and will not permit any of its Subsidiaries or Parent to make any Restricted Payment; provided , that, so long as it is permitted by law, and so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom,
 
(a)                                  Parent may make distributions to former employees, officers, or directors of Parent (or any spouses, ex-spouses, or estates of any of the foregoing) on account of redemptions of Equity Interests of Parent held by such Persons, provided , that the aggregate amount of such redemptions made by Parent during the term of this Agreement plus the amount of Indebtedness outstanding under clause (l) of the definition of Permitted Indebtedness, does not exceed $250,000 in the aggregate, and
 
(b)                                  Parent may make distributions to former employees, officers, or directors of Parent (or any spouses, ex-spouses, or estates of any of the foregoing), solely in the form of forgiveness of Indebtedness of such Persons owing to Parent on account of repurchases of the Equity Interests of Parent held by such Persons; provided that such Indebtedness was incurred by such Persons solely to acquire Equity Interests of Parent.
 
6.8                                Accounting Methods .  Except as set forth in Schedule 6.8, Borrower will not, and will not permit any of its Subsidiaries or Parent to modify or change its fiscal year or its method of accounting (other than as may be required to conform to GAAP).
 
6.9                                Investments .  Borrower will not, and will not permit any of its Subsidiaries or Parent to, directly or indirectly, make or acquire any Investment or incur any liabilities (including contingent obligations) for or in connection with any Investment except for Permitted Investments.
 
6.10                         Transactions with Affiliates .  Borrower will not, and will not permit any of its Subsidiaries or Parent to, directly or indirectly, enter into or permit to exist any transaction with any Affiliate of Parent or any of its Subsidiaries except for:
 
(a)                                  transactions (other than the payment of management, consulting, monitoring, or advisory fees) between Parent or its Subsidiaries, on the one hand, and any Affiliate of Parent or its Subsidiaries, on the other hand, so long as such transactions (i) are fully disclosed to Agent prior to the consummation thereof, if they involve one or more payments by Parent or its Subsidiaries in excess of $250,000 for any single transaction or series of related transactions, and (ii) are no less favorable, taken as a whole, to Parent or its Subsidiaries, as applicable, than would be obtained in an arm’s length transaction with a non-Affiliate,
 
(b)                                  so long as it has been approved by Parent’s or its applicable Subsidiary’s board of directors (or comparable governing body) in accordance with applicable law, any indemnity provided for the benefit of directors (or comparable managers) of Parent or its applicable Subsidiary,
 
(c)                                   so long as it has been approved by Parent’s or its applicable Subsidiary’s board of directors (or comparable governing body) in accordance with applicable law, the payment of reasonable compensation, severance, or employee benefit arrangements to employees, officers, and outside directors of Parent and its Subsidiaries in the ordinary course of business and consistent with industry practice, and
 
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(d)                                  transactions permitted by Section 6.3 or Section 6.7, or any Permitted Intercompany Advance.
 
6.11                         Use of Proceeds .  Borrower will not, and will not permit any of its Subsidiaries or Parent to use the proceeds of any loan made hereunder for any purpose other than (a) on the Closing Date, (i) to repay, in full, the outstanding principal, accrued interest, and accrued fees and expenses owing under or in connection with the Existing Credit Facility, (ii) to pay the fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, in each case, as set forth in the Disbursement Letter, and (iii) finance general corporate purposes of the Borrower as permitted under this Agreement, and (b) thereafter, consistent with the terms and conditions hereof, for their lawful and permitted purposes (including that no part of the proceeds of the loans made to Borrower will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying any such Margin Stock or for any purpose that violates the provisions of Regulation T, U or X of the Board of Governors).
 
6.12                         Limitation on Issuance of Equity Interests .  Except for the issuance or sale of Qualified Equity Interests by Parent, Parent will not, and will not permit any of its Subsidiaries or Parent to issue or sell or enter into any agreement or arrangement for the issuance or sale of any of its Equity Interests.
 
6.13                         Parent as Holding Company .  Borrower will not permit Parent to incur any liabilities (other than liabilities arising under the Loan Documents), own or acquire any assets (other than the Equity Interests of Borrower) or engage itself in any operations or business, except in connection with its ownership of Borrower and its rights and obligations under the Loan Documents.
 
7.                                       FINANCIAL COVENANTS.
 
Each of Parent and Borrower covenants and agrees that, until termination of all of the Commitments and payment in full of the Obligations, Parent will:
 
(a)                                  Minimum TTM EBITDA .  Commencing on the Closing Date and continuing until the day immediately preceding the first day of the Leverage Ratio Covenant Period, achieve TTM EBITDA, measured on a quarter-end basis, of at least the applicable amount set forth in the following table for the applicable date set forth opposite thereto:

Quarter Ending	 	TTM EBITDA	 	
March 31, 2013	 	$	(5,000,000	)	
June 30, 2013	 	$	(8,000,000	)	
September 30, 2013	 	$	(10,500,000	)	
December 31, 2013	 	$	(10,000,000	)	
March 31, 2014	 	$	(7,500,000	)	
June 30, 2014	 	$	(7,500,000	)	
September 30, 2014	 	$	(7,500,000	)	
December 31, 2014	 	$	(7,000,000	)	
March 31, 2015	 	$	(6,500,000	)	
June 30, 2015	 	$	(5,000,000	)	
September 30, 2015	 	$	(3,500,000	)	
December 31, 2015	 	$	(2,000,000	)	
March 31, 2016	 	$	1,000,000	 	
June 30, 2016	 	$	2,000,000	 	
September 30, 2016	 	$	2,000,000	 	
December 31, 2016	 	$	2,000,000	 	
 
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(b)                                  Minimum Liquidity .  At all times commencing on the Closing Date and continuing until the day immediately preceding the first day of the FCCR Covenant Period, achieve (i) Liquidity of at least the applicable amount set forth in the following table for the applicable date set forth opposite thereto, of which at least $5,000,000 shall consist of Qualified Cash.

Quarter Ending	 	Liquidity	 	
March 31, 2013	 	$	25,000,000	 	
June 30, 2013	 	$	25,000,000	 	
September 30, 2013	 	$	25,000,000	 	
December 31, 2013	 	$	25,000,000	 	
March 31, 2014	 	$	20,000,000	 	
June 30, 2014	 	$	20,000,000	 	
September 30, 2014	 	$	15,000,000	 	
December 31, 2014	 	$	15,000,000	 	
March 31, 2015	 	$	15,000,000	 	
June 30, 2015	 	$	15,000,000	 	
September 30, 2015	 	$	15,000,000	 	
December 31, 2015	 	$	15,000,000	 	
March 31, 2016	 	$	15,000,000	 	
June 30, 2016	 	$	15,000,000	 	
September 30, 2016	 	$	15,000,000	 	
December 31, 2016	 	$	15,000,000	 	
 
(c)                                   Leverage Ratio .  Commencing on the first day of the Leverage Ratio Covenant Period and measured as of the end of the fiscal quarter immediately preceding the date on which a Leverage Ratio Covenant Period first begins and as of each fiscal quarter end thereafter, have a Leverage Ratio of not greater than 3.00 to 1.00.
 
(d)                                  Fixed Charge Coverage Ratio .  Commencing on the first day of the FCCR Covenant Period and measured as of the end of the fiscal quarter immediately preceding the date on which a FCCR Covenant Period first begins and as of each fiscal quarter end thereafter, have a Fixed Charge Coverage Ratio of at least 1.25 to 1.00.
 
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8.                                       EVENTS OF DEFAULT.
 
Any one or more of the following events shall constitute an event of default (each, an “ Event of Default ”) under this Agreement:
 
8.1                                Payments .  If Borrower fails to pay when due and payable, or when declared due and payable in accordance with any Loan Document, (a) all or any portion of the Obligations consisting of interest, fees, or charges due the Lender Group, reimbursement of Lender Group Expenses, or other amounts (other than any portion thereof constituting principal) constituting Obligations (including any portion thereof that accrues after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), and such failure continues for a period of 3 Business Days, (b) all or any portion of the principal of the Loans, or (c) any amount payable to Issuing Bank in reimbursement of any drawing under a Letter of Credit;
 
8.2                                Covenants .  If any Loan Party or any of its Subsidiaries:
 
(a)                                  fails to perform or observe any covenant or other agreement contained in any of (i)  Sections 3.6, 5.1, 5.2, 5.3 (solely if Borrower is not in good standing in its jurisdiction of organization), 5.6, 5.7 (solely if Borrower refuses to allow Agent or its representatives or agents to visit Borrower’s properties, inspect its assets or books or records, examine and make copies of its books and records, or discuss Borrower’s affairs, finances, and accounts with officers and employees of Borrower), 5.10, 5.11 , 5.13, 5.14, or 5.15 of this Agreement, (ii)  Section 6 of this Agreement, (iii)  Section 7 of this Agreement, or (iv) Section 7 of the Guaranty and Security Agreement;
 
(b)                                  fails to perform or observe any covenant or other agreement contained in any of Sections 5.3 (other than if Borrower is not in good standing in its jurisdiction of organization), 5.4, 5.5, 5.8 , and 5.12 of this Agreement and such failure continues for a period of 10 days after the earlier of (i) the date on which such failure shall first become known to any officer of Borrower or (ii) the date on which written notice thereof is given to Borrower by Agent; or
 
(c)                                   fails to perform or observe any covenant or other agreement contained in this Agreement, or in any of the other Loan Documents, in each case, other than any such covenant or agreement that is the subject of another provision of this Section 8 (in which event such other provision of this Section 8 shall govern), and such failure continues for a period of 30 days after the earlier of (i) the date on which such failure shall first become known to any officer of Borrower or (ii) the date on which written notice thereof is given to Borrower by Agent;
 
8.3                                Judgments .  If one or more judgments, orders, or awards for the payment of money involving an aggregate amount of $250,000, or more (except to the extent fully covered (other than to the extent of customary deductibles) by insurance pursuant to which the insurer has not denied coverage) is entered or filed against a Loan Party or any of its Subsidiaries, or with respect to any of their respective assets, and either (a) there is a period of 30 consecutive days at any time after the entry of any such judgment, order, or award during which (1) the same is not discharged, satisfied, vacated, or bonded pending appeal, or (2) a stay of enforcement thereof is not in effect, or (b) enforcement proceedings are commenced upon such judgment, order, or award;
 
8.4                                Voluntary Bankruptcy, etc.   If an Insolvency Proceeding is commenced by a Loan Party or any of its Subsidiaries;
 
8.5                                Involuntary Bankruptcy, etc.   If an Insolvency Proceeding is commenced against a Loan Party or any of its Subsidiaries and any of the following events occur: (a) such Loan Party or such
 
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Subsidiary consents to the institution of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within 60 calendar days of the date of the filing thereof, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, such Loan Party or its Subsidiary, or (e) an order for relief shall have been issued or entered therein;
 
8.6                                Default Under Other Agreements .  If there is (a) a default in one or more agreements to which a Loan Party or any of its Subsidiaries is a party with one or more third Persons relative to a Loan Party’s or any of its Subsidiaries’ Indebtedness involving an aggregate amount of $500,000 or more, and such default (i) occurs at the final maturity of the obligations thereunder, or (ii) results in a right by such third Person, irrespective of whether exercised, to accelerate the maturity of such Loan Party’s or its Subsidiary’s obligations thereunder, or (b) a default in or an involuntary early termination of one or more Hedge Agreements to which a Loan Party or any of its Subsidiaries is a party involving an aggregate amount of $250,000 or more.
 
8.7                                Representations, etc.   If any warranty, representation, certificate, statement, or Record made herein or in any other Loan Document or delivered in writing to Agent or any Lender in connection with this Agreement or any other Loan Document proves to be untrue in any material respect (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) as of the date of issuance or making or deemed making thereof;
 
8.8                                Guaranty .  If the obligation of any Guarantor under the guaranty contained in the Guaranty and Security Agreement is limited or terminated by operation of law or by such Guarantor (other than in accordance with the terms of this Agreement);
 
8.9                                Security Documents .  If the Guaranty and Security Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent of Permitted Liens which are non-consensual Permitted Liens, permitted purchase money Liens or the interests of lessors under Capital Leases, first priority Lien on the Collateral covered thereby, except (a) as a result of a disposition of the applicable Collateral in a transaction permitted under this Agreement, or (b) as the result of an action or failure to act on the part of Agent;
 
8.10                         Loan Documents .  The validity or enforceability of any Loan Document shall at any time for any reason (other than solely as the result of an action or failure to act on the part of Agent) be declared to be null and void, or a proceeding shall be commenced by a Loan Party or its Subsidiaries, or by any Governmental Authority having jurisdiction over a Loan Party or its Subsidiaries, seeking to establish the invalidity or unenforceability thereof, or a Loan Party or its Subsidiaries shall deny that such Loan Party or its Subsidiaries has any liability or obligation purported to be created under any Loan Document; or
 
8.11                         Change of Control .  A Change of Control shall occur, whether directly or indirectly, without prior written consent of Agent.
 
9.                                       RIGHTS AND REMEDIES.
 
9.1                                Rights and Remedies .  Upon the occurrence and during the continuation of an Event of Default, Agent may, and, at the instruction of the Required Lenders, shall (in each case under clauses (a) or (b) by written notice to Borrower), in addition to any other rights or remedies provided for hereunder or under any other Loan Document or by applicable law, do any one or more of the following:
 
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(a)                                  (i) declare the principal of, and any and all accrued and unpaid interest and fees in respect of, the Loans and all other Obligations (other than the Bank Product Obligations), whether evidenced by this Agreement or by any of the other Loan Documents to be immediately due and payable, whereupon the same shall become and be immediately due and payable and Borrower shall be obligated to repay all of such Obligations in full, without presentment, demand, protest, or further notice or other requirements of any kind, all of which are hereby expressly waived by Borrower, and (ii) direct Borrower to provide (and Borrower agrees that upon receipt of such notice it will provide) Letter of Credit Collateralization to Agent to be held as security for Borrower’s reimbursement obligations for drawings that may subsequently occur under issued and outstanding Letters of Credit;
 
(b)                                  declare the Commitments terminated, whereupon the Commitments shall immediately be terminated together with (i) any obligation of any Revolving Lender to make Revolving Loans, (ii) the obligation of the Swing Lender to make Swing Loans, and (iii) the obligation of Issuing Bank to issue Letters of Credit; and
 
(c)                                   exercise all other rights and remedies available to Agent or the Lenders under the Loan Documents, under applicable law, or in equity.
 
The foregoing to the contrary notwithstanding, upon the occurrence of any Event of Default described in Section 8.4 or Section 8.5 , in addition to the remedies set forth above, without any notice to Borrower or any other Person or any act by the Lender Group, the Commitments shall automatically terminate and the Obligations (other than the Bank Product Obligations), inclusive of the principal of, and any and all accrued and unpaid interest and fees in respect of, the Loans and all other Obligations (other than the Bank Product Obligations), whether evidenced by this Agreement or by any of the other Loan Documents, shall automatically become and be immediately due and payable and Borrower shall automatically be obligated to repay all of such Obligations in full (including Borrower being obligated to provide (and Borrower agrees that it will provide) (1) Letter of Credit Collateralization to Agent to be held as security for Borrower’s reimbursement obligations in respect of drawings that may subsequently occur under issued and outstanding Letters of Credit, and (2) Bank Product Collateralization to be held as security for Borrower’s or its Subsidiaries’ obligations in respect of outstanding Bank Products), without presentment, demand, protest, or notice or other requirements of any kind, all of which are expressly waived by Parent and Borrower.
 
9.2                                Remedies Cumulative .  The rights and remedies of the Lender Group under this Agreement, the other Loan Documents, and all other agreements shall be cumulative.  The Lender Group shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity.  No exercise by the Lender Group of one right or remedy shall be deemed an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing waiver.  No delay by the Lender Group shall constitute a waiver, election, or acquiescence by it.
 
10.                                WAIVERS; INDEMNIFICATION.
 
10.1                         Demand; Protest; etc.   Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by the Lender Group on which Borrower may in any way be liable.
 
10.2                         The Lender Group’s Liability for Collateral .  Borrower hereby agrees that:  (a) so long as Agent complies with its obligations, if any, under the Code, the Lender Group shall not in any way or manner be liable or responsible for:  (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value
 
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thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Borrower.
 
10.3                         Indemnification .  Borrower shall pay, indemnify, defend, and hold the Agent-Related Persons, the Lender-Related Persons, and each Participant (each, an “ Indemnified Person ”) harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, liabilities, fines, costs, penalties, and damages, and all reasonable fees and disbursements of attorneys, experts, or consultants and all other costs and expenses actually incurred in connection therewith or in connection with the enforcement of this indemnification (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution and delivery (provided that Borrower shall not be liable for costs and expenses (including attorneys’ fees) of any Lender (other than Wells Fargo) incurred in advising, structuring, drafting, reviewing, administering or syndicating the Loan Documents), enforcement, performance, or administration (including any restructuring or workout with respect hereto) of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby or the monitoring of Parent’s and its Subsidiaries’ compliance with the terms of the Loan Documents ( provided , however, that the indemnification in this clause (a) shall not extend to (i) disputes solely between or among the Lenders that do not involve any acts or omissions of any Loan Party, or (ii) disputes solely between or among the Lenders and their respective Affiliates that do not involve any acts or omissions of any Loan Party; it being understood and agreed that the indemnification in this clause (a) shall extend to Agent (but not the Lenders) relative to disputes between or among Agent on the one hand, and one or more Lenders, or one or more of their Affiliates, on the other hand, or (iii) any Taxes or any costs attributable to Taxes, which shall be governed by Section 16) , (b) with respect to any actual or prospective investigation, litigation, or proceeding related to this Agreement, any other Loan Document, the making of any Loans or issuance of any Letters of Credit hereunder, or the use of the proceeds of the Loans or the Letters of Credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto, and (c) in connection with or arising out of any presence or release of Hazardous Materials at, on, under, to or from any assets or properties owned, leased or operated by Borrower or any of its Subsidiaries or any Environmental Actions, Environmental Liabilities or Remedial Actions related in any way to any such assets or properties of Borrower or any of its Subsidiaries (each and all of the foregoing, the “ Indemnified Liabilities ”).  Notwithstanding anything in this Agreement to the contrary, Borrower shall have no obligation to any Indemnified Person under this Section 10.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the bad faith, gross negligence or willful misconduct of, such Indemnified Person or its officers, directors, employees, attorneys , or agents.  This provision shall survive the termination of this Agreement and the repayment in full of the Obligations.  If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Borrower was required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrower with respect thereto.  WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
 
11.                                NOTICES.
 
Unless otherwise provided in this Agreement, all notices or demands relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight
 
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courier, electronic mail (at such email addresses as a party may designate in accordance herewith), or telefacsimile.  In the case of notices or demands to Parent or Agent, as the case may be, they shall be sent to the respective address set forth below:

If to any Loan Party:	 	Q2 SOFTWARE, INC.
 9430 Research Boulevard	
 	 	Building IV, Suite 400
Austin, Texas
Attn: Mark Johnson, CFO
Fax No. 512-685-2091	
 	 	 	
with copies to:	 	DLA PIPER
 401 Congress Avenue, Suite 2500
Austin, Texas
Attn: John J. Gilluly III, Esq.
Fax No.: 512-721-2290	
 	 	 	
If to Agent:	 	WELLS FARGO BANK, NATIONAL ASSOCIATION
 2450 Colorado Avenue, Suite 3000 West
Santa Monica, California 90404
Attn: Technology Finance Division Manager
Fax No.: 310-453-7413	
 	 	 	
with copies to:	 	BUCHALTER NEMER, PC
 1000 Wilshire Boulevard, Suite 1500
Los Angeles, California
Attn: Robert J. Davidson, Esq.
Fax No.: 213-630-5692	
 
Any party hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party.  All notices or demands sent in accordance with this Section 11 , shall be deemed received on the earlier of the date of actual receipt or 3 Business Days after the deposit thereof in the mail; provided , that (a) notices sent by overnight courier service shall be deemed to have been given when received, (b) notices by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient) and (c) notices by electronic mail shall be deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return receipt requested” function, as available, return email or other written acknowledgment) (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient).
 
12.                                CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE PROVISION.
 
(a)                                  THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL
 
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MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO, AND ANY CLAIMS, CONTROVERSIES OR DISPUTES ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
 
(b)                                  THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN, COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED , THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  EACH OF PARENT AND BORROWER AND EACH MEMBER OF THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(b) .
 
(c)                                   TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF PARENT AND BORROWER AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS, IF ANY, TO A JURY TRIAL OF ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION DIRECTLY OR INDIRECTLY BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS (EACH A “CLAIM”).  EACH OF PARENT AND BORROWER AND EACH MEMBER OF THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
 
(d)                                  EACH OF PARENT AND BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN, COUNTY OF NEW YORK, STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT AGENT MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
 
(e)                                   NO CLAIM MAY BE MADE BY ANY LOAN PARTY AGAINST THE AGENT, THE SWING LENDER, ANY OTHER LENDER, ISSUING BANK, OR ANY AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE, COUNSEL, REPRESENTATIVE, AGENT,
 
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OR ATTORNEY-IN-FACT OF ANY OF THEM FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES OR LOSSES IN RESPECT OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION THEREWITH, AND EACH LOAN PARTY HEREBY WAIVES, RELEASES, AND AGREES NOT TO SUE UPON ANY CLAIM FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
 
(f)                                    IN THE EVENT ANY LEGAL PROCEEDING IS FILED IN A COURT OF THE STATE OF CALIFORNIA (THE “COURT”) BY OR AGAINST ANY PARTY HERETO IN CONNECTION WITH ANY CLAIM AND THE WAIVER SET FORTH IN CLAUSE (C) ABOVE IS NOT ENFORCEABLE IN SUCH PROCEEDING, THE PARTIES HERETO AGREE AS FOLLOWS:
 
(i)                                      WITH THE EXCEPTION OF THE MATTERS SPECIFIED IN SUBCLAUSE (ii) BELOW, ANY CLAIM SHALL BE DETERMINED BY A GENERAL REFERENCE PROCEEDING IN ACCORDANCE WITH THE PROVISIONS OF CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 638 THROUGH 645.1.  THE PARTIES INTEND THIS GENERAL REFERENCE AGREEMENT TO BE SPECIFICALLY ENFORCEABLE.  VENUE FOR THE REFERENCE PROCEEDING SHALL BE IN THE COUNTY OF LOS ANGELES, CALIFORNIA.
 
(ii)                                   THE FOLLOWING MATTERS SHALL NOT BE SUBJECT TO A GENERAL REFERENCE PROCEEDING: (A) NON-JUDICIAL FORECLOSURE OF ANY SECURITY INTERESTS IN REAL OR PERSONAL PROPERTY, (B) EXERCISE OF SELF-HELP REMEDIES (INCLUDING SET-OFF OR RECOUPMENT), (C) APPOINTMENT OF A RECEIVER, AND (D) TEMPORARY, PROVISIONAL, OR ANCILLARY REMEDIES (INCLUDING WRITS OF ATTACHMENT, WRITS OF POSSESSION, TEMPORARY RESTRAINING ORDERS, OR PRELIMINARY INJUNCTIONS).  THIS AGREEMENT DOES NOT LIMIT THE RIGHT OF ANY PARTY TO EXERCISE OR OPPOSE ANY OF THE RIGHTS AND REMEDIES DESCRIBED IN CLAUSES (A) - (D) AND ANY SUCH EXERCISE OR OPPOSITION DOES NOT WAIVE THE RIGHT OF ANY PARTY TO PARTICIPATE IN A REFERENCE PROCEEDING PURSUANT TO THIS AGREEMENT WITH RESPECT TO ANY OTHER MATTER.
 
(iii)                                UPON THE WRITTEN REQUEST OF ANY PARTY, THE PARTIES SHALL SELECT A SINGLE REFEREE, WHO SHALL BE A RETIRED JUDGE OR JUSTICE.  IF THE PARTIES DO NOT AGREE UPON A REFEREE WITHIN 10 DAYS OF SUCH WRITTEN REQUEST, THEN, ANY PARTY SHALL HAVE THE RIGHT TO REQUEST THE COURT TO APPOINT A REFEREE PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 640(B).  THE REFEREE SHALL BE APPOINTED TO SIT WITH ALL OF THE POWERS PROVIDED BY LAW.  PENDING APPOINTMENT OF THE REFEREE, THE COURT SHALL HAVE THE POWER TO ISSUE TEMPORARY OR PROVISIONAL REMEDIES.
 
(iv)                               EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE REFEREE SHALL DETERMINE THE MANNER IN WHICH THE REFERENCE PROCEEDING IS CONDUCTED INCLUDING THE TIME AND PLACE OF HEARINGS, THE ORDER OF PRESENTATION OF EVIDENCE, AND ALL OTHER QUESTIONS THAT ARISE
 
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WITH RESPECT TO THE COURSE OF THE REFERENCE PROCEEDING.  ALL PROCEEDINGS AND HEARINGS CONDUCTED BEFORE THE REFEREE, EXCEPT FOR TRIAL, SHALL BE CONDUCTED WITHOUT A COURT REPORTER, EXCEPT WHEN ANY PARTY SO REQUESTS A COURT REPORTER AND A TRANSCRIPT IS ORDERED, A COURT REPORTER SHALL BE USED AND THE REFEREE SHALL BE PROVIDED A COURTESY COPY OF THE TRANSCRIPT.  THE PARTY MAKING SUCH REQUEST SHALL HAVE THE OBLIGATION TO ARRANGE FOR AND PAY THE COSTS OF THE COURT REPORTER, PROVIDED THAT SUCH COSTS, ALONG WITH THE REFEREE’S FEES, SHALL ULTIMATELY BE BORNE BY THE PARTY WHO DOES NOT PREVAIL, AS DETERMINED BY THE REFEREE.
 
(v)                                  THE REFEREE MAY REQUIRE ONE OR MORE PREHEARING CONFERENCES.  THE PARTIES HERETO SHALL BE ENTITLED TO DISCOVERY, AND THE REFEREE SHALL OVERSEE DISCOVERY IN ACCORDANCE WITH THE RULES OF DISCOVERY, AND SHALL ENFORCE ALL DISCOVERY ORDERS IN THE SAME MANNER AS ANY TRIAL COURT JUDGE IN PROCEEDINGS AT LAW IN THE STATE OF CALIFORNIA.
 
(vi)                               THE REFEREE SHALL APPLY THE RULES OF EVIDENCE APPLICABLE TO PROCEEDINGS AT LAW IN THE STATE OF CALIFORNIA AND SHALL DETERMINE ALL ISSUES IN ACCORDANCE WITH CALIFORNIA SUBSTANTIVE AND PROCEDURAL LAW.  THE REFEREE SHALL BE EMPOWERED TO ENTER EQUITABLE AS WELL AS LEGAL RELIEF AND RULE ON ANY MOTION WHICH WOULD BE AUTHORIZED IN A TRIAL, INCLUDING MOTIONS FOR DEFAULT JUDGMENT OR SUMMARY JUDGMENT.  THE REFEREE SHALL REPORT HIS OR HER DECISION, WHICH REPORT SHALL ALSO INCLUDE FINDINGS OF FACT AND CONCLUSIONS OF LAW.  THE REFEREE SHALL ISSUE A DECISION AND PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE, SECTION 644, THE REFEREE’S DECISION SHALL BE ENTERED BY THE COURT AS A JUDGMENT IN THE SAME MANNER AS IF THE ACTION HAD BEEN TRIED BY THE COURT.  THE FINAL JUDGMENT OR ORDER FROM ANY APPEALABLE DECISION OR ORDER ENTERED BY THE REFEREE SHALL BE FULLY APPEALABLE AS IF IT HAS BEEN ENTERED BY THE COURT.
 
(vii)                            THE PARTIES RECOGNIZE AND AGREE THAT ALL CLAIMS RESOLVED IN A GENERAL REFERENCE PROCEEDING PURSUANT HERETO WILL BE DECIDED BY A REFEREE AND NOT BY A JURY.  AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH PARTY HERETO KNOWINGLY AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS REFERENCE PROVISION SHALL APPLY TO ANY DISPUTE BETWEEN THEM THAT ARISES OUT OF OR IS RELATED TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
 
13.                                ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
 
13.1                         Assignments and Participations .
 
(a)                                  (i)  Subject to the conditions set forth in clause (a)(ii) below, any Lender may assign and delegate all or any portion of its rights and duties under the Loan Documents (including the Obligations owed to it and its Commitments) to one or more assignees (each, an “ Assignee ”), with the prior written consent (such consent not be unreasonably withheld or delayed) of:
 
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(A)                                Borrower; provided , that no consent of Borrower shall be required (1) if an Event of Default has occurred and is continuing, or (2) in connection with an assignment to a Person that is a Lender or an Affiliate (other than natural persons) of a Lender; provided further , that Borrower shall be deemed to have consented to a proposed assignment unless it objects thereto by written notice to Agent within 5 Business Days after having received notice thereof; and
 
(B)                                Agent, Swing Lender, and Issuing Bank.
 
(ii)                                   Assignments shall be subject to the following additional conditions:
 
(A)                                no assignment may be made (i) so long as no Event of Default has occurred and is continuing, to an Ineligible Institution, (ii) so long as no Event of Default has occurred and is continuing, to a Competitor, or (iii) to a natural person,
 
(B)                                no assignment may be made to a Loan Party or an Affiliate of a Loan Party,
 
(C)                                the amount of the Commitments and the other rights and obligations of the assigning Lender hereunder and under the other Loan Documents subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to Agent) shall be in a minimum amount (unless waived by Agent) of $2,500,000 (except such minimum amount shall not apply to (I) an assignment or delegation by any Lender to any other Lender, an Affiliate of any Lender, or a Related Fund of such Lender or (II) a group of new Lenders, each of which is an Affiliate of each other or a Related Fund of such new Lender to the extent that the aggregate amount to be assigned to all such new Lenders is at least $2,500,000),
 
(D)                                each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement,
 
(E)                                 the parties to each assignment shall execute and deliver to Agent an Assignment and Acceptance; provided , however, that Borrower and Agent may continue to deal solely and directly with the assigning Lender in connection with the interest so assigned to an Assignee until written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, have been given to Borrower and Agent by such Lender and the Assignee, the Assignment and Acceptance shall include a representation and warranty (which shall be expressly for the benefit of the Lender Group) that, as of the date of the assignment, it does not have any material non-public information with respect to Parent or its Subsidiaries that (I) has not been disclosed to the Lenders (other than Lenders that do not wish to receive material non-public information with respect to Parent or its Subsidiaries) prior to such time and (II) could not reasonably be expected to have a material effect upon, or otherwise be material, to a Lender’s decision to participate in any assignment pursuant to this Section 13.1 ,
 
(F)                                  unless waived by Agent, the assigning Lender or Assignee has paid to Agent, for Agent’s separate account, a processing fee in the amount of $3,500, and
 
(G)                                the assignee, if it is not a Lender, shall deliver to Agent an Administrative Questionnaire in a form approved by Agent (the “ Administrative Questionnaire ”).
 
(b)                                  From and after the date that Agent receives the executed Assignment and Acceptance and, if applicable, payment of the required processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant
 
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to such Assignment and Acceptance, shall be a “Lender” and shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assigning Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except with respect to Section 10.3 ) and be released from any future obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto); provided , that nothing contained herein shall release any assigning Lender from obligations that survive the termination of this Agreement, including such assigning Lender’s obligations under Section 15 and Section 17.9(a) .
 
(c)                                   By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows:  (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto, (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or the performance or observance by Borrower of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto, (iii) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (iv) such Assignee will, independently and without reliance upon Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement, (v) such Assignee appoints and authorizes Agent to take such actions and to exercise such powers under this Agreement and the other Loan Documents as are delegated to Agent, by the terms hereof and thereof, together with such powers as are reasonably incidental thereto, and (vi) such Assignee agrees that it will perform all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender.
 
(d)                                  Immediately upon Agent’s receipt of the required processing fee, if applicable, and delivery of notice to the assigning Lender pursuant to Section 13.1(b) , this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom.  The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto .
 
(e)                                   Any Lender may at any time sell to one or more commercial banks, financial institutions, or other Persons (a “ Participant ”) participating interests in all or any portion of its Obligations, its Commitment, and the other rights and interests of that Lender (the “ Originating Lender ”) hereunder and under the other Loan Documents; provided , that (i) the Originating Lender shall remain a “Lender” for all purposes of this Agreement and the other Loan Documents and the Participant receiving the participating interest in the Obligations, the Commitments, and the other rights and interests of the Originating Lender hereunder shall not constitute a “Lender” hereunder or under the other Loan Documents and the Originating Lender’s obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) Borrower, Agent, and the Lenders shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender’s rights and obligations under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to
 
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this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating, (C) release all or substantially all of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through such Lender (other than a waiver of default interest), or (E) decreases the amount or postpones the due dates of scheduled principal repayments or prepayments or premiums payable to such Participant through such Lender, (v) no participation shall be sold to a natural person, (vi) no participation shall be sold to a Loan Party or an Affiliate of a Loan Party, and (v) all amounts payable by Borrower hereunder shall be determined as if such Lender had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement.  The rights of any Participant only shall be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to the other Lenders, Agent, Borrower, the Collateral, or otherwise in respect of the Obligations.  No Participant shall have the right to participate directly in the making of decisions by the Lenders among themselves.
 
(f)                                    In connection with any such assignment or participation or proposed assignment or participation or any grant of a security interest in, or pledge of, its rights under and interest in this Agreement, a Lender may, subject to the provisions of Section 17.9 , disclose all documents and information which it now or hereafter may have relating to Parent and its Subsidiaries and their respective businesses.
 
(g)                                   Any other provision in this Agreement notwithstanding, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR §203.24, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law.
 
13.2                         Successors .  This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided , that Borrower may not assign this Agreement or any rights or duties hereunder without the Lenders’ prior written consent and any prohibited assignment shall be absolutely void ab initio .  No consent to assignment by the Lenders shall release Borrower from its Obligations.  A Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 13.1 and, except as expressly required pursuant to Section 13.1 , no consent or approval by Borrower is required in connection with any such assignment.
 
14.                                AMENDMENTS; WAIVERS.
 
14.1                         Amendments and Waivers .
 
(a)                                  No amendment, waiver or other modification of any provision of this Agreement or any other Loan Document (other than Bank Product Agreements or the Fee Letter), and no consent with respect to any departure by Parent or Borrower therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by Agent at the written request of the Required Lenders) and the Loan Parties that are party thereto and then any such waiver or consent shall be effective, but only in the specific instance and for the specific purpose for which given; provided , that no
 
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such waiver, amendment, or consent shall, unless in writing and signed by all of the Lenders directly affected thereby and all of the Loan Parties that are party thereto, do any of the following:
 
(i)                                      increase the amount of or extend the expiration date of any Commitment of any Lender or amend, modify, or eliminate the last sentence of Section 2.4(c) ,
 
(ii)                                   postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due hereunder or under any other Loan Document,
 
(iii)                                reduce the principal of, or the rate of interest on, any loan or other extension of credit hereunder, or reduce any fees or other amounts payable hereunder or under any other Loan Document (except (y) in connection with the waiver of applicability of Section 2.6(c)  (which waiver shall be effective with the written consent of the Required Lenders), and (z) that any amendment or modification of defined terms used in the financial covenants in this Agreement shall not constitute a reduction in the rate of interest or a reduction of fees for purposes of this clause (iii)),
 
(iv)                               amend, modify, or eliminate this Section or any provision of this Agreement providing for consent or other action by all Lenders,
 
(v)                                  amend, modify, or eliminate Section 3.1 or 3.2 ,
 
(vi)                               amend, modify, or eliminate Section 15.11 ,
 
(vii)                            other than as permitted by Section 15.11 , release Agent’s Lien in and to any of the Collateral,
 
(viii)                         amend, modify, or eliminate the definitions of “Required Lenders” or “Pro Rata Share”,
 
(ix)                               contractually subordinate any of Agent’s Liens,
 
(x)                                  other than in connection with a merger, liquidation, dissolution or sale of such Person expressly permitted by the terms hereof or the other Loan Documents, release Borrower or any Guarantor from any obligation for the payment of money or consent to the assignment or transfer by Borrower or any Guarantor of any of its rights or duties under this Agreement or the other Loan Documents,
 
(xi)                               amend, modify, or eliminate any of the provisions of Section 2.4(b)(i) ,
 
(xii)                            amend, modify, or eliminate any of the provisions of Section 13.1 with respect to assignments to, or participations with, Persons who are Loan Parties or Affiliates of Loan Parties;
 
(b)                                  No amendment, waiver, modification, or consent shall amend, modify, waive, or eliminate,
 
(i)                                      the definition of, or any of the terms or provisions of, the Fee Letter, without the written consent of Agent and Borrower (and shall not require the written consent of any of the Lenders),
 
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(ii)                                   any provision of Section 15 pertaining to Agent, or any other rights or duties of Agent under this Agreement or the other Loan Documents, without the written consent of Agent, Borrower, and the Required Lenders;
 
(c)                                   No amendment, waiver, modification, elimination, or consent shall amend, modify, or waive any provision of this Agreement or the other Loan Documents pertaining to Issuing Bank, or any other rights or duties of Issuing Bank under this Agreement or the other Loan Documents, without the written consent of Issuing Bank, Agent, Borrower, and the Required Lenders;
 
(d)                                  No amendment, waiver, modification, elimination, or consent shall amend, modify, or waive any provision of this Agreement or the other Loan Documents pertaining to Swing Lender, or any other rights or duties of Swing Lender under this Agreement or the other Loan Documents, without the written consent of Swing Lender, Agent, Borrower, and the Required Lenders; and
 
(e)                                   Anything in this Section 14.1 to the contrary notwithstanding, (i) any amendment, modification, elimination, waiver, consent, termination, or release of, or with respect to, any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations of Parent or Borrower, shall not require consent by or the agreement of any Loan Party, and (ii) any amendment, waiver, modification, elimination, or consent of or with respect to any provision of this Agreement or any other Loan Document may be entered into without the consent of, or over the objection of, any Defaulting Lender.
 
14.2                         Replacement of Certain Lenders .
 
(a)                                  If (i) any action to be taken by the Lender Group or Agent hereunder requires the consent, authorization, or agreement of all Lenders or all Lenders affected thereby and if such action has received the consent, authorization, or agreement of the Required Lenders but not of all Lenders or all Lenders affected thereby, or (ii) any Lender makes a claim for compensation under Section 16 , then Borrower or Agent, upon at least 5 Business Days prior irrevocable notice, may permanently replace any Lender that failed to give its consent, authorization, or agreement (a “ Non-Consenting Lender ”) or any Lender that made a claim for compensation (a “ Tax Lender ”) with one or more Replacement Lenders, and the Non-Consenting Lender or Tax Lender, as applicable, shall have no right to refuse to be replaced hereunder.  Such notice to replace the Non-Consenting Lender or Tax Lender, as applicable, shall specify an effective date for such replacement, which date shall not be later than 15 Business Days after the date such notice is given.
 
(b)                                  Prior to the effective date of such replacement, the Non-Consenting Lender or Tax Lender, as applicable, and each Replacement Lender shall execute and deliver an Assignment and Acceptance, subject only to the Non-Consenting Lender or Tax Lender, as applicable, being repaid in full its share of the outstanding Obligations (without any premium or penalty of any kind whatsoever, but including (i) all interest, fees and other amounts that may be due in payable in respect thereof, and (ii) an assumption of its Pro Rata Share of participations in the Letters of Credit).  If the Non-Consenting Lender or Tax Lender, as applicable, shall refuse or fail to execute and deliver any such Assignment and Acceptance prior to the effective date of such replacement, Agent may, but shall not be required to, execute and deliver such Assignment and Acceptance in the name or and on behalf of the Non-Consenting Lender or Tax Lender, as applicable, and irrespective of whether Agent executes and delivers such Assignment and Acceptance, the Non-Consenting Lender or Tax Lender, as applicable, shall be deemed to have executed and delivered such Assignment and Acceptance.  The replacement of any Non-Consenting Lender or Tax Lender, as applicable, shall be made in accordance with the terms of Section 13.1 .  Until such time as one or more Replacement Lenders shall have acquired all of the
 
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Obligations, the Commitments, and the other rights and obligations of the Non-Consenting Lender or Tax Lender, as applicable, hereunder and under the other Loan Documents, the Non-Consenting Lender or Tax Lender, as applicable, shall remain obligated to make the Non-Consenting Lender’s or Tax Lender’s, as applicable, Pro Rata Share of Revolving Loans and to purchase a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of participations in such Letters of Credit.
 
14.3                         No Waivers; Cumulative Remedies .  No failure by Agent or any Lender to exercise any right, remedy, or option under this Agreement or any other Loan Document, or delay by Agent or any Lender in exercising the same, will operate as a waiver thereof.  No waiver by Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated.  No waiver by Agent or any Lender on any occasion shall affect or diminish Agent’s and each Lender’s rights thereafter to require strict performance by Parent and Borrower of any provision of this Agreement.  Agent’s and each Lender’s rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy that Agent or any Lender may have.
 
15.                                AGENT; THE LENDER GROUP.
 
15.1                         Appointment and Authorization of Agent .  Each Lender hereby designates and appoints Wells Fargo as its agent under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to designate, appoint, and authorize) Agent to execute and deliver each of the other Loan Documents on its behalf and to take such other action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto.  Agent agrees to act as agent for and on behalf of the Lenders (and the Bank Product Providers) on the conditions contained in this Section 15 .  Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Loan Documents, nor shall Agent have or be deemed to have any fiduciary relationship with any Lender (or Bank Product Provider), and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent.  Without limiting the generality of the foregoing, the use of the term “agent” in this Agreement or the other Loan Documents with reference to Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law.  Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only a representative relationship between independent contracting parties.  Each Lender hereby further authorizes (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to authorize) Agent to act as the secured party under each of the Loan Documents that create a Lien on any item of Collateral.  Except as expressly otherwise provided in this Agreement, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions that Agent expressly is entitled to take or assert under or pursuant to this Agreement and the other Loan Documents.  Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the following powers as long as this Agreement remains in effect:  (a) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Collateral, payments and proceeds of Collateral, and related matters, (b) execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents, (c) make Revolving Loans, for itself or on behalf of Lenders, as provided in the Loan Documents, (d) exclusively receive, apply, and distribute payments and proceeds of the Collateral as provided in the Loan Documents, (e) open and maintain such bank accounts and cash management arrangements as Agent
 
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deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes, (f) perform, exercise, and enforce any and all other rights and remedies of the Lender Group with respect to Parent or its Subsidiaries, the Obligations, the Collateral, or otherwise related to any of same as provided in the Loan Documents, and (g) incur and pay such Lender Group Expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents.
 
15.2                         Delegation of Duties .  Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys in fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties.  Agent shall not be responsible for the negligence or misconduct of any agent or attorney in fact that it selects as long as such selection was made without gross negligence or willful misconduct.
 
15.3                         Liability of Agent .  None of the Agent-Related Persons shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders (or Bank Product Providers) for any recital, statement, representation or warranty made by Parent or any of its Subsidiaries or Affiliates, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Parent or its Subsidiaries or any other party to any Loan Document to perform its obligations hereunder or thereunder.  No Agent-Related Person shall be under any obligation to any Lenders (or Bank Product Providers) to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the books and records or properties of Parent or its Subsidiaries.
 
15.4                         Reliance by Agent .  Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, telefacsimile or other electronic method of transmission, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower or counsel to any Lender), independent accountants and other experts selected by Agent.  Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless Agent shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable.  If Agent so requests, it shall first be indemnified to its reasonable satisfaction by the Lenders (and, if it so elects, the Bank Product Providers) against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action.  Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders (and Bank Product Providers).
 
15.5                         Notice of Default or Event of Default .  Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of the Lenders and, except with respect to Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a “notice of default.”  Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has actual
 
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knowledge.  If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default.  Each Lender shall be solely responsible for giving any notices to its Participants, if any.  Subject to Section 15.4 , Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 9 ; provided , that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable.
 
15.6                    Credit Decision .  Each Lender (and Bank Product Provider) acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Parent and its Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender (or Bank Product Provider).  Each Lender represents (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to represent) to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such due diligence, documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower or any other Person party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower.  Each Lender also represents (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to represent) that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower or any other Person party to a Loan Document.  Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender (or Bank Product Provider) with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrower or any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons.  Each Lender acknowledges (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that Agent does not have any duty or responsibility, either initially or on a continuing basis (except to the extent, if any, that is expressly specified herein) to provide such Lender (or Bank Product Provider) with any credit or other information with respect to Borrower, its Affiliates or any of their respective business, legal, financial or other affairs, and irrespective of whether such information came into Agent’s or its Affiliates’ or representatives’ possession before or after the date on which such Lender became a party to this Agreement (or such Bank Product Provider entered into a Bank Product Agreement).
 
15.7                    Costs and Expenses; Indemnification .  Agent may incur and pay Lender Group Expenses to the extent Agent reasonably deems necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including court costs, attorneys’ fees and expenses, fees and expenses of financial accountants, advisors, consultants, and appraisers, costs of collection by outside collection agencies, auctioneer fees and expenses, and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrower is obligated to reimburse Agent or Lenders for such expenses pursuant to this Agreement or otherwise.  Agent is authorized and directed to deduct and retain sufficient amounts from payments or proceeds of the Collateral received by Agent to reimburse Agent for such out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders (or Bank Product Providers).  In the event Agent is not reimbursed for such costs and expenses by Parent or its Subsidiaries, each Lender hereby agrees that it is and shall be obligated to pay to Agent such Lender’s ratable thereof.  Whether or not the transactions contemplated
 
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hereby are consummated, each of the Lenders, on a ratable basis, shall indemnify and defend the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so) from and against any and all Indemnified Liabilities; provided , that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities resulting solely from such Person’s gross negligence or willful misconduct nor shall any Lender be liable for the obligations of any Defaulting Lender in failing to make a Revolving Loan or other extension of credit hereunder.  Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lender’s ratable share of any costs or out of pocket expenses (including attorneys, accountants, advisors, and consultants fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Loan Document to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrower.  The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of Agent.
 
15.8                    Agent in Individual Capacity .  Wells Fargo and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, provide Bank Products to, acquire Equity Interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Parent and its Subsidiaries and Affiliates and any other Person party to any Loan Document as though Wells Fargo were not Agent hereunder, and, in each case, without notice to or consent of the other members of the Lender Group.  The other members of the Lender Group acknowledge (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, pursuant to such activities, Wells Fargo or its Affiliates may receive information regarding Parent or its Affiliates or any other Person party to any Loan Documents that is subject to confidentiality obligations in favor of Parent or such other Person and that prohibit the disclosure of such information to the Lenders (or Bank Product Providers), and the Lenders acknowledge (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver Agent will use its reasonable best efforts to obtain), Agent shall not be under any obligation to provide such information to them.  The terms “Lender” and “Lenders” include Wells Fargo in its individual capacity.
 
15.9                    Successor Agent .  Agent may resign as Agent upon 30 days (10 days if an Event of Default has occurred and is continuing) prior written notice to the Lenders (unless such notice is waived by the Required Lenders) and Borrower (unless such notice is waived by Borrower) and without any notice to the Bank Product Providers.  If Agent resigns under this Agreement, the Required Lenders shall be entitled, with (so long as no Event of Default has occurred and is continuing) the consent of Borrower (such consent not to be unreasonably withheld, delayed, or conditioned), appoint a successor Agent for the Lenders (and the Bank Product Providers).  If, at the time that Agent’s resignation is effective, it is acting as Issuing Bank or the Swing Lender, such resignation shall also operate to effectuate its resignation as Issuing Bank or the Swing Lender, as applicable, and it shall automatically be relieved of any further obligation to issue Letters of Credit or to make Swing Loans.  If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with the Lenders and Borrower, a successor Agent.  If Agent has materially breached or failed to perform any material provision of this Agreement or of applicable law, the Required Lenders may agree in writing to remove and replace Agent with a successor Agent from among the Lenders with (so long as no Event of Default has occurred and is continuing) the consent of Borrower (such consent not to be unreasonably withheld, delayed, or conditioned).  In any such event, upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers, and duties of the retiring Agent and the term “Agent” shall mean such successor Agent and the retiring Agent’s appointment, powers, and duties as Agent shall be terminated.  After any retiring Agent’s resignation hereunder as Agent, the provisions of this Section 15 shall inure to its benefit as to any actions taken or
 
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omitted to be taken by it while it was Agent under this Agreement.  If no successor Agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent’s notice of resignation, the retiring Agent’s resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor Agent as provided for above.
 
15.10             Lender in Individual Capacity .  Any Lender and its respective Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, provide Bank Products to, acquire Equity Interests in and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Parent and its Subsidiaries and Affiliates and any other Person party to any Loan Documents as though such Lender were not a Lender hereunder without notice to or consent of the other members of the Lender Group (or the Bank Product Providers).  The other members of the Lender Group acknowledge (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, pursuant to such activities, such Lender and its respective Affiliates may receive information regarding Parent or its Affiliates or any other Person party to any Loan Documents that is subject to confidentiality obligations in favor of Parent or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will use its reasonable best efforts to obtain), such Lender shall not be under any obligation to provide such information to them.
 
15.11             Collateral Matters .
 
(a)                                  The Lenders hereby irrevocably authorize (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to authorize) Agent to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full by Borrower of all of the Obligations, (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Borrower certifies to Agent that the sale or disposition is permitted under Section 6.4 (and Agent may rely conclusively on any such certificate, without further inquiry), (iii) constituting property in which Parent or its Subsidiaries owned no interest at the time Agent’s Lien was granted nor at any time thereafter, (iv) constituting property leased or licensed to Parent or its Subsidiaries under a lease or license that has expired or is terminated in a transaction permitted under this Agreement, or (v) in connection with a credit bid or purchase authorized under this Section 15.11 .  The Loan Parties and the Lenders hereby irrevocably authorize (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to authorize) Agent, based upon the instruction of the Required Lenders, to (a) consent to, credit bid or purchase (either directly or indirectly through one or more entities) all or any portion of the Collateral at any sale thereof conducted under the provisions of the Bankruptcy Code, including Section 363 of the Bankruptcy Code, (b) credit bid or purchase (either directly or indirectly through one or more entities) all or any portion of the Collateral at any sale or other disposition thereof conducted under the provisions of the Code, including pursuant to Sections 9-610 or 9-620 of the Code, or (c) credit bid or purchase (either directly or indirectly through one or more entities) all or any portion of the Collateral at any other sale or foreclosure conducted or consented to by Agent in accordance with applicable law in any judicial action or proceeding or by the exercise of any legal or equitable remedy.  In connection with any such credit bid or purchase, (i) the Obligations owed to the Lenders and the Bank Product Providers shall be entitled to be, and shall be, credit bid on a ratable basis (with Obligations with respect to contingent or unliquidated claims being estimated for such purpose if the fixing or liquidation thereof would not impair or unduly delay the ability of Agent to credit bid or purchase at such sale or other disposition of the Collateral and, if such contingent or unliquidated claims cannot be estimated without impairing or unduly delaying the ability of Agent to credit bid at such sale or other disposition, then such claims shall be disregarded, not credit bid, and not
 
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entitled to any interest in the Collateral that is the subject of such credit bid or purchase) and the Lenders and the Bank Product Providers whose Obligations are credit bid shall be entitled to receive interests (ratably based upon the proportion of their Obligations credit bid in relation to the aggregate amount of Obligations so credit bid) in the Collateral that is the subject of such credit bid or purchase (or in the Equity Interests of the any entities that are used to consummate such credit bid or purchase), and (ii) Agent, based upon the instruction of the Required Lenders, may accept non-cash consideration, including debt and equity securities issued by any entities used to consummate such credit bid or purchase and in connection therewith Agent may reduce the Obligations owed to the Lenders and the Bank Product Providers (ratably based upon the proportion of their Obligations credit bid in relation to the aggregate amount of Obligations so credit bid) based upon the value of such non-cash consideration.  Except as provided above, Agent will not execute and deliver a release of any Lien on any Collateral without the prior written authorization of (y) if the release is of all or substantially all of the Collateral, all of the Lenders (without requiring the authorization of the Bank Product Providers), or (z) otherwise, the Required Lenders (without requiring the authorization of the Bank Product Providers).  Upon request by Agent or Borrower at any time, the Lenders will (and if so requested, the Bank Product Providers will) confirm in writing Agent’s authority to release any such Liens on particular types or items of Collateral pursuant to this Section 15.11 ; provided , that (1) anything to the contrary contained in any of the Loan Documents notwithstanding, Agent shall not be required to execute any document or take any action necessary to evidence such release on terms that, in Agent’s opinion, could expose Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (2) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly released) upon (or obligations of Borrower in respect of) any and all interests retained by Borrower, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral.  Each Lender further hereby irrevocably authorize (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to irrevocably authorize) Agent, at its option and in its sole discretion, to subordinate any Lien granted to or held by Agent under any Loan Document to the holder of any Permitted Lien on such property if such Permitted Lien secures Permitted Purchase Money Indebtedness.
 
(b)                                  Agent shall have no obligation whatsoever to any of the Lenders (or the Bank Product Providers) (i) to verify or assure that the Collateral exists or is owned by Parent or its Subsidiaries or is cared for, protected, or insured or has been encumbered, (ii) to verify or assure that Agent’s Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, (iii) to verify or assure that any particular items of Collateral meet the eligibility criteria applicable in respect thereof, (iv) to impose, maintain, increase, reduce, implement, or eliminate any particular reserve hereunder or to determine whether the amount of any reserve is appropriate or not, or (v) to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, subject to the terms and conditions contained herein, Agent may act in any manner it may deem appropriate, in its sole discretion given Agent’s own interest in the Collateral in its capacity as one of the Lenders and that Agent shall have no other duty or liability whatsoever to any Lender (or Bank Product Provider) as to any of the foregoing, except as otherwise expressly provided herein.
 
15.12             Restrictions on Actions by Lenders; Sharing of Payments .
 
(a)                                  Each of the Lenders agrees that it shall not, without the express written consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the written request of Agent, set off against the Obligations, any amounts owing by such Lender to Parent or its Subsidiaries or any deposit accounts of Parent or its Subsidiaries now or hereafter maintained with such Lender.  Each of the
 
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Lenders further agrees that it shall not, unless specifically requested to do so in writing by Agent, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings to enforce any Loan Document against Borrower or any Guarantor or to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral.
 
(b)                                  If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations, except for any such proceeds or payments received by such Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in excess of such Lender’s Pro Rata Share of all such distributions by Agent, such Lender promptly shall (A) turn the same over to Agent, in kind, and with such endorsements as may be required to negotiate the same to Agent, or in immediately available funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (B) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided , that to the extent that such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment.
 
15.13             Agency for Perfection .  Agent hereby appoints each other Lender (and each Bank Product Provider) as its agent (and each Lender hereby accepts (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to accept) such appointment) for the purpose of perfecting Agent’s Liens in assets which, in accordance with Article 8 or Article 9, as applicable, of the Code can be perfected by possession or control.  Should any Lender obtain possession or control of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent’s request therefor shall deliver possession or control of such Collateral to Agent or in accordance with Agent’s instructions.
 
15.14             Payments by Agent to the Lenders .  All payments to be made by Agent to the Lenders (or Bank Product Providers) shall be made by bank wire transfer of immediately available funds pursuant to such wire transfer instructions as each party may designate for itself by written notice to Agent.  Concurrently with each such payment, Agent shall identify whether such payment (or any portion thereof) represents principal, premium, fees, or interest of the Obligations.
 
15.15             Concerning the Collateral and Related Loan Documents .  Each member of the Lender Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents.  Each member of the Lender Group agrees (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to agree) that any action taken by Agent in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent of its powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders (and such Bank Product Provider).
 
15.16                  Financial Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information .  By becoming a party to this Agreement, each Lender:
 
(a)                                  is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each financial examination report respecting Parent or its Subsidiaries (each, a “ Report ”) prepared by or at the request of Agent, and Agent shall so furnish each Lender with such Reports,
 
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(b)                                  expressly agrees and acknowledges that Agent does not (i) make any representation or warranty as to the accuracy of any Report, and (ii) shall not be liable for any information contained in any Report,
 
(c)                                   expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or other party performing any financial examination will inspect only specific information regarding Parent and its Subsidiaries and will rely significantly upon Parent’s and its Subsidiaries’ books and records, as well as on representations of Borrower’s personnel,
 
(d)                                  agrees to keep all Reports and other material, non-public information regarding Parent and its Subsidiaries and their operations, assets, and existing and contemplated business plans in a confidential manner in accordance with Section 17.9 , and
 
(e)                                   without limiting the generality of any other indemnification provision contained in this Agreement, agrees:  (i) to hold Agent and any other Lender preparing a Report harmless from any action the indemnifying Lender may take or fail to take or any conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to Borrower, or the indemnifying Lender’s participation in, or the indemnifying Lender’s purchase of, a loan or loans of Borrower, and (ii) to pay and protect, and indemnify, defend and hold Agent, and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including, attorneys’ fees and costs) incurred by Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.
 
(f)                                    In addition to the foregoing,  (x) any Lender may from time to time request of Agent in writing that Agent provide to such Lender a copy of any report or document provided by Parent or its Subsidiaries to Agent that has not been contemporaneously provided by Parent or such Subsidiary to such Lender, and, upon receipt of such request, Agent promptly shall provide a copy of same to such Lender, (y) to the extent that Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Parent or its Subsidiaries, any Lender may, from time to time, reasonably request Agent to exercise such right as specified in such Lender’s notice to Agent, whereupon Agent promptly shall request of Borrower the additional reports or information reasonably specified by such Lender, and, upon receipt thereof from Parent or such Subsidiary, Agent promptly shall provide a copy of same to such Lender, and (z) any time that Agent renders to Borrower a statement regarding the Loan Account, Agent shall send a copy of such statement to each Lender.
 
15.17             Several Obligations; No Liability .  Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Agent (if any) to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments.  Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lender.  Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender.  Except as provided in Section 15.7 , no member of the Lender Group shall have any liability for the acts of any other member of the Lender Group.  No Lender shall be responsible to Borrower or any other Person for any failure by any other Lender (or Bank Product Provider) to fulfill its obligations to make credit available hereunder, nor to
 
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advance for such Lender (or Bank Product Provider) or on its behalf, nor to take any other action on behalf of such Lender (or Bank Product Provider) hereunder or in connection with the financing contemplated herein.
 
16.                                WITHHOLDING TAXES.
 
16.1                    Payments . All payments made by Borrower hereunder or under any note or other Loan Document will be made without setoff, counterclaim, or other defense.  In addition, all such payments will be made free and clear of, and without deduction or withholding for, any present or future Indemnified Taxes, and in the event any deduction or withholding of Indemnified Taxes is required, Borrower shall comply with the next sentence of this Section 16.1 .  If any Indemnified Taxes are so levied or imposed, Borrower agrees to pay the full amount of such Indemnified Taxes and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement, any note, or Loan Document, including any amount paid pursuant to this Section 16.1 after withholding or deduction for or on account of any Indemnified Taxes, will not be less than the amount provided for herein.  Borrower will furnish to Agent as promptly as possible after the date the payment of any Indemnified Tax is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by Borrower.  Borrower agrees to pay any present or future stamp, value added or documentary taxes or any other excise or property taxes, charges, or similar levies that arise from any payment made hereunder or from the execution, delivery, performance, recordation, or filing of, or otherwise with respect to this Agreement or any other Loan Document.
 
16.2                    Exemptions .
 
(a)                                  If a Lender or Participant is entitled to claim an exemption or reduction from United States withholding tax, such Lender or Participant agrees with and in favor of Agent, to deliver to Agent (or, in the case of a Participant, to the Lender granting the participation only) one of the following before receiving its first payment under this Agreement:
 
(i)                                      if such Lender or Participant is entitled to claim an exemption from United States withholding tax pursuant to the portfolio interest exception, (A) a statement of the Lender or Participant, signed under penalty of perjury, that it is not a (I) a “bank” as described in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder of Borrower (within the meaning of Section 871(h)(3)(B) of the IRC), or (III) a controlled foreign corporation related to Borrower within the meaning of Section 864(d)(4) of the IRC, and (B) a properly completed and executed IRS Form W-8BEN or Form W-8IMY (with proper attachments);
 
(ii)                                   if such Lender or Participant is entitled to claim an exemption from, or a reduction of, withholding tax under a United States tax treaty, a properly completed and executed copy of IRS Form W-8BEN;
 
(iii)                                if such Lender or Participant is entitled to claim that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, a properly completed and executed copy of IRS Form W-8ECI;
 
(iv)                               if such Lender or Participant is entitled to claim that interest paid under this Agreement is exempt from United States withholding tax because such Lender or Participant serves as an intermediary, a properly completed and executed copy of IRS Form W-8IMY (with proper attachments); or
 
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(v)                                  a properly completed and executed copy of any other form or forms, including IRS Form W-9, as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States withholding or backup withholding tax.
 
(b)                                  Each Lender or Participant shall provide new forms (or successor forms) upon the expiration or obsolescence of any previously delivered forms and to promptly notify Agent (or, in the case of a Participant, to the Lender granting the participation only) of any change in circumstances which would modify or render invalid any claimed exemption or reduction.
 
(c)                                   If a Lender or Participant claims an exemption from withholding tax in a jurisdiction other than the United States, such Lender or such Participant agrees with and in favor of Agent, to deliver to Agent (or, in the case of a Participant, to the Lender granting the participation only) any such form or forms, as may be required under the laws of such jurisdiction as a condition to exemption from, or reduction of, foreign withholding or backup withholding tax before receiving its first payment under this Agreement, but only if such Lender or such Participant is legally able to deliver such forms, provided , that nothing in this Section 16.2(c)  shall require a Lender or Participant to disclose any information that it deems to be confidential (including without limitation, its tax returns).  Each Lender and each Participant shall provide new forms (or successor forms) upon the expiration or obsolescence of any previously delivered forms and to promptly notify Agent (or, in the case of a Participant, to the Lender granting the participation only) of any change in circumstances which would modify or render invalid any claimed exemption or reduction.
 
(d)                                  If a Lender or Participant claims exemption from, or reduction of, withholding tax and such Lender or Participant sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrower to such Lender or Participant, such Lender or Participant agrees to notify Agent (or, in the case of a sale of a participation interest, to the Lender granting the participation only) of the percentage amount in which it is no longer the beneficial owner of Obligations of Borrower to such Lender or Participant.  To the extent of such percentage amount, Agent will treat such Lender’s or such Participant’s documentation provided pursuant to Section 16.2(a)  or 16.2(c)  as no longer valid.  With respect to such percentage amount, such Participant or Assignee may provide new documentation, pursuant to Section 16.2(a)  or 16.2(c) , if applicable.  Borrower agrees that each Participant shall be entitled to the benefits of this Section 16 with respect to its participation in any portion of the Commitments and the Obligations so long as such Participant complies with the obligations set forth in this Section 16 with respect thereto.
 
16.3                    Reductions .
 
(a)                                  If a Lender or a Participant is subject to an applicable withholding tax, Agent (or, in the case of a Participant, the Lender granting the participation) may withhold from any payment to such Lender or such Participant an amount equivalent to the applicable withholding tax.  If the forms or other documentation required by Section 16.2(a)  or 16.2(c)  are not delivered to Agent (or, in the case of a Participant, to the Lender granting the participation), then Agent (or, in the case of a Participant, to the Lender granting the participation) may withhold from any payment to such Lender or such Participant not providing such forms or other documentation an amount equivalent to the applicable withholding tax.
 
(b)                                  If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that Agent (or, in the case of a Participant, to the Lender granting the participation) did not properly withhold tax from amounts paid to or for the account of any Lender or any Participant due to a failure on the part of the Lender or any Participant (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent (or such Participant failed to notify the Lender granting the participation) of a change in circumstances which
 
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rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify and hold Agent harmless (or, in the case of a Participant, such Participant shall indemnify and hold the Lender granting the participation harmless) for all amounts paid, directly or indirectly, by Agent (or, in the case of a Participant, to the Lender granting the participation), as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Agent (or, in the case of a Participant, to the Lender granting the participation only) under this Section 16 , together with all costs and expenses (including attorneys’ fees and expenses).  The obligation of the Lenders and the Participants under this subsection shall survive the payment of all Obligations and the resignation or replacement of Agent.
 
16.4                    Refunds .  If Agent or a Lender reasonably determines that it has received a refund of any Indemnified Taxes to which Borrower has paid additional amounts pursuant to this Section 16 , so long as no Default or Event of Default has occurred and is continuing, it shall pay over such refund to Borrower (but only to the extent of payments made, or additional amounts paid, by Borrower under this Section 16 with respect to Indemnified Taxes giving rise to such a refund), net of all out-of-pocket expenses of Agent or such Lender and without interest (other than any interest paid by the applicable Governmental Authority with respect to such a refund); provided, that Borrower, upon the request of Agent or such Lender, agrees to repay the amount paid over to Borrower (plus any penalties, interest or other charges, imposed by the applicable Governmental Authority, other than such penalties, interest or other charges imposed as a result of the willful misconduct or gross negligence of Agent hereunder) to Agent or such Lender in the event Agent or such Lender is required to repay such refund to such Governmental Authority.  Notwithstanding anything in this Agreement to the contrary, this Section 16 shall not be construed to require Agent or any Lender to make available its tax returns (or any other information which it deems confidential) to Borrower or any other Person.
 
17.                                GENERAL PROVISIONS.
 
17.1                    Effectiveness .  This Agreement shall be binding and deemed effective when executed by Parent, Borrower, Agent, and each Lender whose signature is provided for on the signature pages hereof.
 
17.2                    Section Headings .  Headings and numbers have been set forth herein for convenience only.  Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement.
 
17.3                    Interpretation .  Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against the Lender Group or Parent or Borrower, whether under any rule of construction or otherwise.  On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.
 
17.4                    Severability of Provisions .  Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
 
17.5                    Bank Product Providers .  Each Bank Product Provider in its capacity as such shall be deemed a third party beneficiary hereof and of the provisions of the other Loan Documents for purposes of any reference in a Loan Document to the parties for whom Agent is acting.  Agent hereby agrees to act as agent for such Bank Product Providers and, by virtue of entering into a Bank Product Agreement, the applicable Bank Product Provider shall be automatically deemed to have appointed Agent as its agent and to have accepted the benefits of the Loan Documents.  It is understood and agreed that the
 
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rights and benefits of each Bank Product Provider under the Loan Documents consist exclusively of such Bank Product Provider’s being a beneficiary of the Liens and security interests (and, if applicable, guarantees) granted to Agent and the right to share in payments and collections out of the Collateral as more fully set forth herein. In addition, each Bank Product Provider, by virtue of entering into a Bank Product Agreement, shall be automatically deemed to have agreed that Agent shall have the right, but shall have no obligation, to establish, maintain, relax, or release reserves in respect of the Bank Product Obligations and that if reserves are established there is no obligation on the part of Agent to determine or insure whether the amount of any such reserve is appropriate or not.  In connection with any such distribution of payments or proceeds of Collateral, Agent shall be entitled to assume no amounts are due or owing to any Bank Product Provider unless such Bank Product Provider has provided a written certification (setting forth a reasonably detailed calculation) to Agent as to the amounts that are due and owing to it and such written certification is received by Agent a reasonable period of time prior to the making of such distribution.  Agent shall have no obligation to calculate the amount due and payable with respect to any Bank Products, but may rely upon the written certification of the amount due and payable from the applicable Bank Product Provider.  In the absence of an updated certification, Agent shall be entitled to assume that the amount due and payable to the applicable Bank Product Provider is the amount last certified to Agent by such Bank Product Provider as being due and payable (less any distributions made to such Bank Product Provider on account thereof).  Borrower may obtain Bank Products from any Bank Product Provider, although Borrower is not required to do so.  Borrower acknowledges and agrees that no Bank Product Provider has committed to provide any Bank Products and that the providing of Bank Products by any Bank Product Provider is in the sole and absolute discretion of such Bank Product Provider.  Notwithstanding anything to the contrary in this Agreement or any other Loan Document, no provider or holder of any Bank Product shall have any voting or approval rights hereunder (or be deemed a Lender) solely by virtue of its status as the provider or holder of such agreements or products or the Obligations owing thereunder, nor shall the consent of any such provider or holder be required (other than in their capacities as Lenders, to the extent applicable) for any matter hereunder or under any of the other Loan Documents, including as to any matter relating to the Collateral or the release of Collateral or Guarantors.
 
17.6                    Debtor-Creditor Relationship .  The relationship between the Lenders and Agent, on the one hand, and the Loan Parties, on the other hand, is solely that of creditor and debtor.  No member of the Lender Group has (or shall be deemed to have) any fiduciary relationship or duty to any Loan Party arising out of or in connection with the Loan Documents or the transactions contemplated thereby, and there is no agency or joint venture relationship between the members of the Lender Group, on the one hand, and the Loan Parties, on the other hand, by virtue of any Loan Document or any transaction contemplated therein.
 
17.7                    Counterparts; Electronic Execution .  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.  Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement.  Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement.  The foregoing shall apply to each other Loan Document mutatis mutandis.
 
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17.8                         Revival and Reinstatement of Obligations; Certain Waivers .
 
(a)                                  If any member of the Lender Group or any Bank Product Provider repays, refunds, restores, or returns in whole or in part, any payment or property (including any proceeds of Collateral) previously paid or transferred to such member of the Lender Group or such Bank Product Provider in full or partial satisfaction of any Obligation or on account of any other obligation of any Loan Party under any Loan Document or any Bank Product Agreement, because the payment, transfer, or the incurrence of the obligation so satisfied is asserted or declared to be void, voidable, or otherwise recoverable under any law relating to creditors’ rights, including provisions of the Bankruptcy Code relating to fraudulent transfers, preferences, or other voidable or recoverable obligations or transfers (each, a “ Voidable Transfer ”), or because such member of the Lender Group or Bank Product Provider elects to do so on the reasonable advice of its counsel in connection with a claim that the payment, transfer, or incurrence is or may be a Voidable Transfer, then, as to any such Voidable Transfer, or the amount thereof that such member of the Lender Group or Bank Product Provider elects to repay, restore, or return (including pursuant to a settlement of any claim in respect thereof), and as to all reasonable costs, expenses, and attorneys’ fees of such member of the Lender Group or Bank Product Provider related thereto, (i) the liability of the Loan Parties with respect to the amount or property paid, refunded, restored, or returned will automatically and immediately be revived, reinstated, and restored and will exist and (ii) Agent’s Liens securing such liability shall be effective, revived, and remain in full force and effect, in each case, as fully as if such Voidable Transfer had never been made.  If, prior to any of the foregoing, (A) Agent’s Liens shall have been released or terminated or (B) any provision of this Agreement shall have been terminated or cancelled, Agent’s Liens, or such provision of this Agreement, shall be reinstated in full force and effect and such prior release, termination, cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligation of any Loan Party in respect of such liability or any Collateral securing such liability.
 
17.9                         Confidentiality .
 
(a)                                  Agent and Lenders each individually (and not jointly or jointly and severally) agree that material, non-public information regarding Parent and its Subsidiaries, their operations, assets, and existing and contemplated business plans (“ Confidential Information ”) shall be treated by Agent and the Lenders in a confidential manner, and shall not be disclosed by Agent and the Lenders to Persons who are not parties to this Agreement, except:  (i) to attorneys for and other advisors, accountants, auditors, and consultants to any member of the Lender Group  and to employees, directors , members, partners and officers of any member of the Lender Group (the Persons in this clause (i), “ Lender Group Representatives ”) on a “need to know” basis in connection with this Agreement and the transactions contemplated hereby and on a confidential basis, (ii) to Subsidiaries and Affiliates of any member of the Lender Group (including the Bank Product Providers), provided that any such Subsidiary or Affiliate shall have agreed to receive such information hereunder subject to the terms of this Section 17.9 , (iii) as may be required by regulatory authorities so long as such authorities are informed of the confidential nature of such information, (iv) as may be required by statute, decision, or judicial or administrative order, rule, or regulation; provided that (x) prior to any disclosure under this clause (iv), the disclosing party agrees to provide Borrower with prior notice thereof, to the extent that it is practicable to do so and to the extent that the disclosing party is permitted to provide
 
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such prior notice to Borrower pursuant to the terms of the applicable statute, decision, or judicial or administrative order, rule, or regulation and (y) any disclosure under this clause (iv) shall be limited to the portion of the Confidential Information as may be required by such statute, decision, or judicial or administrative order, rule, or regulation, (v) as may be agreed to in advance in writing by Borrower, (vi) as requested or required by any Governmental Authority pursuant to any subpoena or other legal process, provided, that, (x) prior to any disclosure under this clause (vi) the disclosing party agrees to provide Borrower with prior written notice thereof, to the extent that it is practicable to do so and to the extent that the disclosing party is permitted to provide such prior written notice to Borrower pursuant to the terms of the subpoena or other legal process and (y) any disclosure under this clause (vi) shall be limited to the portion of the Confidential Information as may be required by such Governmental Authority pursuant to such subpoena or other legal process, (vii) as to any such information that is or becomes generally available to the public (other than as a result of prohibited disclosure by Agent or the Lenders or the Lender Group Representatives), (viii) in connection with any assignment, participation  or pledge of any Lender’s interest under this Agreement, provided that prior to receipt of Confidential Information any such assignee, participant, or pledgee shall have agreed in writing to receive such Confidential Information either subject to the terms of this Section 17.9 or pursuant to confidentiality requirements at least as restrictive as those contained in this Section 17.9 (and such Person may disclose such Confidential Information to Persons employed or engaged by them as described in clause (i) above), (ix) in connection with any litigation or other adversary proceeding involving parties hereto which such litigation or adversary proceeding involves claims related to the rights or duties of such parties under this Agreement or the other Loan Documents; provided , that, prior to any disclosure to any Person (other than any Loan Party, Agent, any Lender, any of their respective Affiliates, or their respective counsel) under this clause (ix) with respect to litigation involving any Person (other than Borrower, Agent, any Lender, any of their respective Affiliates, or their respective counsel), the disclosing party agrees to provide Borrower with prior written notice thereof, and (x) in connection with, and to the extent reasonably necessary for, the exercise of any secured creditor remedy under this Agreement or under any other Loan Document.
 
(b)                                  Anything in this Agreement to the contrary notwithstanding, provided Borrower’s prior written consent is supplied, Agent may (i) provide information concerning the terms and conditions of this Agreement and the other Loan Documents to loan syndication and pricing reporting services, and (ii) use the name, logos, and other insignia of Borrower or the other Loan Parties and the Commitments provided hereunder in any “tombstone” or comparable advertisements, on its website or in other marketing materials of the Agent.
 
17.10                  Survival .  All representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that Agent, Issuing Bank, or any Lender may have had notice or knowledge of any Default or Event of Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of, or any accrued interest on, any Loan or any fee or any other amount payable under this Agreement is outstanding or unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or been terminated.
 
17.11                  Patriot Act .  Each Lender that is subject to the requirements of the Patriot Act hereby notifies Borrower that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow such Lender to identify Borrower in accordance with the Patriot Act.  In addition, if Agent is required by law or regulation or internal policies to do so, it shall have the right to periodically conduct (a) Patriot Act searches, OFAC/PEP searches, and customary individual background checks for the Loan Parties and (b) OFAC/PEP searches and customary individual  background checks for the Loan Parties’ senior management and key principals, and Borrower agrees to cooperate in respect of the conduct of such searches and further agrees that the reasonable costs and charges for such searches shall constitute Lender Group Expenses hereunder and be for the account of Borrower.
 
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17.12                  Integration .  This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.  The foregoing to the contrary notwithstanding, all Bank Product Agreements, if any, are independent agreements governed by the written provisions of such Bank Product Agreements, which will remain in full force and effect, unaffected by any repayment, prepayments, acceleration, reduction, increase, or change in the terms of any credit extended hereunder, except as otherwise expressly provided in such Bank Product Agreement.
 
[Signature Pages Follow]
 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written.

PARENT:	Q2 HOLDINGS, INC. ,	
 	a Delaware corporation	

 	By:	/s/ Mark Johnson	
 	Name:	Mark Johnson	
 	Title:	CFO	

Credit Agreement

 

BORROWER:	Q2 SOFTWARE, INC. ,	
 	a Delaware corporation	

 	By:	/s/ Mark Johnson	
 	Name:	Mark Johnson	
 	Title:	CFO	

Credit Agreement

 

AGENT AND LENDER :	WELLS FARGO BANK,	
 	NATIONAL ASSOCIATION ,	
 	a national banking association, as Agent and as a Lender	

 	By:	/s/ Stephen Carll	
 	Name:  Stephen Carll	
 	Its:       Authorized Signatory	
 
Credit Agreement

 
Schedule 1.1
 
As used in the Agreement, the following terms shall have the following definitions:
 
“ Accounting Changes ” means changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successor thereto or any agency with similar functions).
 
“ Acquired Indebtedness ” means Indebtedness of a Person whose assets or Equity Interests are acquired by Parent or any of its Subsidiaries in a Permitted Acquisition; provided , that such Indebtedness (a) is either purchase money Indebtedness or a Capital Lease with respect to Equipment or mortgage financing with respect to Real Property, (b) was in existence prior to the date of such Permitted Acquisition, and (c) was not incurred in connection with, or in contemplation of, such Permitted Acquisition.
 
“ Acquisition ” means (a) the purchase or other acquisition by a Person or its Subsidiaries of all or substantially all of the assets of (or any division or business line of) any other Person, or (b) the purchase or other acquisition (whether by means of a merger, consolidation, or otherwise) by a Person or its Subsidiaries of all or substantially all of the Equity Interests of any other Person.
 
“ Additional Documents ” has the meaning specified therefor in Section 5.12 of the Agreement.
 
“ Administrative Questionnaire ” has the meaning specified therefor in Section 13.1(a)  of the Agreement.
 
“ Affected Lender ” has the meaning specified therefor in Section 2.13(b)  of the Agreement.
 
“ Affiliate ” means, as applied to any Person, any other Person who controls, is controlled by, or is under common control with, such Person.  For purposes of this definition, “control” means the possession, directly or indirectly through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Equity Interests, by contract, or otherwise; provided , that, for purposes of Section 6.10 of the Agreement: (a) any Person which owns directly or indirectly 10% or more of the Equity Interests having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership in which a Person is a general partner shall be deemed an Affiliate of such Person.
 
“ Agent ” has the meaning specified therefor in the preamble to the Agreement.
 
“ Agent-Related Persons ” means Agent, together with its Affiliates, officers, directors, employees, attorneys, and agents.
 
“ Agent’s Account ” means the Deposit Account of Agent identified on Schedule A-1 to the Agreement (or such other Deposit Account of Agent that has been designated as such, in writing, by Agent to Borrower and the Lenders).
 
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“ Agent’s Liens ” means the Liens granted by Parent or its Subsidiaries to Agent under the Loan Documents and securing the Obligations.
 
“ Agreement ” means the Credit Agreement to which this Schedule 1.1 is attached.
 
“ Applicable Margin ” means with respect to Base Rate Loans or LIBOR Rate Loans, as applicable, (i) for any date of determination made prior to a Leverage Ratio Covenant Period, the applicable margin set forth in the following table that corresponds to the calculation of the average daily Liquidity during the immediately preceding fiscal quarter delivered to Agent pursuant to Section 5.1 of the Agreement (the “ Average Liquidity Calculation ”), and (ii) for any date of determination made during a Leverage Ratio Covenant Period, the Applicable Margin shall be set at the margin in the row styled “Level I”; provided , that for the period from the Closing Date through the date Agent receives the Average Liquidity Calculation in respect of the testing period ending June 30, 2013, the Applicable Margin shall be set at the margin in the row styled “Level II”; provided further , that any time an Event of Default has occurred and is continuing, the Applicable Margin shall be set at the margin in the row styled “Level III”:

Level	 	Average Liquidity
Calculation	 	Applicable Margin
Relative to Base Rate
Loans (the “Base Rate
Margin”)	 	Applicable Margin
Relative to LIBOR Rate
Loans (the “LIBOR Rate
Margin”)	 	
I	 	greater than or equal to $40,000,000	 	3.00	%	4.00	%	
II	 	less than $40,000,000 but
greater than or equal to $15,000,000	 	3.50	%	4.50	%	
III	 	less than $15,000,000	 	4.00	%	5.00	%	
 
Except as set forth in the foregoing proviso, prior to the Leverage Ratio Covenant Period, the Applicable Margin shall be based upon the most recent Average Liquidity Calculation, which will be calculated as of the end of each fiscal quarter until the Leverage Ratio Covenant Period commences.  Except as set forth in the foregoing proviso, the Applicable Margin shall be re-determined quarterly on the first day of the fiscal quarter following the date of delivery to Agent of the certified calculation of the Average Liquidity Calculation pursuant to Section 5.1 of the Agreement; provided , that if Borrower fails to provide such certification when such certification is due, the Applicable Margin shall be set at the margin in the row styled “Level III” as of the first day of the month following the date on which the certification was required to be delivered until the date on which such certification is delivered (on which date (but not retroactively), without constituting a waiver of any Default or Event of Default occasioned by the failure to timely deliver such certification, the Applicable Margin shall be set at the margin based upon the calculations disclosed by such certification.  In the event that the information regarding the Average Liquidity Calculation contained in any certificate delivered pursuant to Section 5.1 of the Agreement is shown to be inaccurate or the Leverage Ratio calculation triggering the Leverage Ratio Covenant Period is inaccurate, and such inaccuracy, if corrected, would have led to the application of a higher Applicable Margin for any period (an “ Applicable Period ”) than the Applicable Margin actually applied for such Applicable Period, then (i) Borrower shall immediately deliver to Agent a correct
 
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certificate for such Applicable Period, (ii) the Applicable Margin shall be determined as if the correct Applicable Margin (as set forth in the table above) were applicable for such Applicable Period, and (iii) Borrower shall immediately deliver to Agent full payment in respect of the accrued additional interest as a result of such increased Applicable Margin for such Applicable Period, which payment shall be promptly applied by Agent to the affected Obligations.
 
“ Application Event ” means the occurrence of (a) a failure by Borrower to repay all of the Obligations in full on the Maturity Date, or (b) an Event of Default and the election by Agent or the Required Lenders to require that payments and proceeds of Collateral be applied pursuant to Section 2.4(b)(ii)  of the Agreement.
 
“ Assignee ” has the meaning specified therefor in Section 13.1(a)  of the Agreement.
 
“ Assignment and Acceptance ” means an Assignment and Acceptance Agreement substantially in the form of Exhibit A-1 to the Agreement.
 
“ Authorized Person ” means any one of the individuals identified on Schedule A-2 to the Agreement, as such schedule is updated from time to time by written notice from Borrower to Agent.
 
“ Availability ” means, as of any date of determination, the amount that Borrower is entitled to borrow as Revolving Loans under Section 2.1 of the Agreement (after giving effect to the then outstanding Revolver Usage).
 
“ Average Liquidity Calculation ” has the meaning set forth in the definition of Applicable Margin.
 
“ Average Revolver Usage ” means for any date of determination, the calculation of the average daily Revolver Usage during the immediately preceding month.
 
“ Bank Product Agreements ” means those agreements entered into from time to time by Parent or its Subsidiaries with a Bank Product Provider in connection with the obtaining of any of the Bank Products.
 
“ Bank Product Collateralization ” means providing cash collateral (pursuant to documentation reasonably satisfactory to Agent) to be held by Agent for the benefit of the Bank Product Providers (other than the Hedge Providers) in an amount determined by Agent as sufficient to satisfy the reasonably estimated credit exposure with respect to the then existing Bank Product Obligations (other than Hedge Obligations).
 
“ Bank Product Obligations ” means (a) all obligations, liabilities, reimbursement obligations, fees, or expenses owing by Parent or its Subsidiaries to any Bank Product Provider pursuant to or evidenced by a Bank Product Agreement and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, (b) all Hedge Obligations, and (c) all amounts that Agent or any Lender is obligated to pay to a Bank Product Provider as a result of Agent or such Lender purchasing participations from, or executing guarantees or indemnities or reimbursement obligations to, a Bank Product Provider with respect to the Bank Products provided by such Bank Product Provider to Parent or its Subsidiaries.
 
“ Bank Product Provider ” means Wells Fargo or any of its Affiliates, including each of the foregoing in its capacity, if applicable, as a Hedge Provider.
 
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“ Bank Product Provider Agreement ” means an agreement in substantially the form attached hereto as Exhibit B-2 to the Agreement, in form and substance satisfactory to Agent, duly executed by the applicable Bank Product Provider, Borrower, and Agent.
 
“ Bank Product Reserves ” means, as of any date of determination, those reserves that Agent deems necessary or appropriate to establish (based upon the Bank Product Providers’ determination of the liabilities and obligations of Parent and its Subsidiaries in respect of Bank Product Obligations) in respect of Bank Products then provided or outstanding.
 
“ Bankruptcy Code ” means title 11 of the United States Code, as in effect from time to time.
 
“ Base Rate ” means the greatest of (a) the Federal Funds Rate plus one percentage point, (b) the LIBOR Rate (which rate shall be calculated based upon an Interest Period of 1 month and shall be determined on a daily basis) plus one percentage point and (c) the rate of interest announced, from time to time, within Wells Fargo at its principal office in San Francisco as its “prime rate”, with the understanding that the “prime rate” is one of Wells Fargo’s base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publications as Wells Fargo may designate.
 
“ Base Rate Loan ” means each portion of the Revolving Loans that bear interest at a rate determined by reference to the Base Rate.
 
“ Base Rate Margin ” has the meaning set forth in the definition of Applicable Margin.
 
“ Benefit Plan ” means a “defined benefit plan” (as defined in Section 3(35) of ERISA) for which Parent or any of its Subsidiaries or ERISA Affiliates has been an “employer” (as defined in Section 3(5) of ERISA) within the past six years.
 
“ Board of Directors ” means, as to any Person, the board of directors (or comparable managers) of such Person, or any committee thereof duly authorized to act on behalf of the board of directors (or comparable managers).
 
“ Board of Governors ” means the Board of Governors of the Federal Reserve System of the United States (or any successor).
 
“ Borrower ” has the meaning specified therefor in the preamble to the Agreement.
 
“ Borrower Materials ” has the meaning specified therefor in Section 17.9(c)  of the Agreement.
 
“ Borrowing ” means a borrowing consisting of Revolving Loans made on the same day by the Lenders (or Agent on behalf thereof), or by Swing Lender in the case of a Swing Loan, or by Agent in the case of a Protective Advance.
 
“ Business Day ” means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close in the state of California, except that, if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term “Business Day” also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market.
 
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“ Capital Expenditures ” means, with respect to any Person for any period, the amount of all expenditures by such Person and its Subsidiaries during such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed, but excluding, without duplication (a) with respect to the purchase price of assets that are purchased substantially contemporaneously with the trade-in of existing assets during such period, the amount that the gross amount of such purchase price is reduced by the credit granted by the seller of such assets for the assets being traded in at such time, (b) expenditures made during such period to consummate one or more Permitted Acquisitions, (c) capitalized software development and capitalized implementation costs to the extent such costs are deducted from net earnings under the definition of EBITDA for such period, and (d) expenditures during such period that, pursuant to a written agreement, are reimbursed by a third Person (excluding Parent or any of its Affiliates).
 
“ Capitalized Lease Obligation ” means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.
 
“ Capital Lease ” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.
 
“ Cash Equivalents ” means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued or fully guaranteed by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor’s Rating Group (“ S&P ”) or Moody’s Investors Service, Inc. (“ Moody’s ”), (c) commercial paper maturing no more than 270 days from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody’s, (d) certificates of deposit, time deposits, overnight bank deposits or bankers’ acceptances maturing within 1 year from the date of acquisition thereof issued by any bank organized under the laws of the United States or any state thereof or the District of Columbia or any United States branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $1,000,000,000, (e) Deposit Accounts maintained with (i) any bank that satisfies the criteria described in clause (d) above, or (ii) any other bank organized under the laws of the United States or any state thereof so long as the full amount maintained with any such other bank is insured by the Federal Deposit Insurance Corporation, (f) repurchase obligations of any commercial bank satisfying the requirements of clause (d) of this definition or recognized securities dealer having combined capital and surplus of not less than $1,000,000,000, having a term of not more than seven days, with respect to securities satisfying the criteria in clauses (a) or (d) above, (g) debt securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the criteria described in clause (d) above, and (h) Investments in money market funds substantially all of whose assets are invested in the types of assets described in clauses (a) through (g) above.
 
“ Cash Management Services ” means any cash management or related services including treasury, depository, return items, overdraft, controlled disbursement,  merchant store value cards, e-payables services, electronic funds transfer, interstate depository network, automatic clearing house transfer (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) and other cash management arrangements.
 
“ Change of Control ” means that:
 
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(a)                                  Permitted Holders fail to own and control, directly or indirectly, 20% or more, of the Equity Interests of Parent on a fully diluted basis,
 
(b)                                  any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 35% or more, of the Equity Interests of Parent on a fully diluted basis,
 
(c)                                   a majority of the members of the Board of Directors of Parent do not constitute Continuing Directors, or
 
(d)                                  Parent fails to own and control, directly or indirectly, 100% of the Equity Interests of each other Loan Party.
 
“ Change in Law ” means the occurrence after the date of the Agreement of:  (a) the adoption or effectiveness of any law, rule, regulation, judicial ruling, judgment or treaty, (b) any change in any law, rule, regulation, judicial ruling, judgment or treaty or in the administration, interpretation, implementation or application by any Governmental Authority of any law, rule, regulation, guideline or treaty, or (c) the making or issuance by any Governmental Authority of any request, rule, guideline or directive, whether or not having the force of law; provided that notwithstanding anything in the Agreement to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives concerning capital adequacy promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities shall, in each case, be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.
 
“ Chief Executive Office ” means the real property and facilities leased by Borrower which are located at 13785 Research Boulevard, Austin, Texas 78750.
 
“ Closing Date ” means the date of the making of the initial Revolving Loan (or other extension of credit) under the Agreement.
 
“ Code ” means the New York Uniform Commercial Code, as in effect from time to time.
 
“ Collateral ” means all assets and interests in assets and proceeds thereof now owned or hereafter acquired by Parent or its Subsidiaries in or upon which a Lien is granted by such Person in favor of Agent or the Lenders under any of the Loan Documents.
 
“ Commitment ” means, with respect to each Lender, its Revolver Commitment and, with respect to all Lenders, their Revolver Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 to the Agreement or in the Assignment and Acceptance pursuant to which such Lender became a Lender under the Agreement, as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement.
 
“ Competitor ” means any Person which is a direct competitor of Borrower or its Subsidiaries if, at the time of a proposed assignment, Agent and the assigning Lender have actual knowledge that such Person is a direct competitor of Borrower or its Subsidiaries; provided , that in connection with any assignment or participation, the Assignee or Participant with respect to such proposed assignment or
 
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participation that is an investment bank, a commercial bank, a finance company, a fund, or other Person which merely has an economic interest in any such direct competitor, and is not itself such a direct competitor of Borrower or its Subsidiaries, shall not be deemed to be a direct competitor for the purposes of this definition.
 
“ Compliance Certificate ” means a certificate substantially in the form of Exhibit C-1 to the Agreement delivered by the chief financial officer of Parent to Agent.
 
“ Confidential Information ” has the meaning specified therefor in Section 17.9(a)  of the Agreement.
 
“ Continuing Director ” means (a) any member of the Board of Directors who was a director (or comparable manager) of Parent on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was approved, appointed or nominated for election to the Board of Directors by either the Permitted Holders or a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to the Board of Directors in office at the Closing Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of Parent and whose initial assumption of office resulted from such contest or the settlement thereof.
 
“ Control Agreement ” means a control agreement, in form and substance reasonably satisfactory to Agent, executed and delivered by Parent or one of its Subsidiaries, Agent, and the applicable securities intermediary (with respect to a Securities Account) or bank (with respect to a Deposit Account).
 
“ Copyright Security Agreement” has the meaning specified therefor in the Guaranty and Security Agreement.
 
“ Credit Amount ” means the result of (a) 0.75 times (b) Recurring Revenue calculated as of the last month for which financial statements have most recently been delivered pursuant to Section 5.1 of the Agreement minus the aggregate amount of reserves, if any, established by Agent under Section 2.1(c)  of the Agreement.
 
“ Credit Amount Certificate ” means a certificate in the form of Exhibit C-2 to the Agreement.
 
“ Default ” means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.
 
“ Defaulting Lender ” means any Lender that (a) has failed to fund any amounts required to be funded by it under the Agreement on the date that it is required to do so under the Agreement (including the failure to make available to Agent amounts required pursuant to a Settlement or to make a required payment in connection with a Letter of Credit Disbursement), (b) notified the Borrower, Agent, or any Lender in writing that it does not intend to comply with all or any portion of its funding obligations under the Agreement, (c) has made a public statement to the effect that it does not intend to comply with its funding obligations under the Agreement or under other agreements generally (as reasonably determined by Agent) under which it has committed to extend credit, (d) failed, within 1 Business Day after written request by Agent, to confirm that it will comply with the terms of the Agreement relating to its obligations to fund any amounts required to be funded by it under the Agreement, (e) otherwise failed to pay over to Agent or any other Lender any other amount required to be paid by it under the Agreement on the date that it is required to do so under the Agreement, or (f) (i) becomes or is insolvent or has a parent company that has become or is insolvent or (ii) becomes the subject of a bankruptcy or insolvency
 
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proceeding, or has had a receiver, conservator, trustee, or custodian or appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.
 
“ Defaulting Lender Rate ” means (a) for the first 3 days from and after the date the relevant payment is due, the Base Rate, and (b) thereafter, the interest rate then applicable to Revolving Loans that are Base Rate Loans (inclusive of the Base Rate Margin applicable thereto).
 
“ Deposit Account ” means any deposit account (as that term is defined in the Code).
 
“ Designated Account ” means the Deposit Account of Borrower identified on Schedule D-1 to the Agreement (or such other Deposit Account of Borrower located at Designated Account Bank that has been designated as such, in writing, by Borrower to Agent).
 
“ Designated Account Bank ” has the meaning specified therefor in Schedule D-1 to the Agreement (or such other bank that is located within the United States that has been designated as such, in writing, by Borrower to Agent).
 
“ Disbursement Letter ” means that certain Disbursement Letter, dated as of the Closing Date, executed by the Borrower in favor of the Lenders and Agent.
 
“ Disqualified Equity Interests ” shall mean any Equity Interest that, by its terms (or by the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (a) matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other Obligations that are accrued and payable and the termination of the Commitments), (b) is redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests), in whole or in part, (c) provides for the scheduled payments of dividends in cash, or (d) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case, prior to the date that is 180 days after the Maturity Date.
 
“ Dollars ” or “ $ ” means United States dollars.
 
“ Drawing Document ” means any Letter of Credit or other document presented for purposes of drawing under any Letter of Credit.
 
“ EBITDA ” means, with respect to any fiscal period,
 
(a)                                  Parent’s consolidated net earnings (or loss),
 
minus
 
(b)                                  without duplication, the sum of the following amounts of Parent for such period to the extent included in determining consolidated net earnings (or loss) for such period:
 
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(i)                                      extraordinary gains,
 
(ii)                                   interest income,
 
(iii)                                any software development costs to the extent capitalized or deferred during such period,
 
(iv)                               any sales commissions costs to the extent capitalized or deferred during such period,
 
(v)                                  any product costs to the extent capitalized or deferred during such period,
 
(vi)                               any product implementation costs to the extent capitalized or deferred during such period,
 
(vii)                            any non-cash stock based compensation paid by Parent during such period,
 
(viii)                         expenses incurred in connection with a Permitted Acquisition during such period not to exceed $250,000 in the aggregate in any twelve month period (or such higher amount as Agent determines in its sole discretion),
 
(ix)                               any decreases in deferred revenue during such period, and
 
(x)                                  the cash Interest Expense and cash principal payments due and payable for the Chief Executive Office to the extent such lease is capitalized during such period in accordance with GAAP;
 
plus
 
(xi)                               non-cash extraordinary losses,
 
(xii)                            Interest Expense,
 
(xiii)                         income taxes,
 
(xiv)                        any increases in deferred revenue during such period, and
 
(xv)                          depreciation and amortization for such period, in each case, determined on a consolidated basis in accordance with GAAP.
 
For the purposes of calculating EBITDA for any period of 4 consecutive fiscal quarters (each, a “ Reference Period ”), if at any time during such Reference Period (and after the Closing Date), Parent or any of its Subsidiaries shall have made a Permitted Acquisition, EBITDA for such Reference Period shall be calculated after giving pro forma effect thereto (including pro forma adjustments arising out of events which are directly attributable to such Permitted Acquisition, are factually supportable, and are expected to have a continuing impact, in each case to be mutually and reasonably agreed upon by Parent and Agent) or in such other manner acceptable to Agent as if any such Permitted Acquisition or adjustment occurred on the first day of such Reference Period.
 
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“ Eligible Transferee ” means (a) any Lender (other than a Defaulting Lender), any Affiliate of any Lender and any Related Fund of any Lender; and (b) (i) a commercial bank organized under the laws of the United States or any state thereof, and having total assets in excess of $1,000,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States or any state thereof, and having total assets in excess of $1,000,000,000; (iii) a commercial bank organized under the laws of any other country or a political subdivision thereof; provided that (A) (x) such bank is acting through a branch or agency located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country, and (B) such bank has total assets in excess of $1,000,000,000; (d) any other entity (other than a natural person) that is an “accredited investor” (as defined in Regulation D under the Securities Act) that extends credit or buys loans as one of its businesses including insurance companies, investment or mutual funds and lease financing companies, and having total assets in excess of $1,000,000,000; and (f) during the continuation of an Event of Default, any other Person approved by Agent; provided , that, except pursuant to Section 13.1(a)(ii)(B) , no Loan Party or any of their Affiliates shall qualify as an Eligible Transferee.
 
“ Environmental Action ” means any written complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other written communication from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials (a) from any assets, properties, or businesses of any Borrower, any Subsidiary of a Borrower, or any of their predecessors in interest, (b) from adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by any Borrower, any Subsidiary of a Borrower, or any of their predecessors in interest.
 
“ Environmental Law ” means any applicable federal, state, provincial, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy, or rule of common law now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, in each case, to the extent binding on Parent or its Subsidiaries, relating to the environment, the effect of the environment on employee health, or Hazardous Materials, in each case as amended from time to time.
 
“ Environmental Liabilities ” means all liabilities, monetary obligations, losses, damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand, or Remedial Action required, by any Governmental Authority or any third party, and which relate to any Environmental Action.
 
“ Environmental Lien ” means any Lien in favor of any Governmental Authority for Environmental Liabilities.
 
“ Equipment ” means equipment (as that term is defined in the Code).
 
“ Equity Interest ” means, with respect to a Person, all of the shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in such Person, whether voting or nonvoting, including capital stock (or other ownership or profit interests or units), preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).
 
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“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto.
 
“ ERISA Affiliate ” means (a) any Person subject to ERISA whose employees are treated as employed by the same employer as the employees of Parent or its Subsidiaries under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of Parent or its Subsidiaries under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which Parent or any of its Subsidiaries is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a party to an arrangement with Parent or any of its Subsidiaries and whose employees are aggregated with the employees of Parent or its Subsidiaries under IRC Section 414(o).
 
“ Event of Default ” has the meaning specified therefor in Section 8 of the Agreement.
 
“ Exchange Act ” means the Securities Exchange Act of 1934, as in effect from time to time.
 
“ Excluded Taxes ” means (i) any tax imposed on the net income or net profits of any Lender or any Participant (including any branch profits taxes), in each case imposed by the jurisdiction (or by any political subdivision or taxing authority thereof) in which such Lender or such Participant is organized or the jurisdiction (or by any political subdivision or taxing authority thereof) in which such Lender’s or such Participant’s principal office is located in each case as a result of a present or former connection between such Lender or such Participant and the jurisdiction or taxing authority imposing the tax (other than any such connection arising solely from such Lender or such Participant having executed, delivered or performed its obligations or received payment under, or enforced its rights or remedies under the Agreement or any other Loan Document); (ii) taxes resulting from a Lender’s or a Participant’s failure to comply with the requirements of Section 16.2 of the Agreement, (iii) any United States federal withholding taxes that would be imposed on amounts payable to a Foreign Lender based upon the applicable withholding rate in effect at the time such Foreign Lender becomes a party to the Agreement (or designates a new lending office), except that Taxes shall include (A) any amount that such Foreign Lender (or its assignor, if any) was previously entitled to receive pursuant to Section 16.1 of the Agreement, if any, with respect to such withholding tax at the time such Foreign Lender becomes a party to the Agreement (or designates a new lending office), and (B) additional United States federal withholding taxes that may be imposed after the time such Foreign Lender becomes a party to the Agreement (or designates a new lending office), as a result of a change in law, rule, regulation, order or other decision with respect to any of the foregoing by any Governmental Authority, and (iv) any United States federal withholding taxes imposed under FATCA.
 
“ Existing Credit Facility ” means that certain Amended and Restated Loan and Security Agreement, dated as of September 29, 2011 by and between Square 1 Bank, a North Carolina corporation, Parent and Borrower, as such agreement has been amended, restated, or otherwise modified.
 
“ FATCA ” means Sections 1471 through 1474 of the IRC, as of the date of the Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations or official interpretations thereof.
 
“ FCCR Covenant Period ” means a period which shall commence on the later of (a) the first day of the fiscal quarter immediately following the date that is the first anniversary of the Closing Date, and (b) the first day of the fiscal quarter immediately following the date on which the Loan Parties timely
 
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deliver evidence to Agent, in form and substance satisfactory to Agent, demonstrating that Parent’s Fixed Charge Coverage Ratio is at least 1.25:1.00 for two (2) consecutive fiscal quarters, and shall continue until termination of all of the Commitments and payment in full of the Obligations.
 
“ Fee Letter ” means that certain fee letter, dated as of even date with the Agreement, between Borrower and Agent, in form and substance reasonably satisfactory to Agent.
 
“ Federal Funds Rate ” means, for any period, a fluctuating interest rate per annum equal to, for each day during such period, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by it.
 
“ Fixed Charges ” means, with respect to any fiscal period and with respect to Parent determined on a consolidated basis in accordance with GAAP, the sum, without duplication, of (a) Interest Expense accrued (other than interest paid-in-kind, amortization of financing fees, and other non-cash Interest Expense) during such period, (b) principal payments in respect of Indebtedness that are required to be paid during such period, and (c) all federal, state, and local income taxes accrued during such period, and (e) all Restricted Payments paid (whether in cash or other property, other than common Equity Interest) during such period. The foregoing notwithstanding, Fixed Charges shall exclude Interest Expense and principal payments in respect of the Chief Executive Office to the extent such lease is capitalized during such period in accordance with GAAP and such payments are deducted from the calculation of EBITDA.
 
“ Fixed Charge Coverage Ratio ” means, with respect to any fiscal period and with respect to Parent determined on a consolidated basis in accordance with GAAP, the ratio of (a) EBITDA for such period minus Capital Expenditures made (to the extent not already incurred in a prior period) or incurred during such period, to (b) Fixed Charges for such period.
 
“ Flow of Funds Agreement ” means a flow of funds agreement, dated as of even date herewith, in form and substance reasonably satisfactory to Agent, executed and delivered by each Loan Party and Agent.
 
“ Foreign Lender ” means any Lender or Participant that is not a United States person within the meaning of IRC section 7701(a)(30).
 
“ Funded Indebtedness ” means, as of any date of determination, all Indebtedness for borrowed money or letters of credit of Parent, determined on a consolidated basis in accordance with GAAP, that by its terms matures more than one year after the date of determination, and any such Indebtedness maturing within one year from such date that is renewable or extendable at the option of Parent or its Subsidiaries, as applicable, to a date more than one year from such date, including, in any event, but without duplication, with respect to Parent and its Subsidiaries, the Revolver Usage, and the amount of their Capitalized Lease Obligations, but excluding the Capitalized Lease Obligation of the Chief Executive Office to the extent such lease is capitalized during such period in accordance with GAAP.
 
“ Funding Date ” means the date on which a Borrowing occurs.
 
“ Funding Losses ” has the meaning specified therefor in Section 2.12(b)(ii)  of the Agreement.
 
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“ GAAP ” means generally accepted accounting principles as in effect from time to time in the United States, consistently applied.
 
“ Governing Documents ” means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other organizational documents of such Person.
 
“ Governmental Authority ” means the government of any nation or any political subdivision thereof, whether at the national, state, territorial, provincial, municipal or any other level, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government (including any supra-national bodies such as the European Union or the European Central Bank).
 
“ Guarantor ” means (a) Parent and (b) each other Person that becomes a guarantor after the Closing Date pursuant to Section 5.11 of the Agreement.
 
“ Guaranty and Security Agreement ” means a guaranty and security agreement, dated as of even date with the Agreement, in form and substance reasonably satisfactory to Agent, executed and delivered by Borrower and each of the Guarantors to Agent.
 
“ Hazardous Materials ” means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic substances,” or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP toxicity”, (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million.
 
“ Hedge Agreement ” means a “swap agreement” as that term is defined in Section 101(53B)(A) of the Bankruptcy Code.
 
“ Hedge Obligations ” means any and all obligations or liabilities, whether absolute or contingent, due or to become due, now existing or hereafter arising, of Parent or its Subsidiaries arising under, owing pursuant to, or existing in respect of Hedge Agreements entered into with one or more of the Hedge Providers.
 
“ Hedge Provider ” means Wells Fargo or any of its Affiliates.
 
“ Indebtedness ” as to any Person means (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, or other financial products, (c) all obligations of such Person as a lessee under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of such Person, irrespective of whether such obligation or liability is assumed, (e) all obligations of such Person to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business and repayable in accordance with customary trade practices and, for the avoidance of doubt, other than royalty payments payable in the ordinary course of business in respect of non-exclusive licenses), (f) all monetary obligations of such
 
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Person owing under Hedge Agreements (which amount shall be calculated based on the amount that would be payable by such Person if the Hedge Agreement were terminated on the date of determination), (g) any Disqualified Equity Interests of such Person, and (h) any obligation of such Person guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (g) above.  For purposes of this definition, (i) the amount of any Indebtedness represented by a guaranty or other similar instrument shall be the lesser of the principal amount of the obligations guaranteed and still outstanding and the maximum amount for which the guaranteeing Person may be liable pursuant to the terms of the instrument embodying such Indebtedness, and (ii) the amount of any Indebtedness which is limited or is non-recourse to a Person or for which recourse is limited to an identified asset shall be valued at the lesser of (A) if applicable, the limited amount of such obligations, and (B) if applicable, the fair market value of such assets securing such obligation.
 
“ Indemnified Liabilities ” has the meaning specified therefor in Section 10.3 of the Agreement.
 
“ Indemnified Person ” has the meaning specified therefor in Section 10.3 of the Agreement.
 
“ Indemnified Taxes ” means, any Taxes other than Excluded Taxes.
 
“ Ineligible Institution ” shall mean the Persons identified in writing to Agent by Borrower on or prior to the Closing Date, which list of Persons is consented to in writing by Agent (such consent not to be unreasonably withheld or delayed).
 
“ Insolvency Proceeding ” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.
 
“ Intercompany Subordination Agreement ” means an intercompany subordination agreement, dated as of even date with the Agreement, executed and delivered by Parent, each of its Subsidiaries, and Agent, the form and substance of which is reasonably satisfactory to Agent.
 
“ Interest Expense ” means, for any period, the aggregate of the interest expense of Parent for such period, determined on a consolidated basis in accordance with GAAP.
 
“ Interest Period ” means, with respect to each LIBOR Rate Loan, a period commencing on the date of the making of such LIBOR Rate Loan (or the continuation of a LIBOR Rate Loan or the conversion of a Base Rate Loan to a LIBOR Rate Loan) and ending 1, 2, or 3 months thereafter; provided, that (a) interest shall accrue at the applicable rate based upon the LIBOR Rate from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (b) any Interest Period that would end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (c) with respect to an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2, or 3 months after the date on which the Interest Period began, as applicable, and (d) Borrower may not elect an Interest Period which will end after the Maturity Date.
 
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“ Investment ” means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b)  bona fide accounts receivable arising in the ordinary course of business), or acquisitions of Indebtedness, Equity Interests, or all or substantially all of the assets of such other Person (or of any division or business line of such other Person), and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP.  The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustment for increases or decreases in value, or write-ups, write-downs, or write-offs with respect to such Investment.
 
“ IRC ” means the Internal Revenue Code of 1986, as in effect from time to time.
 
“ ISP ” means, with respect to any Letter of Credit, the International Standby Practices 1998 (International Chamber of Commerce Publication No. 590) and any subsequent revision thereof adopted by the International Chamber of Commerce on the date such Letter of Credit is issued.
 
“ Issuer Document ” means, with respect to any Letter of Credit, a letter of credit application, a letter of credit agreement, or any other document, agreement or instrument entered into (or to be entered into) by Borrower in favor of Issuing Bank and relating to such Letter of Credit.
 
“ Issuing Bank ” means Wells Fargo or any other Lender that, at the request of Borrower and with the consent of Agent, agrees, in such Lender’s sole discretion, to become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 2.11 of the Agreement, and Issuing Bank shall be a Lender.
 
“ Lender ” has the meaning set forth in the preamble to the Agreement, shall include Issuing Bank and the Swing Lender, and shall also include any other Person made a party to the Agreement pursuant to the provisions of Section 13.1 of the Agreement and “ Lenders ” means each of the Lenders or any one or more of them.
 
“ Lender Group ” means each of the Lenders (including Issuing Bank and the Swing Lender) and Agent, or any one or more of them.
 
“ Lender Group Expenses ” means all (a) costs or expenses (including taxes and insurance premiums) required to be paid by Parent or its Subsidiaries under any of the Loan Documents that are paid, advanced, or incurred by the Lender Group, (b) documented out-of-pocket fees or charges paid or incurred by Agent in connection with the Lender Group’s transactions with Parent or its Subsidiaries under any of the Loan Documents, including, photocopying, notarization, couriers and messengers, telecommunication, public record searches, filing fees, recording fees, publication, real estate surveys, real estate title policies and endorsements, and environmental audits, (c) Agent’s customary fees and charges imposed or incurred in connection with any background checks or OFAC/PEP searches related to Parent or its Subsidiaries, (d) Agent’s customary fees and charges (as adjusted from time to time) with respect to the disbursement of funds (or the receipt of funds) to or for the account of Borrower (whether by wire transfer or otherwise), together with any out-of-pocket costs and expenses incurred in connection therewith, (e) customary charges imposed or incurred by Agent resulting from the dishonor of checks payable by or to any Loan Party, (f) reasonable documented out-of-pocket costs and expenses paid or incurred by the Lender Group to correct any default or enforce any provision of the Loan Documents, or during the continuance of an Event of Default, in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any
 
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portion thereof, irrespective of whether a sale is consummated, (g) financial examination, appraisal, and valuation fees and expenses of Agent related to any financial examinations, appraisals, or valuation to the extent of the fees and charges (and up to the amount of any limitation) provided in Section 2.10 of the Agreement, (h) Agent’s reasonable costs and expenses (including reasonable documented attorneys’ fees and expenses) relative to third party claims or any other lawsuit or adverse proceeding paid or incurred, whether in enforcing or defending the Loan Documents or otherwise in connection with the transactions contemplated by the Loan Documents, Agent’s Liens in and to the Collateral, or the Lender Group’s relationship with Parent or any of its Subsidiaries, except for in respect of any Lender any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the bad faith, gross negligence or willful misconduct of, such Lender (i) Agent’s reasonable documented costs and expenses (including reasonable documented attorneys’ fees and due diligence expenses) incurred in advising, structuring, drafting, reviewing, administering (including travel, meals, and lodging), syndicating (including CUSIP, DXSyndicate™, SyndTrak or other communication costs incurred in connection with a syndication of the loan facilities), or amending, waiving, or modifying the Loan Documents, and (j) Agent’s and each Lender’s reasonable documented costs and expenses (including reasonable documented attorneys, accountants, consultants, and other advisors fees and expenses) incurred in terminating, enforcing (including attorneys, accountants, consultants, and other advisors fees and expenses incurred in connection with a “workout,” a “restructuring,” or an Insolvency Proceeding concerning Parent or any of its Subsidiaries or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether a lawsuit or other adverse proceeding is brought, or in taking any enforcement action or any Remedial Action with respect to the Collateral.
 
“ Lender Group Representatives ” has the meaning specified therefor in Section 17.9 of the Agreement.
 
“ Lender-Related Person ” means, with respect to any Lender, such Lender, together with such Lender’s Affiliates, officers, directors, employees, attorneys, and agents.
 
“ Letter of Credit ” means a letter of credit (as that term is defined in the Code) issued by Issuing Bank.
 
“ Letter of Credit Collateralization ” means either (a) providing cash collateral (pursuant to documentation reasonably satisfactory to Agent, including provisions that specify that the Letter of Credit Fees and all commissions, fees, charges and expenses provided for in Section 2.11(k)  of the Agreement (including any fronting fees) will continue to accrue while the Letters of Credit are outstanding) to be held by Agent for the benefit of the Revolving Lenders in an amount equal to 105% of the then existing Letter of Credit Usage, (b) delivering to Agent documentation executed by all beneficiaries under the Letters of Credit, in form and substance reasonably satisfactory to Agent and Issuing Bank, terminating all of such beneficiaries’ rights under the Letters of Credit, or (c) providing Agent with a standby letter of credit, in form and substance reasonably satisfactory to Agent, from a commercial bank acceptable to Agent (in its sole discretion) in an amount equal to 105% of the then existing Letter of Credit Usage (it being understood that the Letter of Credit Fee and all fronting fees set forth in the Agreement will continue to accrue while the Letters of Credit are outstanding and that any such fees that accrue must be an amount that can be drawn under any such standby letter of credit).
 
“ Letter of Credit Disbursement ” means a payment made by Issuing Bank pursuant to a Letter of Credit.
 
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“ Letter of Credit Exposure ” means, as of any date of determination with respect to any Lender, such Lender’s Pro Rata Share of the Letter of Credit Usage on such date.
 
“ Letter of Credit Fee ” has the meaning specified therefor in Section 2.6(b)  of the Agreement.
 
“ Letter of Credit Indemnified Costs ” has the meaning specified therefor in Section 2.11(f)  of the Agreement.
 
“ Letter of Credit Related Person ” has the meaning specified therefor in Section 2.11(f)  of the Agreement.
 
“ Letter of Credit Usage ” means, as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit.
 
“ Leverage Ratio ” means, as of any date of determination the result of (a) the amount of Parent’s Funded Indebtedness as of such date, to (b) Parent’s EBITDA for the 12 month period ended as of such date.
 
“ Leverage Ratio Covenant Period ” means a period which shall commence on the later of (a) the first day of the fiscal quarter immediately following the date that is the first anniversary of the Closing Date, and (b) the first day of the fiscal quarter immediately following the date on which the Loan Parties timely deliver evidence to Agent, in form and substance satisfactory to Agent, demonstrating that Parent’s Leverage Ratio is less than 3.0:1.0, and shall continue until termination of all of the Commitments and payment in full of the Obligations.
 
“ LIBOR Deadline ” has the meaning specified therefor in Section 2.12(b)(i)  of the Agreement.
 
“ LIBOR Notice ” means a written notice in the form of Exhibit L-1 to the Agreement.
 
“ LIBOR Option ” has the meaning specified therefor in Section 2.12(a)  of the Agreement.
 
“ LIBOR Rate ” means the rate per annum rate appearing on Macro*World’s (https://capitalmarkets.mworld.com; the “ Service ”) Page BBA LIBOR - USD (or on any successor or substitute page of such Service, or any successor to or substitute for such Service) 2 Business Days prior to the commencement of the requested Interest Period, for a term, and in an amount, comparable to the Interest Period and the amount of the LIBOR Rate Loan requested (whether as an initial LIBOR Rate Loan or as a continuation of a LIBOR Rate Loan or as a conversion of a Base Rate Loan to a LIBOR Rate Loan) by Borrower in accordance with the Agreement (and, if any such rate is below zero, the LIBOR Rate shall be deemed to be zero), which determination shall be made by Agent and shall be conclusive in the absence of manifest error.
 
“ LIBOR Rate Loan ” means each portion of a Revolving Loan that bears interest at a rate determined by reference to the LIBOR Rate.
 
“ LIBOR Rate Margin ” has the meaning set forth in the definition of Applicable Margin.
 
“ Lien ” means any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, easement, lien (statutory or other), security interest, or other security arrangement and any other preference, priority, or preferential arrangement of any kind or nature whatsoever, including any conditional sale contract or other title retention agreement, the interest of a
 
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lessor under a Capital Lease and any synthetic or other financing lease having substantially the same economic effect as any of the foregoing.
 
“ Liquidity ” means, as of any date of determination, the sum of Availability and Qualified Cash.
 
“ Loan ” shall mean any Revolving Loan, Swing Loan or Protective Advance made (or to be made) hereunder.
 
“ Loan Account ” has the meaning specified therefor in Section 2.9 of the Agreement.
 
“ Loan Documents ” means the Agreement, the Control Agreements, the Copyright Security Agreement, any Credit Amount Certificate, the Fee Letter, the Guaranty and Security Agreement, the Intercompany Subordination Agreement, any Issuer Documents, the Letters of Credit, the Mortgages, the Patent Security Agreement, the Trademark Security Agreement, any note or notes executed by Borrower in connection with the Agreement and payable to any member of the Lender Group, and any other instrument or agreement entered into, now or in the future, by Parent or any of its Subsidiaries and any member of the Lender Group in connection with the Agreement.
 
“ Loan Party ” means Borrower or any Guarantor.
 
“ Margin Stock ” as defined in Regulation U of the Board of Governors as in effect from time to time.
 
“ Material Adverse Effect ” means (a) a material adverse effect in the business, operations, results of operations, assets, liabilities or financial condition of Parent and its Subsidiaries, taken as a whole, (b) a material impairment of Parent’s and its Subsidiaries ability to perform their obligations under the Loan Documents to which they are parties or of the Lender Group’s ability to enforce the Obligations or realize upon the Collateral (other than as a result of as a result of an action taken or not taken that is solely in the control of Agent), or (c) a material impairment of the enforceability or priority of Agent’s Liens with respect to all or a material portion of the Collateral.
 
“ Maturity Date ” means April 11, 2017.
 
“ Maximum Revolver Amount ” means $25,000,000, decreased by the amount of reductions in the Revolver Commitments made in accordance with Section 2.4(c)  of the Agreement.
 
“ Minimum Interest Fee ” has the meaning specified therefor in Section 2.10(c)  of the Agreement.
 
“ Moody’s” has the meaning specified therefor in the definition of Cash Equivalents.
 
“ Mortgages ” means, individually and collectively, one or more mortgages, deeds of trust, or deeds to secure debt, executed and delivered by Parent or its Subsidiaries in favor of Agent, in form and substance reasonably satisfactory to Agent, that encumber the Real Property Collateral.
 
“ Non-Consenting Lender ” has the meaning specified therefor in Section 14.2(a)  of the Agreement.
 
“ Non-Defaulting Lender ” means each Lender other than a Defaulting Lender.
 
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“ Obligations ” means (a) all loans (including the Revolving Loans (inclusive of Protective Advances and Swing Loans)), debts, principal, interest (including any interest that accrues after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), reimbursement or indemnification obligations with respect to Letters of Credit (irrespective of whether contingent), premiums, liabilities (including all amounts charged to the Loan Account pursuant to the Agreement), obligations (including indemnification obligations), fees (including the fees provided for in the Fee Letter), Lender Group Expenses (including any fees or expenses that accrue after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), guaranties, and all covenants and duties of any other kind and description owing by any Loan Party arising out of, under, pursuant to, in connection with, or evidenced by the Agreement or any of the other Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all other expenses or other amounts that Borrower is required to pay or reimburse by the Loan Documents or by law or otherwise in connection with the Loan Documents, and (b) all Bank Product Obligations.  Without limiting the generality of the foregoing, the Obligations of Borrower under the Loan Documents include the obligation to pay (i) the principal of the Revolving Loans, (ii) interest accrued on the Revolving Loans, (iii) the amount necessary to reimburse Issuing Bank for amounts paid or payable pursuant to Letters of Credit, (iv) Letter of Credit commissions, fees (including fronting fees) and charges, (v) Lender Group Expenses, (vi) fees payable under the Agreement or any of the other Loan Documents, and (vii) indemnities and other amounts payable by any Loan Party under any Loan Document.  Any reference in the Agreement or in the Loan Documents to the Obligations shall include all or any portion thereof and any extensions, modifications, renewals, or alterations thereof, both prior and subsequent to any Insolvency Proceeding.
 
“ OFAC ” means The Office of Foreign Assets Control of the U.S. Department of the Treasury.
 
“ Outside Accounts ” has the meaning specified therefor in Section 5.14 of the Agreement.
 
“ Originating Lender ” has the meaning specified therefor in Section 13.1(e)  of the Agreement.
 
“ Parent ” has the meaning specified therefor in the preamble to the Agreement.
 
“ Participant ” has the meaning specified therefor in Section 13.1(e)  of the Agreement.
 
“ Participant Register ” has the meaning set forth in Section 13.1(i)  of the Agreement.
 
“ Patent Security Agreement ” has the meaning specified therefor in the Guaranty and Security Agreement.
 
“ Patriot Act ” has the meaning specified therefor in Section 4.13 of the Agreement.
 
“ Perfection Certificate ” means a certificate in the form of Exhibit P-1 to the Agreement.
 
“ Permitted Acquisition ” means any Acquisition so long as:
 
(a)                                  no Default or Event of Default shall have occurred and be continuing or would result from the consummation of the proposed Acquisition and the proposed Acquisition is consensual,
 
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(b)                                  no Indebtedness will be incurred, assumed, or would exist with respect to Parent its Subsidiaries as a result of such Acquisition, other than Indebtedness permitted under clauses (f) or (g) of the definition of Permitted Indebtedness and no Liens will be incurred, assumed, or would exist with respect to the assets of Parent or its Subsidiaries as a result or such Acquisition other than Permitted Liens,
 
(c)                                   Borrower has provided Agent with written confirmation, supported by reasonably detailed calculations, that on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to such proposed Acquisition, are factually supportable, and are expected to have a continuing impact, in each case, determined as if the combination had been accomplished at the beginning of the relevant period; such eliminations and inclusions to be mutually and reasonably agreed upon by Parent and Agent) created by adding the historical combined financial statements of Parent (including the combined financial statements of any other Person or assets that were the subject of a prior Permitted Acquisition during the relevant period) to the historical consolidated financial statements of the Person to be acquired (or the historical financial statements related to the assets to be acquired) pursuant to the proposed Acquisition, Parent and its Subsidiaries (i) would have been in compliance with the financial covenants in Section 7 of the Agreement for the 4 fiscal quarter period ended immediately prior to the proposed date of consummation of such proposed Acquisition, and (ii) are projected to be in compliance with the financial covenants in Section 7 of the Agreement for the 4 fiscal quarter period ended one year after the proposed date of consummation of such proposed Acquisition,
 
(d)                                  Borrower has provided Agent with its due diligence package relative to the proposed Acquisition, including forecasted balance sheets, profit and loss statements, and cash flow statements of the Person or assets to be acquired, all prepared on a basis consistent with such Person’s (or assets’) historical financial statements, together with appropriate supporting details and a statement of underlying assumptions for the 1 year period following the date of the proposed Acquisition, on a quarter by quarter basis), in form and substance (including as to scope and underlying assumptions) reasonably satisfactory to Agent,
 
(e)                                   Solely after the beginning of the FCCR Covenant Period Borrower shall have Availability plus Qualified Cash in an amount equal to or greater than $10,000,000 immediately after giving effect to the consummation of the proposed Acquisition,
 
(f)                                    the assets being acquired or the Person whose Equity Interests are being acquired did not have negative EBITDA during the 12 consecutive month period most recently concluded prior to the date of the proposed Acquisition,
 
(g)                                   Borrower has provided Agent with written notice of the proposed Acquisition at least 15 Business Days prior to the anticipated closing date of the proposed Acquisition and, not later than 5 Business Days prior to the anticipated closing date of the proposed Acquisition, copies of the acquisition agreement and other material documents relative to the proposed Acquisition, which agreement and documents must be reasonably acceptable to Agent,
 
(h)                                  the assets being acquired (other than a de minimis amount of assets in relation to Parent’s and its Subsidiaries’ total assets), or the Person whose Equity Interests are being acquired, are useful in or engaged in, as applicable, the business of Parent and its Subsidiaries or a business reasonably related thereto,
 
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(i)                                      the assets being acquired (other than a de minimis amount of assets in relation to the assets being acquired) are located within the United States or the Person whose Equity Interests are being acquired is organized in a jurisdiction located within the United States,
 
(j)                                     the subject assets or Equity Interests, as applicable, are being acquired directly by a Borrower or one of its Subsidiaries that is a Loan Party, and, in connection therewith, Borrower or the applicable Loan Party shall have complied with Section 5.11 or 5.12 of the Agreement, as applicable, of the Agreement and, in the case of an acquisition of Equity Interests, Borrower or the applicable Loan Party shall have demonstrated to Agent that the new Loan Parties have received consideration sufficient to make the joinder documents binding and enforceable against such new Loan Parties, and
 
(k)                                  the purchase consideration payable in respect of all Permitted Acquisitions (including the proposed Acquisition and including deferred payment obligations) shall not exceed $10,000,000 in the aggregate; provided, that the purchase consideration payable in respect of any single Acquisition or series of related Acquisitions shall not exceed $5,000,000 in the aggregate.
 
“ Permitted Discretion ” means a determination made in the exercise of reasonable (from the perspective of a secured commercial lender) business judgment.
 
“ Permitted Dispositions ” means:
 
(a)                                  sales, abandonment, or other dispositions of Equipment that is substantially worn, damaged, or obsolete or no longer used or useful in the ordinary course of business and leases or subleases of Real Property not useful in the conduct of the business of Parent and its Subsidiaries,
 
(b)                                  sales of inventory to buyers in the ordinary course of business,
 
(c)                                   the use or transfer of money or Cash Equivalents in a manner that is not prohibited by the terms of the Agreement or the other Loan Documents,
 
(d)                                  the licensing, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business,
 
(e)                                   the granting of Permitted Liens,
 
(f)                                    the sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof,
 
(g)                                   any involuntary loss, damage or destruction of property,
 
(h)                                  any involuntary condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, or confiscation or requisition of use of property,
 
(i)                                      the leasing or subleasing of assets of Parent or its Subsidiaries in the ordinary course of business,
 
(j)                                     the sale or issuance of Equity Interests (other than Disqualified Equity Interests) of Parent,
 
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(k)                                  (i) the lapse of registered patents, trademarks, copyrights and other intellectual property of Parent and its Subsidiaries to the extent not economically desirable in the conduct of their business or (ii) the abandonment of patents, trademarks, copyrights, or other intellectual property rights in the ordinary course of business so long as (in each case under clauses (i) and (ii)), (A) with respect to copyrights, such copyrights are not material revenue generating copyrights, and (B) such lapse is not materially adverse to the interests of the Lender Group,
 
(l)                                      the making of Restricted Payments that are expressly permitted to be made pursuant to the Agreement,
 
(m)                              the making of Permitted Investments,
 
(n)                                  so long as no Event of Default has occurred and is continuing or would immediately result therefrom, transfers of assets (i) from Parent or any of its Subsidiaries to a Loan Party, and (ii) from any Subsidiary of Parent that is not a Loan Party to any other Subsidiary of Parent, and
 
(o)                                  sales or dispositions of assets (other than Equity Interests of Subsidiaries of Parent) not otherwise permitted in clauses (a) through (n) above so long as made at fair market value and the aggregate fair market value of all assets disposed of in fiscal year (including the proposed disposition) would not exceed $250,000.
 
“ Permitted Holder ” means (i) RHS Investments, so long as Robert Henry Seale, III owns 100% of RHS Investments, and (ii) Robert Henry Seale, III .
 
“ Permitted Indebtedness ” means:
 
(a)                                  Indebtedness evidenced by the Agreement or the other Loan Documents,
 
(b)                                  Indebtedness set forth on Schedule 4.14 to the Agreement and any Refinancing Indebtedness in respect of such Indebtedness,
 
(c)                                   Permitted Purchase Money Indebtedness and any Refinancing Indebtedness in respect of such Indebtedness,
 
(d)                                  endorsement of instruments or other payment items for deposit,
 
(e)                                   Indebtedness consisting of (i) unsecured guarantees incurred in the ordinary course of business with respect to surety and appeal bonds, performance bonds, bid bonds, appeal bonds, completion guarantee and similar obligations; (ii) unsecured guarantees arising with respect to customary indemnification obligations to purchasers in connection with Permitted Dispositions; and (iii) unsecured guarantees with respect to Indebtedness of Parent or one of its Subsidiaries, to the extent that the Person that is obligated under such guaranty could have incurred such underlying Indebtedness,
 
(f)                                    Acquired Indebtedness in an amount not to exceed $500,000 outstanding at any one time,
 
(g)                                   Indebtedness incurred in the ordinary course of business under performance, surety, statutory, or appeal bonds,
 
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(h)                                  Indebtedness owed to any Person providing property, casualty, liability, or other insurance to Parent or any of its Subsidiaries, so long as the amount of such Indebtedness is not in excess of the amount of the unpaid cost of, and shall be incurred only to defer the cost of, such insurance for the year in which such Indebtedness is incurred and such Indebtedness is outstanding only during such year,
 
(i)                                      the incurrence by Parent or its Subsidiaries of Indebtedness under Hedge Agreements that are incurred for the bona fide purpose of hedging the interest rate, commodity, or foreign currency risks associated with Parent’s and its Subsidiaries’ operations and not for speculative purposes,
 
(j)                                     Indebtedness incurred in the ordinary course of business in respect of credit cards, credit card processing services, debit cards, stored value cards, commercial cards (including so-called “purchase cards”, “procurement cards” or “p-cards”), or Cash Management Services,
 
(k)                                  unsecured Indebtedness of Parent owing to former employees, officers, or directors (or any spouses, ex-spouses, or estates of any of the foregoing) incurred in connection with the repurchase by Parent of the Equity Interests of Parent that has been issued to such Persons, so long as (i) no Default or Event of Default has occurred and is continuing or would result from the incurrence of such Indebtedness, (ii) the aggregate amount of all such Indebtedness outstanding at any one time does not exceed $250,000, and (iii) such Indebtedness is subordinated to the Obligations on terms and conditions reasonably acceptable to Agent,
 
(l)                                      contingent liabilities in respect of any indemnification obligation, adjustment of purchase price, non-compete, or similar obligation of Parent or the applicable Loan Party incurred in connection with the consummation of one or more Permitted Acquisitions,
 
(m)                              Indebtedness composing Permitted Investments,
 
(n)                                  unsecured Indebtedness incurred in respect of netting services, overdraft protection, and other like services, in each case, incurred in the ordinary course of business,
 
(o)                                  accrual of interest, accretion or amortization of original issue discount, or the payment of interest in kind, in each case, on Indebtedness that otherwise constitutes Permitted Indebtedness, and
 
(p)                                  any other unsecured Indebtedness incurred by Parent or any of its Subsidiaries in an aggregate outstanding amount not to exceed $500,000 at any one time.
 
“ Permitted Intercompany Advances ” means loans made by (a) a Loan Party to another Loan Party, (b) a Subsidiary of Parent that is not a Loan Party to another Subsidiary of Parent that is not a Loan Party, and (c) a Subsidiary of Parent that is not a Loan Party to a Loan Party, so long as the parties thereto are party to the Intercompany Subordination Agreement.
 
“ Permitted Investments ” means:
 
(a)                                  Investments in cash and Cash Equivalents,
 
(b)                                  Investments in negotiable instruments deposited or to be deposited for collection in the ordinary course of business,
 
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(c)                                   deposits, prepayments and advances made in connection with purchases of goods or services in the ordinary course of business,
 
(d)                                  Investments received in settlement of amounts due to any Loan Party or any of its Subsidiaries effected in the ordinary course of business or owing to any Loan Party or any of its Subsidiaries as a result of Insolvency Proceedings involving an account debtor or upon the foreclosure or enforcement of any Lien in favor of a Loan Party or its Subsidiaries,
 
(e)                                   Investments owned by any Loan Party or any of its Subsidiaries on the Closing Date and set forth on Schedule P-1 to the Agreement,
 
(f)                                    guarantees permitted under the definition of Permitted Indebtedness,
 
(g)                                   Permitted Intercompany Advances,
 
(h)                                  Equity Interests or other securities acquired in connection with the satisfaction or enforcement of Indebtedness or claims due or owing to a Loan Party or its Subsidiaries (in bankruptcy of customers or suppliers or otherwise outside the ordinary course of business) or as security for any such Indebtedness or claims,
 
(i)                                      deposits of cash made in the ordinary course of business to secure performance of operating leases,
 
(j)                                     (i) non-cash loans and advances to employees, officers, and directors of Parent or any of its Subsidiaries for the purpose of purchasing Equity Interests in Parent so long as the proceeds of such loans are used in their entirety to purchase such Equity Interests in Parent, and (ii) loans and advances to employees and officers of Parent or any of its Subsidiaries in the ordinary course of business for any other business purpose and in an aggregate amount not to exceed $250,000 at any one time,
 
(k)                                  Permitted Acquisitions,
 
(l)                                      Investments in the form of capital contributions and the acquisition of Equity Interests made by any Loan Party in any other Loan Party (other than capital contributions to or the acquisition of Equity Interests of Borrower),
 
(m)                              Investments resulting from entering into (i) Bank Product Agreements, or (ii) agreements relative to Indebtedness that is permitted under clause (j) of the definition of Permitted Indebtedness,
 
(n)                                  equity Investments by any Loan Party in any Subsidiary of such Loan Party which is required by law to maintain a minimum net capital requirement or as may be otherwise required by applicable law,
 
(o)                                  Investments held by a Person acquired in a Permitted Acquisition to the extent that such Investments were not made in contemplation of or in connection with such Permitted Acquisition and were in existence on the date of such Permitted Acquisition, and
 
(p)                                  so long as no Event of Default has occurred and is continuing or would result therefrom, any other Investments in an aggregate amount not to exceed $250,000 during the term of the Agreement.
 
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“ Permitted Liens ” means
 
(a)           Liens granted to, or for the benefit of, Agent to secure the Obligations,
 
(b)           Liens for unpaid taxes, assessments, or other governmental charges or levies that either (i) are not yet delinquent, or (ii) do not have priority over Agent’s Liens and the underlying taxes, assessments, or charges or levies are the subject of Permitted Protests,
 
(c)           judgment Liens arising solely as a result of the existence of judgments, orders, or awards that do not constitute an Event of Default under Section 8.3 of the Agreement,
 
(d)           Liens set forth on Schedule P-2 to the Agreement; provided, that to qualify as a Permitted Lien, any such Lien described on Schedule P-2 to the Agreement shall only secure the Indebtedness that it secures on the Closing Date and any Refinancing Indebtedness in respect thereof,
 
(e)           the interests of lessors under operating leases and non-exclusive licensors under license agreements,
 
(f)            purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness and so long as (i) such Lien attaches only to the asset purchased or acquired and the proceeds thereof, and (ii) such Lien only secures the Indebtedness that was incurred to acquire the asset purchased or acquired or any Refinancing Indebtedness in respect thereof,
 
(g)           Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet 60 days delinquent, or (ii) are the subject of Permitted Protests,
 
(h)           Liens on amounts deposited to secure Parent’s and its Subsidiaries’ obligations in connection with worker’s compensation or other unemployment insurance,
 
(i)            Liens on amounts deposited to secure Parent’s and its Subsidiaries’ obligations in connection with the making or entering into of bids, tenders, or leases in the ordinary course of business and not in connection with the borrowing of money,
 
(j)            Liens on amounts deposited to secure Parent’s and its Subsidiaries’ reimbursement obligations with respect to surety or appeal bonds obtained in the ordinary course of business,
 
(k)           with respect to any Real Property, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof,
 
(l)            non-exclusive licenses of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business,
 
(m)          Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is the subject of permitted Refinancing Indebtedness and so long as the replacement Liens only encumber those assets that secured the original Indebtedness,
 
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(n)           rights of setoff or bankers’ liens upon deposits of funds in favor of banks or other depository institutions, solely to the extent incurred in connection with the maintenance of such Deposit Accounts in the ordinary course of business,
 
(o)           Liens granted in the ordinary course of business on the unearned portion of insurance premiums securing the financing of insurance premiums to the extent the financing is permitted under the definition of Permitted Indebtedness,
 
(p)           Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods,
 
(q)           Liens solely on any cash earnest money deposits made by Parent or any of its Subsidiaries in connection with any letter of intent or purchase agreement with respect to a Permitted Acquisition,
 
(r)            Liens assumed by Parent or its Subsidiaries in connection with a Permitted Acquisition that secure Acquired Indebtedness, and
 
(s)            other Liens which do not secure Indebtedness for borrowed money or letters of credit and as to which the aggregate amount of the obligations secured thereby does not exceed $250,000.
 
“ Permitted Protest ” means the right of Parent or any of its Subsidiaries to protest or to otherwise not pay in respect of any Lien (other than any Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on Parent’s or its Subsidiaries’ books and records in such amount if so required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by Parent or its Subsidiary, as applicable, in good faith, and (c) Agent is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of Agent’s Liens.
 
“ Permitted Purchase Money Indebtedness ” means, as of any date of determination, Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred after the Closing Date and at the time of, or within 20 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof, in an aggregate principal amount outstanding at any one time not in excess of $2,500,000.
 
“ Person ” means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof.
 
“ Platform ” has the meaning specified therefor in Section 17.9(c)  of the Agreement.
 
“ Projections ” means Parent’s forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a basis consistent with Parent’s historical financial statements, together with appropriate supporting details and a statement of underlying assumptions.
 
“ Pro Rata Share ” means, as of any date of determination:
 
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(a)           with respect to a Lender’s obligation to make all or a portion of the Revolving Loans, with respect to such Lender’s right to receive payments of interest, fees, and principal with respect to the Revolving Loans, and with respect to all other computations and other matters related to the Revolver Commitments or the Revolving Loans, the percentage obtained by dividing (i) the Revolving Loan Exposure of such Lender by (ii) the aggregate Revolving Loan Exposure of all Lenders,
 
(b)           with respect to a Lender’s obligation to participate in the Letters of Credit, with respect to such Lender’s obligation to reimburse Issuing Bank, and with respect to such Lender’s right to receive payments of Letter of Credit Fees, and with respect to all other computations and other matters related to the Letters of Credit, the percentage obtained by dividing (i) the Revolving Loan Exposure of such Lender by (ii) the aggregate Revolving Loan Exposure of all Lenders; provided, that if all of the Revolving Loans have been repaid in full and all Revolver Commitments have been terminated, but Letters of Credit remain outstanding, Pro Rata Share under this clause shall be determined as if the Revolver Commitments had not been terminated and based upon the Revolver Commitments as they existed immediately prior to their termination, and
 
(c)           with respect to all other matters and for all other matters as to a particular Lender (including the indemnification obligations arising under Section 15.7 of the Agreement), the percentage obtained by dividing (i) the Revolving Loan Exposure of such Lender by (ii) the aggregate Revolving Loan Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to Section 13.1; provided, that if all of the Loans have been repaid in full, all Letters of Credit have been made the subject of Letter of Credit Collateralization, and all Commitments have been terminated, Pro Rata Share under this clause shall be determined as if the Revolving Loan Exposures had not been repaid, collateralized, or terminated and shall be based upon the Revolving Loan Exposures as they existed immediately prior to their repayment, collateralization, or termination.
 
“ Protective Advances ” has the meaning specified therefor in Section 2.3(d)(i)  of the Agreement.
 
“ Public Lender ” has the meaning specified therefor in Section 17.9(c)  of the Agreement.
 
“ Qualified Cash ” means, as of any date of determination, the amount of unrestricted cash and Cash Equivalents of Parent and its Subsidiaries that is in Deposit Accounts or in Securities Accounts, or any combination thereof, and which such Deposit Account or Securities Account is the subject of a Control Agreement and is maintained by a branch office of the bank or securities intermediary located within the United States.
 
“ Qualified Equity Interest ” means and refers to any Equity Interests issued by Parent (and not by one or more of its Subsidiaries) that is not a Disqualified Equity Interest.
 
“ Real Property ” means any estates or interests in real property now owned or hereafter acquired by Parent or its Subsidiaries and the improvements thereto.
 
“ Real Property Collateral ” means (a) the Real Property identified on Schedule R-1 to the Agreement and (b) any Real Property hereafter acquired by Parent or its Subsidiaries with a fair market value in excess of $1,000,000.
 
“ Record ” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
 
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“ Recurring Revenues ” means, with respect to any period, all recurring subscription fees, bill pay transaction fee revenues, and maintenance revenues attributable to software owned by Borrower or any of its Subsidiaries earned during such period, calculated on a basis consistent with the financial statements delivered to Agent prior to the Closing Date.
 
“ Reference Period ” has the meaning set forth in the definition of EBITDA.
 
“ Refinancing Indebtedness ” means refinancings, renewals, or extensions of Indebtedness so long as:
 
(a)           such refinancings, renewals, or extensions do not result in an increase in the principal amount of the Indebtedness so refinanced, renewed, or extended, other than by the amount of premiums paid thereon and the fees and expenses incurred in connection therewith and by the amount of unfunded commitments with respect thereto,
 
(b)           such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity (measured as of the refinancing, renewal, or extension) of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions that, taken as a whole, are or could reasonably be expected to be materially adverse to the interests of the Lenders,
 
(c)           if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension must include subordination terms and conditions that are at least as favorable to the Lender Group as those that were applicable to the refinanced, renewed, or extended Indebtedness, and
 
(d)           the Indebtedness that is refinanced, renewed, or extended is not recourse to any Person that is liable on account of the Obligations other than those Persons which were obligated with respect to the Indebtedness that was refinanced, renewed, or extended.
 
“ Register ” has the meaning set forth in Section 13.1(h)  of the Agreement.
 
“ Registered Loan ” has the meaning set forth in Section 13.1(h)  of the Agreement.
 
“ Related Fund ” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course and that is administered, advised or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers, advises or manages a Lender.
 
“ Remedial Action ” means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) 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, (c) restore or reclaim natural resources or the environment, (d) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (e) conduct any other actions with respect to Hazardous Materials required by Environmental Laws.
 
“ Replacement Lender ” has the meaning specified therefor in Section 2.13(b)  of the Agreement.
 
“ Report ” has the meaning specified therefor in Section 15.16 of the Agreement.
 
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“ Required Equity Documents ” means any instruments or agreements entered into by Borrower in connection with the obtaining by Borrower of the Required Equity.
 
“ Required Lenders ” means, at any time, Lenders having or holding more than 50% of the aggregate Revolving Loan Exposure of all Lenders; provided , that (i) the Revolving Loan Exposure of any Defaulting Lender shall be disregarded in the determination of the Required Lenders, and (ii) at any time there are 2 or more Lenders, “Required Lenders” must include at least 2 Lenders (who are not Affiliates of one another).
 
“ Restricted Payment ” means to (a) declare or pay any dividend or make any other payment or distribution, directly or indirectly, on account of Equity Interests issued by Parent (including any payment in connection with any merger or consolidation involving Parent) or to the direct or indirect holders of Equity Interests issued by Parent in their capacity as such (other than dividends or distributions payable in Qualified Equity Interests issued by Parent, or (b) purchase, redeem, make any sinking fund or similar payment, or otherwise acquire or retire for value (including in connection with any merger or consolidation involving Parent) any Equity Interests issued by Parent, and (c) make any payment to retire, or to obtain the surrender of, any outstanding warrants, options, or other rights to acquire Equity Interests of Parent now or hereafter outstanding, and (d) make, or cause or suffer to permit any of Parent’s Subsidiaries to make, any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness.
 
“ Revolver Commitment ” means, with respect to each Revolving Lender, its Revolver Commitment, and, with respect to all Revolving Lenders, their Revolver Commitments, in each case as such Dollar amounts are set forth beside such Revolving Lender’s name under the applicable heading on Schedule C-1 to the Agreement or in the Assignment and Acceptance pursuant to which such Revolving Lender became a Revolving Lender under the Agreement, as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement.
 
“ Revolver Usage ” means, as of any date of determination, the sum of (a) the amount of outstanding Revolving Loans (inclusive of Swing Loans and Protective Advances), plus (b) the amount of the Letter of Credit Usage.
 
“ Revolving Lender ” means a Lender that has a Revolving Loan Commitment or that has an outstanding Revolving Loan.
 
“ Revolving Loan Exposure ” means, with respect to any Revolving Lender, as of any date of determination (a) prior to the termination of the Revolver Commitments, the amount of such Lender’s Revolver Commitment, and (b) after the termination of the Revolver Commitments, the aggregate outstanding principal amount of the Revolving Loans of such Lender.
 
“ Revolving Loans ” has the meaning specified therefor in Section 2.1(a)  of the Agreement.
 
“ Sanctioned Entity ” means (a) a country or a government of a country, (b) an agency of the government of a country, (c) an organization directly or indirectly controlled by a country or its government, (d) a Person resident in or determined to be resident in a country, in each case, that is subject to a country sanctions program administered and enforced by OFAC.
 
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“ Sanctioned Person ” means a person named on the list of Specially Designated Nationals maintained by OFAC.
 
“ S&P ” has the meaning specified therefor in the definition of Cash Equivalents.
 
“ SEC ” means the United States Securities and Exchange Commission and any successor thereto.
 
“ Securities Account ” means a securities account (as that term is defined in the Code).
 
“ Securities Act ” means the Securities Act of 1933, as amended from time to time, and any successor statute.
 
“ Settlement ” has the meaning specified therefor in Section 2.3(e)(i)  of the Agreement.
 
“ Settlement Date ” has the meaning specified therefor in Section 2.3(e)(i)  of the Agreement.
 
“ Solvent ” means, with respect to any Person as of any date of determination, that (a) at fair valuations, the sum of such Person’s debts (including contingent liabilities) is less than all of such Person’s assets, (b) such Person is not engaged or about to engage in a business or transaction for which the remaining assets of such Person are unreasonably small in relation to the business or transaction or for which the property remaining with such Person is an unreasonably small capital, and (c) such Person has not incurred and does not intend to incur, or reasonably believe that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise), and (d) such Person is “solvent” or not “insolvent”, as applicable within the meaning given those terms and similar terms under applicable laws relating to fraudulent transfers and conveyances.  For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).
 
“ Standard Letter of Credit Practice ” means, for Issuing Bank, any domestic or foreign law or letter of credit practices applicable in the city in which Issuing Bank issued the applicable Letter of Credit or, for its branch or correspondent, such laws and practices applicable in the city in which it has advised, confirmed or negotiated such Letter of Credit, as the case may be, in each case, (a) which letter of credit practices are of banks that regularly issue letters of credit in the particular city, and (b) which laws or letter of credit practices are required or permitted under ISP or UCP, as chosen in the applicable Letter of Credit.
 
“ Subordinated Indebtedness ” means any unsecured Indebtedness of Parent or its Subsidiaries incurred from time to time that is subordinated in right of payment to the Obligations and (a) that is only guaranteed by the Guarantors, (b) that is not subject to scheduled amortization, redemption, sinking fund or similar payment and does not have a final maturity, in each case, on or before the date that is six months after the Maturity Date, (c) that does not include any financial covenants or any covenant or agreement that is more restrictive or onerous on any Loan Party in any material respect than any comparable covenant in the Agreement and is otherwise on terms and conditions reasonably acceptable to Agent, (d) shall be limited to cross-payment default and cross-acceleration to designated “senior debt” (including the “Obligations”), and (e) the terms and conditions of the subordination are reasonably acceptable to Agent.
 
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“ Subsidiary ” of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the Equity Interests having ordinary voting power to elect a majority of the Board of Directors of such corporation, partnership, limited liability company, or other entity.
 
“ Swing Lender ” means Wells Fargo or any other Lender that, at the request of Borrower and with the consent of Agent agrees, in such Lender’s sole discretion, to become the Swing Lender under Section 2.3(b)  of the Agreement.
 
“ Swing Loan ” has the meaning specified therefor in Section 2.3(b)  of the Agreement.
 
“ Swing Loan Exposure ” means, as of any date of determination with respect to any Lender, such Lender’s Pro Rata Share of the Swing Loans on such date.
 
“ Taxes ” means any taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein, and all interest, penalties or similar liabilities with respect thereto.
 
“ Tax Lender ” has the meaning specified therefor in Section 14.2(a)  of the Agreement.
 
“ Trademark Security Agreement ” has the meaning specified therefor in the Guaranty and Security Agreement.
 
“ TTM EBITDA ” means, as of any date of determination, EBITDA of Parent determined on a consolidated basis in accordance with GAAP, for the 12 month period most recently ended.
 
“ UCP ” means, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits 2007 Revision, International Chamber of Commerce Publication No. 600 and any subsequent revision thereof adopted by the International Chamber of Commerce on the date such Letter of Credit is issued.
 
“ United States ” means the United States of America.
 
“ Unused Line Fee ” has the meaning specified therefor in Section 2.10(b)  of the Agreement.
 
“ Voidable Transfer ” has the meaning specified therefor in Section 17.8 of the Agreement.
 
“ Wells Fargo ” means Wells Fargo Bank, National Association, a national banking association.
 
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Exhibit 10.3.2
 
GUARANTY AND SECURITY AGREEMENT
 
This GUARANTY AND SECURITY AGREEMENT (this “ Agreement ”), dated as of April 11, 2013,  among the Persons listed on the signature pages hereof as “Grantors” and those additional entities that hereafter become parties hereto by executing the form of Joinder attached hereto as Annex 1 (each, a “ Grantor ” and collectively, the “ Grantors ”), and WELLS FARGO BANK, NATIONAL ASSOCIATION , a national banking association (“ Wells Fargo ”), in its capacity as agent for each member of the Lender Group and the Bank Product Providers (in such capacity, together with its successors and assigns in such capacity, “ Agent ”).
 
W I T N E S S E T H:
 
WHEREAS , pursuant to that certain Credit Agreement of even date herewith (as amended, restated, supplemented, or otherwise modified from time to time, the “ Credit Agreement ”) by and among Q2 Holdings, Inc., as parent (“ Parent ”), Q2 Software, Inc., as borrower (“ Borrower ”), the lenders party thereto as “Lenders” (each of such Lenders, together with its successors and assigns, is referred to hereinafter as a “ Lender ”), and Agent, the Lender Group has agreed to make certain financial accommodations available to Borrower from time to time pursuant to the terms and conditions thereof; and
 
WHEREAS , Agent has agreed to act as agent for the benefit of the Lender Group and the Bank Product Providers in connection with the transactions contemplated by the Credit Agreement and this Agreement;
 
WHEREAS , in order to induce the Lender Group to enter into the Credit Agreement and the other Loan Documents, to induce the Bank Product Providers to enter into the Bank Product Agreements, and to induce the Lender Group and the Bank Product Providers to make financial accommodations to Borrower as provided for in the Credit Agreement, the other Loan Documents and the Bank Product Agreements, (a) each Grantor (other than Borrower) has agreed to guaranty the Guarantied Obligations, and (b) each Grantor has agreed to grant to Agent, for the benefit of the Lender Group and the Bank Product Providers, a continuing security interest in and to the Collateral in order to secure the prompt and complete payment, observance and performance of, among other things, the Secured Obligations; and
 
WHEREAS , each Grantor (other than Borrower) is an Affiliate of Borrower and, as such, will benefit by virtue of the financial accommodations extended to Borrower by the Lender Group.
 
NOW, THEREFORE , for and in consideration of the recitals made above and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
 
1.             Definitions; Construction .
 
(a)           All initially capitalized terms used herein (including in the preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the Credit Agreement (including Schedule 1.1 thereto).  Any terms (whether capitalized or lower case) used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein or in the Credit Agreement; provided that to the extent that the Code is used to define any term
 
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used herein and if such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern.  In addition to those terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the following meanings:
 
(i)            “ Account ” means an account (as that term is defined in Article 9 of the Code).
 
(ii)           “ Account Debtor ” means an account debtor (as that term is defined in the Code).
 
(iii)          “ Activation Instruction ” has the meaning specified therefor in Section 7(k) .
 
(iv)          “ Agent ” has the meaning specified therefor in the preamble to this Agreement.
 
(v)           “ Agent’s Lien ” has the meaning specified therefor in the Credit Agreement.
 
(vi)          “ Agreement ” has the meaning specified therefor in the preamble to this Agreement.
 
(vii)         “ Bank Product Obligations ” has the meaning specified therefor in the Credit Agreement.
 
(viii)        “ Bank Product Provider ” has the meaning specified therefor in the Credit Agreement.
 
(ix)          “ Books ” means books and records (including each Grantor’s Records indicating, summarizing, or evidencing such Grantor’s assets (including the Collateral) or liabilities, each Grantor’s Records relating to such Grantor’s business operations or financial condition, and each Grantor’s goods or General Intangibles related to such information).
 
(x)           “ Borrower ” has the meaning specified therefor in the recitals to this Agreement.
 
(xi)          “ Cash Equivalents ” has the meaning specified therefor in the Credit Agreement.
 
(xii)         “ Chattel Paper ” means chattel paper (as that term is defined in the Code), and includes tangible chattel paper and electronic chattel paper.
 
(xiii)        “ Code ” means the New York Uniform Commercial Code, as in effect from time to time; provided , however , that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to Agent’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies.
 
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(xiv)        “ Collateral ” has the meaning specified therefor in Section 3 .
 
(xv)         “ Commercial Tort Claims ” means commercial tort claims (as that term is defined in the Code), and includes those commercial tort claims listed on Schedule 1 .
 
(xvi)        “ Commodity Exchange Act ” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
 
(xvii)       “ Control Agreement ” has the meaning specified therefor in the Credit Agreement.
 
(xviii)      “ Controlled Account ” has the meaning specified therefor in Section 7(k) .
 
(xix)        “ Controlled Account Agreements ” means those certain cash management agreements, in form and substance reasonably satisfactory to Agent, each of which is executed and delivered by a Grantor, Agent, and one of the Controlled Account Banks.
 
(xx)         “ Controlled Account Bank ” has the meaning specified therefor in Section 7(k) .
 
(xxi)        “ Copyrights ” means any and all rights in any works of authorship, including (A) copyrights and moral rights, (B) copyright registrations and recordings thereof and all applications in connection therewith including those listed on Schedule 2 , (C) income, license fees, royalties, damages, and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past, present, or future infringements thereof, (D) the right to sue for past, present, and future infringements thereof, and (E) all of each Grantor’s rights corresponding thereto throughout the world.
 
(xxii)       “ Copyright Security Agreement ” means each Copyright Security Agreement executed and delivered by Grantors, or any of them, and Agent, in substantially the form of Exhibit A .
 
(xxiii)      “ Credit Agreement ” has the meaning specified therefor in the recitals to this Agreement.
 
(xxiv)     “ Deposit Account ” means a deposit account (as that term is defined in the Code).
 
(xxv)      “ Equipment ” means equipment (as that term is defined in the Code).
 
(xxvi)     “ Equity Interests ” has the meaning specified therefor in the Credit Agreement.
 
(xxvii)    “ Event of Default ” has the meaning specified therefor in the Credit Agreement.
 
(xxviii)   “ Excluded Swap Obligation ” means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guaranty of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guaranty thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the
 
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Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guaranty of such Guarantor or the grant of such security interest becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guaranty or security interest is or becomes illegal.
 
(xxix)     “ Farm Products ” means farm products (as that term is defined in the Code)
 
(xxx)      “ Fixtures ” means fixtures (as that term is defined in the Code).
 
(xxxi)     “ Foreclosed Grantor ” has the meaning specified therefor in Section 2(i)(iii) .
 
(xxxii)    “ General Intangibles ” means general intangibles (as that term is defined in the Code), and includes payment intangibles, software, contract rights, rights to payment, rights under Hedge Agreements (including the right to receive payment on account of the termination (voluntarily or involuntarily) of such Hedge Agreements), rights arising under common law, statutes, or regulations, choses or things in action, goodwill, Intellectual Property, Intellectual Property Licenses, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, including Intellectual Property Licenses, infringement claims, pension plan refunds, pension plan refund claims, insurance premium rebates, tax refunds, and tax refund claims, interests in a partnership or limited liability company which do not constitute a security under Article 8 of the Code, and any other personal property other than Commercial Tort Claims, money, Accounts, Chattel Paper, Deposit Accounts, goods, Investment Property, Negotiable Collateral, and oil, gas, or other minerals before extraction.
 
(xxxiii)   “ Grantor ” and “ Grantors ” have the respective meanings specified therefor in the preamble to this Agreement.
 
(xxxiv)   “ Guarantied Obligations ” means all of the Obligations (including any Bank Product Obligations) now or hereafter existing, whether for principal, interest (including any interest that accrues after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), fees (including the fees provided for in the Fee Letter), Lender Group Expenses (including any fees or expenses that accrue after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), or otherwise, and any and all expenses (including reasonable counsel fees and expenses) incurred by Agent, any other member of the Lender Group, or any Bank Product Provider (or any of them) in enforcing any rights under the any of the Loan Documents.  Without limiting the generality of the foregoing, Guarantied Obligations shall include all amounts that constitute part of the Guarantied Obligations and would be owed by Borrower to Agent, any other member of the Lender Group, or any Bank Product Provider but for the fact that they are unenforceable or not allowable, including due to the existence of a bankruptcy, reorganization, other Insolvency Proceeding or similar proceeding involving Borrower or any guarantor; provided that, anything to the contrary contained in the foregoing notwithstanding, the Guarantied Obligations shall exclude any Excluded Swap Obligation.
 
(xxxv)    “ Guarantor ” means each Grantor other than Borrower.
 
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(xxxvi)   “ Guaranty ” means the guaranty set forth in Section 2 hereof.
 
(xxxvii)  “ Insolvency Proceeding ” has the meaning specified therefor in the Credit Agreement.
 
(xxxviii) “ Intellectual Property ” means any and all Patents, Copyrights, Trademarks, trade secrets, know-how, inventions (whether or not patentable), algorithms, software programs (including source code and object code), processes, product designs, industrial designs, blueprints, drawings, data, customer lists, URLs and domain names, specifications, documentations, reports, catalogs, literature, and any other forms of technology or proprietary information of any kind, including all rights therein and all applications for registration or registrations thereof.
 
(xxxix)   “ Intellectual Property Licenses ” means, with respect to any Person (the “ Specified Party ”), (A) any licenses or other similar rights provided to the Specified Party in or with respect to Intellectual Property owned or controlled by any other Person, and (B) any licenses or other similar rights provided to any other Person in or with respect to Intellectual Property owned or controlled by the Specified Party, in each case, including (x) any software license agreements (other than license agreements for commercially available off-the-shelf software that is generally available to the public which have been licensed to a Grantor pursuant to end-user licenses), (y) the license agreements listed on Schedule 3 , and (z) the right to use any of the licenses or other similar rights described in this definition in connection with the enforcement of the Lender Group’s rights under the Loan Documents.
 
(xl)          “ Inventory ” means inventory (as that term is defined in the Code).
 
(xli)         “ Investment Property ” means (A) any and all investment property (as that term is defined in the Code), and (B) any and all of the following (regardless of whether classified as investment property under the Code):  all Pledged Interests, Pledged Operating Agreements, and Pledged Partnership Agreements.
 
(xlii)        “ Joinder ” means each Joinder to this Agreement executed and delivered by Agent and each of the other parties listed on the signature pages thereto, in substantially the form of Annex 1 .
 
(xliii)       “ Lender Group ” has the meaning specified therefor in the Credit Agreement.
 
(xliv)       “ Lender ” and “ Lenders ” have the respective meanings specified therefor in the recitals to this Agreement.
 
(xlv)        “ Loan Document ” has the meaning specified therefor in the Credit Agreement.
 
(xlvi)       “ Negotiable Collateral ” means letters of credit, letter-of-credit rights, instruments, promissory notes, drafts and documents (as each such term is defined in the Code).
 
(xlvii)      “ Obligations ” has the meaning specified therefor in the Credit Agreement.
 
(xlviii)     “ Outside Accounts ” has the meaning specified therefor in the Credit Agreement.
 
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(xlix)       “ Parent ” has the meaning specified therefor in the recitals to this Agreement.
 
(l)            “ Patents ” means patents and patent applications, including (A) the patents and patent applications listed on Schedule 4 , (B) all continuations, divisionals, continuations-in-part, re-examinations, reissues, and renewals thereof and improvements thereon, (C) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past, present, or future infringements thereof, (D) the right to sue for past, present, and future infringements thereof, and (E) all of each Grantor’s rights corresponding thereto throughout the world.
 
(li)           “ Patent Security Agreement ” means each Patent Security Agreement executed and delivered by Grantors, or any of them, and Agent, in substantially the form of Exhibit B .
 
(lii)          “ Permitted Investments ” has the meaning specified therefor in the Credit Agreement.
 
(liii)         “ Permitted Liens ” has the meaning specified therefor in the Credit Agreement.
 
(liv)         “ Person ” has the meaning specified therefor in the Credit Agreement.
 
(lv)          “ Pledged Companies ” means each Person listed on Schedule 5 as a “Pledged Company”, together with each other Person, all or a portion of whose Equity Interests are acquired or otherwise owned by a Grantor after the Closing Date.  As of the date of this Agreement, Pledged Company only includes Q2 Software, Inc.
 
(lvi)         “ Pledged Interests ” means all of each Grantor’s right, title and interest in and to all of the Equity Interests now owned or hereafter acquired by such Grantor, regardless of class or designation, including in each of the Pledged Companies, and all substitutions therefor and replacements thereof, all proceeds thereof and all rights relating thereto, also including any certificates representing the Equity Interests, the right to receive any certificates representing any of the Equity Interests, all warrants, options, share appreciation rights and other rights, contractual or otherwise, in respect thereof and the right to receive all dividends, distributions of income, profits, surplus, or other compensation by way of income or liquidating distributions, in cash or in kind, and all cash, instruments, and other property from time to time received, receivable, or otherwise distributed in respect of or in addition to, in substitution of, on account of, or in exchange for any or all of the foregoing.
 
(lvii)        “ Pledged Interests Addendum ” means a Pledged Interests Addendum substantially in the form of Exhibit C .
 
(lviii)       “ Pledged Operating Agreements ” means all of each Grantor’s rights, powers, and remedies under the limited liability company operating agreements of each of the Pledged Companies that are limited liability companies.
 
(lix)         “ Pledged Partnership Agreements ” means all of each Grantor’s rights, powers, and remedies under the partnership agreements of each of the Pledged Companies that are partnerships.
 
(lx)          “ Proceeds ” has the meaning specified therefor in Section 3 .
 
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(lxi)         “ PTO ” means the United States Patent and Trademark Office.
 
(lxii)        “ Qualified ECP Guarantor ” means, in respect of any Swap Obligation, each Grantor that has total assets exceeding $10,000,000 at the time the relevant guaranty, keepwell, or grant of the relevant security interest becomes effective with respect to such Swap Obligation or such other person as constitutes an “eligible contract participant” under the Commodity Exchange Act or any regulations promulgated thereunder and can cause another person to qualify as an “eligible contract participant” at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
 
(lxiii)       “ Real Property ” means any estates or interests in real property now owned or hereafter acquired by any Grantor or any Subsidiary of any Grantor and the improvements thereto.
 
(lxiv)       “ Record ” means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.
 
(lxv)        “ Rescission ” has the meaning specified therefor in Section 7(k) .
 
(lxvi)       “ Secured Obligations ” means each and all of the following:  (A) all of the present and future obligations of each of the Grantors arising from, or owing under or pursuant to, this Agreement (including the Guaranty), the Credit Agreement, or any of the other Loan Documents, (B) all Bank Product Obligations, and (C) all other Obligations of Borrower and all other Guarantied Obligations of each Guarantor (including, in the case of each of clauses (A), (B) and (C), reasonable attorneys’ fees and expenses and any interest, fees, or expenses that accrue after the filing of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any Insolvency Proceeding); provided that, anything to the contrary contained in the foregoing notwithstanding, the Secured Obligations of the Guarantors shall exclude any Excluded Swap Obligation.
 
(lxvii)      “ Securities Account ” means a securities account (as that term is defined in the Code).
 
(lxviii)     “ Security Interest ” has the meaning specified therefor in Section 3 .
 
(lxix)       “ Supporting Obligations ” means supporting obligations (as such term is defined in the Code), and includes letters of credit and guaranties issued in support of Accounts, Chattel Paper, documents, General Intangibles, instruments or Investment Property.
 
(lxx)        “ Swap Obligation ” means, with respect to any Grantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.
 
(lxxi)       “ Trademarks ” means any and all trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications, including (A) the trade names, registered trademarks, trademark applications, registered service marks and service mark applications listed on Schedule 6 , (B) all renewals thereof, (C) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (D) the right to sue for past, present and future infringements and dilutions thereof, (E) the goodwill of each Grantor’s business symbolized by the
 
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foregoing or connected therewith, and (F) all of each Grantor’s rights corresponding thereto throughout the world.
 
(lxxii)      “ Trademark Security Agreement ” means each Trademark Security Agreement executed and delivered by Grantors, or any of them, and Agent, in substantially the form of Exhibit D .
 
(lxxiii)     “ Triggering Event ” means, as of any date of determination, that (A) an Event of Default has occurred as of such date.
 
(lxxiv)    “ URL ” means “uniform resource locator,” an internet web address.
 
(lxxv)     “ VIN ” has the meaning specified therefor in Section 5(h) .
 
(b)           Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms “includes” and “including” are not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.”  The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.  Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified.  Any reference in this Agreement to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein or in the Credit Agreement).  The words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties.  Any reference herein to the satisfaction, repayment, or payment in full of the Secured Obligations or the Guarantied Obligations shall mean (i) the payment or repayment in full in immediately available funds of (A) the principal amount of, and interest accrued with respect to, all outstanding Loans, together with the payment of any premium applicable to the repayment of the Loans, (B) all Lender Group Expenses that have accrued regardless of whether demand has been made therefor, (C) all fees or charges that have accrued hereunder or under any other Loan Document (including the Letter of Credit Fee and the Unused Line Fee), (ii) in the case of contingent reimbursement obligations with respect to Letters of Credit, providing Letter of Credit Collateralization, (iii) in the case of obligations with respect to Bank Products (other than Hedge Obligations), providing Bank Product Collateralization, (iv) the receipt by Agent of cash collateral in order to secure any other contingent Secured Obligations or Guarantied Obligations for which a claim or demand for payment has been made at such time or in respect of matters or circumstances known to Agent or a Lender at the time that are reasonably expected to result in any loss, cost, damage or expense (including attorneys’ fees and legal expenses), such cash collateral to be in such amount as Agent reasonably determines is appropriate to secure such contingent Secured Obligations or Guarantied Obligations, (v) the payment or repayment in full in immediately available funds of all other Secured Obligations or Guarantied Obligations (as the case may be) (including the payment of any termination amount then applicable (or which would or could become applicable as a result of the repayment of the other Obligations) under Hedge Agreements provided by Hedge Providers) other than (A) unasserted contingent indemnification obligations, (B) any Bank Product Obligations (other than Hedge Obligations) that, at such time, are allowed by the applicable Bank Product Provider to remain outstanding without being required to be repaid or cash collateralized, and (C) any Hedge Obligations that, at such time, are allowed by the applicable Hedge Provider to remain outstanding without being required to be repaid, and (vi) the termination of all of the Commitments of the
 
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Lenders.  Any reference herein to any Person shall be construed to include such Person’s successors and assigns.  Any requirement of a writing contained herein shall be satisfied by the transmission of a Record.
 
(c)           All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.
 
2.             Guaranty .
 
(a)           In recognition of the direct and indirect benefits to be received by Guarantors from the proceeds of the Revolving Loans, the issuance of the Letters of Credit, and the entering into of the Bank Product Agreements and by virtue of the financial accommodations to be made to Borrower, each of the Guarantors, jointly and severally, hereby unconditionally and irrevocably guarantees as a primary obligor and not merely as a surety the full and prompt payment when due, whether upon maturity, acceleration, or otherwise, of all of the Guarantied Obligations.  If any or all of the Obligations constituting Guarantied Obligations becomes due and payable, each of the Guarantors, unconditionally and irrevocably, and without the need for demand, protest, or any other notice or formality, promises to pay such indebtedness to Agent, for the benefit of the Lender Group and the Bank Product Providers, together with any and all expenses (including Lender Group Expenses) that may be incurred by Agent or any other member of the Lender Group or any Bank Product Provider in demanding, enforcing, or collecting any of the Guarantied Obligations (including the enforcement of any collateral for such Guarantied Obligations or any collateral for the obligations of the Guarantors under this Guaranty).  If claim is ever made upon Agent or any other member of the Lender Group or any Bank Product Provider for repayment or recovery of any amount or amounts received in payment of or on account of any or all of the Guarantied Obligations and any of Agent or any other member of the Lender Group or any Bank Product Provider repays all or part of said amount by reason of (i) any judgment, decree, or order of any court or administrative body having jurisdiction over such payee or any of its property, or (ii) any settlement or compromise of any such claim effected by such payee with any such claimant (including Borrower or any Guarantor), then and in each such event, each of the Guarantors agrees that any such judgment, decree, order, settlement, or compromise shall be binding upon the Guarantors, notwithstanding any revocation (or purported revocation) of this Guaranty or other instrument evidencing any liability of any Grantor, and the Guarantors shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such payee.
 
(b)           Additionally, each of the Guarantors unconditionally and irrevocably guarantees the payment of any and all of the Guarantied Obligations to Agent, for the benefit of the Lender Group and the Bank Product Providers, whether or not due or payable by any Loan Party upon the occurrence of any of the events specified in Section 8.4 or 8.5 of the Credit Agreement, and irrevocably and unconditionally promises to pay such indebtedness to Agent, for the benefit of the Lender Group and the Bank Product Providers, without the requirement of demand, protest, or any other notice or other formality, in lawful money of the United States.
 
(c)           The liability of each of the Guarantors hereunder is primary, absolute, and unconditional, and is independent of any security for or other guaranty of the Guarantied Obligations, whether executed by any other Guarantor or by any other Person, and the liability of each of the Guarantors hereunder shall not be affected or impaired by (i) any payment on, or in reduction of, any such other guaranty or undertaking, (ii) any dissolution, termination, or increase, decrease, or change in personnel by any Grantor, (iii) any payment made to Agent, any other member of the Lender Group, or any Bank Product Provider on account of the Obligations which Agent, such other member of the Lender Group, or such Bank Product Provider repays to any Grantor pursuant to court order in any bankruptcy,
 
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reorganization, arrangement, moratorium or other debtor relief proceeding (or any settlement or compromise of any claim made in such a proceeding relating to such payment), and each of the Guarantors waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding, or (iv) any action or inaction by Agent, any other member of the Lender Group, or any Bank Product Provider, or (v) any invalidity, irregularity, avoidability, or unenforceability of all or any part of the Obligations or of any security therefor.
 
(d)           This Guaranty includes all present and future Guarantied Obligations including any under transactions continuing, compromising, extending, increasing, modifying, releasing, or renewing the Guarantied Obligations, changing the interest rate, payment terms, or other terms and conditions thereof, or creating new or additional Guarantied Obligations after prior Guarantied Obligations have been satisfied in whole or in part.  To the maximum extent permitted by law, each Guarantor hereby waives any right to revoke this Guaranty as to future Guarantied Obligations.  If such a revocation is effective notwithstanding the foregoing waiver, each Guarantor acknowledges and agrees that (i) no such revocation shall be effective until written notice thereof has been received by Agent, (ii) no such revocation shall apply to any Guarantied Obligations in existence on the date of receipt by Agent of such written notice (including any subsequent continuation, extension, or renewal thereof, or change in the interest rate, payment terms, or other terms and conditions thereof), (iii) no such revocation shall apply to any Guarantied Obligations made or created after such date to the extent made or created pursuant to a legally binding commitment of any member of the Lender Group or any Bank Product Provider in existence on the date of such revocation, (iv) no payment by any Guarantor, Borrower, or from any other source, prior to the date of Agent’s receipt of written notice of such revocation shall reduce the maximum obligation of such Guarantor hereunder, and (v) any payment by Borrower or from any source other than such Guarantor subsequent to the date of such revocation shall first be applied to that portion of the Guarantied Obligations as to which the revocation is effective and which are not, therefore, guarantied hereunder, and to the extent so applied shall not reduce the maximum obligation of such Guarantor hereunder.  This Guaranty shall be binding upon each Guarantor, its successors and assigns and inure to the benefit of and be enforceable by Agent (for the benefit of the Lender Group and the Bank Product Providers) and its successors, transferees, or assigns.
 
(e)           The guaranty by each of the Guarantors hereunder is a guaranty of payment and not of collection.  The obligations of each of the Guarantors hereunder are independent of the obligations of any other Guarantor or Grantor or any other Person and a separate action or actions may be brought and prosecuted against one or more of the Guarantors whether or not action is brought against any other Guarantor or Grantor or any other Person and whether or not any other Guarantor or Grantor or any other Person be joined in any such action or actions.  Each of the Guarantors waives, to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement hereof.  Any payment by any Grantor or other circumstance which operates to toll any statute of limitations as to any Grantor shall operate to toll the statute of limitations as to each of the Guarantors.
 
(f)            Each of the Guarantors authorizes Agent, the other members of the Lender Group, and the Bank Product Providers without notice or demand, and without affecting or impairing its liability hereunder, from time to time to:
 
(i)            change the manner, place, or terms of payment of, or change or extend the time of payment of, renew, increase, accelerate, or alter:  (A) any of the Obligations (including any increase or decrease in the principal amount thereof or the rate of interest or fees thereon); or (B) any security therefor or any liability incurred directly or indirectly in respect thereof, and this Guaranty shall apply to the Obligations as so changed, extended, renewed, or altered;
 
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(ii)           take and hold security for the payment of the Obligations and, following an Event of Default so permitting Agent to do so in accordance with the Credit Agreement, to sell, exchange, release, impair, surrender, realize upon, collect, settle, or otherwise deal with in any manner and in any order any property at any time pledged or mortgaged to secure the Obligations or any of the Guarantied Obligations (including any of the obligations of all or any of the Guarantors under this Guaranty) incurred directly or indirectly in respect thereof or hereof, or any offset on account thereof;
 
(iii)          exercise or refrain from exercising any rights against any Grantor;
 
(iv)          release or substitute any one or more endorsers, guarantors, any Grantor, or other obligors;
 
(v)           settle or compromise any of the Obligations, any security therefor, or any liability (including any of those of any of the Guarantors under this Guaranty) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of any Grantor to its creditors;
 
(vi)          apply any sums by whomever paid or however realized to any liability or liabilities of any Grantor to Agent, any other member of the Lender Group, or any Bank Product Provider regardless of what liability or liabilities of such Grantor remain unpaid;
 
(vii)         consent to or waive any breach of, or any act, omission, or default under, this Agreement, any other Loan Document, any Bank Product Agreement, or any of the instruments or agreements referred to herein or therein, or otherwise amend, modify, or supplement this Agreement, any other Loan Document, any Bank Product Agreement, or any of such other instruments or agreements; or
 
(viii)        take any other action that could, under otherwise applicable principles of law, give rise to a legal or equitable discharge of one or more of the Guarantors from all or part of its liabilities under this Guaranty.
 
(g)           It is not necessary for Agent, any other member of the Lender Group, or any Bank Product Provider to inquire into the capacity or powers of any of the Guarantors or the officers, directors, partners or agents acting or purporting to act on their behalf, and any Obligations made or created in reliance upon the professed exercise of such powers shall be Guarantied hereunder.
 
(h)           Each Guarantor jointly and severally guarantees that the Guarantied Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation, or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any member of the Lender Group or any Bank Product Provider with respect thereto.  The obligations of each Guarantor under this Guaranty are independent of the Guarantied Obligations, and a separate action or actions may be brought and prosecuted against each Guarantor to enforce such obligations, irrespective of whether any action is brought against any other Guarantor or whether any other Guarantor is joined in any such action or actions.  The liability of each Guarantor under this Guaranty shall be absolute and unconditional irrespective of, and each Guarantor hereby irrevocably waives any defense it may now or hereafter have in any way relating to, any or all of the following:
 
(i)            any lack of validity or enforceability of any Loan Document or any agreement or instrument relating thereto;
 
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(ii)           any change in the time, manner, or place of payment of, or in any other term of, all or any of the Guarantied Obligations, or any other amendment or waiver of or any consent to departure from any Loan Document, including any increase in the Guarantied Obligations resulting from the extension of additional credit;
 
(iii)          any taking, exchange, release, or non-perfection of any Lien in and to any Collateral, or any taking, release, amendment, waiver of, or consent to departure from any other guaranty, for all or any of the Guarantied Obligations;
 
(iv)          the existence of any claim, set-off, defense, or other right that any Guarantor may have at any time against any Person, including Agent, any other member of the Lender Group, or any Bank Product Provider;
 
(v)           any defense, set-off, counterclaim, or claim, of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Guarantied Obligations or any security therefor;
 
(vi)          any right or defense arising by reason of any claim or defense based upon an election of remedies by any member of the Lender Group or any Bank Product Provider including any defense based upon an impairment or elimination of such Guarantor’s rights of subrogation, reimbursement, contribution, or indemnity of such Guarantor against any other Grantor or any guarantors or sureties;
 
(vii)         any change, restructuring, or termination of the corporate, limited liability company, or partnership structure or existence of any Grantor; or
 
(viii)        any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Grantor or any other guarantor or surety.
 
(i)            Waivers
 
(i)            Each of the Guarantors waives any right (except as shall be required by applicable statute and cannot be waived) to require Agent, any other member of the Lender Group, or any Bank Product Provider to (i) proceed against any other Grantor or any other Person, (ii) proceed against or exhaust any security held from any other Grantor or any other Person, or (iii) protect, secure, perfect, or insure any security interest or Lien on any property subject thereto or exhaust any right to take any action against any other Grantor, any other Person, or any collateral, or (iv) pursue any other remedy in any member of the Lender Group’s or any Bank Product Provider’s power whatsoever.  Each of the Guarantors waives any defense based on or arising out of any defense of any Grantor or any other Person, other than payment of the Guarantied Obligations to the extent of such payment, based on or arising out of the disability of any Grantor or any other Person, or the validity, legality, or unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any Grantor other than payment of the Obligations to the extent of such payment.  Agent may, at the election of the Required Lenders, foreclose upon any Collateral held by Agent by one or more judicial or nonjudicial sales or other dispositions, whether or not every aspect of any such sale is commercially reasonable or otherwise fails to comply with applicable law or may exercise any other right or remedy Agent, any other member of the Lender Group, or any Bank Product Provider may have against any Grantor or any other Person, or any security, in each case, without affecting or impairing in any way the liability of any of the Guarantors hereunder except to the extent the Guarantied Obligations have been paid.
 
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(ii)           Each of the Guarantors waives all presentments, demands for performance, protests and notices, including notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation, or incurring of new or additional Obligations or other financial accommodations.  Each of the Guarantors waives notice of any Default or Event of Default under any of the Loan Documents.  Each of the Guarantors assumes all responsibility for being and keeping itself informed of each Grantor’s financial condition and assets and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope, and extent of the risks which each of the Guarantors assumes and incurs hereunder, and agrees that neither Agent nor any of the other members of the Lender Group nor any Bank Product Provider shall have any duty to advise any of the Guarantors of information known to them regarding such circumstances or risks.
 
(iii)          To the fullest extent permitted by applicable law, each Guarantor hereby waives:  (A) any right to assert against any member of the Lender Group or any Bank Product Provider, any defense (legal or equitable), set-off, counterclaim, or claim which each Guarantor may now or at any time hereafter have against Borrower or any other party liable to any member of the Lender Group or any Bank Product Provider; (B) any defense, set-off, counterclaim, or claim, of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Guarantied Obligations or any security therefor; (C) any right or defense arising by reason of any claim or defense based upon an election of remedies by any member of the Lender Group or any Bank Product Provider including any defense based upon an impairment or elimination of such Guarantor’s rights of subrogation, reimbursement, contribution, or indemnity of such Guarantor against Borrower or other guarantors or sureties; and (D) the benefit of any statute of limitations affecting such Guarantor’s liability hereunder or the enforcement thereof, and any act which shall defer or delay the operation of any statute of limitations applicable to the Guarantied Obligations shall similarly operate to defer or delay the operation of such statute of limitations applicable to such Guarantor’s liability hereunder
 
(iv)          No Guarantor will exercise any rights that it may now or hereafter acquire against any Grantor or any other guarantor that arise from the existence, payment, performance or enforcement of such Guarantor’s obligations under this Guaranty, including any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of Agent, any other member of the Lender Group, or any Bank Product Provider against any Grantor or any other guarantor or any Collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including the right to take or receive from any Grantor or any other guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security solely on account of such claim, remedy or right, unless and until all of the Guarantied Obligations and all other amounts payable under this Guaranty shall have been paid in full in cash and all of the Commitments have been terminated.  If any amount shall be paid to any Guarantor in violation of the immediately preceding sentence, such amount shall be held in trust for the benefit of Agent, for the benefit of the Lender Group and the Bank Product Providers, and shall forthwith be paid to Agent to be credited and applied to the Guarantied Obligations and all other amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of the Credit Agreement, or to be held as Collateral for any Guarantied Obligations or other amounts payable under this Guaranty thereafter arising.  Notwithstanding anything to the contrary contained in this Guaranty, no Guarantor may exercise any rights of subrogation, contribution, indemnity, reimbursement or other similar rights against, and may not proceed or seek recourse against or with respect to any property or asset of, any other Grantor (the “ Foreclosed Grantor ”), including after payment in full of the Obligations, if all or any portion of the Obligations have been satisfied in connection with an exercise of remedies in respect of the Equity Interests of such Foreclosed Grantor whether pursuant to this Agreement or otherwise.
 
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(v)           Each of the Guarantors hereby acknowledges and affirms that it understands that to the extent the Guarantied Obligations are secured by Real Property located in California, Guarantors shall be liable for the full amount of the liability hereunder notwithstanding the foreclosure on such Real Property by trustee sale or any other reason impairing such Guarantor’s right to proceed against any Loan Party.  In accordance with Section 2856 of the California Code of Civil Procedure or any similar laws of any other applicable jurisdiction, each of the Guarantors hereby waives until such time as the Guarantied Obligations have been paid in full:
 
(1)           all rights of subrogation, reimbursement, indemnification, and contribution and any other rights and defenses that are or may become available to the Guarantors by reason of Sections 2787 to 2855, inclusive, 2899, and 3433 of the California Code of Civil Procedure or any similar laws of any other applicable jurisdiction;
 
(2)           all rights and defenses that the Guarantors may have because the Guarantied Obligations are secured by Real Property located in California, meaning, among other things, that:  (A) Agent, the other members of the Lender Group, and the Bank Product Providers may collect from the Guarantors without first foreclosing on any real or personal property collateral pledged by Borrower or any other Grantor, and (B) if Agent, on behalf of the Lender Group, forecloses on any Real Property collateral pledged by Borrower or any other Grantor, (1) the amount of the Guarantied Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, and (2) the Lender Group may collect from the Guarantors even if, by foreclosing on the Real Property collateral, Agent or the other members of the Lender Group have destroyed or impaired any right the Guarantors may have to collect from any other Grantor, it being understood that this is an unconditional and irrevocable waiver of any rights and defenses the Guarantors may have because the Guarantied Obligations are secured by Real Property (including, without limitation, any rights or defenses based upon Sections 580a, 580d, or 726 of the California Code of Civil Procedure or any similar laws of any other applicable jurisdiction); and
 
(3)           all rights and defenses arising out of an election of remedies by Agent, the other members of the Lender Group, and the Bank Product Providers, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for the Guarantied Obligations, has destroyed Guarantors’ rights of subrogation and reimbursement against any Grantor by the operation of Section 580d of the California Code of Civil Procedure or any similar laws of any other applicable jurisdiction or otherwise.
 
(vi)          Each of the Guarantors represents, warrants, and agrees that each of the waivers set forth above is made with full knowledge of its significance and consequences and that if any of such waivers are determined to be contrary to any applicable law or public policy, such waivers shall be effective to the maximum extent permitted by law.
 
(vii)         The provisions in this Section 2 which refer to certain sections of the California Civil Code are included in this Guaranty solely out of an abundance of caution and shall not be construed to mean that any of the above-referenced provisions of California law are in any way applicable to this Guaranty.
 
(j)            Keepwell. Each Qualified ECP Guarantor hereby jointly and severally absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time by each other Grantor to guaranty and otherwise honor all Obligations in respect of Swap Obligations (provided, however, that each Qualified ECP Guarantor shall only be liable under this Section 2(j)  for the maximum amount of such liability that can be hereby incurred without
 
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rendering its obligations under this Section 2(j), or otherwise under the Loan Documents, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount).  The obligations of each Qualified ECP Guarantor under this Section shall remain in full force and effect until payment in full of the Guarantied Obligations.  Each Qualified ECP Guarantor intends that this Section 2(j)  constitute, and this Section 2(j)  shall be deemed to constitute, a “keepwell, support, or other agreement” for the benefit of each other Grantor for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
 
3.             Grant of Security .  Each Grantor hereby unconditionally grants, assigns, and pledges to Agent, for the benefit of each member of the Lender Group and each of the Bank Product Providers, to secure the Secured Obligations, a continuing security interest (hereinafter referred to as the “ Security Interest ”) in all of such Grantor’s right, title, and interest in and to the following, whether now owned or hereafter acquired or arising and wherever located (the “ Collateral ”):
 
(a)           all of such Grantor’s Accounts;
 
(b)           all of such Grantor’s Books;
 
(c)           all of such Grantor’s Chattel Paper;
 
(d)           all of such Grantor’s Commercial Tort Claims;
 
(e)           all of such Grantor’s Deposit Accounts;
 
(f)            all of such Grantor’s Equipment;
 
(g)           all of such Grantor’s Farm Products;
 
(h)           all of such Grantor’s Fixtures;
 
(i)            all of such Grantor’s General Intangibles;
 
(j)            all of such Grantor’s Inventory;
 
(k)           all of such Grantor’s Investment Property;
 
(l)            all of such Grantor’s Intellectual Property and, to the extent assignable, Intellectual Property Licenses;
 
(m)          all of such Grantor’s Negotiable Collateral;
 
(n)           all of such Grantor’s Pledged Interests (including all of such Grantor’s Pledged Operating Agreements and Pledged Partnership Agreements);
 
(o)           all of such Grantor’s Securities Accounts;
 
(p)           all of such Grantor’s Supporting Obligations;
 
(q)           all of such Grantor’s money, Cash Equivalents, or other assets of such Grantor that now or hereafter come into the possession, custody, or control of Agent (or its agent or designee) or any other member of the Lender Group; and
 
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(r)            all of the proceeds (as such term is defined in the Code) and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance or Commercial Tort Claims covering or relating to any or all of the foregoing, and any and all Accounts, Books, Chattel Paper, Deposit Accounts, Equipment, Fixtures, General Intangibles, Inventory, Investment Property, Intellectual Property, Negotiable Collateral, Pledged Interests, Securities Accounts, Supporting Obligations, money, or other tangible or intangible property resulting from the sale, lease, license, exchange, collection, or other disposition of any of the foregoing, the proceeds of any award in condemnation with respect to any of the foregoing, any rebates or refunds, whether for taxes or otherwise, and all proceeds of any such proceeds, or any portion thereof or interest therein, and the proceeds thereof, and all proceeds of any loss of, damage to, or destruction of the above, whether insured or not insured, and, to the extent not otherwise included, any indemnity, warranty, or guaranty payable by reason of loss or damage to, or otherwise with respect to any of the foregoing (the “ Proceeds ”).  Without limiting the generality of the foregoing, the term “Proceeds” includes whatever is receivable or received when Investment Property or proceeds are sold, exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes proceeds of any indemnity or guaranty payable to any Grantor or Agent from time to time with respect to any of the Investment Property.
 
4.             Security for Secured Obligations .  The Security Interest created hereby secures the payment and performance of the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Agent, the Lender Group, the Bank Product Providers or any of them, but for the fact that they are unenforceable or not allowable (in whole or in part) as a claim in an Insolvency Proceeding involving any Grantor due to the existence of such Insolvency Proceeding.
 
5.             Grantors Remain Liable .  Anything herein to the contrary notwithstanding, (a) each of the Grantors shall remain liable under the contracts and agreements included in the Collateral, including the Pledged Operating Agreements and the Pledged Partnership Agreements, to perform all of the duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Agent or any other member of the Lender Group of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under such contracts and agreements included in the Collateral, and (c) none of the members of the Lender Group shall have any obligation or liability under such contracts and agreements included in the Collateral by reason of this Agreement, nor shall any of the members of the Lender Group be obligated to perform any of the obligations or duties of any Grantors thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.  Until an Event of Default shall occur and be continuing, except as otherwise provided in this Agreement, the Credit Agreement, or any other Loan Document, Grantors shall have the right to possession and enjoyment of the Collateral for the purpose of conducting the ordinary course of their respective businesses, subject to and upon the terms hereof and of the Credit Agreement and the other Loan Documents.  Without limiting the generality of the foregoing, it is the intention of the parties hereto that record and beneficial ownership of the Pledged Interests, including all voting, consensual, dividend, and distribution rights, shall remain in the applicable Grantor until (i) the occurrence and continuance of an Event of Default and (ii) Agent has notified the applicable Grantor of Agent’s election to exercise such rights with respect to the Pledged Interests pursuant to Section 16 .
 
6.             Representations and Warranties .  In order to induce Agent to enter into this Agreement for the benefit of the Lender Group and the Bank Product Providers, each Grantor makes the following representations and warranties to the Lender Group which shall be true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof), as of the Closing Date,
 
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and shall be true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof), as of the date of the making of each Revolving Loan (or other extension of credit) made thereafter, as though made on and as of the date of such Revolving Loan (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) as of such earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement:
 
(a)           The name (within the meaning of Section 9-503 of the Code) and jurisdiction of organization of each Grantor and each of its Subsidiaries is set forth on Schedule 7 (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under the Loan Documents).
 
(b)           The chief executive office of each Grantor and each of its Subsidiaries is located at the address indicated on Schedule 7 (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under the Loan Documents).
 
(c)           Each Grantor’s and each of its Subsidiaries’ tax identification numbers and organizational identification numbers, if any, are identified on Schedule 7 (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under the Loan Documents).
 
(d)           As of the Closing Date, no Grantor and no Subsidiary of a Grantor holds any commercial tort claims that exceed $100,000 in aggregate, except as set forth on Schedule 1 .
 
(e)           Set forth on Schedule 9 (as such Schedule may be updated from time to time subject to Section 7(k)(iii)  with respect to Controlled Accounts and provided that Grantors comply with Section 7(c)  hereof) is a listing of all of Grantors’ and their Subsidiaries’ Deposit Accounts and Securities Accounts, including, with respect to each bank or securities intermediary (a) the name and address of such Person, and (b) the account numbers of the Deposit Accounts or Securities Accounts maintained with such Person.
 
(f)            Schedule 8 sets forth all Real Property owned by any of the Grantors as of the Closing Date.
 
(g)           As of the Closing Date: (i)  Schedule 2 provides a complete and correct list of all registered Copyrights owned by any Grantor, all applications for registration of Copyrights owned by any Grantor, and all other Copyrights owned by any Grantor and material to the conduct of the business of any Grantor; (ii)  Schedule 3 provides a complete and correct list of all Intellectual Property Licenses entered into by any Grantor pursuant to which (A) any Grantor has provided any material license or other rights in Intellectual Property owned or controlled by such Grantor to any other Person (other than non-exclusive software licenses granted in the ordinary course of business) or (B) any Person has granted to any Grantor any license or other rights in Intellectual Property owned or controlled by such Person that is material to the business of such Grantor, including any Intellectual Property that is incorporated in any Inventory, software, or other product marketed, sold, licensed, or distributed by such Grantor; (iii)  Schedule 4 provides a complete and correct list of all Patents owned by any Grantor and all applications for Patents owned by any Grantor; and (iv)  Schedule 6 provides a complete and correct list of all registered Trademarks owned by any Grantor, all applications for registration of Trademarks owned by
 
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any Grantor, and all other Trademarks owned by any Grantor and material to the conduct of the business of any Grantor.
 
(h)           (i) (A) each Grantor owns exclusively or holds licenses in all Intellectual Property that is necessary in or material to the conduct of its business, and (B) all employees and contractors of each Grantor who were involved in the creation or development of any Intellectual Property for such Grantor that is necessary in or material to the business of such Grantor have signed agreements containing assignment of Intellectual Property rights to such Grantor and obligations of confidentiality;
 
(i)            to each Grantor’s knowledge after reasonable inquiry, no Person has infringed or misappropriated or is currently infringing or misappropriating any Intellectual Property rights owned by such Grantor, in each case, that either individually or in the aggregate could reasonably be expected to result in a Material Adverse Effect;
 
(ii)           (A) to each Grantor’s knowledge after reasonable inquiry, (1) such Grantor has never infringed or misappropriated and is not currently infringing or misappropriating any Intellectual Property rights of any Person, and (2) no product manufactured, used, distributed, licensed, or sold by or service provided by such Grantor has ever infringed or misappropriated or is currently infringing or misappropriating any Intellectual Property rights of any Person, in each case, except where such infringement either individually or in the aggregate could not reasonably be expected to result in a Material Adverse Effect, and (B) there are no infringement or misappropriation claims or proceedings pending, or to any Grantor’s knowledge after reasonable inquiry, threatened in writing against any Grantor, and no Grantor has received any written notice or other communication of any actual or alleged infringement or misappropriation of any Intellectual Property rights of any Person, in each case, except where such infringement either individually or in the aggregate could not reasonably be expected to result in a Material Adverse Effect;
 
(iii)          to each Grantor’s knowledge after reasonable inquiry, all registered Copyrights, registered Trademarks, and issued Patents that are owned by such Grantor and necessary in or material to the conduct of its business are valid, subsisting and enforceable and in compliance with all legal requirements, filings, and payments and other actions that are required to maintain such Intellectual Property in full force and effect,
 
(iv)          each Grantor has taken reasonable steps to maintain the confidentiality of and otherwise protect and enforce its rights in all trade secrets owned by such Grantor that are necessary in or material to the conduct of the business of such Grantor, and
 
(v)           none of the proprietary software licensed or distributed by any Grantor that is material to generating revenue for such Grantor is subject to any “copyleft” or other obligation or condition (including any obligation or condition under any “open source” license such as the GNU Public License, Lesser GNU Public License, or Mozilla Public License) that would require, or condition the use or distribution of such software, on the disclosure, licensing or distribution of any source code of the proprietary software;
 
(i)            This Agreement creates a valid security interest in the Collateral of each Grantor, to the extent a security interest therein can be created under the Code, securing the payment of the Secured Obligations.  Except to the extent a security interest in the Collateral cannot be perfected by the filing of a financing statement under the Code, all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken or will have been taken upon the filing of
 
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financing statements listing each applicable Grantor, as a debtor, and Agent, as secured party, in the jurisdictions listed next to such Grantor’s name on Schedule 11 .  Except as otherwise noted in the Credit Agreement, upon the making of such filings, Agent shall have a first priority perfected security interest in the Collateral of each Grantor to the extent such security interest can be perfected by the filing of a financing statement.  Upon filing of any Copyright Security Agreement with the United States Copyright Office, filing of any Patent Security Agreement and any Trademark Security Agreement with the PTO, and the filing of appropriate financing statements in the jurisdictions listed on Schedule 11 , all action necessary or desirable to protect and perfect the Security Interest in and on each Grantor’s Patents, Trademarks, or Copyrights has been taken and such perfected Security Interest is enforceable as such as against any and all creditors of and purchasers from any Grantor.  All action by any Grantor necessary to protect and perfect such security interest on each item of Collateral has been duly taken.
 
(j)            (i) Except for the Security Interest created hereby, each Grantor is and will at all times be the sole holder of record and the legal and beneficial owner, free and clear of all Liens other than Permitted Liens, of the Pledged Interests indicated on Schedule 5 as being owned by such Grantor and, when acquired by such Grantor, any Pledged Interests acquired after the Closing Date; (ii) all of the Pledged Interests are duly authorized, validly issued, fully paid and nonassessable and the Pledged Interests constitute or will constitute the percentage of the issued and outstanding Equity Interests of the Pledged Companies of such Grantor identified on Schedule 5 as supplemented or modified by any Pledged Interests Addendum or any Joinder to this Agreement; (iii) such Grantor has the right and requisite authority to pledge, the Investment Property pledged by such Grantor to Agent as provided herein; (iv) all actions necessary or desirable to perfect and establish the first priority of, or otherwise protect, Agent’s Liens in the Investment Property, and the proceeds thereof, have been duly taken, upon (A) the execution and delivery of this Agreement; (B) the taking of possession by Agent (or its agent or designee) of any certificates representing the Pledged Interests, together with undated powers (or other documents of transfer acceptable to Agent) endorsed in blank by the applicable Grantor; (C) the filing of financing statements in the applicable jurisdiction set forth on Schedule 11 for such Grantor with respect to the Pledged Interests of such Grantor that are not represented by certificates, and (D) with respect to any Securities Accounts, the delivery of Control Agreements with respect thereto; and (v) each Grantor has delivered to and deposited with Agent all certificates representing the Pledged Interests owned by such Grantor to the extent such Pledged Interests are represented by certificates, and undated powers (or other documents of transfer acceptable to Agent) endorsed in blank with respect to such certificates. None of the Pledged Interests owned or held by such Grantor has been issued or transferred in violation of any securities registration, securities disclosure, or similar laws of any jurisdiction to which such issuance or transfer may be subject.
 
(k)           No consent, approval, authorization, or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the grant of a Security Interest by such Grantor in and to the Collateral pursuant to this Agreement or for the execution, delivery, or performance of this Agreement by such Grantor, or (ii) for the exercise by Agent of the voting or other rights provided for in this Agreement with respect to the Investment Property or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with such disposition of Investment Property by laws affecting the offering and sale of securities generally and except for consents, approvals, authorizations, or other orders or actions that have been obtained or given (as applicable) and that are still in force.  No Intellectual Property License of any Grantor that is necessary in or material to the conduct of such Grantor’s business requires any consent of any other Person that has not been obtained in order for such Grantor to grant the security interest granted hereunder in such Grantor’s right, title or interest in or to such Intellectual Property License.
 
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(l)            Schedule 12 sets forth all motor vehicles owned by Grantors as of the Closing Date, by model, model year, and vehicle identification number (“ VIN ”).
 
(m)          As to all limited liability company or partnership interests, issued under any Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor hereby represents and warrants that the Pledged Interests issued pursuant to such agreement (A) are not dealt in or traded on securities exchanges or in securities markets, (B) do not constitute investment company securities, and (C) are not held by such Grantor in a Securities Account.  In addition, none of the Pledged Operating Agreements, the Pledged Partnership Agreements, or any other agreements governing any of the Pledged Interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction.
 
7.             Covenants .  Each Grantor, jointly and severally, covenants and agrees with Agent that from and after the date of this Agreement and until the date of termination of this Agreement in accordance with Section 23 :
 
(a)           Possession of Collateral .  In the event that any Collateral, including Proceeds, is evidenced by or consists of Negotiable Collateral, Investment Property, or Chattel Paper having an aggregate value or face amount of $100,000 or more for all such Negotiable Collateral, Investment Property, or Chattel Paper, the Grantors shall promptly (and in any event within ten (10) Business Days after acquisition thereof), notify Agent thereof, and if and to the extent that perfection or priority of Agent’s Security Interest is dependent on or enhanced by possession, the applicable Grantor, promptly (and in any event within ten (10) Business Days) after request by Agent, shall execute such other documents and instruments as shall be requested by Agent or, if applicable, endorse and deliver physical possession of such Negotiable Collateral, Investment Property, or Chattel Paper to Agent, together with such undated powers (or other relevant document of transfer acceptable to Agent) endorsed in blank as shall be requested by Agent, and shall do such other acts or things deemed necessary or desirable by Agent to protect Agent’s Security Interest therein;
 
(b)           Chattel Paper .
 
(i)            Promptly (and in any event within ten (10) Business Days) after request by Agent, each Grantor shall take all steps reasonably necessary to grant Agent control of all electronic Chattel Paper in accordance with the Code and all “transferable records” as that term is defined in Section 16 of the Uniform Electronic Transaction Act and Section 201 of the federal Electronic Signatures in Global and National Commerce Act as in effect in any relevant jurisdiction, to the extent that the aggregate value or face amount of such electronic Chattel Paper equals or exceeds $100,000;
 
(ii)           If any Grantor retains possession of any Chattel Paper or instruments (which retention of possession shall be subject to the extent permitted hereby and by the Credit Agreement), promptly upon the request of Agent, such Chattel Paper and instruments shall be marked with the following legend: “This writing and the obligations evidenced or secured hereby are subject to the Security Interest of Wells Fargo Bank, National Association, as Agent for the benefit of the Lender Group and the Bank Product Providers”;
 
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(c)           Control Agreements .
 
(i)            Except to the extent otherwise excused by Section 7(k)(iv) , each Grantor shall obtain an authenticated Control Agreement (which may include a Controlled Account Agreement), from each bank maintaining a Deposit Account or Securities Account for such Grantor;
 
(ii)           Except to the extent otherwise excused by Section 7(k)(iv) , each Grantor shall obtain an authenticated Control Agreement, from each issuer of uncertificated securities, securities intermediary, or commodities intermediary issuing or holding any financial assets or commodities to or for any Grantor, or maintaining a Securities Account for such Grantor; and
 
(iii)          Except to the extent otherwise excused by Section 7(k)(iv) , each Grantor shall obtain an authenticated Control Agreement with respect to all of such Grantor’s investment property;
 
(d)           Letter-of-Credit Rights .  If the Grantors (or any of them) are or become the beneficiary of letters of credit having a face amount or value of $100,000 or more in the aggregate, then the applicable Grantor or Grantors shall promptly (and in any event within ten (10) Business Days after becoming a beneficiary), notify Agent thereof and, promptly (and in any event within ten (10) Business Days) after request by Agent, enter into a tri-party agreement with Agent and the issuer or confirming bank with respect to letter-of-credit rights assigning such letter-of-credit rights to Agent and directing all payments thereunder to Agent’s Account, all in form and substance reasonably satisfactory to Agent;
 
(e)           Commercial Tort Claims .  If the Grantors (or any of them) obtain Commercial Tort Claims having a value, or involving an asserted claim, in the amount of $100,000 or more in the aggregate for all Commercial Tort Claims, then the applicable Grantor or Grantors shall promptly (and in any event within ten (10) Business Days of obtaining such Commercial Tort Claim), notify Agent upon incurring or otherwise obtaining such Commercial Tort Claims and, promptly (and in any event within ten (10) Business Days) after request by Agent, amend Schedule 1 to describe such Commercial Tort Claims in a manner that reasonably identifies such Commercial Tort Claims and which is otherwise reasonably satisfactory to Agent, and hereby authorizes the filing of additional financing statements or amendments to existing financing statements describing such Commercial Tort Claims, and agrees to do such other acts or things deemed necessary or desirable by Agent to give Agent a first priority, perfected security interest in any such Commercial Tort Claim;
 
(f)            Government Contracts .  Other than Accounts and Chattel Paper the aggregate value of which does not at any one time exceed $100,000, if any Account or Chattel Paper arises out of a contract or contracts with the United States of America or any department, agency, or instrumentality thereof, Grantors shall promptly (and in any event within ten (10) Business Days of the creation thereof) notify Agent thereof and, promptly (and in any event within ten (10) Business Days) after request by Agent, execute any instruments or take any steps reasonably required by Agent in order that all moneys due or to become due under such contract or contracts shall be assigned to Agent, for the benefit of the Lender Group and the Bank Product Providers, and shall provide written notice thereof under the Assignment of Claims Act or other applicable law;
 
(g)           Intellectual Property .
 
(i)            Upon the request of Agent, in order to facilitate filings with the PTO and the United States Copyright Office, each Grantor shall execute and deliver to Agent one or more Copyright Security Agreements, Trademark Security Agreements, or Patent Security Agreements to further evidence Agent’s Lien on such Grantor’s Patents, Trademarks, or Copyrights, and the General Intangibles of such Grantor relating thereto or represented thereby;
 
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(ii)           Each Grantor shall have the duty, with respect to Intellectual Property that is necessary in or material to the conduct of such Grantor’s business, to protect and diligently enforce and defend at such Grantor’s expense its Intellectual Property, including (A) to diligently enforce and defend, including promptly suing for infringement, misappropriation, or dilution and to recover any and all damages for such infringement, misappropriation, or dilution, and filing for opposition, interference, and cancellation against conflicting Intellectual Property rights of any Person, (B) to prosecute diligently any trademark application or service mark application that is part of the Trademarks pending as of the date hereof or hereafter until the termination of this Agreement, (C) to prosecute diligently any patent application that is part of the Patents pending as of the date hereof or hereafter until the termination of this Agreement, (D) to take all reasonable and necessary action to preserve and maintain all of such Grantor’s Trademarks, Patents, Copyrights, Intellectual Property Licenses, and its rights therein, including paying all maintenance fees and filing of applications for renewal, affidavits of use, and affidavits of noncontestability, and (E) to require all employees, consultants, and contractors of each Grantor who were involved in the creation or development of such Intellectual Property to sign agreements containing assignment of Intellectual Property rights and obligations of confidentiality.  Each Grantor further agrees not to abandon any Intellectual Property or Intellectual Property License that is necessary in or material to the conduct of such Grantor’s business.  Each Grantor hereby agrees to take the steps described in this Section 7(g)(ii)  with respect to all new or acquired Intellectual Property to which it or any of its Subsidiaries is now or later becomes entitled that is necessary in or material to the conduct of such Grantor’s business;
 
(iii)          Grantors acknowledge and agree that the Lender Group shall have no duties with respect to any Intellectual Property or Intellectual Property Licenses of any Grantor.  Without limiting the generality of this Section 7(g)(iii) , Grantors acknowledge and agree that no member of the Lender Group shall be under any obligation to take any steps necessary to preserve rights in the Collateral consisting of Intellectual Property or Intellectual Property Licenses against any other Person, but any member of the Lender Group may do so at its option from and after the occurrence and during the continuance of an Event of Default, and all expenses incurred in connection therewith (including reasonable fees and expenses of attorneys and other professionals) shall be for the sole account of Borrower and shall be chargeable to the Loan Account;
 
(iv)          On each date on which a Compliance Certificate is to be delivered pursuant to Section 5.1 of the Credit Agreement in respect of a fiscal quarter (or, if an Event of Default has occurred and is continuing, more frequently if requested by Agent), each Grantor shall deliver to Agent a list in form satisfactory to Agent (including listing such Copyrights sequentially based on the amount of revenue generated from licensing the corresponding software programs, starting from the software program that generates the highest amount of revenue to the software program that generates the least amount of revenue) identifying all of its proprietary software that is material to generating revenue of such Grantor, whether created or acquired before, on, or after the Closing Date, and a certification, signed by an officer of such Grantor, certifying that such list identifies all of its proprietary software that is material to generating revenue of such Grantor and indicating which of the Copyrights in such proprietary software have been filed for registration with the United States Copyright Office.  Each Grantor shall continue to register or not register, as the case may be, its Copyrights in accordance with its historical practices as they existed as of the Closing Date.  If an Event of Default has occurred and is continuing, and if requested by Agent, each Grantor shall (A) file applications and take any and all other actions necessary to register on an expedited basis (if expedited processing is available in accordance with the applicable regulations and procedures of the United States Copyright Office and any similar office of any other jurisdiction in which Copyrights are used) each of such Grantor’s Copyrights in any proprietary software that is material to generating revenue for such Grantor and identifying such Grantor as the sole claimant thereof in a manner sufficient to claim in the public record (or as a co-claimant thereof, if such is
 
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the case) such Grantor’s ownership or co-ownership thereof, and (B) cause to be prepared, executed, and delivered to Agent, with sufficient time to permit Agent to record no later than three (3) Business Days following the date of registration of or recordation of transfer of ownership, as applicable, to the applicable Grantor of such Copyrights, (1) a Copyright Security Agreement or supplemental schedules to the Copyright Security Agreement reflecting the security interest of Agent in such Copyrights, which supplemental schedules shall be in form and content suitable for recordation with the United States Copyright Office (or any similar office of any other jurisdiction in which Copyrights are used) and (2) any other documentation as Agent reasonably deems necessary and requests in order to perfect and continue perfected Agent’s Liens on such Copyrights following such recordation.
 
(v)           On each date on which a Compliance Certificate is to be delivered pursuant to Section 5.1 of the Credit Agreement in respect of a fiscal quarter (or, if an Event of Default has occurred and is continuing, more frequently if requested by Agent) (but without duplication of any notice required by Section 7(g)(iv) ), each Grantor shall provide Agent with a written report of all new Patents, Trademarks or Copyrights that are registered or the subject of pending applications for registrations, and of all Intellectual Property Licenses that are material to the conduct of such Grantor’s business, in each case, which were acquired, registered, or for which applications for registration were filed by any Grantor during the prior period and any statement of use or amendment to allege use with respect to intent-to-use trademark applications.  In the case of such registrations or applications therefor, which were acquired by any Grantor, each such Grantor shall file the necessary documents with the appropriate Governmental Authority identifying the applicable Grantor as the owner (or as a co-owner thereof, if such is the case) of such Intellectual Property.  In each of the foregoing cases, the applicable Grantor shall promptly cause to be prepared, executed, and delivered to Agent supplemental schedules to the applicable Loan Documents to identify such Patent, Trademark and Copyright registrations and applications therefor (with the exception of Trademark applications filed on an intent-to-use basis for which no statement of use or amendment to allege use has been filed) and Intellectual Property Licenses as being subject to the security interests created thereunder;
 
(vi)          Anything to the contrary in this Agreement notwithstanding, in no event shall any Grantor, either itself or through any agent, employee, licensee, or designee, file an application for the registration of any Copyright with the United States Copyright Office or any similar office or agency in another country without giving Agent written notice thereof at least ten (10) Business Days prior to such filing and complying with Section 7(g)(i) . Upon receipt from the United States Copyright Office of notice of registration of any Copyright, each Grantor shall promptly (but in no event later than ten (10) Business Days following such receipt) notify (but without duplication of any notice required by Section 7(g)(iv)  or Section 7(g)(v) ) Agent of such registration by delivering, or causing to be delivered, to Agent, documentation sufficient for Agent to perfect Agent’s Liens on such Copyright.  If any Grantor acquires from any Person any Copyright registered with the United States Copyright Office or an application to register any Copyright with the United States Copyright Office, such Grantor shall promptly (but in no event later than ten (10) Business Days following such acquisition) notify Agent of such acquisition and deliver, or cause to be delivered, to Agent, documentation sufficient for Agent to perfect Agent’s Liens on such Copyright.  In the case of such Copyright registrations or applications therefor which were acquired by any Grantor, each such Grantor shall promptly (but in no event later than ten (10) Business Days following such acquisition) file the necessary documents with the appropriate Governmental Authority identifying the applicable Grantor as the owner (or as a co-owner thereof, if such is the case) of such Copyrights;
 
(vii)         Each Grantor shall take reasonable steps to maintain the confidentiality of, and otherwise protect and enforce its rights in, the Intellectual Property that is necessary in or material to the conduct of such Grantor’s business, including, as applicable (A) protecting the secrecy and
 
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confidentiality of its confidential information and trade secrets by having and enforcing a policy requiring all current employees, consultants, licensees, vendors and contractors with access to such information to execute appropriate confidentiality agreements; (B) taking actions reasonably necessary to ensure that no trade secret falls into the public domain; and (C) protecting the secrecy and confidentiality of the source code of all software programs and applications of which it is the owner or licensee by having and enforcing a policy requiring any licensees (or sublicensees) of such source code to enter into license agreements with commercially reasonable use and non-disclosure restrictions;
 
(viii)        No Grantor shall incorporate into any proprietary software licensed or distributed by such Grantor that is material to generating revenue for such Grantor any third-party code that is licensed pursuant to any open source license such as the GNU Public License, Lesser GNU Public License, or Mozilla Public License, in a manner that would require or condition the use or distribution of such software on, the disclosing, licensing, or distribution of any source code for any portion of the proprietary software that is licensed or distributed by any Grantor; and
 
(ix)          No Grantor shall enter into any Intellectual Property License material to the conduct of the business to receive any license or rights in any Intellectual Property of any other Person unless such Grantor has used commercially reasonable efforts to permit the assignment of or grant of a security interest in such Intellectual Property License (and all rights of Grantor thereunder) to Agent (and any transferees of Agent);
 
(h)           Investment Property .
 
(i)            If any Grantor shall acquire, obtain, receive or become entitled to receive any Pledged Interests after the Closing Date, it shall promptly (and in any event within ten (10) Business Days of acquiring or obtaining such Collateral) deliver to Agent a duly executed Pledged Interests Addendum identifying such Pledged Interests;
 
(ii)           Upon the occurrence and during the continuance of an Event of Default, following the request of Agent, all sums of money and property paid or distributed in respect of the Investment Property that are received by any Grantor shall be held by the Grantors in trust for the benefit of Agent segregated from such Grantor’s other property, and such Grantor shall deliver it forthwith to Agent in the exact form received;
 
(iii)          Each Grantor shall promptly deliver to Agent a copy of each material notice or other material communication received by it in respect of any Pledged Interests;
 
(iv)          No Grantor shall make or consent to any amendment or other modification or waiver with respect to any Pledged Interests, Pledged Operating Agreement, or Pledged Partnership Agreement, or enter into any agreement or permit to exist any restriction with respect to any Pledged Interests if the same is prohibited pursuant to the Loan Documents;
 
(v)           Each Grantor agrees that it will cooperate with Agent in obtaining all necessary approvals and making all necessary filings under federal, state, local, or foreign law to effect the perfection of the Security Interest on the Investment Property or to effect any sale or transfer thereof;
 
(vi)          As to all limited liability company or partnership interests, issued under any Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor hereby covenants that the Pledged Interests issued pursuant to such agreement (A) are not and shall not be dealt in or traded on securities exchanges or in securities markets, (B) do not and will not constitute investment company
 
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securities, and (C) are not and will not be held by such Grantor in a securities account.  In addition, none of the Pledged Operating Agreements, the Pledged Partnership Agreements, or any other agreements governing any of the Pledged Interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, provide or shall provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction.
 
(i)            Real Property; Fixtures.   Each Grantor covenants and agrees that upon the acquisition of any fee interest in Real Property having a fair market value in excess of $1,000,000 it will promptly (and in any event within ten (10) Business Days of acquisition) notify Agent of the acquisition of such Real Property and will grant to Agent, for the benefit of the Lender Group and the Bank Product Providers, a first priority Mortgage on each fee interest in Real Property now or hereafter owned by such Grantor and shall deliver such other documentation and opinions, in form and substance satisfactory to Agent, in connection with the grant of such Mortgage as Agent shall request in its Permitted Discretion, including title insurance policies, financing statements, fixture filings and environmental audits and such Grantor shall pay all recording costs, intangible taxes and other fees and costs (including reasonable attorneys’ fees and expenses) incurred in connection therewith.  Each Grantor acknowledges and agrees that, to the extent permitted by applicable law, all of the Collateral attachment or affixation to real property shall remain personal property regardless of the manner of its attachment or affixation to real property;
 
(j)            Transfers and Other Liens .  Grantors shall not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, except as expressly permitted by the Credit Agreement, or (ii) create or permit to exist any Lien upon or with respect to any of the Collateral of any Grantor, except for Permitted Liens.  The inclusion of Proceeds in the Collateral shall not be deemed to constitute Agent’s consent to any sale or other disposition of any of the Collateral except as expressly permitted in this Agreement or the other Loan Documents;
 
(k)           Controlled Accounts; Controlled Investments .
 
(i)            Each Grantor shall (A) establish and maintain cash management services of a type and on terms reasonably satisfactory to Agent at one or more of the banks set forth on Schedule 10 (each a “ Controlled Account Bank ”), and shall take reasonable steps to ensure that all of its and its Subsidiaries’ Account Debtors forward payment of the amounts owed by them directly to such Controlled Account Bank, and (B) deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all of their Collections (including those sent directly by their Account Debtors to a Grantor) into a bank account of such Grantor (each, a “ Controlled Account ”) at one of the Controlled Account Banks.
 
(ii)           Each Grantor shall establish and maintain Controlled Account Agreements with Agent and the applicable Controlled Account Bank, in form and substance reasonably acceptable to Agent.  Each such Controlled Account Agreement shall provide, among other things, that (A) the Controlled Account Bank will comply with any instructions originated by Agent directing the disposition of the funds in such Controlled Account without further consent by the applicable Grantor, (B) the Controlled Account Bank waives, subordinates, or agrees not to exercise any rights of setoff or recoupment or any other claim against the applicable Controlled Account other than for payment of its service fees and other charges directly related to the administration of such Controlled Account and for returned checks or other items of payment, and (C) upon the instruction of Agent (an “ Activation Instruction ”), the Controlled Account Bank will forward by daily sweep all amounts in the applicable Controlled Account to the Agent’s Account.  Agent agrees not to issue an Activation Instruction with respect to the Controlled Accounts unless a Triggering Event has occurred and is continuing at the time
 
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such Activation Instruction is issued.  Agent agrees to use commercially reasonable efforts to rescind an Activation Instruction (the “ Rescission ”) if: (1) the Triggering Event upon which such Activation Instruction was issued has been waived in writing in accordance with the terms of the Credit Agreement, and (2) no additional Triggering Event has occurred and is continuing prior to the date of the Rescission or is reasonably expected to occur on or immediately after the date of the Rescission.
 
(iii)          So long as no Default or Event of Default has occurred and is continuing, Borrower may amend Schedule 10 to add or replace a Controlled Account Bank or Controlled Account and shall upon such addition or replacement provide to Agent an amended Schedule 10 ; provided , however , that (A) such prospective Controlled Account Bank shall be reasonably satisfactory to Agent, and (B) prior to the time of the opening of such Controlled Account, the applicable Grantor and such prospective Controlled Account Bank shall have executed and delivered to Agent a Controlled Account Agreement.  Each Grantor shall close any of its Controlled Accounts (and establish replacement Controlled Account accounts in accordance with the foregoing sentence) as promptly as practicable and in any event within forty-five (45) days after notice from Agent that the operating performance, funds transfer, or availability procedures or performance of the Controlled Account Bank with respect to Controlled Account Accounts or Agent’s liability under any Controlled Account Agreement with such Controlled Account Bank is no longer acceptable in Agent’s reasonable judgment.
 
(iv)          Other than (i) an aggregate amount of not more than $25,000 at any one time, in the case of Grantors and their Subsidiaries (excluding any Outside Accounts), (ii) amounts deposited into Deposit Accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for any Grantor’s or its Subsidiaries’ employees, and (iii) any Outside Accounts (up to an aggregate balance of $2,000,000 among all Outside Accounts (or some greater balance as permitted by Agent in its sole discretion)), no Grantor will, and no Grantor will permit its Subsidiaries to, make, acquire, or permit to exist Permitted Investments consisting of cash, Cash Equivalents, or amounts credited to Deposit Accounts or Securities Accounts unless Grantor or its Subsidiary, as applicable, and the applicable bank or securities intermediary have entered into Control Agreements with Agent governing such Permitted Investments in order to perfect (and further establish) Agent’s Liens in such Permitted Investments.
 
(l)            Name, Etc .  No Grantor will, nor will any Grantor permit any of its Subsidiaries to, change its name, organizational identification number, jurisdiction of organization or organizational identity; provided , that Grantor or any of its Subsidiaries may change its name upon at least 10 days prior written notice to Agent of such change.
 
(m)          Motor Vehicles .  Promptly (and in any event within ten (10) Business Days) after request by Agent, with respect to all goods covered by a certificate of title owned by any Grantor, such Grantor shall deliver to Agent or Agent’s designee, the certificates of title for all such goods and promptly (and in any event within ten (10) Business Days) after request by Agent, such Grantor shall take all actions necessary to cause such certificates to be filed (with the Agent’s Lien noted thereon) in the appropriate state motor vehicle filing office.
 
8.             Relation to Other Security Documents .  The provisions of this Agreement shall be read and construed with the other Loan Documents referred to below in the manner so indicated.
 
(a)           Credit Agreement . In the event of any conflict between any provision in this Agreement and a provision in the Credit Agreement, such provision of the Credit Agreement shall control.
 
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(b)           Patent, Trademark, Copyright Security Agreements .  The provisions of the Copyright Security Agreements, Trademark Security Agreements, and Patent Security Agreements are supplemental to the provisions of this Agreement, and nothing contained in the Copyright Security Agreements, Trademark Security Agreements, or the Patent Security Agreements shall limit any of the rights or remedies of Agent hereunder.  In the event of any conflict between any provision in this Agreement and a provision in a Copyright Security Agreement, Trademark Security Agreement or Patent Security Agreement, such provision of this Agreement shall control.
 
9.             Further Assurances .
 
(a)           Each Grantor agrees that from time to time, at its own expense, such Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that Agent may reasonably request, in order to perfect and protect the Security Interest granted hereby, to create, perfect or protect the Security Interest purported to be granted hereby or to enable Agent to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.
 
(b)           Each Grantor authorizes the filing by Agent of financing or continuation statements, or amendments thereto, and such Grantor will execute and deliver to Agent such other instruments or notices, as Agent may reasonably request, in order to perfect and preserve the Security Interest granted or purported to be granted hereby.
 
(c)           Each Grantor authorizes Agent at any time and from time to time to file, transmit, or communicate, as applicable, financing statements and amendments (i) describing the Collateral as “all personal property of debtor” or “all assets of debtor” or words of similar effect, (ii) describing the Collateral as being of equal or lesser scope or with greater detail, or (iii) that contain any information required by part 5 of Article 9 of the Code for the sufficiency or filing office acceptance.  Each Grantor also hereby ratifies any and all financing statements or amendments previously filed by Agent in any jurisdiction.
 
(d)           Each Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection with this Agreement without the prior written consent of Agent, subject to such Grantor’s rights under Section 9-509(d)(2) of the Code.
 
10.          Agent’s Right to Perform Contracts, Exercise Rights, etc .  Upon the occurrence and during the continuance of an Event of Default, Agent (or its designee) (a) may proceed to perform any and all of the obligations of any Grantor contained in any contract, lease, or other agreement and exercise any and all rights of any Grantor therein contained as fully as such Grantor itself could, (b) shall have the right to use any Grantor’s rights under Intellectual Property Licenses in connection with the enforcement of Agent’s rights hereunder, including the right to prepare for sale and sell any and all Inventory and Equipment now or hereafter owned by any Grantor and now or hereafter covered by such licenses, and (c) shall have the right to request that any Equity Interests that are pledged hereunder be registered in the name of Agent or any of its nominees.
 
11.          Agent Appointed Attorney-in-Fact .  Each Grantor hereby irrevocably appoints Agent its attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, at such time as an Event of Default has occurred and is continuing under the Credit Agreement, to take any action and to execute any instrument which Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including:
 
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(a)           to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with the Accounts or any other Collateral of such Grantor;
 
(b)           to receive and open all mail addressed to such Grantor and to notify postal authorities to change the address for the delivery of mail to such Grantor to that of Agent;
 
(c)           to receive, indorse, and collect any drafts or other instruments, documents, Negotiable Collateral or Chattel Paper;
 
(d)           to file any claims or take any action or institute any proceedings which Agent may deem necessary or desirable for the collection of any of the Collateral of such Grantor or otherwise to enforce the rights of Agent with respect to any of the Collateral;
 
(e)           to repair, alter, or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any Person obligated to such Grantor in respect of any Account of such Grantor;
 
(f)            to use any Intellectual Property or Intellectual Property Licenses of such Grantor, including but not limited to any labels, Patents, Trademarks, trade names, URLs, domain names, industrial designs, Copyrights, or advertising matter, in preparing for sale, advertising for sale, or selling Inventory or other Collateral and to collect any amounts due under Accounts, contracts or Negotiable Collateral of such Grantor; and
 
(g)           Agent, on behalf of the Lender Group or the Bank Product Providers, shall have the right, but shall not be obligated, to bring suit in its own name to enforce the Intellectual Property and Intellectual Property Licenses and, if Agent shall commence any such suit, the appropriate Grantor shall, at the request of Agent, do any and all lawful acts and execute any and all proper documents reasonably required by Agent in aid of such enforcement.
 
To the extent permitted by law, each Grantor hereby ratifies all that such attorney-in-fact shall lawfully do or cause to be done by virtue hereof.  This power of attorney is coupled with an interest and shall be irrevocable until this Agreement is terminated.
 
12.          Agent May Perform .  If any Grantor fails to perform any agreement contained herein, Agent may itself perform, or cause performance of, such agreement, and the reasonable expenses of Agent incurred in connection therewith shall be payable, jointly and severally, by Grantors.
 
13.          Agent’s Duties .  The powers conferred on Agent hereunder are solely to protect Agent’s interest in the Collateral, for the benefit of the Lender Group and the Bank Product Providers, and shall not impose any duty upon Agent to exercise any such powers.  Except for the safe custody of any Collateral in its actual possession and the accounting for moneys actually received by it hereunder, Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.  Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its actual possession if such Collateral is accorded treatment substantially equal to that which Agent accords its own property.
 
14.          Collection of Accounts, General Intangibles and Negotiable Collateral .  At any time upon the occurrence and during the continuance of an Event of Default, Agent or Agent’s designee may (a) notify Account Debtors of any Grantor that the Accounts, General Intangibles, Chattel Paper or Negotiable Collateral of such Grantor have been assigned to Agent, for the benefit of the Lender Group
 
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and the Bank Product Providers, or that Agent has a security interest therein, and (b) collect the Accounts, General Intangibles and Negotiable Collateral of any Grantor directly, and any collection costs and expenses shall constitute part of such Grantor’s Secured Obligations under the Loan Documents.
 
15.          Disposition of Pledged Interests by Agent .  None of the Pledged Interests existing as of the date of this Agreement are, and none of the Pledged Interests hereafter acquired on the date of acquisition thereof will be, registered or qualified under the various federal or state securities laws of the United States and disposition thereof after an Event of Default may be restricted to one or more private (instead of public) sales in view of the lack of such registration.  Each Grantor understands that in connection with such disposition, Agent may approach only a restricted number of potential purchasers and further understands that a sale under such circumstances may yield a lower price for the Pledged Interests than if the Pledged Interests were registered and qualified pursuant to federal and state securities laws and sold on the open market.  Each Grantor, therefore, agrees that:  (a) if Agent shall, pursuant to the terms of this Agreement, sell or cause the Pledged Interests or any portion thereof to be sold at a private sale, Agent shall have the right to rely upon the advice and opinion of any nationally recognized brokerage or investment firm (but shall not be obligated to seek such advice and the failure to do so shall not be considered in determining the commercial reasonableness of such action) as to the best manner in which to offer the Pledged Interest or any portion thereof for sale and as to the best price reasonably obtainable at the private sale thereof; and (b) such reliance shall be conclusive evidence that Agent has handled the disposition in a commercially reasonable manner.
 
16.          Voting and Other Rights in Respect of Pledged Interests .
 
(a)           Upon the occurrence and during the continuation of an Event of Default, (i) Agent may, at its option, and with two (2) Business Days prior notice to any Grantor, and in addition to all rights and remedies available to Agent under any other agreement, at law, in equity, or otherwise, exercise all voting rights, or any other ownership or consensual rights (including any dividend or distribution rights) in respect of the Pledged Interests owned by such Grantor, but under no circumstances is Agent obligated by the terms of this Agreement to exercise such rights, and (ii) if Agent duly exercises its right to vote any of such Pledged Interests, each Grantor hereby appoints Agent, such Grantor’s true and lawful attorney-in-fact and IRREVOCABLE PROXY to vote such Pledged Interests in any manner Agent deems advisable for or against all matters submitted or which may be submitted to a vote of shareholders, partners or members, as the case may be.  The power-of-attorney and proxy granted hereby is coupled with an interest and shall be irrevocable.
 
(b)           For so long as any Grantor shall have the right to vote the Pledged Interests owned by it, such Grantor covenants and agrees that it will not, without the prior written consent of Agent, vote or take any consensual action with respect to such Pledged Interests which would materially adversely affect the rights of Agent, the other members of the Lender Group, or the Bank Product Providers, or the value of the Pledged Interests.
 
17.          Remedies .  Upon the occurrence and during the continuance of an Event of Default:
 
(a)           Agent may, and, at the instruction of the Required Lenders, shall exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, in the other Loan Documents, or otherwise available to it, all the rights and remedies of a secured party on default under the Code or any other applicable law.  Without limiting the generality of the foregoing, each Grantor expressly agrees that, in any such event, Agent without demand of performance or other demand, advertisement or notice of any kind (except a notice specified below of time and place of public or private sale) to or upon any Grantor or any other Person (all and each of which demands, advertisements and
 
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notices are hereby expressly waived to the maximum extent permitted by the Code or any other applicable law), may take immediate possession of all or any portion of the Collateral and (i) require Grantors to, and each Grantor hereby agrees that it will at its own expense and upon request of Agent forthwith, assemble all or part of the Collateral as directed by Agent and make it available to Agent at one or more locations where such Grantor regularly maintains Inventory, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Agent’s offices or elsewhere, for cash, on credit, and upon such other terms as Agent may deem commercially reasonable.  Each Grantor agrees that, to the extent notification of sale shall be required by law, at least ten (10) days notification by mail to the applicable Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and specifically such notification shall constitute a reasonable “authenticated notification of disposition” within the meaning of Section 9-611 of the Code.  Agent shall not be obligated to make any sale of Collateral regardless of notification of sale having been given.  Agent may adjourn any public sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.  Each Grantor agrees that (A) the internet shall constitute a “place” for purposes of Section 9-610(b) of the Code and (B) to the extent notification of sale shall be required by law, notification by mail of the URL where a sale will occur and the time when a sale will commence at least ten (10) days prior to the sale shall constitute a reasonable notification for purposes of Section 9-611(b) of the Code.  Each Grantor agrees that any sale of Collateral to a licensor pursuant to the terms of a license agreement between such licensor and a Grantor is sufficient to constitute a commercially reasonable sale (including as to method, terms, manner, and time) within the meaning of Section 9-610 of the Code.
 
(b)           Agent is hereby granted a license or other right to use, without liability for royalties or any other charge, each Grantor’s Intellectual Property, including but not limited to, any labels, Patents, Trademarks, trade names, URLs, domain names, industrial designs, Copyrights, and advertising matter, whether owned by any Grantor or with respect to which any Grantor has rights under license, sublicense, or other agreements (including any Intellectual Property License), as it pertains to the Collateral, in preparing for sale, advertising for sale and selling any Collateral, and each Grantor’s rights under all licenses and all franchise agreements shall inure to the benefit of Agent.
 
(c)           Agent may, in addition to other rights and remedies provided for herein, in the other Loan Documents, or otherwise available to it under applicable law and without the requirement of notice to or upon any Grantor or any other Person (which notice is hereby expressly waived to the maximum extent permitted by the Code or any other applicable law), (i) with respect to any Grantor’s Deposit Accounts in which Agent’s Liens are perfected by control under Section 9-104 of the Code, instruct the bank maintaining such Deposit Account for the applicable Grantor to pay the balance of such Deposit Account to or for the benefit of Agent, and (ii) with respect to any Grantor’s Securities Accounts in which Agent’s Liens are perfected by control under Section 9-106 of the Code, instruct the securities intermediary maintaining such Securities Account for the applicable Grantor to (A) transfer any cash in such Securities Account to or for the benefit of Agent, or (B)  liquidate any financial assets in such Securities Account that are customarily sold on a recognized market and transfer the cash proceeds thereof to or for the benefit of Agent.
 
(d)           Any cash held by Agent as Collateral and all cash proceeds received by Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied against the Secured Obligations in the order set forth in the Credit Agreement.   In the event the proceeds of Collateral are insufficient to satisfy all of the Secured Obligations in full, each Grantor shall remain jointly and severally liable for any such deficiency.
 
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(e)                                   Each Grantor hereby acknowledges that the Secured Obligations arise out of a commercial transaction, and agrees that if an Event of Default shall occur and be continuing Agent shall have the right to an immediate writ of possession without notice of a hearing.  Agent shall have the right to the appointment of a receiver for the properties and assets of each Grantor, and each Grantor hereby consents to such rights and such appointment and hereby waives any objection such Grantor may have thereto or the right to have a bond or other security posted by Agent.
 
18.                                Remedies Cumulative .  Each right, power, and remedy of Agent, any other member of the Lender Group, or any Bank Product Provider as provided for in this Agreement, the other Loan Documents or any Bank Product Agreement now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Agreement, the other Loan Documents and the Bank Product Agreements or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Agent, any other member of the Lender Group, or any Bank Product Provider, of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by Agent, such other member of the Lender Group or such Bank Product Provider of any or all such other rights, powers, or remedies.
 
19.                                Marshaling . Agent  shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Secured Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising.  To the extent that it lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of Agent’s rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.
 
20.                                Indemnity and Expenses .
 
(a)                                  Each Grantor agrees to indemnify Agent and the other members of the Lender Group from and against all claims, lawsuits and liabilities (including reasonable attorneys’ fees) growing out of or resulting from this Agreement (including enforcement of this Agreement) or any other Loan Document to which such Grantor is a party, except claims, losses or liabilities resulting from the bad faith, gross negligence or willful misconduct of the party seeking indemnification as determined by a final non-appealable order of a court of competent jurisdiction.  This provision shall survive the termination of this Agreement and the Credit Agreement and the repayment of the Secured Obligations.
 
(b)                                  Grantors, jointly and severally, shall, upon demand, pay to Agent (or Agent, may charge to the Loan Account) all the Lender Group Expenses which Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or, upon an Event of Default, the sale of, collection from, or other realization upon, any of the Collateral in accordance with this Agreement and the other Loan Documents, (iii) the exercise or enforcement of any of the rights of Agent hereunder or (iv) the failure by any Grantor to perform or observe any of the provisions hereof.
 
21.                                Merger, Amendments; Etc.   THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
 
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MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.  No waiver of any provision of this Agreement, and no consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No amendment of any provision of this Agreement shall be effective unless the same shall be in writing and signed by Agent and each Grantor to which such amendment applies.
 
22.                                Addresses for Notices .  All notices and other communications provided for hereunder shall be given in the form and manner and delivered to Agent at its address specified in the Credit Agreement, and to any of the Grantors at their respective addresses specified in the Credit Agreement or Guaranty, as applicable, or, as to any party, at such other address as shall be designated by such party in a written notice to the other party.
 
23.                                Continuing Security Interest: Assignments under Credit Agreement.
 
(a)                                  This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the Obligations have been paid in full in accordance with the provisions of the Credit Agreement and the Commitments have expired or have been terminated, (ii) be binding upon each Grantor, and their respective successors and assigns, and (iii) inure to the benefit of, and be enforceable by, Agent, and its successors, transferees and assigns.  Without limiting the generality of the foregoing clause (iii), any Lender may, in accordance with the provisions of the Credit Agreement, assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise.  Upon payment in full of the Secured Obligations in accordance with the provisions of the Credit Agreement and the expiration or termination of the Commitments, the Guaranty made and the Security Interest granted hereby shall terminate and all rights to the Collateral shall revert to Grantors or any other Person entitled thereto.  At such time, upon Borrower’s request, Agent will authorize the filing of appropriate termination statements to terminate such Security Interest.  No transfer or renewal, extension, assignment, or termination of this Agreement or of the Credit Agreement, any other Loan Document, or any other instrument or document executed and delivered by any Grantor to Agent nor any additional Revolving Loans or other loans made by any Lender to Borrower, nor the taking of further security, nor the retaking or re-delivery of the Collateral to Grantors, or any of them, by Agent, nor any other act of the Lender Group or the Bank Product Providers, or any of them, shall release any Grantor from any obligation, except a release or discharge executed in writing by Agent in accordance with the provisions of the Credit Agreement.  Agent shall not by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, unless such waiver is in writing and signed by Agent and then only to the extent therein set forth.  A waiver by Agent of any right or remedy on any occasion shall not be construed as a bar to the exercise of any such right or remedy which Agent would otherwise have had on any other occasion.
 
(b)                                  Each Grantor agrees that, if any payment made by any Grantor or other Person and applied to the Secured Obligations is at any time annulled, avoided, set, aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid, or the proceeds of any Collateral are required to be returned by Agent or any other member of the Lender Group to such Grantor, its estate, trustee, receiver or any other party, including any Grantor, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, any Lien or other Collateral securing such liability shall be and remain in full force and effect, as fully as if such payment had never been made. If, prior to any of the foregoing, (i) any Lien or other Collateral securing such Grantor’s liability hereunder shall have been released or terminated by virtue of the
 
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foregoing clause (a), or (ii) any provision of the Guaranty hereunder shall have been terminated, cancelled or surrendered, such Lien, other Collateral or provision shall be reinstated in full force and effect and such prior release, termination, cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligations of any such Grantor in respect of any Lien or other Collateral securing such obligation or the amount of such payment.
 
24.                                Survival .  All representations and warranties made by the Grantors in this Agreement and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that Agent, Issuing Lender, or any Lender may have had notice or knowledge of any Default or Event of Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any loan or any fee or any other amount payable under the Credit Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated.
 
25.                                CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE PROVISION .
 
THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO, AND ANY CLAIMS, CONTROVERSIES OR DISPUTES ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
 
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN, COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  EACH GRANTOR AND AGENT WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 25(b) .
 
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH GRANTOR AND AGENT HEREBY WAIVE THEIR RESPECTIVE RIGHTS, IF ANY, TO A JURY TRIAL OF ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION DIRECTLY OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS (EACH A “ CLAIM ”).  EACH GRANTOR AND AGENT REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF
 
33 

 
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
 
EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS  LOCATED IN THE BOROUGH OF MANHATTAN, COUNTY OF NEW YORK, STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT AGENT MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST ANY GRANTOR OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
 
NO CLAIM MAY BE MADE BY ANY GRANTOR AGAINST THE AGENT, THE SWING LENDER, ANY OTHER LENDER, ISSUING LENDER, OR THE UNDERLYING ISSUER, OR ANY AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE, COUNSEL, REPRESENTATIVE, AGENT, OR ATTORNEY-IN-FACT OF ANY OF THEM FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH, AND EACH GRANTOR HEREBY WAIVES, RELEASES, AND AGREES NOT TO SUE UPON ANY CLAIM FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
 
IN THE EVENT ANY LEGAL PROCEEDING IS FILED IN A COURT OF THE STATE OF CALIFORNIA (THE “ COURT ”) BY OR AGAINST ANY PARTY HERETO IN CONNECTION WITH ANY CLAIM AND THE WAIVER SET FORTH IN SECTION 25(c)  ABOVE IS NOT ENFORCEABLE IN SUCH PROCEEDING, THE PARTIES HERETO AGREE AS FOLLOWS:
 
WITH THE EXCEPTION OF THE MATTERS SPECIFIED IN SUBCLAUSE (ii) BELOW, ANY CLAIM SHALL BE DETERMINED BY A GENERAL REFERENCE PROCEEDING IN ACCORDANCE WITH THE PROVISIONS OF CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 638 THROUGH 645.1.  THE PARTIES INTEND THIS GENERAL REFERENCE AGREEMENT TO BE SPECIFICALLY ENFORCEABLE.  VENUE FOR THE REFERENCE PROCEEDING SHALL BE IN THE COUNTY OF LOS ANGELES, CALIFORNIA.
 
THE FOLLOWING MATTERS SHALL NOT BE SUBJECT TO A GENERAL REFERENCE PROCEEDING: (A) NON-JUDICIAL FORECLOSURE OF ANY SECURITY INTERESTS IN REAL OR PERSONAL PROPERTY, (B) EXERCISE OF SELF-HELP REMEDIES (INCLUDING SET-OFF OR RECOUPMENT), (C) APPOINTMENT OF A RECEIVER, AND (D) TEMPORARY, PROVISIONAL, OR ANCILLARY REMEDIES (INCLUDING WRITS OF ATTACHMENT, WRITS OF POSSESSION, TEMPORARY RESTRAINING ORDERS, OR PRELIMINARY INJUNCTIONS).  THIS AGREEMENT DOES NOT LIMIT THE RIGHT OF ANY PARTY TO EXERCISE OR OPPOSE ANY OF THE RIGHTS AND REMEDIES DESCRIBED IN CLAUSES (A) - (D) AND ANY SUCH EXERCISE OR OPPOSITION DOES NOT WAIVE THE
 
34 

 
RIGHT OF ANY PARTY TO PARTICIPATE IN A REFERENCE PROCEEDING PURSUANT TO THIS AGREEMENT WITH RESPECT TO ANY OTHER MATTER.
 
UPON THE WRITTEN REQUEST OF ANY PARTY, THE PARTIES SHALL SELECT A SINGLE REFEREE, WHO SHALL BE A RETIRED JUDGE OR JUSTICE.  IF THE PARTIES DO NOT AGREE UPON A REFEREE WITHIN 10 DAYS OF SUCH WRITTEN REQUEST, THEN, ANY PARTY SHALL HAVE THE RIGHT TO REQUEST THE COURT TO APPOINT A REFEREE PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 640(B).  THE REFEREE SHALL BE APPOINTED TO SIT WITH ALL OF THE POWERS PROVIDED BY LAW.  PENDING APPOINTMENT OF THE REFEREE, THE COURT SHALL HAVE THE POWER TO ISSUE TEMPORARY OR PROVISIONAL REMEDIES.
 
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE REFEREE SHALL DETERMINE THE MANNER IN WHICH THE REFERENCE PROCEEDING IS CONDUCTED INCLUDING THE TIME AND PLACE OF HEARINGS, THE ORDER OF PRESENTATION OF EVIDENCE, AND ALL OTHER QUESTIONS THAT ARISE WITH RESPECT TO THE COURSE OF THE REFERENCE PROCEEDING.  ALL PROCEEDINGS AND HEARINGS CONDUCTED BEFORE THE REFEREE, EXCEPT FOR TRIAL, SHALL BE CONDUCTED WITHOUT A COURT REPORTER, EXCEPT WHEN ANY PARTY SO REQUESTS A COURT REPORTER AND A TRANSCRIPT IS ORDERED, A COURT REPORTER SHALL BE USED AND THE REFEREE SHALL BE PROVIDED A COURTESY COPY OF THE TRANSCRIPT.  THE PARTY MAKING SUCH REQUEST SHALL HAVE THE OBLIGATION TO ARRANGE FOR AND PAY THE COSTS OF THE COURT REPORTER, PROVIDED THAT SUCH COSTS, ALONG WITH THE REFEREE’S FEES, SHALL ULTIMATELY BE BORNE BY THE PARTY WHO DOES NOT PREVAIL, AS DETERMINED BY THE REFEREE.
 
THE REFEREE MAY REQUIRE ONE OR MORE PREHEARING CONFERENCES.  THE PARTIES HERETO SHALL BE ENTITLED TO DISCOVERY, AND THE REFEREE SHALL OVERSEE DISCOVERY IN ACCORDANCE WITH THE RULES OF DISCOVERY, AND SHALL ENFORCE ALL DISCOVERY ORDERS IN THE SAME MANNER AS ANY TRIAL COURT JUDGE IN PROCEEDINGS AT LAW IN THE STATE OF CALIFORNIA.
 
THE REFEREE SHALL APPLY THE RULES OF EVIDENCE APPLICABLE TO PROCEEDINGS AT LAW IN THE STATE OF CALIFORNIA AND SHALL DETERMINE ALL ISSUES IN ACCORDANCE WITH CALIFORNIA SUBSTANTIVE AND PROCEDURAL LAW.  THE REFEREE SHALL BE EMPOWERED TO ENTER EQUITABLE AS WELL AS LEGAL RELIEF AND RULE ON ANY MOTION WHICH WOULD BE AUTHORIZED IN A TRIAL, INCLUDING MOTIONS FOR DEFAULT JUDGMENT OR SUMMARY JUDGMENT.  THE REFEREE SHALL REPORT HIS OR HER DECISION, WHICH REPORT SHALL ALSO INCLUDE FINDINGS OF FACT AND CONCLUSIONS OF LAW.  THE REFEREE SHALL ISSUE A DECISION AND PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE, SECTION 644, THE REFEREE’S DECISION SHALL BE ENTERED BY THE COURT AS A JUDGMENT IN THE SAME MANNER AS IF THE ACTION HAD BEEN TRIED BY THE COURT.  THE FINAL JUDGMENT OR ORDER FROM ANY APPEALABLE DECISION OR ORDER ENTERED BY THE REFEREE SHALL BE FULLY APPEALABLE AS IF IT HAS BEEN ENTERED BY THE COURT.
 
THE PARTIES RECOGNIZE AND AGREE THAT ALL CLAIMS RESOLVED IN A GENERAL REFERENCE PROCEEDING PURSUANT HERETO WILL BE DECIDED BY A REFEREE AND NOT BY A JURY.  AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH PARTY
 
35 

 
HERETO KNOWINGLY AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS REFERENCE PROVISION SHALL APPLY TO ANY DISPUTE BETWEEN THEM THAT ARISES OUT OF OR IS RELATED TO THIS AGREEMENT.
 
26.                                New Subsidiaries .  Pursuant to Section 5.11 of the Credit Agreement, certain Subsidiaries (whether by acquisition or creation) of any Grantor are required to enter into this Agreement by executing and delivering in favor of Agent a Joinder to this Agreement in substantially the form of Annex 1 .  Upon the execution and delivery of Annex 1 by any such new Subsidiary, such Subsidiary shall become a Guarantor and Grantor hereunder with the same force and effect as if originally named as a Guarantor and Grantor herein.  The execution and delivery of any instrument adding an additional Guarantor or Grantor as a party to this Agreement shall not require the consent of any Guarantor or Grantor hereunder.  The rights and obligations of each Guarantor and Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor or Grantor hereunder.
 
27.                                Agent .  Each reference herein to any right granted to, benefit conferred upon or power exercisable by the “Agent” shall be a reference to Agent, for the benefit of each member of the Lender Group and each of the Bank Product Providers.
 
28.                                Miscellaneous .
 
(a)                                  This Agreement is a Loan Document.  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.  Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement.  Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement.  The foregoing shall apply to each other Loan Document mutatis mutandis .
 
(b)                                  Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction.  Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
 
(c)                                   Headings and numbers have been set forth herein for convenience only.  Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement.
 
(d)                                  Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against any member of the Lender Group or any Grantor, whether under any rule of construction or otherwise.  This Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.
 
[Signature Pages Follow]
 
36 

 
IN WITNESS WHEREOF, the undersigned parties hereto have caused this Agreement to be executed and delivered as of the day and year first above written.

GRANTORS:	Q2 HOLDINGS, INC. ,	
 	a Delaware corporation	

 	By:	/s/ Mark Johnson	
 	Name:	Mark Johnson	
 	Title:	CFO	

 	Q2 SOFTWARE, INC. ,	
 	a Delaware corporation	

 	By:	/s/ Mark Johnson	
 	Name:	Mark Johnson	
 	Title:	CFO	
 
Guaranty and Security Agreement

 

AGENT:	WELLS FARGO BANK,	
 	NATIONAL ASSOCIATION ,	
 	a national banking association	

 	By:	/s/ Stephen Carll	
 	Name:	Stephen Carll	
 	Its:	Authorized Signatory	
 
Guaranty and Security Agreement

Exhibit 10.3.3
 
PATENT SECURITY AGREEMENT
 
This PATENT SECURITY AGREEMENT (this “Patent Security Agreement”) is made this 11 th day of April 2013, by and among the Grantors listed on the signature pages hereof (collectively, jointly and severally, “Grantors” and each individually “Grantor”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association (“Wells Fargo”), in its capacity as agent for each member of the Lender Group and the Bank Product Providers (in such capacity, together with its successors and assigns in such capacity, “Agent”),
 
W   I   T   N   E   S   S   E   T   H:
 
WHEREAS, pursuant to that certain Credit Agreement dated as of April 11, 2013 (as amended, restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”) by and among Q2 Holdings, Inc., a Delaware corporation, as parent (“Parent”). Q2 Software, Inc., a Delaware corporation, as borrower (“Borrower”), the lenders party thereto as “Lenders” (such Lenders, together with their respective successors and assigns in such capacity, each, individually, a “Lender” and, collectively, the “Lenders”), and Agent, the Lender Group has agreed to make certain financial accommodations available to Borrower from time to time pursuant to the terms and conditions thereof; and
 
WHEREAS, the members of Lender Group and the Bank Product Providers are willing to make the financial accommodations to Borrower as provided for in the Credit Agreement, the other Loan Documents, and the Bank Product Agreements, but only upon the condition, among others, that the Grantors shall have executed and delivered to Agent, for the benefit of the Lender Group and the Bank Product Providers, that certain Guaranty and Security Agreement, dated as of April 11, 2013 (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the “Guaranty and Security Agreement”); and
 
WHEREAS, pursuant to the Guaranty and Security Agreement, Grantors are required to execute and deliver to Agent, for the benefit of the Lender Group and the Bank Product Providers, this Patent Security Agreement;
 
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor hereby agrees as follows:
 
1.                                       DEFINED TERMS .  Ail initially capitalized terms used but not otherwise defined herein have the meanings given to them in the Guaranty and Security Agreement or, if not defined therein, in the Credit Agreement, and this Patent Security Agreement shall be subject to the rules of construction set forth in Section 1(b) of the Guaranty and Security Agreement, which rules of construction are incorporated herein by this reference, mutatis mutandis.
 
2.                                       GRANT OF SECURITY INTEREST IN PATENT COLLATERAL .  Each Grantor hereby unconditionally grants, assigns, and pledges to Agent, for the benefit each member of the Lender Group and each of the Bank Product Providers, to secure the Secured Obligations, a continuing security interest (referred to in this Patent Security Agreement as the
 
1 

 
“Security Interest”) in all of such Grantor’s right, title and interest in and to the following, whether now owned or hereafter acquired or arising (collectively, the “Patent Collateral”):
 
(a)                                  all of its Patents and Patent Intellectual Property Licenses to which it is a party including those referred to on Schedule I:
 
(b)                                  all divisionals, continuations, continuations-in-part, reissues, reexaminations, or extensions of the foregoing; and
 
(c)                                   all products and proceeds of the foregoing, including any claim by such Grantor against third parties for past, present or future infringement of any Patent or any Patent exclusively licensed under any Intellectual Property License, including the right to receive damages, or right to receive license fees, royalties, and other compensation under any Patent Intellectual Property License.
 
3.                                       SECURITY FOR SECURED OBLIGATIONS .  This Patent Security Agreement and the Security Interest created hereby secures the payment and performance of the Secured Obligations, whether now existing or arising hereafter. Without limiting the generality of the foregoing, this Patent Security Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Agent, the other members of the Lender Group, the Bank Product Providers or any of them, whether or not they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor.
 
4.                                       SECURITY AGREEMENT .  The Security Interest granted pursuant to this Patent Security Agreement is granted in conjunction with the security interests granted to Agent, for the benefit of the Lender Group and the Bank Product Providers, pursuant to the Guaranty and Security Agreement. Each Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to the Security Interest in the Patent Collateral made and granted hereby are more fully set forth in the Guaranty and Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. To the extent there is any inconsistency between this Patent Security Agreement and the Guaranty and Security Agreement, the Guaranty and Security Agreement shall control.
 
5.                                       AUTHORIZATION TO SUPPLEMENT .  If any Grantor shall obtain rights to any new patent application or issued patent or become entitled to the benefit of any patent application or patent for any divisional, continuation, continuation-in-part, reissue, or reexamination of any existing patent or patent application, the provisions of this Patent Security Agreement shall automatically apply thereto. Grantors shall give prompt notice in writing to Agent with respect to any such new patent rights. Without limiting Grantors’ obligations under this Section, Grantors hereby authorize Agent unilaterally to modify this Patent Security Agreement by amending Schedule I to include any such new patent rights of each Grantor. Notwithstanding the foregoing, no failure to so modify this Patent Security Agreement or amend Schedule I shall in any way affect, invalidate or detract from Agent’s continuing security interest in all Collateral, whether or not listed on Schedule I.
 
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6.                                       COUNTERPARTS .  This Patent Security Agreement is a Loan Document. This Patent Security Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Patent Security Agreement. Delivery of an executed counterpart of this Patent Security Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Patent Security Agreement. Any party delivering an executed counterpart of this Patent Security Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Patent Security Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Patent Security Agreement.
 
7.                                       CHOICE OF LAW AND VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE PROVISION .  THIS PATENT SECURITY AGREEMENT SHALL BE SUBJECT TO THE PROVISIONS REGARDING CHOICE OF LAW AND VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE SET FORTH IN SECTION 25 OF THE SECURITY AGREEMENT, AND SUCH PROVISIONS ARE INCORPORATED HEREIN BY THIS REFERENCE, MUTATIS MUTANDIS.
 
[SIGNATURE PAGE FOLLOWS]
 
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IN WITNESS WHEREOF, the parties hereto have caused this Patent Security Agreement to be executed and delivered as of the day and year first above written.

GRANTORS:	Q2 HOLDINGS, INC,	
 	a Delaware corporation	
 	 	
 	By	/s/ Mark Johnson	
 	Name:	Mark Johnson	
 	Title:	CFO	
 	 	
 	Q2 SOFTWARE, INC.,	
 	a Delaware corporation	
 	 	
 	By	/s/ Mark Johnson	
 	Name:	Mark Johnson	
 	Title:	CFO	

Patent Security Agreement

 

 	ACCEPTED AND ACKNOWLEDGED BY;	
AGENT:	WELLS FARGO BANK,	
 	NATIONAL ASSOCIATION,	
 	a national banking association	
 	 	
 	By:	/s/ Stephen Carll	
 	Name: Stephen Carll	
 	Its: Authorized Signatory	
 
Patent Security Agreement

Exhibit 10.4
 
LEASE AGREEMENT
 
by and between
 
13785 RESEARCH BLVD, LLC,
a Texas limited liability company
 
as Landlord
 
and
 
Q2 SOFTWARE, INC. D/B/A Q2EBANKING, a Delaware corporation
 
as Tenant
 
dated
 
November 20, 2012
 
Aspen Lake Office Building
13785 Research Boulevard
Austin, Texas 78750

 
TABLE OF CONTENTS

 	 	 	 	Page	
 	 	 	 	 	
I.	 	 	 	 	
1.1	 	DEMISE OF THE PREMISES	 	1	
1.2	 	LICENSE TO USE PUBLIC AREAS	 	1	
1.3	 	RENTABLE AREA	 	1	
1.4	 	TERM	 	1	
1.5	 	USE	 	2	
 	 	 	 	 	
II.	 	 	 	 	
2.1	 	BASE RENT	 	3	
2.2	 	ADDITIONAL RENT	 	3	
2.3	 	RENT PAYMENTS	 	7	
2.4	 	SECURITY	 	8	
2.5	 	PERSONAL PROPERTY TAXES	 	9	
2.6	 	AD VALOREM TAXES	 	9	
 	 	 	 	 	
III.	 	 	 	 	
3.1	 	SERVICES	 	10	
3.2	 	GOVERNMENTAL REGULATIONS	 	11	
3.3	 	FAILURE TO PROVIDE REQUIRED SERVICES	 	11	
3.4	 	ADDITIONAL SERVICES	 	12	
3.5	 	EMERGENCY GENERATOR; ADDITIONAL EQUIPMENT	 	12	
 	 	 	 	 	
IV.	 	 	 	 	
4.1	 	CARE OF THE PREMISES	 	13	
4.2	 	ENTRY FOR REPAIRS AND INSPECTION	 	14	
4.3	 	NUISANCE	 	14	
4.4	 	LAWS AND REGULATIONS; RULES OF THE BUILDING	 	14	
4.5	 	HAZARDOUS SUBSTANCES	 	15	
 	 	 	 	 	
V.	 	 	 	 	
5.1	 	CONDITION OF THE PREMISES AND THE PROJECT	 	16	
5.2	 	ALTERATIONS TO THE PREMISES	 	16	
5.3	 	ALTERATIONS TO THE BUILDING	 	17	
5.4	 	KEYS AND LOCKS	 	17	
5.5	 	GRAPHICS, BUILDING DIRECTORY AND NAME	 	18	
 	 	 	 	 	
VI.	 	 	 	 	
6.1	 	CONDEMNATION	 	19	
6.2	 	DAMAGES FROM CERTAIN CAUSES	 	20	
6.3	 	CASUALTY	 	20	
 
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VII.	 	 	 	 	
7.1	 	PROPERTY INSURANCE	 	21	
7.2	 	LIABILITY INSURANCE	 	21	
7.3	 	OTHER INSURANCE	 	21	
7.4	 	GENERAL INSURANCE REQUIREMENTS	 	22	
7.5	 	HOLD HARMLESS; INDEMNITY	 	22	
7.6	 	WAIVER OF CLAIMS AND RECOVERY RIGHTS	 	24	
 	 	 	 	 	
VIII.	 	 	 	 	
8.1	 	LIEN FOR RENT	 	24	
8.2	 	DEFAULT BY TENANT	 	24	
8.3	 	REMEDIES	 	25	
8.4	 	LANDLORD’S RIGHT TO CURE DEFAULTS	 	28	
8.5	 	NON-WAIVER	 	28	
8.6	 	HOLDING OVER	 	28	
 	 	 	 	 	
IX.	 	 	 	 	
9.1	 	ASSIGNMENT OR SUBLEASE BY TENANT	 	29	
9.2	 	ASSIGNMENT BY LANDLORD	 	30	
 	 	 	 	 	
X.	 	 	 	 	
10.1	 	QUIET ENJOYMENT	 	31	
10.2	 	LIMITATION OF LANDLORD’S PERSONAL LIABILITY	 	31	
10.3	 	LIMITATION OF INTEREST HOLDER’S PERSONAL LIABILITY	 	31	
 	 	 	 	 	
XI.	 	 	 	 	
11.1	 	SUBORDINATION	 	32	
11.2	 	ESTOPPEL CERTIFICATE	 	32	
11.3	 	RIGHT TO CURE LANDLORD’S DEFAULT	 	33	
 	 	 	 	 	
XII.	 	 	 	 	
12.1	 	RELOCATION	 	33	
12.2	 	NAME CHANGE	 	33	
12.3	 	LEGAL FEES	 	33	
12.4	 	RADON	 	33	
12.5	 	USA PATRIOT ACT AND ANTI-TERRORISM LAW	 	33	
 	 	 	 	 	
XIII.	 	 	 	 	
13.1	 	NOTICES	 	34	
13.2	 	MISCELLANEOUS	 	35	
 
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LEASE AGREEMENT
 
THIS LEASE AGREEMENT (this “ Lease ”) is made and entered into as of the     day of              , 2012 (the “ Effective Date ”), by and between 13785 RESEARCH BLVD, LLC, a Texas limited liability company (“ Landlord ”), and Q2 SOFTWARE INC., D/B/A Q2EBANKING, a Delaware corporation (“ Tenant ”).
 
In consideration of the rents reserved hereunder and the duties, covenants and obligations of the other hereunder, Landlord and Tenant hereby covenant and agree as follows:
 
ARTICLE I
 
1.1                                     DEMISE OF THE PREMISES . Landlord hereby leases, demises and lets to Tenant, and Tenant hereby leases and takes from Landlord, those certain premises (hereinafter sometimes called the “ Premises ”) located on the first, third and fourth floors (being Suite 400) of the building known as Aspen Lake Office Building (the “ Building ”) which is located at 13785 Research Boulevard, in Austin (Williamson County), Texas 78750 (hereinafter sometimes called the “ Land ”). The Land is more particularly described on EXHIBIT A attached hereto and made a part hereof for all purposes. A floor plan of the Premises is attached hereto and made a part hereof for all purposes as EXHIBIT B. The Building, the Land, all parking facilities owned or controlled by Landlord and servicing the Building and any such parking structures or parking lots constructed in the future on the Land (the “ Parking Facilities ”) and any Public Areas (as hereinafter defined) are hereinafter sometimes collectively called the “ Project ”.
 
1.2                                     LICENSE TO USE PUBLIC AREAS . Subject to Section 5.3 below, Landlord hereby grants Tenant, its employees, invitees and other visitors, a nonexclusive license for the term of this Lease and all extensions and renewals thereof to use, for the purpose of ingress and egress to the Building, the Parking Facilities, and the Premises, and in accordance with the Building Rules (as hereinafter defined) (i) the sidewalks and other exterior common areas located on the Land; and (ii) the lobbies, public corridors and elevator foyers of the Building as such areas are designated by Landlord from time to time for the common use of the Building’s tenants.
 
1.3                                     RENTABLE AREA . Landlord and Tenant stipulate and agree for all purposes under this Lease that the Rentable Area of the Premises (as defined in and determined in accordance with the terms and provisions of EXHIBIT C attached hereto and made a part hereof for all purposes) (the “ Rentable Area ” ) is approximately 85,819 rentable square feet. Rentable Area shall be based upon the Space Plan (as defined in EXHIBIT D attached hereto and made a part hereof for all purposes). Landlord represents and warrants that the actual Rentable Area of the Premises was determined in accordance with published BOMA (ANSI/BOMA Z65.i — 1996) standards and methodology.
 
1.4                                TERM .
 
(a)                                       This Lease shall be effective as of the Effective Date. The term of this Lease shall commence on May 1, 2013 (the “ Commencement Date ” ) , and, unless sooner terminated or
 
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extended in accordance with the terms and conditions set forth herein, shall expire on the last day of the ninety-sixth (96 th ) full calendar month after the Commencement Date (the “ Expiration Date ”).
 
(b)                                       Tenant and Landlord shall execute and deliver the agreement in the form attached hereto as EXHIBIT E and made a part hereof specifying, among other matters, the Commencement Date and the Expiration Date. Landlord shall prepare and deliver such agreement to Tenant after the Commencement Date has been determined, and Tenant shall execute and deliver the agreement to Landlord within five (5) business days of Tenant’s receipt thereof. Failure to sign said agreement shall not affect the commencement or expiration of the term of this Lease or any other terms and conditions of this Lease.
 
1.5                              USE .
 
(a)                                  The Premises are to be used and occupied by Tenant (and its assignees and subtenants permitted hereunder) solely for general office use and for no other purpose. However, such permitted use shall include software development, sales, implementation, support and related services for the banking industry. Without limiting the foregoing, the Premises shall not be used for any purpose which would tend to lower the Class A character of the Building, or create excessive elevator loads and/or usage, or increase wear and tear on the Building’s mechanical, electrical and plumbing systems, or increase the Building’s maintenance and/or janitorial services or otherwise interfere with standard Building operations. Tenant shall not be allowed to (i) have more than five and three tenths (5 3/10) persons per one thousand (1,000) square feet of Rentable Area occupy the Premises (excluding open houses, work-shops or other temporary events or functions which temporarily increase the number of persons in the Premises), (ii) operate separate shifts of employees from the Premises (provided, Tenant may access and allow its employees use of the Premises after normal business hours), (iii) use the space for the purpose of providing telemarketing services (provided that the foregoing restriction shall not prohibit Tenant from conducting phone-based customer service and sales activities from the Premises), (iv) use the space as a consular office for any foreign government or (v) use the space as an office for any governmental or regulatory authority, agency or bureau
 
(b)                                  Tenant shall not occupy or use the Premises, or permit any portion of the Premises to be occupied or used, for any business or purpose which violates any exclusive given to other tenants in the Project or which is unlawful, disreputable or deemed to be hazardous on account of fire or other hazards, or permit anything to be done which would in any way increase the rate of fire or liability or any other insurance coverage on the Building and/or its contents, or which would produce strong, unusual or offensive odors, fumes, dust or vapors, or that is a public or private nuisance, or that emits noise or sounds that are objectionable to a person of reasonable judgment due to intermittence, beat, frequency, shrillness or loudness. Landlord acknowledges Tenant’s proposed use does not violate any exclusive given to another tenant or, to Landlord’s knowledge, which would increase the rate of fire, liability, or other coverage on the Building or its contents. Tenant shall not permit any cooking within the Premises except the use of a microwave oven. Tenant agrees that no food, soft drink or other vending machine may be installed within the Premises without the written consent of Landlord, which shall not be unreasonably withheld or delayed. The Building is a “non-smoking” Building. Tenant agrees that no smoking is allowed in the Premises or in the Public Areas of the Building. “ Public Areas ” shall include but are not limited to: the Parking Facilities, building lobbies, elevators, elevator lobbies, corridors, restrooms, mailrooms, public break rooms, stairwells, sidewalks, exterior entrances, and pedestrian
 
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tunnels (if any). Landlord has designated the Lakeside Break Area as an area where smoking is permitted.
 
ARTICLE II
 
2.1                                     BASE RENT . Tenant hereby covenants and agrees to pay to Landlord as partial consideration for Tenant’s use and occupancy of the Premises a base annual rent (the “ Base Rent ” ), which Base Rent shall be payable in monthly installments in advance on the first day of each month beginning on the Commencement Date in accordance with the following schedule; provided, however the first payment of Rent shall be due on the date of execution of this Lease:

 	 	Rate per Square Foot	 	 	 	 	 	
Time  Period	 	of Rentable Area	 	Annual Base Rent	 	Monthly Installment	 	
Months 1-14	 	$	00.00	 	$	00.00	 	$	00.00	*	
Months 15-24	 	$	19.00	 	$	1,630,561.00	 	$	135,880.08	**	
Months 25-36	 	$	19.50	 	$	1,673,470.50	 	$	139,455.08	 	
Months 37-48	 	$	20.00	 	$	1,716,380.00	 	$	143,031.67	 	
Months 49-60	 	$	20.50	 	$	1,759,289.50	 	$	146,607.46	 	
Months 61-72	 	$	21.00	 	$	1,802,199.00	 	$	150,183.25	 	
Months 73-84	 	$	21.50	 	$	1,845,108.50	 	$	153,759.04	 	
Months 85-96	 	$	22.00	 	$	1,888,018.00	 	$	157,334.83	 	

*Provided there is no default by Tenant under the terms of the Lease, in addition to the abatement of monthly Base Rent, Tenant’s Proportionate Share of Operating Expenses shall be abated for the first fourteen (14) months of the Term (the “ Initial Rent Abatement Period ” ); provided, however, all other payments required to be paid by Tenant to Landlord pursuant to the Lease shall remain due and payable during the Initial Rent Abatement Period.
 
** Provided there is no default by Tenant under the terms of the Lease, those portions of monthly Base Rent ($19,812.25) and Tenant’s Proportionate Share of Operating Expenses attributed to the portion of the Premises located on the first (1 st ) floor of the Building consisting of 12,513 rentable square feet shall be abated from the fifteenth (15 th ) through the eighteenth (18 th ) months of the Term (the “ Second Rent Abatement Period ” ); provided, however, all other payments required to be paid by Tenant to Landlord pursuant to the Lease shall remain due and payable during the Second Rent Abatement Period.
 
2.2            ADDITIONAL RENT .
 
(a)                                       Commencing on the Commencement Date, in addition to the Base Rent for each calendar year (or portion thereof) during the term of this Lease, Tenant shall pay as additional rent (the “ Additional Rent ” ) Tenant’s Proportionate Share (as hereinafter defined) of the Operating Expenses (as hereinafter defined) for that year. Landlord shall use commercially reasonable efforts to, on or before December 1 of each calendar year during the term of this Lease but in no event later than the beginning of each such calendar year, and on or before the Commencement Date for the initial calendar year, deliver to Tenant Landlord’s good faith estimate (the “ Estimated Additional Rent ” ) of the Additional Rent for that
 
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year. The Estimated Additional Rent shall be paid in equal installments in advance on the first day of each calendar month. If Landlord does not deliver an estimate to Tenant for any year by January 1 of that year, Tenant shall continue to pay Estimated Additional Rent based on the prior year’s estimate. From time to time during any calendar year, Landlord may revise its estimate of the Additional Rent, particularly as it relates to charges for electricity used by Tenant, for that year or any portion thereof on either actual or reasonably anticipated increases in Operating Expenses, and the monthly installments of Estimated Additional Rent shall be appropriately adjusted for the remainder of that year or any portion thereof in accordance with the revised estimate so that by the end of the year, the total payments of Estimated Additional Rent paid by Tenant shall equal the amount of the revised estimate.
 
(b)                                       “ Tenant’s Proportionate Share ” means the percentage determined by dividing the Rentable Area contained within the Premises by the aggregate Rentable Area of the space within the Building. Landlord and Tenant hereby stipulate and agree for all purposes under this Lease that the aggregate Rentable Area of the Building is 205,071 rentable square feet, notwithstanding any different measurement thereof that may be made hereafter by or on behalf of either party. Accordingly, unless and until any space is added to or deducted from the Premises (without implying any right in Landlord or Tenant to add space to or deduct space from the Premises, except as expressly set forth in this Lease), Tenant’s Proportionate Share shall be 41.8484%.
 
(c)                                        “ Operating Expenses ” shall mean all expenses, assessments, costs and disbursements of every kind and nature, computed on an accrual basis in accordance with generally accepted accounting principles, incurred in connection with the ownership, operation, maintenance and repair of the Project, excluding only the costs and expenses described in Section 2.2(d) below. Without limiting the generality of the foregoing, Operating Expenses include the following:
 
(i)                                 the Building’s allocable portion of the wages and salaries of all persons directly engaged in the operation, maintenance, cleaning, security or access control for the Project, including taxes, insurance and benefits relating thereto;
 
(ii)                              all supplies, tools, equipment and materials used in the operation and maintenance of the Project, and the Building’s allocable portion of the rental value of the Building management office;
 
(iii)                           cost of all utilities for the Project, including but not limited to the cost of water, sewer, gas, electricity, telephone and cable service, and all other telecommunications services;
 
(iv)                          cost of all maintenance and service agreements for the Project and the equipment therein, including but not limited to security service, window cleaning, snow and ice removal, elevator maintenance, janitorial service and landscaping maintenance;
 
(v)                             cost of repairs and general maintenance for the Project (excluding repairs and general maintenance costs that are paid by proceeds of insurance or by Tenant or other third parties);
 
(vi)                          amortization of the cost of installation of capital investment items that are hereafter installed for the purpose of reducing Operating Expenses, or to improve Building life-safety systems or which may be required or recommended by any Legal Requirements (hereinafter defined). All
 
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such costs which relate to the installation of such capital investment items shall be amortized over the reasonable useful life of the capital investment item,
 
(vii)                       the cost of all insurance relating to the Project, as set forth in Sections 7.1 and 7.2 hereof;
 
(viii)                    all federal, state, county or municipal taxes, assessments, fees, impositions, levies and governmental charges relating to the Project, whether paid directly by Landlord or through an escrow arrangement with a mortgagee or ground lessor, and whether they be by taxing districts or authorities presently taxing or assessing the Project or by others subsequently created or otherwise, and any other taxes, assessments, fees, impositions, levies, and governmental charges attributable to the Project or its operation, and, without limiting the generality of the foregoing and notwithstanding anything contained in this Lease to the contrary, the tax (sometimes referred to as business, margin or franchise tax) enacted by House Bill 3 as passed during the 3rd called session of the Texas Legislature in 2006, which has been codified in Chapter 171, Texas Tax Code, and any supplements, replacements, additions or other modifications thereto; excluding, however, except as provided herein, federal and state taxes on income, death taxes, franchise taxes, and any taxes imposed or measured on or by the income of Landlord from the operation of the Project; provided, however, that if at any time during the term of this Lease, the present method of taxation or assessment shall be so changed that the whole or any part of the taxes, assessments, levies, impositions or charges now levied, assessed or imposed on the Land and the improvements thereon shall be discontinued and as a substitute therefor, or in lieu of an addition thereto, taxes, assessments, levies, impositions or charges shall be levied, assessed and/or imposed wholly or partially as a capital levy or otherwise on the rents received from the Project or the rents reserved herein or any part thereof, then such substitute or additional taxes, assessments, levies, impositions or charges, to the extent so levied, assessed or imposed, shall be deemed to be included within Operating Expenses to the extent that such substitute or additional tax would be payable if the Project were the only property of Landlord subject to such tax;
 
(ix)                          all property management fees not to exceed 4% of the gross rental proceeds from the Building; and
 
(x)                             the actual cost of installing, operating, and maintaining the fitness center and conference center available for use by employees of tenants in the Building at a level consistent with that which is being provided as of the Effective Date.
 
(d)                                       Landlord hereby agrees that the term “Operating Expenses” shall not include any of the following expenses (however nothing set forth below shall prohibit Landlord from recovering any of the foregoing expenses directly from Tenant if caused or contributed to by Tenant):
 
(i)                                 debt service or rentals under any ground lease;
 
(ii)                              costs for which Landlord is entitled to specific reimbursement as a separate charge by Tenant, by any other tenant of the Building or by any other third party;
 
(iii)                           costs incurred by Landlord in connection with the negotiation of any tenant lease in the Project, including leasing commissions, legal fees and leasehold improvements expenses (and/or allowances therefor);
 
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(iv)                     any other costs and expenses for services or amenities that are specifically for the benefit of a particular tenant and that are of a nature not generally provided to all tenants in the Building; and
 
(v)                        except as set forth in Section 2.2(c)(vi) above, expenditures classified as capital expenditures under generally accepted accounting principles or any non-cash charges such as depreciation or amortization.
 
(e)                                        Within one hundred fifty (150) days after the end of each calendar year during the term of this Lease, or as soon as reasonably practicable thereafter, Landlord shall provide Tenant a statement ( “ Expense Statement ” ) showing Tenant’s Proportionate Share of the Operating Expenses for said calendar year and a statement prepared by Landlord comparing Estimated Additional Rent paid by Tenant with Additional Rent for such calendar year. In the event that Estimated Additional Rent paid by Tenant exceeds the amount of Additional Rent for said calendar year, Landlord shall pay Tenant an amount equal to such excess at Tenant’s option, by either giving a credit against rentals next due, if any, or by direct payment to Tenant within thirty (30) days of the date of such Expense Statement. In the event that the Additional Rent exceeds Estimated Additional Rent paid by Tenant for said calendar year, Tenant shall pay the difference to Landlord within thirty (30) days of receipt of the Expense Statement. The provisions of this Section 2.2(e) shall survive the expiration or termination of this Lease.
 
(f)                                         Notwithstanding any other provision herein to the contrary, for the purposes of estimating Operating Expenses, it is agreed that if the Building is less than ninety-five percent (95%) occupied during any calendar year (or portion thereof), an adjustment shall be made in computing each component of the Operating Expenses that actually varies with the rate of occupancy of the Building for that year so that the total Operating Expenses shall be computed for such year as though ninety-five percent (95%) of the Building had been occupied during such year.
 
(g)                                        Tenant shall have the right to request, review and copy, at Tenant’s expense, Landlord’s books and records regarding the determination of Operating Expenses for the calendar year that is the basis of an Expense Statement only upon not less than thirty (30) days’ prior written notice to Landlord and scheduling an appointment in advance. Such notice must be delivered within ninety (90) days following Landlord’s delivery of the Expense Statement to Tenant. Any such review shall be performed within sixty (60) days following Landlord’s receipt of Tenant’s notice and conducted during normal business hours at Landlord’s office in Houston, Texas or such other office as reasonably designated by Landlord. Any party conducting the review must be a certified public accountant (i) from an accounting firm reasonably acceptable to Landlord or (ii) from Tenant’s staff. Tenant may not have such review performed on a contingency fee basis. In the event that Landlord and Tenant confirm pursuant to an Expense Statement or Landlord’s acceptance (subject to dispute resolution below) of the results of Tenant’s review (as applicable) that Estimated Additional Rent paid by Tenant exceeds Additional Rent for said calendar year, Landlord shall pay Tenant an amount equal to such excess at Tenant’s option, by either giving a credit against Rent (as hereinafter defined) next due, or by direct payment to Tenant within thirty (30) days of the date of such Expense Statement or acceptance. Notwithstanding the foregoing, if no Event of Default has occurred and is continuing and Tenant requests a refund rather than a credit from Landlord in writing, Landlord shall refund said amount to Tenant within thirty (30) days of Landlord’s receipt of Tenant’s request. In the event it is determined that the Additional Rent exceeds Estimated Additional Rent for said calendar year, Tenant shall pay the difference to Landlord within thirty (30) days of receipt of the Expense Statement. If Tenant does not object in writing
 
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to an Expense Statement within ninety (90) days following the date thereof, specifying the nature of the item(s) in dispute and the reasons therefor, or if Tenant has elected to review Landlord’s records, within sixty (60) days following Tenant’s review, then the Expense Statement shall be considered final and accepted by Tenant. Any amount due to Landlord as shown on an Expense Statement, whether or not disputed by Tenant as provided herein, shall be paid by Tenant when due as provided in Section 2.2(e) above, without prejudice to any such written exception pending resolution thereof. The results of any such review shall be held in strict confidence by Tenant and its representatives. If Landlord disputes the review, both parties shall within twenty (20) days agree upon a neutral third party certified public accountant whose determination shall be binding upon both parties.
 
2.3                                RENT PAYMENTS .
 
(a)                                Tenant hereby covenants and agrees to pay, as rent, the Base Rent and Estimated Additional Rent and all other sums of money as shall become due from and payable by Tenant to Landlord under this Lease inclusive of the exhibits hereto (collectively, “ Rent ”) in lawful money of the United States to Landlord at Landlord’s address as provided herein (or to such other persons or at such other address(es) as may be designated by Landlord in writing from time to time).
 
(b)                                  If the term of this Lease as described above commences on other than the first day of a calendar month or terminates on other than the last day of a calendar month, then the installments of Rent for such month or months shall be prorated and the installment or installments so prorated shall be paid in advance. The payment for such prorated month shall be calculated by multiplying the monthly installment by a fraction, the numerator of which shall be the number of days of the lease term occurring during said commencement or termination month, as the case may be, and the denominator of which shall be the total number of days occurring in said commencement or termination month.
 
(c)                                   Tenant shall pay all Rent at the times and in the manner provided in this Lease, without demand, set-off or counterclaim. Tenant hereby acknowledges and agrees that except as expressly provided in Sections 3.3 and 6.3(a) of this Lease, Tenant’s covenants to pay Rent under this Lease are separate and independent from Landlord’s covenant to provide services and other amenities hereunder.
 
(d)                                  In the event any Rent is not paid within five (5) days of the date when due, then Landlord and Tenant agree that Landlord will incur additional administrative expenses, the amount of which will be difficult, if not impossible to determine. Accordingly, in addition to the obligation to pay Rent, Tenant shall pay to Landlord a late charge for such late payment in the additional amount of three percent (3%) of the amount of such late payment of Rent. The foregoing notwithstanding, tenant shall have one ten (10) day grace period per lease year for late payments without any penalty.
 
(e)                                   Excepting the grace period, all Rent shall bear interest from the date due until paid at a rate (the “ Default Rate ” ) equal to the lesser of (i) a floating annual rate equal to five percent (5%) above the Prime Rate reported in the Money Rates column or section of the most recent issue of The Wall Street Journal (“ Prime Rate ”), automatically adjusting with each change in the Prime Rate, and (ii) the maximum non-usurious rate of interest permitted by the Legal Requirements of the jurisdiction in which the Building is located.
 
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(f)                                    Tenant shall also pay, together with all payments of Rent due hereunder, an amount equal to all sales, use, excise, rental and other taxes now or hereafter imposed by any lawful authority on all amounts due or required under this Lease and classified as rent by any such authority.
 
2.4                                SECURITY .                            Within forty five (45) days of the execution of this Lease by Tenant, Tenant shall deposit with Landlord an unconditional and irrevocable letter of credit (the “ Letter of Credit ” ) in the amount of Three million and 0/100 Dollars ($3,000,000.00) in form and issued by a bank with an Austin, Texas office (i.e. wherein said letter of credit may be drawn) reasonably satisfactory to Landlord, such letter of credit to be held for the performance by Tenant of Tenant’s covenants and obligations under the Lease, it being expressly understood that the Letter of Credit shall not be considered an advance payment of Rent or a measure of Landlord’s damages in case of an Event of Default by Tenant. As long as there is no Event of Default, the amount of Letter of Credit required hereunder shall be reduced to (i) $2,300,000.00 on the day after the expiration of the thirtieth (30 th ) calendar month following the Commencement Date, (ii) $1,600,00.00 on the day after the expiration of the forty-second (42 nd ) calendar month following the Commencement Date, (iii) $1,000,000.00 on the day after the expiration of the fifty-fourth (54 th ) calendar month following the Commencement Date, and (iv) $500,000.00 on the day after the expiration of the sixty-sixth (66 th ) calendar month following the Commencement Date at which amount it will remain until the expiration of the Term (collectively, the “Reduction Schedule”). Based on the statements provided to Landlord pursuant to Section 13.2(k) of this Lease, in the event and at such time as Tenant’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) or (“Free Cash Flow, defined as Tenant’s cash flow from operations less capital expenditures, measured on a trailing twelve (12) month basis is equal to or greater than Ten million and 0/100 Dollars ($10,000,000.00), the amount of Letter of Credit required hereunder shall be reduced to Five hundred thousand and 0/100 Dollars ($500,000.00). If the amount of Letter of Credit required hereunder has been reduced pursuant to the foregoing sentence and Tenant’s EBITDA or Free Cash Flow then falls below the $10,000,000.00 threshold, the amount of Letter of Credit required hereunder shall revert back to those amounts set forth in the Reduction Schedule. Tenant acknowledges that the Letter of Credit shall be held by Landlord and that Landlord’s broker or property manager shall be authorized to deliver the Letter of Credit to Landlord. Upon the occurrence of any Event of Default by Tenant under this Lease which shall remain uncured, Landlord may, from time to time, without prejudice to any other remedy draw on the Letter of Credit, in whole or in part to the extent necessary to make good any arrears of Rent or other payments hereunder and/or any damage, injury, expense or liability caused to Landlord by such Event of Default (provided that Landlord may draw upon the Letter of Credit in whole in the event Tenant defaults in its obligation to timely deliver a replacement letter of credit as required hereunder). If any portion of the proceeds from a draw on any Letter of Credit is so used or applied, Tenant shall within thirty (30) days cause the issuing bank to restore any Letter of Credit to the amount existing prior to such application. Any remaining balance of Letter of Credit shall be returned by Landlord to Tenant within thirty (30) days after the termination of this Lease; provided, however, Landlord shall have the right to retain and expend such remaining balance (i) to reimburse Landlord for any and all Rent or other sums due hereunder that have not been paid in full by Tenant and/or (ii) for cleaning and repairing the Premises if Tenant shall fail to deliver same at the termination of this Lease in a neat and clean condition and in as good a condition as existed at the date of possession of same by Tenant, ordinary wear and tear and damage due to casualty not caused by Tenant and condemnation only excepted. If more than fifty percent (50%) of the Letter of Credit, in the aggregate, is applied twice by Landlord during any twenty-four month period during the Lease term, following the second application, Landlord may require Tenant to restore the depleted Letter of Credit to the lesser of (A) its initial amount or (B) the amount of the Letter of Credit prior to such second application plus the sum of (i) two (2) additional monthly installments of Base Rent at the rate payable for the last month of the Lease term, plus (ii) two (2) additional monthly installments of Estimated Additional Rent
 
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at the rate payable for the month immediately preceding said second application of the Letter of Credit. Landlord shall not be required to keep the proceeds from any Letter of Credit separate from its general funds and Tenant shall not be entitled to any interest on same. Tenant acknowledges that Landlord has the right to transfer or mortgage its interest in the Project and in this Lease, and Tenant agrees that in the event of such transfer or mortgage, Landlord shall have the right to transfer or assign the Letter of Credit to the transferee or mortgagee. Upon such transfer or assignment of the Letter of Credit and the transferee’s or mortgagee’s acceptance in writing to the return of such Letter of Credit pursuant to this Lease, Landlord shall be deemed released by Tenant from all liability or obligation for the return of the Letter of Credit and Tenant shall look solely to such transferee or mortgagee for the return of the Letter of Credit.
 
Any letter of credit delivered by Tenant hereunder as the Letter of Credit shall expire no earlier than twelve (12) months after issuance and shall provide for automatic renewals of one-year periods unless the issuer has provided Landlord written notice of non-renewal at least sixty (60) days prior to the then expiration date (whereupon Tenant shall be obligated to provide a replacement letter of credit or a “Letter of Credit Extension”, as described below, meeting the requirements of this Section 2.4 no later than thirty (30) days prior to the expiration of the then outstanding and expiring letter of credit, as provided below). Any subsequent replacement letter of credit shall expire no earlier than twelve (12) months from the expiration date of the then outstanding and expiring letter of credit and shall provide for automatic 1-year renewals as described above, it being understood that in lieu of replacing any letter of credit, Tenant may procure an amendment extending its expiration date and so providing for automatic 1-year renewals (each a “ Letter of Credit Extension ”). Tenant shall ensure that at all times during the Term of this Lease and for fifteen (15) business days after expiration of the Term, one or more unexpired letters of credit in the aggregate amount of the amount required hereunder shall be in the possession of Landlord. To the extent that Tenant is obligated to furnish a replacement Letter of Credit hereunder, Tenant shall deliver a Letter of Credit Extension or a replacement letter of credit to Landlord no later than thirty (30) days prior to the expiration date of the then outstanding and expiring letter of credit; provided, however, that a replacement letter of credit shall not be required to have an effective date earlier than the expiration date of the then existing letter of credit being so replaced (it being the intent that Tenant not be required to have two outstanding letters of credit covering the same required amount at any one time). Failure by Tenant to deliver any Letter of Credit Extension or any replacement letter of credit as required above shall entitle Landlord to draw under the outstanding letter(s) of credit and to retain the entire proceeds thereof as security for Tenant’s obligations hereunder. Each letter of credit shall be for the benefit of Landlord and its successors and assigns, shall be expressly transferable (but only to a mortgagee or a successor landlord under this Lease), and shall entitle Landlord or its successors or assigns to draw from time to time under the letter of credit in portions or in whole upon presentation of a sight draft. Tenant acknowledges and agrees that the Letter of Credit is a separate and independent obligation of the issuing bank to Landlord and that Tenant is not a third party beneficiary of such obligation, and that Landlord’s right to draw upon the Letter of Credit for the full amount due and owing thereunder shall not be, in any way, restricted, impaired, altered or limited by virtue of any provision of the United States Bankruptcy Code, including without limitation, Section 502(b)(6) thereof.
 
2.5                                PERSONAL PROPERTY TAXES .  Tenant agrees that it shall pay directly to the taxing authority all personal property taxes pertaining to Tenant’s Trade Fixtures and any other personal property of Tenant.
 
2.6                                AD VALOREM TAXES .   If the taxing authority includes the value of leasehold improvements in the assessment of the Building, but does not separately assess Tenant’s Leasehold Improvements (as hereinafter defined), Landlord may make a reasonable allocation of the ad valorem
 
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taxes assessed against the Project and attributable to the value of the Tenant’s Leasehold Improvements. In such event, Tenant shall pay its allocated share within thirty (30) days of receipt of the written statement of Landlord setting forth in reasonable detail the amount and the basis upon which Landlord made the allocation.
 
ARTICLE III
 
3.1                                SERVICES .   Provided no Event of Default (as hereinafter defined) has occurred and is continuing hereunder, and subject to the provisions of Sections 3.2 and 3.3 below, Landlord shall furnish the following services and amenities (collectively, the “ Required Services ”) to Tenant (and its assignees and subtenants permitted hereunder) while occupying the Premises:
 
(i)                                      hot and cold domestic water at those points of supply provided for general use of the tenants of the Building;
 
(ii)                                   central heat, ventilation and air conditioning to the Premises and common areas of the Building, at such times, at such temperatures and in such amounts as are considered by Landlord to be standard, but in keeping with the standards of other Class A office buildings of comparable age and size in the Williamson County, Texas office market, all as more particularly described on EXHIBIT F attached hereto and made a part hereof for all purposes;
 
(iii)                                electric lighting service for all Public Areas and special service areas of the Building and the Project in the manner and to the extent deemed by Landlord to be in keeping with the standards of other Class A office buildings of comparable age and size in the Williamson County, Texas office market;
 
(iv)                               janitorial service comparable to that provided by landlords of other Class A office buildings of comparable age and size in the Williamson County, Texas office market and consistent with other similar tenants in the Building on a five (5) day per week basis in accordance with the specifications set forth in EXHIBIT H attached hereto; provided, however, if Tenant’s floor coverings or other improvements require special cleaning or care in excess of that provided for by Landlord in EXHIBIT H , Landlord will provide such additional cleaning or care only upon special agreement with Tenant;
 
(v)                                  on-site security equipment for the Building perimeter; provided, however, that Tenant agrees that Landlord shall not be responsible for the adequacy or effectiveness of such security;
 
(vi)                               electricity; Tenant shall pay to Landlord, monthly as billed or at such other times during any calendar year Landlord submits electricity bills, such charges as may be separately metered; if any electrical equipment requires air conditioning in excess of Building standards as reasonably determined by Landlord, the same shall be installed with applicable meters, at Tenant’s expense and Tenant shall pay all operating costs relating thereto, including, without limitation, any additional maintenance, repair and utilities related to such electrical equipment and above Building Standard (as defined in EXHIBIT D ) air conditioning equipment;
 
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(vii)                            all Building Standard fluorescent bulb replacement in all areas and all incandescent bulb replacement in Public Areas;
 
(viii)                         non-exclusive passenger elevator service to the Premises twenty-four (24) hours per day; and
 
(ix)                               maintenance of the roof, exterior walls, load-bearing columns, foundation, floor slabs, and other structural components and base Building components of the Project including but not limited to the following: mechanical, electrical and plumbing systems of the Project, common areas, public restrooms, restrooms on multi-tenant floors, and exterior lighting and landscaping of the Project.
 
3.2                                GOVERNMENTAL REGULATIONS .   The obligations of Landlord to provide the Required Services shall be subject to governmental regulation thereof (i.e., rationing, temperature control, etc.) and any such regulation that impairs Landlord’s ability to provide the Required Services as herein stipulated shall not constitute a default hereunder but rather providing the applicable Required Services to the extent allowed pursuant to such regulations shall be deemed to be full compliance with the obligations and agreements of Landlord hereunder.
 
3.3                                FAILURE TO PROVIDE REQUIRED SERVICES.   To the extent any of the Required Services require electricity, gas and water supplied by public utilities, Landlord’s covenants hereunder shall only impose on Landlord the obligation to use commercially reasonable efforts to cause the applicable public utilities to furnish the same. Failure by Landlord to furnish any of the Required Services to any extent, or any cessation thereof, due to failure of any public utility to furnish service to the Building, or any other cause beyond the reasonable control of Landlord, shall not render Landlord liable in any respect for damages to either person or property, nor be construed as an eviction of Tenant, nor result in an abatement of Rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. In the event of any failure by Landlord to furnish any of the Required Services to any extent, or any cessation thereof, due to malfunction of any equipment or machinery, or any other cause within the reasonable control of Landlord, Tenant shall have no claim for rebate of Rent or damages on account thereof. The services described in Sections 3.1(i), (ii), (iii), and (vi) above are referred to herein as “ Essential Services ” . Notwithstanding the foregoing, if the Premises or any portion thereof are rendered untenantable and are not used by Tenant for a period of five (5) consecutive days following Landlord’s receipt from Tenant of a written notice regarding such matters (the “ Eligibility Period ”) as a result of failure in any Essential Service, Tenant’s Base Rent and Estimated Additional Rent shall be reduced and abated after the expiration of the Eligibility Period for such time as the Premises (or portion thereof, as the case may be) remain untenantable and are not used by Tenant, in the same proportion as the Rentable Area rendered untenantable and not used bears to the total Rentable Area of the Premises; provided , however, there shall be no abatement of Rent: (i) if Landlord provides to Tenant other space in the Building which is reasonably suited for the temporary operation of Tenant’s business; (ii) if the failure is caused in whole or in part by a governmental directive, failure of a utility provider to provide service to the Premises, any other cause beyond Landlord’s reasonable control and ability to cure, or solely by the negligent or willful acts or omissions of Tenant or any of its assignees claiming by through or under Tenant, and any of their respective agents, contractors, employees, licensees and invitees; or (iii) to the extent such failure is caused by a fire or other casualty. As used herein, “untenantable” means the Premises is in a condition not reasonably usable or accessible by Tenant or its employees for the conduct of business, and includes, but is not limited to, the unavailability of any Essential Service to the Premises.
 
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If the foregoing conditions for rent abatement are met with respect to a failure of an Essential Service that continues for a period of one hundred eighty (180) consecutive days, Tenant may elect to terminate this Lease within ten (10) days of the expiration of such one hundred eighty (180) day period, as long as Landlord does not restore the service in question within such ten (10) day period. Notwithstanding the foregoing, during any rent abatement period under this Lease, Tenant shall pay Landlord as Rent Landlord’s normal charges for all services and utilities provided to and used by Tenant during the period of the rent abatement.
 
3.4                                ADDITIONAL SERVICES .   Tenant hereby acknowledges and agrees that Landlord is obligated to provide only the Required Services under this Lease, and that Landlord, its agents and representatives, have made no representations whatsoever of any additional services or amenities to be provided by Landlord now or in the future under this Lease. Notwithstanding the foregoing, Tenant recognizes that Landlord may, at Landlord’s sole but reasonable option, elect to provide additional services or amenities for the tenants of the Building from time to time, and hereby agrees that Landlord’s discontinuance of any provision of any such additional services or amenities shall not constitute a default of Landlord under this Lease nor entitle Tenant to any abatement of or reduction in Rent. Landlord may impose a reasonable charge and establish rules and regulations for any of the following: (a) the use of any HVAC by Tenant outside of Standard Operating Hours; (b) additional or unusual janitorial services requested by Tenant or required because of any non-building standard improvements in the Premises, the carelessness of Tenant, or the nature of Tenant’s business (other than ordinary office use) (including the operation of Tenant’s business other than during Standard Operating Hours); (c) the removal of any refuse and rubbish from the Premises except for discarded material placed in wastepaper baskets and left for emptying as an incident to Landlord’s normal cleaning of the Premises; and (d) any other services specifically requested by Tenant not otherwise included in Operating Expenses.
 
3.5                             EMERGENCY GENERATOR; ADDITIONAL EQUIPMENT .   During the Term, Tenant may install within the Project in a location acceptable to Landlord in its sole discretion (not to exceed 300 square feet), at Tenant’s sole cost and expense, an emergency generator (not to exceed 350 KVA), including an automatic transfer switch and all necessary electrical switchgear and conduit from the generator to the UPS batteries (to be located within the Premises), and an associated diesel fuel tank (not to exceed 2000 gallons) for such generator. All expenses (including without limitation any reasonable structural reinforcements necessary to support said equipment and Landlord’s costs incurred in connecting the generator to the Project’s electrical systems and Landlord’s oversight fees) and permitting associated with the installation, operation, maintenance and insuring of such equipment shall be borne solely by Tenant. Tenant shall screen the generator and fuel tank and ensure sound-attenuation in accordance with Legal Requirements and in a manner reasonably acceptable to Landlord. Tenant shall, at its expense, remove the generator and associated fuel tank within thirty (30) days of any of the following events: (1) the termination of Tenant’s right to possess the Premises; (2) the termination of the Lease; or (3) the Expiration Date. If Tenant fails to do so, Landlord may remove the generator and associated fuel tank and store and dispose of it in any manner Landlord deems appropriate without liability to Tenant; Tenant shall reimburse Landlord for all out-of-pocket costs incurred by Landlord in connection therewith within 10 days after Landlord’s request therefor. Tenant shall give Landlord at least 48 hours’ prior notice of any maintenance or testing of the generator and/or fuel tank. Tenant shall repair any damage and remediate any environmental contamination to the Building or the Project caused by or relating to the generator and associated fuel tank, including that which is caused by its installation, maintenance, use or removal. During the Term, Tenant may install on the roof of the Building in a location acceptable to Landlord in its sole discretion a non-penetrating Directv dish and a compressor to provide dedicated air
 
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conditioning service to its server and network operations center rooms (with such dedicated air conditioning being separately metered at Tenant’s cost and expense, which expense Tenant may cover out of the Allowance, and subject to Landlord’s consent as to location and installation). All expenses and permitting associated with the installation, operation, maintenance and insuring of such dish and air conditioning equipment shall be borne solely by Tenant. Tenant shall, at its expense, remove the dish and air conditioning equipment within thirty (30) days of any of the following events: (1) the termination of Tenant’s right to possess the Premises; (2) the termination of the Lease; or (3) the Expiration Date. If Tenant fails to do so, Landlord may remove the dish and air conditioning equipment and store and dispose of such equipment in any manner Landlord deems appropriate without liability to Tenant; Tenant shall reimburse Landlord for all out-of-pocket costs incurred by Landlord in connection therewith within 10 days after Landlord’s request therefor. Tenant shall repair any damage and remediate any environmental contamination to the Building or the Project caused by or relating to the dish or air conditioning equipment, including that which is caused by its installation, maintenance, use or removal.
 
ARTICLE IV
 
4.1                                CARE OF THE PREMISES .
 
(a)                                       Tenant shall not commit or allow to be committed any waste or damage to any portion of the Premises or the Building, and shall at its own cost and expense, maintain the Premises in good condition and repair. If Tenant fails to make required repairs or replacements to the Premises promptly, which, for purposes of this Lease, shall be within sixty (60) days following receipt of written notice from landlord describing in detail the required repair or replacement (except in the case of disrepair that is affecting Building systems or other tenants, in which case Landlord may immediately make such repairs), Landlord may, at its option, make such repairs or replacements, and Tenant shall repay the cost thereof plus a charge of five (5%) to Landlord on demand. Tenant shall not undertake the repair or replacement of any damage or injury to the structural components of the Building or its mechanical, electrical or plumbing systems caused by Tenant, its agents, contractors, employees, invitees or visitors, but shall reimburse Landlord for all actual costs and expenses incurred in effecting any such repair or replacement, plus a charge of five percent (5%).
 
(b)                                       The provisions of Section 4.1(a) shall fully apply to the appearance of mold or other fungi or bacteria resulting from the presence of water or moisture within the Premises caused by Tenant, Tenant’s agents, employees, contractors, or invitees, or resulting from Tenant’s failure to promptly advise Landlord of the presence of water or moisture within the Premises.
 
(c)                                        Unless otherwise expressly stipulated herein, Landlord shall not be required to make any improvements to or repairs of any kind or character to the Premises during the term of this Lease.
 
(d)                                       Upon termination of this Lease, by lapse of time or otherwise, Tenant shall deliver up the Premises to Landlord in as good condition as existed on the Commencement Date, ordinary wear and tear only excepted. Upon such termination of this Lease, Landlord shall have the right to re-enter and resume possession of the Premises.
 
(e)                                        Any communications or computer service wires, cables and related devices installed in the Premises (or elsewhere in the Building) by or on behalf of Tenant (collectively, “ Tenant Lines ”) , shall
 
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be removed within thirty (30) days after the expiration or earlier termination of the Lease by Tenant at Tenant’s sole cost and expense provided, however, Landlord shall have the right, upon written notice to Tenant given no later than thirty (30) days prior to the expiration or earlier termination of the Lease (except that the notice period shall extend to thirty (30) days beyond the date of termination of the Lease if it is terminated by Landlord due to a default by Tenant), to require Tenant to abandon and leave in place, without payment to Tenant, any and/or all Tenant Lines whether located in the Premises or elsewhere in the Building. Unless abandoned by Tenant at Landlord’s direction, Tenant shall repair and restore, or at Landlord’s election reimburse Landlord for the cost of repairing and restoring, any damage to the Premises and/or Building caused by the removal of the Tenant Lines.
 
4.2                                ENTRY FOR REPAIRS AND INSPECTION .   Tenant shall permit Landlord and its contractors, agents or representatives to enter into and upon any part of the Premises at all reasonable hours and upon at least twenty-four (24) hour prior notice (except for entry after-hours for cleaning and in the case of emergency, in which events no notice shall be required) to inspect or clean the same, to make repairs, alterations or additions thereto, within the final twelve (12) months of the Term, upon not less than twenty-four (24) hours prior written notice to show the same to prospective tenants or purchasers, or to determine whether Tenant is performing its obligations hereunder. Landlord agrees to exercise its best good faith efforts (i) to prosecute completion of any work within the Premises diligently, (ii) to minimize interference with Tenant’s use, access, occupancy and quiet enjoyment of the Premises, and (iii) to protect Tenant’s property located in the Premises from damage. Entry to the Premises and the conduct of work therein by Landlord and its contractors, agents or representatives pursuant to this Section 4.2 shall not constitute a trespass or an eviction (constructive or otherwise) nor shall Tenant be entitled to any abatement or reduction of Rent or claim for damages for any injury to or interference with Tenant’s business, loss of occupancy or quiet enjoyment or for any other consequential damages by reason thereof, unless caused by the negligence or misconduct of Landlord
 
4.3                                NUISANCE .   Tenant shall conduct its business and control its agents, employees, invitees, contractors and visitors in such manner as not to create any nuisance, or interfere with, annoy or disturb any other tenant, or Landlord in its operation of the Building. Landlord will promptly notify Tenant if any other tenant of the Building has complained to Landlord that Tenant’s actions have created a nuisance, interference, annoyance or disturbance of such Tenant
 
4.4                                LAWS AND REGULATIONS; RULES OF THE BUILDING .  Tenant, at Tenant’s expense, shall comply with, and Tenant shall cause its visitors, employees, contractors, agents and invitees to comply with all Legal Requirements and Building Rules. As used in this Lease, the term “ Legal Requirements ” means (a) all laws, ordinances, orders, rules, regulations and other requirements of governmental authority which impose any duty with respect to or otherwise relate to the use, condition, occupancy, maintenance or alteration of the Premises, whether now in force or hereafter enacted, and (b) all recorded covenants, rules and restrictions to which the Premises is subject from time to time provided a copy of such covenants, rules and restrictions have been provided to Tenant. As used in this Lease, the term “ Building Rules ” means all rules and regulations reasonably adopted and altered by Landlord from time to time for the use, care and cleanliness of the Premises and for preservation of good order therein, which Building Rules will be sent by Landlord to Tenant in writing and shall be thereafter carried out and observed by Tenant, its employees, contractors, agents, invitees and visitors. The current Building Rules are attached hereto as EXHIBIT G  and made a part hereof for all purposes.
 
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4.5                                HAZARDOUS SUBSTANCES .
 
(a)                               Except for small quantities of Hazardous Substances customarily used in connection with general office uses, and not required to be reported by an environmental agency, Tenant shall not cause or permit any Hazardous Substance to be used, stored, generated or disposed of on or in the Building, the Project or the Premises except fuel storage for back up generation handled and stored in compliance with all Legal Requirements, by Tenant, Tenant’s agents, employees, contractors or invitees without first obtaining Landlord’s written consent, which may be given or withheld in Landlord’s sole discretion. If any Hazardous Substances are used, stored, generated, or disposed of on or in the Building, the Project or the Premises, including those customarily used in connection with general office uses, or if the Building, the Project or the Premises become contaminated in any manner for which Tenant is legally liable or otherwise become affected by any storage, release or discharge of a Hazardous Substance, Tenant shall immediately notify Landlord of the release or discharge of a Hazardous Substance and Tenant shall indemnify, defend and hold harmless Landlord and its partners from and against any and all claims, damages, fines, judgments, penalties, costs, liabilities, or losses (including, without limitation, a decrease in value of the Project, the Building or the Premises, damages caused by loss or restriction of rentable or usable space, or any damages caused by adverse impact on marketing of the space, and any and all sums paid for settlement of claims, attorneys’ fees, consultant, and expert fees) arising during or after the term of this Lease, and arising as a result of such contamination, release or discharge. This indemnification includes, without limitation, any and all costs incurred because of any investigation of the site or any cleanup, removal, or restoration mandated by federal, state or local agency or political subdivision or required by any Interest Holder (as hereinafter defined). Without limitation of the foregoing, if Tenant causes or permits the presence of any Hazardous Substance on the Premises, the Building or the Project and the same results in any contamination, release or discharge, Tenant shall promptly, at its sole expense, take any and all necessary actions to return the Premises, the Building or the Project, to the condition existing prior to the presence of any such Hazardous Substance on the Premises, the Building or the Project and in compliance with all Legal Requirements. Tenant shall first obtain Landlord’s approval for any such remedial action and the approval of the contractors doing the work. Landlord shall have the right to do the work, at Tenant’s sole cost and expense, if Landlord determines an emergency exists or if necessary to protect the health and safety of other tenants of the Project.
 
(b)                               As used herein, “ Hazardous Substance ” means any substance that is toxic, ignitable, reactive, infectious or corrosive and that is regulated by any local government, the state in which the Building is located or the United States Government. “ Hazardous Substance ” includes any and all material or substances that are defined as “hazardous waste,” “extremely hazardous waste,” or a “hazardous substance” pursuant to federal, state or local governmental law. “ Hazardous Substance ” includes, but is not restricted to, asbestos, polychlorobiphenyls, and petroleum.
 
(c)                                Tenant’s indemnification of Landlord under Section 4.5(a) hereof shall survive the expiration or termination of this Lease.
 
(d)                               Landlord represents and covenants that to its knowledge, except for Hazardous Substances used in the ordinary course of constructing, operating and maintaining an office building, including the Parking Facilities and landscaping, the Project does not and shall not contain any Hazardous Substances as of the date hereof and as of the Commencement Date.
 
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ARTICLE V
 
5.1                                CONDITION OF THE PREMISES AND THE PROJECT .
 
(a)                               On the Commencement Date, the Premises (including the Tenant Work described in EXHIBIT D ) shall be delivered to Tenant, and Tenant shall accept the same, in its condition as of the Commencement Date.
 
(b)                               Tenant acknowledges that no representations as to the repair of the Premises or the Project, nor promises to alter, remodel or improve the Premises or the Project, have been made by Landlord, except as are expressly set forth in this Lease.
 
5.2                                ALTERATIONS TO THE PREMISES .
 
(a)                                  Tenant shall not make or allow to be made any alterations, physical additions or other improvements (including fixtures) in or to the Premises (such alterations, additions and other improvements being herein called “ Premises Alterations ” ) , or place safes, vaults, file cabinets or other heavy furniture or equipment within the Premises, without first obtaining Landlord’s written approval of Tenant’s contractors and the plans and specifications therefor, which approval shall not be unreasonably withheld or delayed. If such approval is given, prior to commencement of construction Tenant shall deliver to Landlord all building permits required for such construction, a certificate of insurance from Tenant’s contractors confirming the existence of all insurance reasonably required by Landlord and a copy of the executed construction contract covering such Premises Alterations. Landlord’s approval, if given, shall create no responsibility or liability on the part of Landlord for, or warranty by Landlord with respect to, the completeness or design sufficiency or compliance with any Legal Requirements. Tenant shall pay to Landlord, upon demand, a fee not to exceed three percent (3%) of the cost of such Premises alterations. to compensate Landlord for the cost of review and monitoring the construction of such Premises Alterations. Upon completion, Tenant shall deliver to Landlord a copy of the “as-built” plans and specifications for all Premises Alterations on a diskette in AutoCAD or compatible format.
 
(b)                                  Landlord’s interest in the Premises shall not be subject to liens for improvements made by Tenant, and Tenant shall have no power, right, or authority to create any lien or permit any lien to attach to the Premises or to the present estate, reversion, or other estate of Landlord in the Premises, the Building, the Land, the Project, and any other property of Landlord as a result of improvements made by Tenant or for any other cause or reason. All materialmen, contractors, artisans, mechanics, laborers, and other persons contracting with Tenant with respect to the Premises or any part thereof ( “ Potential Lienors ” ) are hereby charged with notice that such liens are expressly prohibited and that such Potential Lienors must look solely to Tenant to secure payment for any work done or material furnished for improvements by Tenant or for any other purpose during the term of this Lease. Tenant covenants to promptly notify all Potential Lienors of this provision exculpating Landlord and the Premises, the Building, the Land, the Project, and any other property of Landlord from liability for such liens. Tenant shall also advise all Potential Lienors of the provisions of this subsection (b).
 
(c)                                   All Leasehold Improvements (hereinafter defined), including without limitation, all Premises Alterations are the property of Landlord and shall be surrendered to Landlord upon the expiration or earlier termination of this Lease, whether by lapse of time or otherwise; provided, however, that Tenant shall remove all Trade Fixtures (as hereinafter defined) and any Premises Alterations as designated in writing by Landlord to be removed at the time that Landlord approves the Premises Alterations. In addition, pursuant to EXHIBIT D , Tenant may be required to remove certain items of Tenant Work which do not comply with the Tenant Work Standards (as defined in EXHIBIT D ). Tenant
 
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shall repair and restore any damage to the Premises caused by the removal of any items pursuant to this Section 5.2(c) or EXHIBIT D .
 
(d)                                  As used in this Lease, the term “ Leasehold Improvements ” means any and all improvements and tenant finish existing in the Premises as of the Commencement Date, including the Tenant Work, as defined and described in EXHIBIT D , as well as any and all Premises Alterations added by Tenant after the Commencement Date, but excluding Trade Fixtures. As used in this Lease, the term “ Trade Fixtures ” means any fixtures, telephone, voice and data cabling, computer systems, furniture, furniture systems or equipment used or installed by or at the request of Tenant which are not permanently affixed to the Premises and the removal of which would not adversely affect the structure of the Building or any of its systems, including HVAC, electrical, life safety or plumbing.
 
(e)                                   Tenant shall indemnify and hold harmless Landlord from and against all costs (including reasonable attorneys’ fees and costs of suit), losses, liabilities, or causes of action arising out of or relating to any Premises Alterations or Leasehold Improvements installed by Tenant or its contractors, including but not limited to any mechanics’ or materialmen’s liens asserted in connection therewith. Should any mechanics’ or other liens be filed against any portion of the Building and/or the Land or any interest therein by reason of Tenant’s acts or omissions or because of a claim against Tenant or its contractors, Tenant shall cause the same to be canceled or discharged of record by bond or otherwise within thirty (30) days after notice by Landlord. If Tenant shall fail to cancel or discharge said lien or liens, within said thirty (30) day period, which failure shall be deemed to be a default hereunder, Landlord may, at its sole option and in addition to any other remedy of Landlord hereunder, cancel or discharge the same and upon Landlord’s demand, Tenant shall promptly reimburse Landlord for all costs incurred in canceling or discharging such lien or liens. Tenant’s indemnification of Landlord under this paragraph shall survive the expiration or termination of this Lease.
 
5.3                                ALTERATIONS TO THE BUILDING .   Notwithstanding anything herein to the contrary, Landlord hereby expressly reserves the right in its sole discretion to (a) temporarily or permanently change the location of, close, block or otherwise alter any entrances, corridors, skywalks, tunnels, doorways or walkways leading to or providing access to the Building or any part thereof or otherwise restrict the use of same provided such activities do not unreasonably impair Tenant’s access to the Premises, and (b) improve, remodel, expand or otherwise alter any of the Building, and it is agreed that Landlord shall not incur any liability whatsoever to Tenant as a consequence thereof and such activities shall not be deemed to be a breach of any of Landlord’s obligations hereunder as long as such actions do not unreasonably impair Tenant’s access to or use of the Premises; provided, however, Landlord will not permanently re-locate the main entrance to the Building on the first floor unless so required by Legal Requirements. Landlord agrees to notify Tenant within a reasonable time in advance of any alterations, modifications or other actions of Landlord under this Section 5.3. Any diminution or obstruction of light, air or view by any structure which is not or may hereafter be constructed on lands adjacent to the Project shall in no way affect this Lease or impose any liability on Landlord. Noise, dust or vibration or other incidents to any construction work in or around the Building shall in no way affect this Lease or impose any liability on Landlord. In making such alterations and modifications or taking such other actions, Landlord shall use commercially reasonable efforts to minimize interference with and disruption of Tenant’s use of the Premises, the Building, or the Project as permitted under this Lease.
 
5.4                                KEYS AND LOCKS   Landlord shall furnish Tenant with up to (a) four hundred fifty (450) keys or access cards for the Building corridor doors entering the Premises and up to (b) four
 
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hundred fifty (450) access cards for the Building. Additional keys and substitute access cards will be furnished by Landlord upon an order signed by Tenant and payment by Tenant of Landlord’s charge therefor. All such keys and access cards shall remain the property of Landlord. No additional locks shall be allowed on any door of the Premises without Landlord’s permission, and Tenant shall not make or permit to be made any duplicate keys or access cards, except those furnished by Landlord. Upon termination of this Lease, Tenant shall surrender to Landlord all keys and access cards, including any keys to any locks on doors entering or within the Premises, and give to Landlord the explanation of the combination of all locks for safes, safe cabinets and vault doors, if any, in the Premises. If either (i) Tenant loses any master key to the Premises or (ii) an unauthorized duplicate of the master key to the Premises is found to have been made by Tenant, all doors in the Premises shall be re-keyed, at Tenant’s sole cost and expense. Tenant shall not permit any unauthorized use of the access cards. If Tenant loses any access card, all costs and expenses incurred by Landlord to adjust the Building access system or the access system for the covered portion of the Parking Facilities due to such loss shall be paid by Tenant. Notwithstanding the above, at the time any master suite key is lost or misplaced, Tenant may elect to not re-key its Premises; provided, however, such election to not re-key shall mean that Tenant automatically waives and releases Landlord, its agents, employees and property managers from all claims and expenses of any kind or nature known or unknown arising directly or indirectly in whole or in part from such loss of the master key and agrees to indemnify and hold all such parties harmless from all such claims and expenses including reasonable attorneys fees and costs.
 
5.5                                GRAPHICS, BUILDING DIRECTORY AND NAME .
 
(a)                                       No signs except as provided in paragraph (c) , numerals, letters or other graphics shall be used or permitted on the exterior of the Premises, or which may be visible from outside the Premises, (except from the common corridor), unless approved in advance and in writing by Landlord. All costs of installing, using, maintaining and removing any approved signage shall be at Tenant’s sole cost. Tenant agrees to keep and maintain all signage in good condition and repair during the term of the Lease and any extended term. Tenant shall be granted Building standard suite signage at the entrance to the Premises that will include Tenant’s standard logo, with the design, size and location of such signage to be subject to Landlord’s reasonable approval. Upon termination of this Lease, Tenant shall at Tenant’s sole cost, immediately remove its signage and repair any damage caused thereby. The rights under this Section 5.5(a) are personal to Tenant.
 
(b)                                  Landlord shall input a listing of Tenant’s name on the Building’s directory board located in the main lobby of the Building.
 
(c)                                   Tenant, at Tenant’s sole cost and expense, shall have the right to install backlit Tenant identification (parapet) signage on the upper Building façade (on the wall facing southwest on Highway 183 or on the wall facing northwest on Highway 183, at Tenant’s option) that will include Tenant’s standard logo, with the design, size and location of such signage to be subject to Landlord’s reasonable approval. Upon termination of this Lease, Tenant shall at Tenant’s sole cost, immediately remove its signage and repair any damage caused thereby. The rights under this Section 5.5(c) are personal to Tenant. Tenant shall reserve the right to use the Allowance (to the extent any Allowance remains following completion of Tenant’s Work) referenced in Exhibit D to pay any and all signage costs.
 
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ARTICLE VI
 
6.1                                CONDEMNATION .
 
(a)                               In the event of a taking or damage related to the exercise of the power of eminent domain, by any agency, authority, public utility or entity empowered to condemn property (including without limitation a voluntary conveyance by Landlord in lieu of such taking or condemnation) (a “ Taking ”) of (i) the entire Premises, (ii) so much of the Premises as to prevent or substantially impair its use by Tenant during the term of this Lease, or (iii) portions of the Building or Project required for reasonable access to, or reasonable use of, the Premises (a “ Total Taking ”) , the rights of Tenant under this Lease and the leasehold estate of Tenant in and to the Premises shall cease and terminate as of the date upon which title to the property taken passes to and vests in the condemnor or the effective date of any order for possession if issued prior to the date title vests in the condemnor (“ Date of Taking ”) .
 
(b)                                  In the event of a Taking of only a part of the Premises or of a part of the Project which does not constitute a Total Taking during the term of this Lease (a “ Partial Taking ”) , the rights of Tenant under this Lease and the leasehold estate of Tenant in and to the portion of the property taken shall cease and terminate as of the Date of Taking, and an adjustment to the Rent shall be made based upon the reduced area of the Premises. Provided, however, if such Partial Taking is for more than forty percent (40%) of the Premises and will prevent Tenant, in Tenant’s reasonable judgment, from conducting its business in the Premises in a manner comparable to that conducted immediately before the Partial Taking, then Tenant may terminate this Lease as of the Date of Taking by giving written notice to Landlord within sixty (60) days after the Date of Taking.
 
(c)                                   In the event of a Taking of a material portion of the Building (other than the Premises) such that, in Landlord’s reasonable opinion, the Building’s continued operation is not practically or economically feasible, Landlord may terminate this Lease by giving notice to Tenant within ninety (90) days after the date notice of such Taking is received by Landlord.
 
(d)                                  If this Lease is terminated pursuant to this Section 6.1, Landlord shall refund to Tenant any prepaid unaccrued Rent and any other sums due and owing to Tenant (less any sums then due and owing Landlord by Tenant), and Tenant shall pay to Landlord any remaining sums due and owing Landlord under this Lease, each prorated as of the Date of Taking where applicable.
 
(e)                                   If this Lease is not terminated as provided for in this Section 6.1, Landlord at its expense shall promptly repair and restore the Building, Project and/or the Premises to substantially the same condition that existed immediately prior to the Date of Taking, wear and tear only excepted (and Landlord shall have no obligation to repair or restore Tenant’s improvements to the Premises or Tenant’s property), except for the part taken, so as to render the Building or Project as complete an architectural unit as practical, but only to the extent of the condemnation award received by Landlord for the damage.
 
(f)                                    Landlord reserves all rights to damages and awards paid because of any Partial or Total Taking of the Premises or the Project. Tenant assigns to Landlord any right Tenant may have to the damages or award. Further, Tenant shall not make claims against Landlord or the condemning authority for damages. Notwithstanding the above, Tenant may pursue a separate claim against the condemning authority for the value of Tenant’s moving expenses, business dislocation damages, Tenant’s property and Trade Fixtures and any other award that would not reduce the award payable to Landlord.
 
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6.2                                DAMAGES FROM CERTAIN CAUSES . Landlord shall not be liable or responsible to Tenant for (i) any loss or damage to any property or person occasioned by any cause beyond Landlord’s control (“ Force Majeure ”) , including without limitation, theft, fire, act of God, public enemy, terrorist act, injunction, riot, strike, insurrection, war, court order, requisition or order of governmental body or authority (including any failure by any such governmental body or authority to issue any permits necessary for alterations to and/or occupancy of the Premises and/or Building), or (ii) any damage or inconvenience which may arise through repair or alteration of any part of the Building made necessary by virtue of any such Force Majeure event. The terms and provisions of this Section 6.2 shall survive the expiration or termination of this Lease.
 
6.3                                CASUALTY .
 
(a)                                  If at any time during the term of this Lease, including any extension or renewal thereof, the Building is damaged by fire or other casualty, then, unless this Lease is terminated by Landlord as hereinafter provided, Landlord shall be obligated to promptly commence, and thereafter prosecute with reasonable diligence, the reconstruction, restoration and repair of the Building and the Premises to a condition substantially equivalent to that existing immediately prior to the casualty. If the damage renders the Premises inaccessible or untenantable in whole or in part, the Rent provided for herein shall abate thereafter as to the portion of the Premises so affected until such time as same is accessible and restored to a tenantable condition, as reasonably determined by Landlord.
 
(b)                                  If (i) the Building is damaged to an extent that Landlord’s good faith estimate of the cost of reconstruction, restoration and repair thereof exceeds sixty percent (60%) of the replacement cost of the Building, (ii) the reconstruction, restoration and repair of the Premises or the Building cannot with reasonable diligence be completed within two hundred seventy (270) days after the casualty, or (iii) the casualty occurs during the last twelve (12) calendar months of the term of this Lease, then in any such event Landlord shall have the right, exercisable by written notice given to Tenant at any time within thirty (30) days after the occurrence of the casualty, to elect not to reconstruct, restore or repair the Premises, and in such event this Lease shall be terminated in all respects effective as of the date of the casualty, all Rent shall be prorated to the date of the casualty, and the parties hereto shall be released from any obligations thereafter accruing under this Lease (except as otherwise provided herein). Notwithstanding the foregoing, in the event the Premises or the Building is damaged by a casualty such that Tenant is prevented from conducting its business in the Premises in a manner reasonably comparable to that conducted immediately before such casualty and Landlord estimates that the damage caused thereby cannot be repaired within two hundred ten (210) days after the casualty, which notice Landlord agrees to provide within forty-five (45) days after such casualty, then Tenant may terminate this Lease by delivering written notice to Landlord of its election to terminate within thirty (30) days after the notice from landlord of the estimate of time needed to repair the damage.
 
(c)                                   Notwithstanding anything contained in this Section 6.3, in no event shall Landlord be required to expend more to reconstruct, restore and repair the Building than the amount actually received by Landlord from the proceeds of the property insurance carried by Landlord.
 
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ARTICLE VII
 
7.1                                PROPERTY INSURANCE .
 
(a)                                  Landlord shall maintain “special form” property insurance determined on a replacement cost basis on the Building and on all Leasehold Improvements. Landlord also may, but shall not be obligated to, maintain such other additional insurance as is customary for a landlord to maintain or as may be required by Landlord’s lender, including, but not limited to rental abatement insurance and personal property insurance. Landlord agrees to maintain commercial general liability insurance with applicable limits of not less than $2,000,000 for death, bodily injury and property damage per occurrence, subject to a general aggregate of $4,000,000, which coverages may be effected by primary or excess coverage. Landlord’s commercial general liability insurance shall include coverage for contractual liability assumed under this Lease. Said insurance shall be maintained with an insurance company authorized to do business in the state in which the Building is located, in amounts desired by Landlord and at the expense of Landlord (but with the same to be included in Operating Expenses) and payments for losses thereunder shall be made solely to Landlord. If the annual premiums to be paid by Landlord shall exceed the standard rates because of Tenant’s operations within or contents of the Premises or because the Leasehold Improvements to the Premises exceed the amount of the Allowance (as defined in EXHIBIT D) , Tenant shall promptly pay the excess amount of the premium upon request by Landlord (and if necessary, Landlord may allocate the insurance costs of the Building to give effect to this sentence). Landlord shall deliver a copy of such policy, or evidence of insurance (ACORD-27 or equivalent) in a form reasonably satisfactory to Tenant, as directed by Tenant, within ten (10) days after any request therefor and shall endeavor to do so no later than ten (10) days prior to the expiration or sooner termination of such policies.
 
(b)                                  Tenant shall maintain at its expense “special form” property insurance (formerly known as “All-Risk Coverage”) with vandalism, malicious mischief and sprinkler leakage on all of its personal property, including Trade Fixtures, located in the Premises. Such coverage shall be for an amount not less than the full replacement cost of such insured items. Tenant shall endeavor to cause all insurance required to be maintained by Tenant to provide that the policy shall not be cancellable, nor shall the coverage thereunder be reduced, without at least thirty (30) days’ advance written notice to Landlord. Tenant shall deliver copies of such policies, or certificates of insurance in a form satisfactory to Landlord, within ten (10) business days after any request therefor.
 
7.2                                LIABILITY INSURANCE . Tenant shall, at its sole expense, maintain a policy or policies of commercial general liability insurance with applicable limits of not less than $3,000,000 for death, bodily injury and property damage per occurrence, subject to a general aggregate of $5,000,000, which coverages may be effected by primary or excess coverage. Tenant’s commercial general liability insurance shall include coverage for contractual liability assumed under this Lease, shall name Landlord, Landlord’s mortgagees, ground lessees, Landlord’s property manager and other persons with an insurable interest as may be designated by Landlord as additional insureds. The commercial general liability insurance policies to be maintained by Tenant shall have a deductible amount or self-insured retention not greater than $5,000.
 
7.3                                OTHER INSURANCE . Tenant shall maintain business auto policy insurance, for any owned, non-owned or hired autos, including contractual liability coverage, with an applicable limit of not less than $1,000,000 per accident, naming Landlord, Landlord’s mortgagee and all ground lessees,
 
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Landlord’s property manager and such other persons with an insurable interest as may be designated by Landlord as additional insureds, with a deductible of not greater than $5,000.00. Tenant shall also maintain workers’ compensation insurance in the amount provided by statute and employer’s liability insurance with limits of not less than $1,000,000 per accident, with an endorsement providing a waiver of subrogation in favor of Landlord, Landlord’s mortgagees and property manager, and any other persons reasonably designated by Landlord.
 
7.4                                GENERAL INSURANCE REQUIREMENTS .   All policies shall be written as primary policies and not contributing with or in excess of any coverage maintained by Landlord. Whenever Tenant is required to insure against any risk under this Lease, said insurance shall be with an insurance company qualified to do business in the jurisdiction in which the Building is located and maintaining a rating of A- or better and a financial size class of VIII or higher with A.M. Best’s Insurance Rating Service. Tenant shall endeavor to cause all insurance required to be maintained by Tenant to provide that the policy shall not be cancellable, nor shall the coverage thereunder be reduced, without at least thirty (30) days’ advance written notice to Landlord. Tenant shall deliver copies of such policies, or evidence of insurance (ACORD-27 or equivalent) in a form satisfactory to Landlord, as directed by Landlord, prior to Tenant’s taking occupancy of the Premises (or performing any work within the Premises, if earlier), within ten (10) days after any request therefor and no later than ten (10) days prior to the expiration or sooner termination of such policies.
 
7.5                                HOLD HARMLESS; INDEMNITY .
 
(a)                                  To the maximum extent permitted by law, Landlord’s Indemnitees (defined below) shall not be liable for, and Tenant waives all claims for, loss or damage to Tenant’s business or injury or damage to person or property sustained by Tenant, or any person claiming by, through or under Tenant, resulting from any accident or occurrence in, on, or about the Building, including claims for loss, theft, injury or damage resulting from: (i) any equipment or appurtenances being or becoming out of repair; (ii) wind or weather; (iii) any defect in or failure to operate any sprinkler, HVAC equipment, wiring, fiber optic or other cabling, gas, water or steam pipe, stair, railing or walk; (iv) interference, interruption, failure or other fault with respect to any utilities or communications, (v) broken glass; (vi) the backing up of any sewer pipe or downspout; (vii) the escape of gas, steam or water; (viii) water, snow or ice being upon or about the Building or coming into the Premises; (ix) the falling of any fixture, plaster, tile, stucco or other material; (x) any act, omission or negligence of other tenants, licensees or any other Persons including occupants of the Building, occupants of adjoining or contiguous buildings, owners of adjacent or contiguous property, or the public; or (xi) any repairs, maintenance, alteration or improvement in or to any portion of the Project or the Building, including the Premises, UNLESS LANDLORD IS GROSSLY NEGLIGENT IN PERFORMING SUCH REPAIRS, MAINTENANCE, ALTERATIONS OR IMPROVEMENTS, AND SUCH GROSS NEGLIGENCE IS THE SOLE, PROXIMATE CAUSE OF THE LOSS OR DAMAGE. TENANT ACKNOWLEDGES AND AGREES THAT PURSUANT TO THIS SECTION 7.5(a), TENANT WAIVES CLAIMS AGAINST LANDLORD INDEMNITEES EVEN IF LANDLORD INDEMNITEES ARE NEGLIGENT WHEN SUCH NEGLIGENCE IS OTHER THAN GROSS NEGLIGENCE AND WHEN SUCH NEGLIGENCE IS NOT THE SOLE, PROXIMATE CAUSE OF THE LOSS OR DAMAGE UPON WHICH THE CLAIMS ARE MADE.
 
(b)                                  TENANT SHALL INDEMNIFY, DEFEND AND HOLD LANDLORD AND ITS LESSORS, SHAREHOLDERS, MEMBERS, TRUSTEES, AGENTS, EMPLOYEES,
 
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PROPERTY MANAGER AND MORTGAGEE(S) (COLLECTIVELY, “ LANDLORD’S INDEMNITEES ”) HARMLESS FROM AND AGAINST ALL LIABILITIES, OBLIGATIONS, DAMAGES, JUDGMENTS, PENALTIES, CLAIMS, COSTS, CHARGES AND EXPENSES, INCLUDING REASONABLE ATTORNEYS’ FEES (A “ LOSS ”) , WHICH MAY BE IMPOSED UPON, INCURRED BY, OR ASSERTED AGAINST ANY OF LANDLORD’S INDEMNITEES AND ARISING, DIRECTLY OR INDIRECTLY, OUT OF OR IN CONNECTION WITH (I) TENANT’S BREACH OF ITS OBLIGATIONS UNDER THIS LEASE, (II) THE ACTS OR NEGLIGENCE OF TENANT, ITS AGENTS, CONTRACTORS, AND EMPLOYEES, (III) THE USE OR OCCUPANCY OF THE PREMISESOR THE LEASEHOLD IMPROVEMENTS BY TENANT, ITS AGENTS, EMPLOYEES, AND CONTRACTORS, (IV) THE USE OR OCCUPANCY OF THE PREMISES OR THE LEASEHOLD IMPROVEMENTS BY TENANT’S INVITEES WHILE WITHIN THE PREMISES OR LEASEHOLD IMPROVEMENTS, AND (V) ANY VIOLATIONS OF LEGAL REQUIREMENTS, INCLUDING WITHOUT LIMITATION, THE PROVISIONS OF THE AMERICANS WITH DISABILITIES ACT, BUT NOT TO THE EXTENT THE LOSS WAS CAUSED BY THE SOLE OR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD OR ITS AGENT. TENANT ACKNOWLEDGES AND AGREES THAT PURSUANT TO THE PROVISIONS OF THIS SECTION 7.5(b), TENANT AGREES TO INDEMNIFY LANDLORD INDEMNITEES EVEN IF LANDLORD INDEMNITEES ARE NEGLIGENT WHEN SUCH NEGLIGENCE IS OTHER THAN SOLE OR GROSS NEGLIGENCE. If any action or proceeding is brought against any of Landlord’s Indemnitees by reason of any of the foregoing, Tenant shall reimburse Landlord for the reasonable cost of defending such action or proceeding or, upon Landlord’s request and at Tenant’s sole cost and expense, defend such action and proceeding by counsel reasonably approved by Landlord. If Landlord elects to defend itself at Tenant’s cost as provided in the previous sentence, Tenant shall have the right to approve any settlement or compromise which would cause Tenant to incur any liability, such approval not to be unreasonably withheld or delayed. The indemnity set forth in this Section 7.5(b) shall survive the termination or expiration of this Lease and shall not terminate or be waived, diminished or affected in any manner by any abatement or apportionment of Rent under any provision of this Lease.
 
(c)                                   LANDLORD SHALL INDEMNIFY, DEFEND AND HOLD TENANT AND ITS SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES (COLLECTIVELY, “ TENANT’S INDEMNITEES ”) HARMLESS FROM AND AGAINST ALL LIABILITIES, OBLIGATIONS, DAMAGES, JUDGMENTS, PENALTIES, CLAIMS, COSTS, CHARGES AND EXPENSES, INCLUDING REASONABLE ATTORNEYS’ FEES (A “ LOSS ”), ARISING FROM ANY OCCURRENCE IN THE BUILDING (BUT NOT THE PREMISES), PARKING FACILITIES OR COMMON AREAS WHICH MAY BE IMPOSED UPON, INCURRED BY, OR ASSERTED AGAINST ANY OF TENANT’S INDEMNITEES AND ARISING, DIRECTLY OR INDIRECTLY, OUT OF OR IN CONNECTION WITH (I) LANDLORD’S BREACH OF ITS OBLIGATIONS UNDER THIS LEASE, (II) THE ACTS OR NEGLIGENCE OF LANDLORD, ITS AGENTS, CONTRACTORS, AND EMPLOYEES, (III) THE USE OR OCCUPANCY OF THE BUILDING, PARKING FACILITIES OR COMMON AREAS BY LANDLORD, ITS AGENTS, EMPLOYEES, AND CONTRACTORS, (IV) THE USE OR OCCUPANCY OF THE BUILDING, PARKING FACILITIES OR COMMON AREAS BY LANDLORD’S INVITEES, AND (V) ANY VIOLATIONS OF LEGAL REQUIREMENTS, INCLUDING WITHOUT LIMITATION, THE PROVISIONS OF THE AMERICANS WITH DISABILITIES ACT, BUT NOT TO THE EXTENT THE LOSS WAS CAUSED BY THE SOLE OR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF TENANT OR ITS AGENT.
 
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LANDLORD ACKNOWLEDGES AND AGREES THAT PURSUANT TO THE PROVISIONS OF THIS SECTION 7.5(c), LANDLORD AGREES TO INDEMNIFY TENANT’S INDEMNITEES EVEN IF TENANT’S INDEMNITEES ARE NEGLIGENT WHEN SUCH NEGLIGENCE IS OTHER THAN SOLE OR GROSS NEGLIGENCE. If any action or proceeding is brought against any of Tenant’s Indemnitees by reason of any of the foregoing, Landlord shall reimburse Tenant for the reasonable cost of defending such action or proceeding or, upon Tenant’s request and at Landlord’s sole cost and expense, defend such action and proceeding by counsel reasonably approved by Tenant. If Tenant elects to defend itself at Landlord’s cost as provided in the previous sentence, Landlord shall have the right to approve any settlement or compromise which would cause Landlord to incur any liability, such approval not to be unreasonably withheld or delayed. The indemnity set forth in this Section 7.5(c) shall survive the termination or expiration of this Lease and shall not terminate or be waived, diminished or affected in any manner by any abatement or apportionment of Rent under any provision of this Lease.
 
7.6                                WAIVER OF CLAIMS AND RECOVERY RIGHTS . Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each, on behalf of themselves and their respective heirs, successors, legal representatives, assigns and insurers, hereby (i) waives any and all rights of recovery, claims, actions or causes of action against the other and their respective officers, directors, partners, shareholders, agents, servants, employees, guests, licensees or invitees for any property loss or damage that may occur to the Premises or other portion of the Project, or any improvements thereto, or any personal property of such party therein, by reason of fire, the elements, or any other cause which is required to be insured against under the terms of the insurance policies referred to in this Article VII, REGARDLESS OF CAUSE OR ORIGIN, INCLUDING NEGLIGENCE OF THE OTHER PARTY HERETO OR ITS RESPECTIVE OFFICERS, DIRECTORS, PARTNERS, SHAREHOLDERS, AGENTS, SERVANTS, EMPLOYEES, GUESTS, LICENSEES OR INVITEES, and (ii) covenants that no insurer under any property insurance maintained by Landlord or Tenant shall hold any right of subrogation against such other party. If the respective insurer of Landlord and Tenant does not permit such a waiver without an appropriate endorsement to such party’s insurance policy, then Landlord and Tenant each shall notify its insurer of the waiver set forth herein and to secure from such insurer an appropriate endorsement to its respective insurance policy with respect to such waiver.
 
ARTICLE VIII
 
8.1                                LANDLORD’S LIEN.  Intentionally deleted
 
8.2                                DEFAULT BY TENANT . The occurrence of any one or more of the following events shall constitute an “ Event of Default ” under this Lease:
 
(a)                                       Tenant shall fail to pay any sum of Rent when due, and such failure shall continue for ten (10) days after such due date; and exceeds the one time grace period per lease year.
 
(b)                                       Tenant shall fail to execute and acknowledge or otherwise respond in good faith and in writing within ten (10) business days after submission to Tenant of a request for confirmation of the subordination of this Lease pursuant to Section 11.1(a), confirmation of the subordination of a mortgage or deed of trust lien to this Lease pursuant to Section 11.1(b) or an estoppel certificate pursuant to Section 11.2;
 
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(c)                                   Tenant shall fail in the performance of any of the other covenants or conditions not included in subparagraphs (a) and (b) of this Section 8.2 which Tenant is required to observe and to perform under this Lease, inclusive of the exhibits hereto and such failure shall continue for thirty (30) days after written notice to Tenant or such longer period as is reasonably necessary to remedy such default if it is of a nature that it cannot be cured within thirty (30) days and as long as Tenant is actively and diligently pursuing the cure of such default, unless such failure (i) materially and adversely affects the Building or the operation thereof or other tenants, or (ii) violates Legal Requirements, and in either such event, Tenant fails to cure the same within ten (10) business days of receipt of written notice or in the event of an issue requiring more than ten (10) business days to cure, Tenant fails to commence to cure said item within ten (10) business days of receipt of said notice and actually cures within sixty (60) days receipt of written notice.
 
(d)                                  The interest of Tenant under this Lease shall be levied on under execution or other legal process; any petition shall be filed by or against Tenant to declare Tenant a bankrupt or to delay, reduce or modify Tenant’s debts or obligations, or to reorganize or modify Tenant’s capital structure; Tenant is declared insolvent according to law; any assignment of Tenant’s property shall be made for the benefit of creditors; or a receiver or trustee is appointed for Tenant or its property and such levy, execution, legal process, petition, declaration, assignment or appointment is not removed or vacated within sixty (60) days from the date of its creation, service or filing;
 
(e)                                   Tenant shall vacate or abandon the Premises for a period of thirty (30) or more continuous days at any time during the Term, unless (i) Tenant gives Landlord thirty (30) days’ prior written notice of its intent to vacate the Premises and (ii) Tenant complies with all other terms of the Lease, including the payment of Rent and the maintenance of insurance; or
 
(f)                                    Tenant, if a corporation, shall cease to exist as a corporation in good standing in the state of its incorporation, or Tenant, if a partnership or other entity, shall be dissolved or otherwise liquidated.
 
8.3                                REMEDIES .  Upon the occurrence of any Event of Default, at Landlord’s option, Landlord may (without further notice or grace) exercise any one or more of the following remedies, in addition to all other rights and remedies provided at law or in equity:
 
(a)                                  Terminate this Lease and immediately repossess the Premises by forcible entry and detainer suit or otherwise, and be entitled to recover forthwith as damages a sum of money equal to the total of (i) the cost of recovering the Premises (including reasonable legal fees and costs of suit), (ii) the unpaid Rent earned at the time of termination, plus interest thereon at the Default Rate, (iii) the balance of the Rent for the remainder of the term of this Lease, discounted to present value at a per annum rate equal to the “Prime Rate” as published on the date this Lease is terminated by the Wall Street Journal, Southwest Edition, in its listing of “Money Rates” minus one percent minus the fair market rental value of the Premises for said period similarly discounted, taking into account the period of time during which the Premises is likely to remain vacant until a new tenant commences payment of rental and the reasonably anticipated out-of-pocket expenses to be incurred by Landlord to relet the Premises (such as the cost of preparation of the Premises, leasing commissions and reasonable legal fees associated with occupancy by a new tenant), and (iv) any other sum of money and damages owed by Tenant to Landlord under the terms of this Lease.  The provisions of this paragraph shall survive the expiration or termination of this Lease.
 
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For the purpose of calculating Landlord’s damages under clause (iii) of this paragraph, Tenant covenants and agrees that:
 
(i)                                      it shall be assumed that the Additional Rent for the calendar year in which this Lease is terminated would be equal to the Additional Rent for the last full calendar year prior to termination, increased at a rate equal to the average rate of increase (if any) of Operating Expenses for the three (3) full calendar years preceding the calendar year of termination (the “ Escalation Rate ” ), and that the Additional Rent for each year thereafter for the remainder of the term would be equal to the Additional Rent for the preceding calendar year (calculated in the same manner as for the year of termination), increased at the Escalation Rate; and
 
(ii)                                   Landlord may rely upon the average of the determinations of the fair market rental value of the Premises for the remainder of the term of this Lease made independently and in writing by three (3) reputable real estate brokers active in the leasing of office space comparable to the Premises in the Williamson County, Texas office market and selected by Landlord in good faith, and Tenant shall have no right to dispute the value so calculated.
 
(b)                                       Terminate Tenant’s right of possession (but not this Lease) and immediately repossess the Premises by forcible entry and detainer suit or otherwise, in accordance with applicable law, without thereby releasing Tenant from any liability hereunder and without terminating this Lease, and shall be entitled to recover forthwith as damages a sum of money equal to the total of (i) the cost of recovering the Premises (including reasonable legal fees and costs of suit), (ii) the unpaid Rent earned at the time of termination, plus interest thereon at the Default Rate, and (iii) any other sum of money and damages then owed by Tenant to Landlord under the terms of this Lease. In addition, Tenant shall remain liable for the payment of all Rent as same becomes due under the terms of this Lease. After regaining possession of the Premises under this Section 8.3(b), Landlord shall use commercially reasonable efforts to relet the Premises on such terms and conditions as Landlord in its sole, good faith judgment deems acceptable and are in adherence with the laws of the state of Texas for mitigation of damages, and if the Premises are so relet, Tenant shall receive credit against the sums otherwise payable to Landlord hereunder only for the amount of the Net Reletting Income (as hereinafter defined). For the purpose of such reletting Landlord shall be authorized but not obligated to decorate or to make any repairs, changes, alterations or additions in or to Premises as may be reasonably necessary or desirable. Landlord reserves the right, however (x) to lease any other space available in the Building prior to offering the Premises for lease, (y) to refuse to lease the Premises to any potential tenant that does not meet Landlord’s standards and criteria for leasing other comparable space in the Building (including, without limitation, rental rates), and (z) to reconfigure the Premises and lease only portions thereof or lease all or part of the Premises in combination with other space. Any payments due Landlord under this Section 8.3(b) shall be made upon demand therefor from time to time, and Tenant agrees that Landlord may file suit to recover any sums falling due under the terms of this Section 8.3(b) from time to time. No delivery to or recovery by Landlord of any portion due Landlord hereunder shall be any defense in any action to recover any amount not theretofore reduced to judgment in favor of Landlord, nor shall any reletting be construed as an election on the part of Landlord to terminate this Lease unless a written notice of such intention be given to Tenant by Landlord. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease as a result of the breach of this Lease that gave rise to such reletting. As used above, the term “ Net Reletting Income ” means the amount of all rentals actually received by Landlord in respect of a reletting of the Premises during the term of this Lease, less all of the costs and expenses incurred by Landlord in connection with such reletting, including, without limitation,
 
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leasing commissions, demolition of existing improvements and installation of new improvements and/or the allowances provided therefor, and legal fees.
 
(c)                                   To the extent permitted by applicable law, enter upon the Premises by use of a master key, a duplicate key or other peaceable means, and alter the door locks on all entry doors of the Premises, thereby excluding Tenant and its officers, principals, agents, employees, contractors, representatives and invitees. If Landlord elects to so exclude Tenant from the Premises without terminating this Lease or Tenant’s right to possession of the Premises pursuant to the provisions of this Lease, then Landlord shall be obligated to provide Tenant a key to re-enter the Premises only upon payment in full of all delinquent Rent and other amounts due under this Lease and the curing of all other defaults, if any. If this Lease or Tenant’s right of possession of the Premises is terminated, Landlord will, for a period of thirty (30) days following such termination of the Lease or right of possession, during Landlord’s regular business hours, at Landlord’s convenience and upon written request by Tenant, escort Tenant or its authorized personnel to the Premises to retrieve personal belongings of Tenant’s employees and any property of Tenant.
 
(d)                                  If Landlord terminates this Lease or Tenant’s right to possession (without terminating the Lease), Landlord shall use objectively reasonable efforts to mitigate Landlord’s damages by re-letting the Premises following Tenant’s vacancy thereof, but in doing so, Tenant agrees that Landlord shall not be required to (i) give preference to re-letting the Premises prior to leasing other space that Landlord has available, i.e., any prospective tenant’s space requirements will dictate Landlord’s leasing activities, (ii) expend any sums to so re-let or (iii) re-let at rental rates less than rental rates then being offered to new tenants of the Building. Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be diminished because of, Landlord’s failure to relet the Premises or collect any rentals due in respect of such reletting. In any proceedings to enforce this Lease, Landlord shall be presumed to have used commercially reasonable efforts to relet the Premises or otherwise mitigate Landlord’s damages, and Tenant shall bear the burden of proof to establish otherwise. Unless contrary to Applicable Law, Landlord will have satisfied the duty to mitigate and will have used objectively reasonable efforts to relet the Premises if Landlord does the following within sixty (60) days after the occurrence of the Event of Default: (1) place the Premises on Landlord’s inventory of available space; (2) make Landlord’s inventory available to area brokers; and (3) show the Premises to prospective tenants who request to see it.
 
(e)                                   In the event of a termination of this Lease as a result of an Event of Default, Tenant hereby waives all right to recover or regain possession of the Premises, to save forfeiture by payment of Rent due or by other performance of the conditions, terms or provisions hereof, and without limitation of or by the foregoing, Tenant waives all right to reinstate or redeem this Lease notwithstanding any provisions of any statute, law or decision now or hereafter in force or effect and Tenant waives all right to any second or further trial in summary proceedings, ejectment, forcible entry and detainer, forcible detainer or in any other action provided by any statute or decision now or hereafter in force or effect. Landlord shall not be required to serve Tenant with any notices or demands as a prerequisite to its exercise of any of its rights or remedies under this Lease, other than those notices and demands specifically required under this Lease. Tenant expressly waives the service of any statutory demand or notice that is a prerequisite to Landlord’s commencement of eviction proceedings against Tenant, including, without limitation, the demands and notices specified in the Texas Property Code.
 
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(f)                               Landlord and Tenant are knowledgeable and experienced in commercial leasing transactions and agree that the provisions of this Lease for determining all Rent and other charges and amounts payable by Tenant are commercially reasonable and valid, and as to each such charge or amount, constitutes a “method by which the charge is to be computed” for purposes of Section 93.012 of the Texas Property Code, even though such methods may not state a precise mathematical formula for determining such charges. ACCORDINGLY, TENANT VOLUNTARILY AND KNOWINGLY WAIVES ALL RIGHTS AND BENEFITS, IF ANY, OF A TENANT UNDER SECTION 93.012 OF THE TEXAS PROPERTY CODE, AS SUCH SECTION NOW EXISTS OR AS IT MAY BE HEREAFTER AMENDED OR SUCCEEDED.
 
8.4                                LANDLORD’S RIGHT TO CURE DEFAULTS . All agreements and provisions to be performed by Tenant under any of the terms of this Lease shall be at Tenant’s sole cost and expense and without any abatement of Rent. If Tenant shall fail to pay any sum of money, other than monthly installments of Base Rent and Estimated Additional Rent, required to be paid by it hereunder or shall fail to cure any default within any applicable cure, grace or notice period contained herein, then Landlord may, but shall in no event be obligated to, make any such payment or perform any such act on Tenant’s account, and such cure by Landlord shall not be deemed a waiver by Landlord of any of its other remedies or a release of Tenant from any obligations hereunder. All sums so paid by Landlord and all costs incurred by Landlord in taking such action shall be deemed Rent and shall be paid to Landlord on demand, and Landlord shall have (in addition to all other rights and remedies of Landlord) the same rights and remedies in the event of the non-payment thereof by Tenant as in the case of default by Tenant in the payment of Rent hereunder.
 
8.5                                NON-WAIVER . Failure of Landlord to declare any default immediately upon occurrence thereof, or delay in taking any action in connection therewith, shall not waive such default, but Landlord shall have the right to declare any such default at any time and take such action as might be lawful or authorized hereunder, either in law or in equity. The rights and remedies given to Landlord in this Lease are distinct, separate and cumulative remedies, and no one of them, whether or not exercised by Landlord, shall be deemed to be in exclusion of any of the others. No payment by Tenant or receipt by Landlord of a lesser amount than a full installment of Rent due under this Lease shall be deemed to be other than on account of the earliest Rent due, nor shall any endorsement or statement on any check or payment or any documentation accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or pursue any other remedy provided in this Lease, at law, or in equity.
 
8.6                                HOLDING OVER . If Tenant continues in occupancy of the Premises after expiration or termination of this Lease without the written consent of Landlord, Tenant shall pay as Rent for the holdover period One Hundred and Fifty Percent (150%) of the Base Rent and Estimated Additional Rent (pro rated on a daily basis) payable immediately prior to the the expiration or termination. No holding over by Tenant after the term of this Lease without the written consent of Landlord shall be construed to extend the term hereof. Any holding over without the prior written consent of Landlord shall constitute such holdover a tenancy at sufferance relationship between Landlord and Tenant unless Landlord has specifically stated in writing in such consent that a tenancy at will is intended. The provisions of this paragraph shall survive the expiration or termination of this Lease.
 
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ARTICLE IX
 
9.1                                ASSIGNMENT OR SUBLEASE BY TENANT .
 
(a)                                       Tenant shall not assign this Lease, sublet all or any part of the Premises or allow the Premises to be used or occupied by others (any such event being referred to herein as a (“ Transfer ”), or mortgage or otherwise encumber its leasehold estate under this Lease or its property within the Premises, without Landlord’s prior written consent, which shall not be unreasonably withheld or delayed subject to Section 9.1 (c) below.
 
(b)                                       Tenant shall give Landlord at least sixty (60) days’ advance written notice of any proposed Transfer, stating the anticipated terms thereof and all relevant information on the proposed transferee requested by Landlord. Landlord shall then have a period of thirty (30) days following receipt of such notice within which to notify Tenant in writing that Landlord elects to either (i) to terminate this Lease as to the space so affected, in which event Tenant shall be relieved of all obligations hereunder as to such space arising from and after such date, however, Tenant shall reserve the right to withdraw its request to Transfer in the event Landlord chooses to Terminate the lease (ii) consent to the proposed Transfer, or (iii) refuse consent on reasonable grounds as set forth Section 9.1 (c) below. In addition, in the event Tenant has delivered a notice to abandon the entire Premises under Section 8.2(e) hereof, and such abandonment continues for a period of six (6) months, Landlord shall have the right to terminate this Lease at any time following the expiration of such six (6) month period so long as the abandonment continues.
 
(c)                                        Landlord shall not unreasonably withhold its consent to a proposed Transfer provided all of the following conditions have been met: (i) Tenant is not in default under the Lease, (ii) the nature and character of the proposed transferee, its creditworthiness, business and activities or its intended use of the Premises are consistent with the standards of the Building in Landlord’s sole judgment, (iii) the proposed transferee is not then an occupant of any part of the Building unless Landlord does not have adequate space in the Building or a party with whom Landlord is then negotiating to lease space within the Building as evidenced by a written proposal made by Landlord to the proposed transferee (or from the proposed transferee to Landlord) within the six (6) month period prior to Tenant’s request for consent for the proposed Transfer; (iv) the proposed occupancy would not impose an extra burden upon the Building systems or Landlord’s ability to provide services to the other tenants of the Buildings, (iv) the granting of such consent would not constitute a default under any other agreement to which Landlord is a party or by which Landlord is bound, including, without limitation, any exclusives previously granted to other tenants of the Project and any restrictions on leasing contained in any other leases of space in the Building, (v) the proposed transferee is not a governmental agency or an entity with diplomatic immunity, or (vi) the requested assignment or sublease does not modify the Lease or the rights, obligations, or liabilities of either Landlord or Tenant under this Lease. Tenant acknowledges that the foregoing conditions are a reasonable basis for Landlord to withhold its consent to a Transfer and that if all of the foregoing conditions are not satisfied, Landlord may withhold its consent to a proposed Transfer in Landlord’s sole and absolute discretion.
 
(d)                                       If Landlord consents to a Transfer, Tenant agrees that Fifty Percent (50%) of all Rent amounts and other consideration payable to Tenant in respect of the Transfer in excess of the Rent for the Premises or the portion thereof subject to the Transfer shall be paid to Landlord as Additional Rent hereunder immediately upon Tenant’s receipt thereof after deduction for all reasonable brokerage
 
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commissions, free rent and tenant improvement allowances actually paid by Tenant in conjunction with such Transfer, or at Landlord’s option such payments can be made directly to Landlord by such sublessee or assignee. Tenant acknowledges and agrees that, notwithstanding Landlord’s consent to any Transfer, Tenant shall remain directly and primarily liable for the performance of all the obligations of Tenant hereunder (including, without limitation, the obligation to pay all Rent). The consent by Landlord to any Transfer shall not be deemed in any manner to be a consent to a use not permitted under Section I .5(a). Any consent by Landlord to a particular Transfer shall not constitute Landlord’s consent to any other or subsequent Transfer. In furtherance of the foregoing, but not in limitation thereof, the acceptance by Landlord of the payment of Rent following any Transfer prohibited by this Article IX shall not be deemed to be a consent or approval by Landlord to any such Transfer, nor shall the same be deemed a waiver of any right or remedy of Landlord hereunder as a result thereof.
 
(e)                                        If Tenant is a partnership or limited liability company, a withdrawal or change, whether voluntary, involuntary or by operation of law, of partners or members owning as of the date hereof a controlling or majority interest in Tenant shall be deemed a voluntary assignment of this Lease subject to the provisions of this Section 9.1. If Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant, or the sale or transfer (whether by way of one or more sales or transfers) of the controlling or majority interest as of the date hereof in Tenant’s capital stock shall be deemed a voluntary assignment of this Lease and subject to the provisions of this Section 9.1.
 
(f)                                         Tenant agrees to pay Landlord’s reasonable attorneys’ fees and costs in connection with Landlord’s review and approval of any proposed subletting or assignment and an administrative fee of one thousand dollars ($1,000).
 
(g)                                        Notwithstanding Section 9.1(a) above, provided no Event of Default has occurred under this Lease, Tenant may effect a Transfer to any Affiliated Entity without Landlord’s prior consent provided (i) Tenant describes in writing to Landlord the transaction in which the Transfer will be effective, or provides Landlord with a copy of the form Transfer documents, prior to the Transfer; (ii) Tenant identifies the Affiliated Entity to which Tenant intends to effect a Transfer prior to the Transfer; and (iii) Tenant delivers to Landlord a copy of the executed Transfer documents on a Landlord-approved form to Landlord within thirty (30) days after such Transfer. A Transfer to an Affiliated Entity shall not release Tenant from any of its liabilities or obligations under this Lease, and the Transfer documents shall provide that Tenant shall remain primarily liable under this Lease jointly and severally with the Affiliated Entity. In no event shall any such Transfer have any material adverse financial impact on Tenant’s financial status. Tenant shall, prior to any such Transfer, provide written evidence reasonably satisfactory to Landlord that there shall be no material adverse financial impact on Tenant resulting from such Transfer. For purposes hereof, “ Affiliated Entity ” shall mean an entity which (i) controls, is controlled by, or is in common control with Tenant; or (ii) results from the merger or consolidation with Tenant, or (iii) acquires all or substantially all of the assets of, interest in, or stock of Tenant. Notwithstanding anything herein to the contrary, in no event may Tenant effect a Transfer to an Affiliated Entity whose primary assets are leaseholds or other non-income producing assets, and any transfer of all or a substantial portion of Tenant’s assets separate from the Transfer is expressly prohibited.
 
9.2                                ASSIGNMENT BY LANDLORD . Landlord shall have the right to transfer and assign its rights and obligations hereunder to any person or entity acquiring ownership of the Project, and in such event and upon such transfer (any such person or entity to have the benefit of, and be subject to, the
 
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provisions of Sections 10.1 and 10.2 hereof) no further liability or obligation shall thereafter accrue against Landlord hereunder.
 
ARTICLE X
 
10.1                         QUIET ENJOYMENT . Subject to the terms and conditions of this Lease, Landlord covenants that Tenant shall and may peacefully have, hold and enjoy the Premises from those parties claiming possession or rights to the Premises by or through Landlord, subject to the other terms hereof, provided that Tenant pays the Rent and other sums herein recited to be paid by Tenant and performs all of Tenant’s covenants and agreements herein contained. It is understood and agreed that this covenant and any and all other covenants of Landlord contained in this Lease shall be binding upon Landlord and its successors only with respect to breaches occurring during its and their respective ownership of Landlord’s interest hereunder. This covenant of quiet enjoyment is in lieu of any implied covenant of quiet enjoyment under Texas law.
 
10.2                      LIMITATION OF LANDLORD’S PERSONAL LIABILITY . TENANT AGREES TO LOOK SOLELY TO LANDLORD’S INTEREST IN THE PROJECT FOR THE RECOVERY OF ANY JUDGMENT AGAINST LANDLORD, IT BEING AGREED THAT LANDLORD, ITS MANAGERS, MEMBERS, PARTNERS, OFFICERS, DIRECTORS AND EMPLOYEES SHALL NEVER BE PERSONALLY LIABLE FOR ANY SUCH JUDGMENT, AND TENANT, FOR ITSELF AND ALL PERSONS CLAIMING BY, THROUGH OR UNDER TENANT, EXPRESSLY WAIVES AND RELEASES LANDLORD AND SUCH RELATED PERSONS AND ENTITIES FROM ANY AND ALL PERSONAL LIABILITY. IN NO EVENT SHALL LANDLORD BE LIABLE FOR CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES. TENANT HEREBY WAIVES ITS STATUTORY LIEN UNDER SECTION 91.004 OF THE TEXAS PROPERTY CODE. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord’s successors in interest or any suit or action in connection with enforcement or collection of amounts which may become owing or payable under or on account of insurance maintained by Landlord.
 
10.3                      LIMITATION OF INTEREST HOLDER’S PERSONAL LIABILITY . If an Interest Holder shall succeed to the interest of Landlord, the Interest Holder shall have no personal liability as successor to Landlord, and Tenant shall look only to the estate and property of the Interest Holder in the Project or the proceeds thereof for the satisfaction of Tenant’s remedies for the collection of a judgment (or other judicial procedure) requiring the payments of money in the event of any default by the Interest Holder as landlord under the Lease. In addition, the Interest Holder as holder of the Mortgage Document or as landlord under the Lease if it succeeds to that position, shall in no event (i) be liable to Tenant for any act or omission of any prior landlord, (ii) be subject to any offset or defense which Tenant might have against any prior landlord, (iii) be liable to Tenant for any liability or obligation of any prior landlord occurring prior to the date that the Interest Holder or any subsequent owner acquires title to the Project, or (iv) be liable to Tenant for any security or other deposits given to secure the performance of Tenant’s obligations under the Lease, except to the extent that the Interest Holder shall have acknowledged actual receipt of such security or other deposits in writing. No other property or assets of the Interest Holder shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant’s remedies under or with respect to the Lease, the relationship of the landlord and the tenant thereunder or Tenant’s use or occupancy of the Premises.
 
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ARTICLE XI
 
11.1                      SUBORDINATION .
 
(a)                                  Subject to Landlords’ delivery to Tenant of a nondisturbance agreement acceptable to Tenant, Tenant covenants and agrees with Landlord that this Lease is subject and subordinate to any mortgage, deed of trust, ground lease and/or security agreement which may now or hereafter encumber the Project or any interest of Landlord therein, and to any advances made on the security thereof and to any and all increases, renewals, modifications, consolidations, replacements and extensions thereof. Subject to Landlords’ delivery to Tenant of a nondisturbance agreement acceptable to Tenant„ Tenant shall execute any appropriate certificate or instrument that Landlord may request within ten (10) days after being requested by Landlord to do so. In the event of the enforcement by the ground lessor, the mortgagee, the trustee, the beneficiary or the secured party (any such party being herein referred to as “ Interest Holder ”) under any such ground lease, mortgage, deed of trust or security agreement (such documents being referred to herein as “ Mortgage Documents ”) of the remedies provided for by law or by such Mortgage Documents, Tenant, upon written request of the Interest Holder or any person or party succeeding to the interest of Landlord as a result of such enforcement, will attorn to and automatically become the tenant of such Interest Holder or successor in interest without any change in the terms or other provisions of this Lease; provided, however, that such Interest Holder or successor in interest shall not be bound by (i) any payment of Rent for more than one month in advance except prepayments in the nature of security for the performance by Tenant of its obligations under this Lease, or (ii) any amendment or modification of this Lease made without the written consent of such Interest Holder or such successor in interest. Upon request by such Interest Holder or successor in interest, whether before or after the enforcement of its remedies, Tenant shall execute and deliver an instrument or instruments confirming and evidencing the attornment herein set forth.
 
(b)                                  Notwithstanding anything to the contrary set forth in Section 11.1(a), above, any Interest Holder may at any time subordinate its lien to this Lease in whole or in part, without any need to obtain Tenant’s consent, and without regard to their respective dates of execution, delivery or recordation. In that event, to the extent set forth in such document, the Interest Holder shall have the same rights with respect to this Lease as would have existed if this Lease had been executed, and a memorandum thereof recorded, prior to the execution, delivery and recordation of the mortgage or deed of trust. In confirmation of such subordination, however, Tenant shall execute any appropriate certificate or instrument that Landlord or the Interest Holder may request within ten (10) business days after being requested to do so.
 
11.2                      ESTOPPEL CERTIFICATE . Tenant agrees periodically, but in no event more than twice each calendar year, to furnish within ten (10) business days after written request by Landlord a certificate signed by a Tenant certifying (a) that the lease is in full force and effect and unmodified (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), (b) as to the Commencement Date and the date through which Base Rent, Estimated Additional Rent and additional Rent have been paid, (c) that Tenant has accepted possession of the Premises and that any improvements required by the terms of this Lease to be made by Landlord have been completed to the satisfaction of Tenant, (d) that except as stated in the certificate no Rent under this Lease has been paid more than thirty (30) days in advance of its due date, (e) that the address for notices to be sent to Tenant is as set forth in this Lease (or has been changed by notice duly given and is as set forth in the certificate), (f) that except as stated in the certificate, Tenant, as of the date of such certificate,
 
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has no charge, lien, or claim of offset under this Lease or otherwise against Rent or other charges due or to become due hereunder, (g) that except as stated in the certificate, Landlord is not then in default under this Lease, (h) that there are no renewal or extension options, purchase options, rights of first refusal or the like in favor of Tenant except as set forth in this Lease and (i) as to such other matters as may be requested by Landlord. Any such certificate may be relied upon by any existing or prospective Interest Holder or purchaser of the Building or the Land or any part thereof or interest of Landlord therein.
 
11.3                      RIGHT TO CURE LANDLORD’S DEFAULT . Prior to exercising any remedy for an alleged default by Landlord hereunder, Tenant will give written notice to any Interest Holder of which Tenant has notice specifying the nature of the alleged default. Each Interest Holder shall have the right (but not the obligation) for a period of thirty (30) days after notice from Tenant to cure or remedy such default (or if the Interest Holder cannot reasonably cure or remedy such default within said thirty-day period, such longer period as is necessary to allow the Interest Holder to effect such cure or remedy, provided that the Interest Holder commences its good faith efforts to cure or remedy such default within said thirty (30) day period), and Tenant will accept such curative or remedial action taken by the Interest Holder with the same effect as if such action had been taken by Landlord.
 
ARTICLE XII
 
12.1                         RELOCATION . Intentionally deleted.
 
12.2                         NAME CHANGE . Landlord reserves and shall have the right at any time and from time to time to change the name of the Building as Landlord may deem advisable, and Landlord shall not incur any liability whatsoever to Tenant as a consequence thereof.
 
12.3                         LEGAL FEES . If either party defaults in the performance of any of the terms, agreements or conditions contained in this Lease and the other party places the enforcement of this Lease, or any part thereof, or the collection of any Rent due or to become due hereunder, or recovery of the possession of the Premises, in the hands of an attorney who files suit upon the same, and should such non-defaulting party prevail in such suit, the defaulting party agrees to pay the other party’s reasonable legal fees.
 
12.4                         RADON . Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines may be present in buildings in Texas. Additional information regarding radon and radon testing may be obtained from Travis County public health department or found in 25 Texas Administrative Code {289.203 and in rules and regulations promulgated thereunder.
 
12.5                      USA PATRIOT ACT AND ANTI-TERRORISM LAWS .
 
(a)                                Tenant represents and warrants to, and covenants with, Landlord that (i) neither Tenant nor any of its owners or affiliates currently are, or shall be at any time during the term of this Lease, in violation of any Legal Requirements relating to terrorism or money laundering (collectively, the “Anti-Terrorism Laws”), including without limitation Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, and regulations of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) related to Specially Designated Nationals and Blocked Persons (SDN’s) (OFAC
 
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Regulations), and/or the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (the “USA Patriot Act”); (ii) neither Tenant nor any of its owners, affiliates, investors, officers, directors, employees, vendors, subcontractors or agents is or shall be during the term of this Lease hereof a “Prohibited Person,” which is defined as follows: (1) a person or entity owned or controlled by, affiliated with, or acting for or on behalf of, any person or entity that is identified as an SDN on the then-most current list published by OFAC at its official website, http://www.treas.gov/offices/eotffc/ofac/sdn/t11sdn.pdf, or at any replacement website or other replacement official publication of such list, and (2) a person or entity who is identified as or affiliated with a person or entity designated as a terrorist, or associated with terrorism or money laundering pursuant to regulations promulgated in connection with the USA Patriot Act; and (iii) Tenant has taken appropriate steps to understand its legal obligations under the Anti-Terrorism Laws and has implemented appropriate procedures to assure its continued compliance with such laws.
 
(b)                                Tenant hereby agrees to defend, indemnify, and hold harmless Landlord, its officers, directors, agents and employees, from and against any and all claims, damages, losses, risks, liabilities and expenses (including attorney’s fees and costs) arising from or related to any breach of the foregoing representations, warranties and covenants.
 
(c)                                 At any time and from time-to-time during the term of this Lease, Tenant shall deliver to Landlord, within ten (10) business days after receipt of a written request therefor, a written certification or such other evidence reasonably acceptable to Landlord evidencing and confirming Tenant’s compliance with this Section 12.5.
 
ARTICLE XIII
 
13.1                         NOTICES . Any notice or other communications to Landlord or Tenant required or permitted to be given under this Lease (and copies of the same to be given to the parties as below described) must be in writing and shall be effectively given if sent to the addresses for Landlord and Tenant set forth below, by (a) United States mail, certified or registered, return receipt requested, or (b) nationally recognized overnight courier:
 
The address for notices to Landlord is:
 
13785 Research Blvd, LLC
Crimson Real Estate Fund, L.P.
1980 Post Oak Blvd., Suite 1600
Houston, Texas 77056
Attn: C. Dean Patrinely
 
with a copy to:
 
US Real Estate Limited Partnership
9830 Colonnade Boulevard, Suite 600
San Antonio, Texas 78230-2239
Attn: Portfolio Manager
 
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Until Tenant occupies the Premises, after which time Tenant’s address for notices will be the Premises, the address for notices to Tenant is:
 
Q2 Software, Inc.
9430 Research Blvd., Bldg. IV, Suite 120
Austin, Texas 78759
Attn: Matt Flake, Chief Executive Officer
 
with a copy to:
 
Q2 Software, Inc.
9430 Research Blvd., Bldg. IV, Suite 120
Austin, Texas 78759
Attn: General Counsel
 
Any notice mailed by certified or registered mail, return receipt requested, shall be deemed to have been given on the fifth business day following the date of deposit of such item in a depository of the United States Postal Service. Any notice sent via nationally-recognized overnight courier shall be deemed to have been given on the first business day following the date of deposit of such item with said nationally-recognized overnight courier with instructions for delivery on the next business day. Either party shall have the right to change its address to which notices shall thereafter be sent by giving the other written notice thereof. Additionally, Tenant shall send copies of all notices required or permitted to be given to Landlord to each Interest Holder who notifies Tenant in writing of its interest and the address to which notices are to be sent.
 
13.2                 MISCELLANEOUS .
 
(a)                                       This Lease shall be binding upon and inure to the benefit of the successors and assigns of Landlord, and shall be binding upon and inure to the benefit of Tenant, its successors, and, to the extent assignment may be approved by Landlord hereunder, Tenant’s assigns. The pronouns of any gender shall include the other genders, and either the singular or the plural shall include the other.
 
(b)                                       All rights and remedies of Landlord under this Lease shall be cumulative and none shall exclude any other rights or remedies allowed by law.
 
(c)                                        This Lease may not be altered, changed or amended, except by an instrument in writing executed by all parties hereto. Further, the terms and provisions of this Lease shall not be construed against or in favor of a party hereto merely because such party is the “ Landlord ” or the “ Tenant ” hereunder or such party or its counsel is the draftsman of this Lease.
 
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(d)                         The terms and provisions of all Exhibits described herein and attached hereto are hereby made a part hereof for all purposes. This Lease constitutes the entire agreement of the parties with respect to the subject matter hereof, and all prior correspondence, memoranda, agreements or understandings (written or oral) with respect hereto are merged into and superseded by this Lease.
 
(e)                          If Tenant is a corporation, partnership or other entity, Tenant warrants and represents that (i) Tenant is a duly organized and existing legal entity in the State of Delaware, and is authorized to do business in and in good standing with the jurisdiction where the Building is located, (ii) Tenant has full right and authority to execute, deliver and perform this Lease and all consents or approvals required of third parties (including but not limited to its managers, members, board of directors or partners) for the execution, delivery and performance of this Lease have been obtained, (iii) the person executing this Lease on behalf of Tenant is authorized to do so and (iv) upon request by Landlord, such person shall deliver to Landlord satisfactory evidence of his/her authority to so execute this Lease on behalf of Tenant.
 
(f)                               Whenever in this Lease there is imposed upon Landlord the obligation to use its best efforts, reasonable efforts or diligence, Landlord shall be required to do so only to the extent the same is economically feasible and otherwise will not impose upon Landlord extreme financial or other business burdens. Time is of the essence in the payment and performance of Tenant’s obligations, and the exercise of its rights, under this Lease.
 
(g)                              If any term or provision of this Lease, or the application thereof to any person or circumstance, shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and shall be enforceable to the extent permitted by law.
 
(h)                             Neither this Lease nor any memorandum hereof shall be recorded in any public records without the prior written consent of Landlord.
 
(i)                                 The submission of an unsigned copy of this document to Tenant for Tenant’s consideration does not constitute an offer to lease the Premises or an option to or for the Premises. This document shall become effective and binding only upon the execution and delivery of this Lease by both Landlord and Tenant.
 
(j)                                Landlord has agreed to pay to Crimson Services, LLC and AQUILA Commercial, LLC (“ Landlord’s Broker ”) and to HPI Corporate Services LLC (“ Tenant’s Broker ”) real estate brokerage commissions as set forth in separate commission agreements between Landlord and Landlord’s Broker and Landlord and Tenant’s Broker, respectively. Landlord and Tenant hereby represent and warrant each to the other that they have not employed any other agents, brokers or other such parties in connection with this Lease, and each agrees that they shall hold the other harmless from and against any and all claims of all other agents, brokers or other such parties claiming by, through or under the respective indemnifying party.
 
(k)                             At any time during the term of this Lease that Tenant is not a “publicly traded company” (i.e., ownership interests are listed on a public securities exchange) or a governmental entity, then within one hundred twenty (120) days after the end of each fiscal year of Tenant or upon Landlord’s
 
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reasonable request, Tenant shall furnish to Landlord (and to each Interest Holder of which Tenant has notice) a financial statement, in form and substance satisfactory to Landlord (and each Interest Holder of which Tenant has notice), showing the complete results of Tenant’s operations, including EBITDA and Tenant’s Free Cash Flow for its immediately preceding fiscal year or twelve month period, as the case may be, including a statement, certified as true and correct by a certified public accountant and prepared in accordance with generally accepted accounting principles applied on a consistent basis from year to year. Upon Landlord’s request, Tenant shall provide Landlord with unaudited financial statements for the immediately preceding quarter, certified by an officer of Tenant, as soon as such quarterly financial statements are available.
 
(1)                                  Parking permits shall be provided to Tenant during the term of this Lease in accordance with the terms and conditions set forth in EXHIBIT I attached hereto and made a part hereof for all purposes.
 
(m)                              Tenant hereby acknowledges that Tenant has no options, rights of first refusal or rights of first offer to purchase the Premises, the Building or the Land, or any part thereof or any other part of the Project.
 
(n)                                  Tenant shall have the option to renew the term of this Lease, a right of first refusal and the right to terminate this lease, each in accordance with the terms and conditions set forth in EXHIBIT J attached hereto and made a part hereof for all purposes.
 
(o)                                  TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT’S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE, OR FOR THE ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, ORDINANCE OR OTHERWISE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, TENANT WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LAWSUIT BROUGHT BY LANDLORD TO RECOVER POSSESSION OF THE PREMISES FOLLOWING LANDLORD’S TERMINATION OF THIS LEASE PURSUANT TO SECTION 8.3(a)) OR THE RIGHT OF TENANT TO POSSESSION OF THE PREMISES PURSUANT TO SECTION 8.3(b)  AND ON ANY CLAIM FOR DELINQUENT RENT WHICH LANDLORD MAY JOIN IN ITS LAWSUIT TO RECOVER POSSESSION.
 
(p)                                  EXCEPT AS OTHERWISE PROVIDED HEREIN, TENANT’S OBLIGATION TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF THE PREMISES OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER, AND TENANT SHALL CONTINUE TO PAY RENT HEREUNDER WITHOUT ABATEMENT, SETOFF, OR DEDUCTION, NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS DUTIES OR OBLIGATIONS HEREUNDER, EXPRESS OR IMPLIED.
 
(q)                                  The waiver by Landlord or Tenant of any breach of any provision contained in this Lease, which waiver shall only be effective if the same is in writing, or the failure of Landlord or Tenant to insist on strict performance by Tenant or Landlord, shall not be deemed to be a waiver of such
 
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provision as to any subsequent breach thereof or of any other provision contained in this Lease. The acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any breach or default by Tenant regardless of Landlord’s knowledge of such breach or default at the time of acceptance of Rent.
 
(r)                                     This Lease shall be governed by, interpreted and construed in accordance with the laws of the State of Texas applicable to contracts executed and performed entirely within the State of Texas. Any party bringing a legal action or proceeding against any other party arising out of or relating to this Lease must bring such legal action or proceeding in the applicable court(s) of Williamson County, Texas having jurisdiction over the subject matter of such action or proceeding, and each party submits to the jurisdiction of such court(s).
 
(s)                                    PURSUANT TO SECTION 17.42 OF THE TEXAS BUSINESS AND COMMERCE CODE, TENANT WAIVES ALL PROVISIONS OF SUBCHAPTER E OF CHAPTER 17 OF SUCH CODE (OTHER THAN SECTION 17.555) (THE “ DTPA ”) WITH RESPECT TO THIS LEASE. TO INDUCE LANDLORD TO ENTER INTO THIS LEASE, TENANT REPRESENTS AND WARRANTS: (A) IF TENANT IS REPRESENTED BY LEGAL COUNSEL, THEN SUCH LEGAL COUNSEL IS OF ITS OWN CHOICE AND DESIGNATION IN CONNECTION WITH THE TRANSACTION CONTEMPLATED BY THIS LEASE; (B) IF TENANT IS REPRESENTED BY LEGAL COUNSEL, TENANT’S COUNSEL WAS NOT DIRECTLY OR INDIRECTLY IDENTIFIED, SUGGESTED OR SELECTED BY LANDLORD OR AN AGENT OF LANDLORD; (C) TENANT IS LEASING THE PREMISES FOR BUSINESS OR COMMERCIAL PURPOSES, NOT FOR USE AS TENANT’S RESIDENCE; (D) TENANT HAS SUFFICIENT KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS AND IT CAN EVALUATE THE MERITS AND RISKS OF THIS LEASE; (E) TENANT IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO LANDLORD WITH RESPECT TO THIS LEASE; (F) TENANT HAS A CHOICE OTHER THAN TO ENTER INTO THIS LEASE WITH THIS DTPA WAIVER PROVISION, IN THAT IT CAN ENTER INTO A LEASE AGREEMENT WITH ANOTHER LANDLORD OR PAY MORE CONSIDERATION TO ENTER INTO THIS LEASE WITHOUT THIS DTPA WAIVER PROVISION; (G) TENANT IS KNOWINGLY AND VOLUNTARILY AGREEING TO THIS DTPA WAIVER PROVISION AND CONSIDERS IT BINDING AND ENFORCEABLE; AND (H) TENANT ACKNOWLEDGES THAT LANDLORD WOULD NOT ENTER INTO THIS LEASE FOR THE SAME CONSIDERATION OR UPON THE SAME TERMS BUT FOR THE INCLUSION OF THIS DTPA WAIVER PROVISION IN THIS LEASE.
 
(t)                                     This Lease may be executed in multiple counterparts, including by fax, electronic mail and other electronic means, each of which shall be deemed an original and all of which together shall constitute a single instrument.
 
(u)                                  If Tenant is comprised of more than one party, each such party shall be jointly and severally liable for Tenant’s obligations under this Lease. Notices, payments and agreements given or made by, with or to any one person or entity shall be deemed to have been given or made by, with and to all of them.
 
(v)                                  TENANT HEREBY WAIVES ALL RIGHTS TO PROTEST THE APPRAISED VALUE OF THE PROPERTY OR TO APPEAL THE SAME AND ALL RIGHTS TO RECEIVE NOTICES OF REAPPRAISALS AS SET FORTH IN SECTIONS 41.413 AND 42.015 OF THE TEXAS TAX CODE.
 
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(w)                                All agreements between Landlord and Tenant, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever shall the amount contracted for, charged or received by Landlord for the use, forbearance or retention of money hereunder or otherwise exceed the maximum amount which Landlord is legally entitled to contract for, charge or collect under the applicable state or federal law. If, from any circumstance whatsoever, fulfillment of any provision hereof at the time performance of such provision shall be due shall involve transcending the limit of validity prescribed by law, then the obligation to be fulfilled shall be automatically reduced to the limit of such validity, and if from any such circumstance Landlord shall ever receive as interest or otherwise an amount in excess of the maximum that can be legally collected, then such amount which would be excessive interest shall be applied to the reduction of Rent hereunder, and if such amount which would be excessive interest exceeds such Rent, then such additional amount shall be refunded to Tenant.
 
(y)                                  Tenant shall cause CBG Holdings, Inc., a Delaware corporation (“ Guarantor ”) to execute and deliver to Landlord a separate Guaranty of this Lease in the form of EXHIBIT K on the date Tenant has signed this Lease.
 
[The remainder of the page intentionally left blank. Signatures appear on the following page.]
 
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IN WITNESS WHEREOF, the parties hereof have executed this Lease as of the Effective Date.

 	LANDLORD :	
 	 	
 	13785 RESEARCH BLVD, LLC,	
 	a Texas limited liability company	
 	 	 	
 	By:	Crimson Aspen Lake, LLC,	
 	 	a Texas limited liability company,	
 	 	its sole member	
 	 	 	
 	By:	CREF Aspen Lake, LLC,	
 	 	a Texas limited liability company,	
 	 	its managing member	

 	By:	/s/ C. Dean Patrinely	
 	Name:	C. Dean Patrinely	
 	Title:	President	
 	Date:	11/20/12	

 	TENANT :	

 	Q2 SOFTWARE INC. D/B/A Q2EBANKING,	
 	a Delaware corporation	

 	By:	/s/ Mark Johnson	
 	Name:	Mark Johnson	
 	Title:	Chief Financial Officer	
 	Date:	19 Nov 2012	
 
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Exhibit 10.11

 
Master Service Agreement
 
1.                                       General .  This master service agreement (this “Agreement”) is between ViaWest, Inc. (“ViaWest”) and the customer set forth below (“Customer”).  This Agreement sets forth the terms and conditions pursuant to which ViaWest shall provide colocation, dedicated and/or virtual hosting service, and/or dedicated Internet access service and, if ordered or requested by Customer, “remote hands” and/or other additional products or service (collectively, the “Service”) to Customer.  This Agreement shall be effective on the date that this Agreement is executed by both ViaWest and Customer, and each Order Form (as defined in Section 2) shall be effective on the date that it is executed by Customer and accepted in writing by ViaWest (each, an “Effective Date”).
 
2.A.                           Billing Information .  Customer agrees to pay the rates and charges set forth in the order form(s) (each, an “Order Form”) executed by Customer and ViaWest for the Service pursuant to the terms set forth therein.  Customer must provide ViaWest with accurate and complete billing information, and shall report to ViaWest any changes in billing information within 30 days of such change.  All charges invoiced to Customer shall be deemed valid unless Customer disputes such charges in writing within 60 days after the invoice is sent by ViaWest to Customer.  Undisputed payments for invoiced amounts are due within 20 days of receipt of invoice by Customer.  ViaWest’s acceptance of this Agreement is subject to satisfactory completion by ViaWest of a Customer credit check, and ViaWest reserves the right at any time to condition provision of the Service on reasonable assurance of payment.
 
2.B.                           Start Dates .  Unless otherwise expressly set forth on an Order Form, monthly recurring charges for all new Service set forth on each Order Form shall begin billing on the earlier to occur of (a) the date that Customer actually begins utilizing any Service set forth on such Order Form or places any equipment in the ViaWest data center (new Service delivery only) and (b) the billing start date set forth on such Order Form or issued in writing or via e-mail by ViaWest following execution of the Order Form (the “Billing Start Date”).  If Customer is not able to use the Service beginning on the Billing Start Date solely as a result of delays caused by ViaWest, then the Billing Start Date set forth on an Order Form shall be extended for each day of delay caused by ViaWest.  In the event ViaWest has completed installation of a portion (but not all) of the Service set forth on an Order Form, ViaWest may, at its discretion, invoice Customer for that portion of the Service already installed and provided by ViaWest, and Customer shall be obligated to pay for such Service in accordance with this Section 2.  Billing for partial months is prorated based on a calendar month.  Unless otherwise expressly set forth on an Order Form, non-recurring charges, including set-up and installation fees, are payable upon installation of the applicable Service.  The rates and charges for electrical power services set forth on an Order Form may increase from time to time during the Service Term (as defined in Section 3) in an amount proportional to any increases experienced by ViaWest in obtaining such electrical power services from the underlying provider. Unless otherwise expressly set forth on an Order Form, monthly recurring charges for all Services (other than electrical power services) shall increase 3% per year beginning on the first anniversary of Service Term Start Date (as defined below) and continuing on each anniversary of such Service Term Start Date thereafter until termination of the Service pursuant to this Agreement.  For purposes of this Agreement, the “Service Term Start Date” shall mean the first day of the calendar month following the Billing Start Date for the last Service installed on such Order Form.  Customer agrees to pay interest on all amounts not paid within 30 days of  the applicable due date at the rate of the lesser of (a) 1.5% per month or portion thereof or (b) the highest rate permitted by applicable law.  Customer agrees to pay all taxes and fees assessed in connection with the Service, except for taxes based on ViaWest’s net income.
 
3.A.                           Term .  For each Service ordered by Customer, this Agreement shall be effective on the applicable Effective Date and shall continue for the number of months set forth on the applicable Order Form from the Service Term Start Date (each, a “Service Term”); provided, however, in no event shall any Service Term extend beyond the term of the underlying lease or other superior interest in the applicable data center, unless ViaWest elects to relocate the Service to another ViaWest-operated data center in the same metropolitan area.  Any Service may be terminated by either party at the end of the applicable Service Term by giving written notice at least 90 days prior thereto, but in the absence of such notice, the applicable Service Term shall automatically renew under the same terms and conditions for a term equal to that of the original Service Term (such renewal term(s) shall also be referred to herein as a “Service Term”).  If Customer terminates a Service Term pursuant to the terms of this Section 3, Customer agrees to notify ViaWest in writing.  Any written notice by Customer to ViaWest of intent to terminate in accordance with this Agreement must be provided via e-mail to cancel@viawest.net or to such other address provided by ViaWest to Customer in writing.  Upon termination of all applicable Service Terms, this Agreement shall terminate automatically.  Termination or suspension of a Service for any reason shall not relieve Customer of its obligation to pay charges for such Service accrued through the date of termination or suspension.  Upon termination of the relevant space-related Service, ViaWest may terminate provision of all associated non space-related Service, including power and bandwidth.
 
3.B.                           Termination for Cause .  Either party may terminate this Agreement or ViaWest may suspend provision of the Service immediately upon an event of default of the other party.  An event of default shall be defined as (a) in the case of Customer only, failure to pay any amount within twenty (20) of the applicable due date; (b) in the case of Customer only, failure to comply with ViaWest’s acceptable use policy (“AUP”), which policy is posted on ViaWest’s web site at http://www.viawest.com/acceptable-use.html, any applicable licensing addendum (“Addendum”), which addenda are posted at http://msa.viawest.net, or, with respect to any colocation-related Service, ViaWest’s data center rules of use (“Data Center Rules”), which rules are posted in the applicable data center; or (c) any material breach of this Agreement by the other party, which breach is not cured within 30 days following written notice by the non-breaching party, provided that this subsection (c) shall not apply with respect to payment obligations, Service-related issues and/or obligations (including notifications), and/or obligations to comply with ViaWest’s AUP and/or Data Center Rules, all of which are covered by Sections 3(a) — 3(b) above or Section 13.
 
3.C.                           Termination for Convenience .  Customer may terminate any Service for its convenience prior to the end of the applicable Service Term, provided that Customer gives ViaWest at least sixty (60) days prior written notice of such termination and pays ViaWest the following early termination fee (as liquidated damages, not a penalty) prior to the effective date of termination of such Service:  (a) one hundred percent (100%) of the remaining monthly recurring charges for each terminated Service for months one (1) through twelve (12) of the then-effective Service Term; plus (b) fifty percent (50%) of the remaining monthly recurring charges for each terminated Service for months thirteen (13) through twenty-four (24) of the then-effective Service Term; plus (c) twenty-five percent (25%) of the remaining monthly recurring charges for each terminated Service for months twenty-five (25) through the end of the then-effective Service Term; plus (d) any previously waived or discounted fees, including, without limitation, installation fees; plus (e) any termination fees or liability associated with any third-party telecommunication services used by ViaWest in the provision of the Service; plus (f) the unamortized portion of any commissions paid by ViaWest to any broker, agent or other authorized representative of Customer; plus (g) all reasonable costs and expenses, including, without limitation, attorneys’ fees, incurred by ViaWest as a result of collecting such early termination fee or any other amounts due under this Agreement.  Customer shall not be liable for the above-stated early termination fee if Customer terminates this Agreement pursuant to Section 13.C. or due to an event of default by ViaWest pursuant to Section 3.  In addition to other remedies available to ViaWest under this Agreement, at law, or in equity, Customer shall pay the above-stated early termination fee (as liquidated damages, not a penalty) for any termination of this Agreement or any or all Service by ViaWest due to an event of default by Customer.
 
4.A.                           Representations, Warranties, and Obligations of Customer .  Customer represents and warrants that it has and shall have full right and authority to enter into this Agreement.  In addition, Customer agrees that its use and its customers’ and other third-party users’ use of the Service and the Customer Data (as defined below) shall not knowingly violate the terms of ViaWest’s AUP, Addendum or Data Center Rules, and Customer shall not use, and shall not permit its agents to use, the Service or Customer’s Equipment (defined below) for any illegal purpose.  Customer at all times shall be responsible for the editorial supervision of the text, data, images, sounds, photographs, illustrations, graphics, programs, code, and other materials transmitted or stored through the Service (the “Customer Data”).
 
4.B.                           Customer Equipment . With respect to colocation-related Service, Customer shall have access to all Customer-owned or Customer-provided equipment (collectively, the “Customer Equipment”) during the term of this
 
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Agreement 24 hours each day, 7 days each week, provided, however, that Customer adheres at all times to the provisions of this Agreement, ViaWest’s security and access procedures and Data Center Rules at the time of such access.  ViaWest, in its sole discretion, may require that Customer and any of Customer’s agents be escorted when they are in the ViaWest data center, and may suspend Customer’s access in an emergency situation.  Customer shall obtain and keep in effect at all times during the Term all licenses, permits and other authorizations required with respect to the business conducted by Customer and with respect to the installation, operation, maintenance, servicing or removal of Customer Equipment.  Customer expressly assumes all risk of loss of or to the Customer Equipment.  With respect to hosting-related Service, Customer shall have no right to access ViaWest’s data center, any equipment, or any software installed or used by ViaWest on the equipment, and the equipment used by ViaWest to provide the Service and such software shall remain the sole and exclusive property of ViaWest.
 
4.C.                           Equipment Removal .   If any Customer Equipment remains in a ViaWest data center following termination of Customer’s space-related Service, Customer shall be (i) responsible for all monthly recurring fees, and (ii) subject to all obligations of Customer contained in this Agreement, in each case until removal of the Customer Equipment by Customer or ViaWest pursuant to this Section 4.C.  Following termination of Customer’s space-related Service, Customer shall not have access to such space or the ViaWest data center unless approved in advance by ViaWest and subject to any reasonable access conditions imposed by ViaWest.  If Customer does not remove the Customer Equipment within seven (7) days following the date of termination of Customer’s space-related Service, unless other arrangements (including the payment of a storage fee) have been made between Customer and ViaWest, Customer agrees that the Customer Equipment shall be deemed to be transferred to ViaWest, and ViaWest may remove and dispose of the Customer Equipment at its sole discretion and may retain any proceeds from such disposition, without any liability to Customer or any of its affiliates, customers, vendors, lenders, employees, contractors, or agents.
 
5.                                       Representations, Warranties, and Obligations of ViaWest .  ViaWest represents and warrants that it has and shall have full right and authority to enter into this Agreement.  In addition, ViaWest agrees that it shall use its best efforts to provide the Service in accordance with Section 13; to the extent that ViaWest does not provide the Service in accordance with Section 13, ViaWest agrees to provide Customer with the remedies set forth in Section 13.  At Customer’s request, ViaWest shall use commercially reasonable efforts to secure domain names and to assign Internet Protocol (“IP”) address space for Customer during a Service Term and to route those IP addresses on ViaWest’s network.  Customer shall have no right to route such IP addresses.  ViaWest shall retain ownership of all such IP addresses at all times, and Customer’s access to such IP addresses shall cease immediately upon termination of the Agreement.  In the event of a network-based or other attack against Customer’s Equipment, other property of Customer or other property in the ViaWest data center, ViaWest may, at its sole option and in its sole discretion, shut off, disconnect or deactivate any portion or all of Customer’s Equipment or Service and shall promptly provide notice of same to Customer.
 
6.                                       Disclaimer of Warranties .  ViaWest exercises no control over and accepts no responsibility for the information or content accessible on the Internet or for the products or services of third parties that may be included in the Services.  The Internet is not a secure network; confidential or sensitive information should not be transmitted over the Internet or stored on computers directly connected to the Internet.  ViaWest disclaims any liability for loss or theft of information transmitted over the Internet or stored on computers directly connected to the Internet.  THE SERVICE AND ANY RELATED SOFTWARE AND/OR EQUIPMENT ARE PROVIDED ON AN “AS IS” AND “AS AVAILABLE” BASIS WITHOUT WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT.  NEITHER VIAWEST NOR ITS EMPLOYEES, AFFILIATES, CONTRACTORS, OR AGENTS WARRANT THAT THE SERVICE SHALL BE ERROR-FREE, UNINTERRUPTED, SECURE, OR PRODUCE PARTICULAR RESULTS OR THAT THE INFORMATION OBTAINED ON THE INTERNET SHALL BE RELIABLE OR UNOBJECTIONABLE.  NO ADVICE OR INFORMATION GIVEN BY VIAWEST OR ITS EMPLOYEES, AFFILIATES, CONTRACTORS, OR AGENTS SHALL CREATE A WARRANTY.
 
7.A.                           Indemnification by ViaWest .  Subject to the terms of this Agreement, ViaWest shall indemnify, defend, and hold harmless Customer and its employees, and affiliates from and against any and all claims, damages, losses, liabilities, suits, actions, demands, proceedings (whether legal or administrative), and expenses (including, without limitation, reasonable attorneys’ fees) (collectively, “Losses”) arising from or related to (a) tangible personal property damage to Customer’s equipment located in the ViaWest data center resulting from ViaWest’s negligence or willful misconduct, up to the full replacement cost of the damaged equipment; (b) actual personal injury damage resulting from ViaWest’s negligence or willful misconduct, in each case up to the limits covered by ViaWest’s applicable insurance policies, provided, however that indemnification relating to personal injury shall not apply to any claims made by Customer’s employees that are covered under applicable workers’ compensation laws; and (c) any claim or allegation that the Service violates or infringes upon the intellectual property rights of a third party In addition, if any portion of the Service becomes, or in ViaWest’s opinion is likely to become, the subject of a claim of infringement of any third party intellectual property rights recognized in the United States of America, then ViaWest, at its option and expense, may do one of the following: (1) procure for Customer the right to continue using such portion of the Service; (2) replace or modify such portion of the Service so that it becomes non-infringing; or (3) terminate this Agreement and refund Customer a pro-rated portion of any unused Service fees actually paid. The obligation of ViaWest set forth in the preceding sentence does not apply (a) with respect to portions or components of the Service (i) that are not supplied directly by ViaWest, (ii) that are made or modified in whole or in part in accordance with Customer’s specifications, (iii) that are modified by Customer to the extent the alleged infringement relates to such modification, or (iv) that are combined with other products, processes or materials other than by ViaWest to the extent the infringement relates to such combination; or (b) where Customer’s use of the Service is not strictly in accordance with the terms of this Agreement and the applicable software license agreement provided by ViaWest to Customer or agreed to by Customer via a “click-to-accept” license during installation, if any.  Notwithstanding anything to the contrary set forth in this Agreement, Customer’s sole and exclusive remedies against ViaWest for intellectual property infringement are as set forth in this Section 7.A.
 
7.B.                           Indemnification by Customer .  Customer shall indemnify, defend, and hold harmless ViaWest and its employees, affiliates, contractors, and agents from and against any and all Losses arising from or related to (a) any breach of this Agreement, ViaWest’s AUP or, with respect to any colocation-related Service, ViaWest’s Data Center Rules; or (b) any use of the Service, or any negligent or willful act or omission by Customer or any of its invitees, employees, affiliates, contractors, or agents.  Provided, however, Customer shall only be liable hereunder to the extent the claim is caused or alleged to be caused by the negligence or willful act or omission of Customer.
 
8.                                       Limitation of Liability .  IN NO EVENT SHALL VIAWEST CUSTOMER, OR THEIR RESPECTIVE EMPLOYEES, AFFILIATES, CONTRACTORS, OR AGENTS BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OR FOR ANY LOST OR IMPUTED PROFITS, REVENUE, DATA, OR USE, REGARDLESS OF THE LEGAL THEORY UNDER WHICH SUCH   LIABILITY    IS    ASSERTED, INCLUDING, WITHOUT   LIMITATION, LEGAL THEORIES OF CONTRACT, TORT, OR STRICT LIABILITY, EVEN IF VIAWEST OR CUSTOMER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  IN ADDITION, EXCEPT WITH RESPECT TO A CLAIM FOR INDEMNIFICATION DESCRIBED IN SECTION 7A (C), IN NO EVENT SHALL VIAWEST’S OR CUSTOMER’S LIABILITY FOR ANY DAMAGES EXCEED THE ACTUAL DOLLAR AMOUNT PAID BY CUSTOMER FOR THE SERVICE DURING THE TWELVE (12) MONTH PERIOD PRIOR TO THE DATE THE DAMAGES OCCURRED OR THE CAUSE OF ACTION AROSE.  With the exception of any monetary obligations under this Agreement, neither party shall be responsible for performance of its obligations hereunder where delayed or hindered by events beyond its reasonable control, including, without limitation, acts of any governmental body, war, insurrection, sabotage, embargo, fire, flood, accident, strike or other labor disturbance, interruption of or delay in transportation or telecommunication service, act of its vendors or suppliers or their products and services, or inability to obtain raw materials, supplies, or power used in or equipment needed for the provision of the Service.
 
9.                                       Insurance .  (a)  With respect to colocation-related Service:   Customer must procure and maintain the following insurance during the Service Term:  (i) “all risk” property insurance covering all Customer equipment located in the ViaWest data center in an amount not less than its full replacement cost; (ii) commercial general liability insurance in an amount not less than $2,000,000 per occurrence for bodily injury and property damage; (iii) employer’s liability insurance in an amount not less than $1,000,000 per occurrence; and (iv) worker’s compensation insurance in an amount not less than that required by applicable law.  (b)  With respect to hosting-related Service:   Customer shall procure and maintain throughout the Service Term (i) professional liability insurance and (ii) standard form property insurance, including business interruption and electronic data processing media insurance, in each case in the amount of $1,000,000 per occurrence. The above policies, with respect to
 
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both collocation-related and hosting-related Service, must list ViaWest and any additional parties that ViaWest may reasonably designate as additional insured(s) and shall be provided by an insurance company reasonably satisfactory to ViaWest.  Customer’s policies must contain provisions providing that such insurance is primary insurance insofar as ViaWest and Customer are concerned, with any other insurance maintained by ViaWest being excess and noncontributing with the insurance required of Customer and providing coverage for the contractual liability of Customer to indemnify ViaWest.  Customer is responsible for requiring its contractors, subcontractors, and/or sublicensees that access any ViaWest facilities to procure and maintain the same types, amounts, and coverage extensions as required of ViaWest customers.  Upon request, Customer shall provide certificate(s) of insurance to ViaWest evidencing such insurance requirements.  Customer agrees to provide ViaWest with not less than sixty (60) days prior notice of any cancellation or material change to such insurance policies.
 
10.                                Assignment .  Customer shall not assign this Agreement without the prior written consent of ViaWest, which consent shall not be unreasonably withheld.
 
11.                                Governing Law; Venue .  This Agreement shall be governed by the laws of the State of Colorado, without regard to its conflicts of laws principles.  Each of the parties hereby irrevocably submits to the exclusive personal jurisdiction of any federal or state court of competent jurisdiction located in Denver, Colorado, in any action or proceeding relating to this Agreement.  EACH PARTY WAIVES ITS RIGHT TO A JURY TRIAL FOR ANY ACTION ARISING OUT OF THIS AGREEMENT, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, AND ALL OTHER CLAIMS.
 
12.                                Non-Disclosure .  During the Service Term, each party may have access to certain confidential and proprietary information disclosed by the other party, including, without limitation, information relating to either party’s clients, customers, or business operations (including the terms of this Agreement and the rates charged for the Service), whether disclosed orally or in writing by any other media (collectively, “Confidential Information”).  Each party (the “Receiving Party”) acknowledges that the Confidential Information of the other party (the “Disclosing Party”) may contain information valuable to the Disclosing Party and that any such Confidential Information shall remain the property of the Disclosing Party.  Each party shall use the Confidential Information provided hereunder only for purposes directly related to the purpose for which it was provided and shall restrict disclosure of Confidential Information solely to its employees and subcontractors with a need to know, or to other third parties expressly permitted by the Disclosing Party, and not disclose such Confidential Information to any other parties, and otherwise to protect the Confidential Information with no less restrictive measures than it uses to protect its own confidential and proprietary information.  The Receiving Party shall be responsible for any breach of this Section 12 by its employees, subcontractors or any third parties to whom Receiving Party discloses the Confidential Information.  “Confidential Information” shall not include information that:  (a) was in the public domain free of any obligation of confidence at the time it was communicated to the Receiving Party; (b) is rightfully communicated to the Receiving Party free of any obligation of confidence subsequent to the time it was communicated to the Receiving Party; or (c) was in the Receiving Party’s possession free of any obligation of confidence at the time it was communicated to the Receiving Party.  Notwithstanding the above, the Receiving Party shall not be in violation of this Section 12 with regard to a disclosure that is in response to a valid order by a court or other governmental body, provided that the Receiving Party provides the Disclosing Party with written notice of such disclosure where reasonably possible in order to permit the Disclosing Party to seek confidential treatment of such information.  The obligations of confidentiality of each party under this Section 12 with regard to any disclosure of Confidential Information shall survive for two (2) years from the date of any such disclosure.  The parties recognize and agree that any breach of this Section 12 would cause irreparable harm and, accordingly, that injunctive relief is an appropriate remedy to prevent any threatened or ongoing breach of such confidentiality obligations.  Notwithstanding anything to the contrary set forth in this Section 12, any disclosure of confidential or proprietary information by means of a third-party attack, probe, theft, or other breach of network security (for which ViaWest expressly disclaims all liability as set forth in Section 6) shall not be deemed to be a breach of this Section 12 unless arising as the result of the gross negligence or willful misconduct of ViaWestThe terms of this Section 12 shall supersede and replace any non-disclosure or confidentiality agreement entered into by the parties prior to the Effective Date of this Agreement.
 
13.A.                    Service Level . For purposes of this Section 13, the “ViaWest Network” shall mean, with respect to the system facilitating Customer’s usage of and connection to the Internet, that portion of such system beginning at the entrance where the Customer’s collocation/hosting uplink (the “Customer Port”) connects to the network and ending where ViaWest delivers Internet Protocol (“IP”) data packets to the Public Internet (as hereinafter defined) on the Customer’s behalf.  For purposes of this Section 13, the “Public Internet” shall mean the gateway router interface between the ViaWest Network and ViaWest’s upstream providers’ networks.  For purposes of this Section 13, a trouble ticket may be opened in ViaWest’s trouble ticketing system by ViaWest, Customer, or ViaWest’s monitoring systems.  ViaWest reserves the right to verify the validity of any tickets opened by Customer or ViaWest’s monitoring systems.
 
13.B.                    Responsibilities for Hosting Service .  For the purposes of this Section 13, with respect to any hosting Service provided by ViaWest pursuant to this Agreement, the parties agree that ViaWest shall be responsible for the following:  (a)  Operating System Management:   ViaWest shall manage, maintain, and support the applicable Red Hat Linux and/or Windows Server operating system (the “Operating System”).  ViaWest shall perform the initial setup and installation of the Operating System and ongoing maintenance, including reasonable upgrades or fixes.  ViaWest shall use commercially reasonable efforts to notify Customer of any upgrades to the Operating System in advance of such upgrade.  (b)  Server Infrastructure Management:   ViaWest shall manage, maintain, and support the following server infrastructure elements:  CPU, memory, hard disk, power supply, and motherboard (collectively, “Server Infrastructure”).  If Customer purchases any server upgrades, ViaWest also shall provide installation as necessary.  (c)  Network Infrastructure Management:   ViaWest shall manage, maintain, and support the following network infrastructure elements: routers, switches, Internet connectivity on the ViaWest Network, and, to the extent ordered by Customer and provided by ViaWest as part of the Service, firewalls and load balancers (collectively, “ViaWest Network Infrastructure”).  (d)  Monitoring:   ViaWest shall provide 24x7 monitoring of the Operating System, Server Infrastructure, and ViaWest Network Infrastructure for health and failure of these systems and infrastructures.  For the purposes of this Section 13, with respect to any hosting Service provided by ViaWest pursuant to this Agreement, the parties agree that Customer shall be responsible for the following:  (a)  Application, Code, and Content Management:   Customer shall manage, maintain, and support any application code or content that is not provided and installed by ViaWest.  Customer also shall be responsible for (1) application, code, and content compatibility with the Operating System, including upgrades and (2) loading its software to the server remotely.  If requested by Customer, ViaWest may provide software loading on a time and material basis if agreed by ViaWest in its discretion.  (b)  Server Access:  Customer shall be responsible for providing its own access to the server through an administration tool such as SSH, VNC, or Remote Desktop.  Customer also shall be responsible for any Internet access needed to access the server. (c)  Security:   Customer shall be responsible for the security of its Operating System, application, code, and content.  Customer shall provide ViaWest with user names and passwords for access to the Operating System, application, code, and content.  (d)  Backup Service:  Customer shall be responsible for backup and recovery of its content unless backup services are purchased through ViaWest.
 
13.C.                    Satisfaction Guarantee .  In the event that Customer is not one hundred percent (100%) satisfied with the Service’s network availability, power availability, and/or hardware availability, then Customer may provide written notice to ViaWest of its dissatisfaction.  Such written notice must identify the affected Service, refer to this satisfaction guarantee, and document in reasonable detail Customer’s eligibility for credits due to noncompliance of the Service with the network availability commitment, power availability commitment, and/or the redundant hardware availability commitment set forth in Section 13.E., 13.F., and/or 13.K., as applicable.  Following receipt of such written notice, ViaWest shall have ten (10) days to cure the issue causing the noncompliance.  If, within such ten (10) day period, ViaWest does not cure the issue causing the noncompliance or provide documentation to Customer demonstrating that the Service is in compliance with the applicable commitment, then Customer, within ten (10) days following the end of ViaWest’s ten (10) day cure period, may terminate the affected Service without penalty upon written notice to ViaWest.  In addition, if Customer provides such written notice (as set forth above) to ViaWest four (4) or more times over any consecutive twelve (12) month period for the same root cause resulting in noncompliance of the same commitment (which notice is not countered by documentation demonstrating that the Service is in compliance with the applicable commitment), then Customer may terminate the affected Service without penalty upon written notice to ViaWest.  Any termination pursuant to this Section 13.C. shall be effective ten (10) business days after receipt of written notice by ViaWest.
 
13.D.                    ViaWest Installation Commitment .  Provided that (i) an Order Form does not contain any non-standard Service and (ii) Customer has returned to ViaWest in a timely manner a fully-completed order package with respect to
 
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such Order Form, as reasonably determined by ViaWest, ViaWest’s commitment is to install the Service set forth on such Order Form (i.e., standard hosting service, standard colocation space, and/or standard power and standard bandwidth) by the Billing Start Date set forth on the Order Form or issued in writing or via e-mail by ViaWest following execution of the Order Form.  If ViaWest fails to meet the installation commitment set forth in this Section 13.D. and Customer provides ViaWest with a written request within five (5) business days of the last day of the month in which such failure occurred, ViaWest shall provide a service credit to Customer’s account equal to fifty percent (50%) of the installation fees charged to Customer for the affected Service.
 
13.E.                     ViaWest Network Availability Commitment .  ViaWest’s commitment is to maintain availability of the ViaWest Network one hundred percent (100%) of the time.  Unavailability of the ViaWest Network is measured over a calendar month and is based on total outage time incurred by Customer.  Network unavailability shall exist when (i) a particular Customer Port is unable to transmit IP data packets from such Customer Port to the Public Internet via the ViaWest Network and (ii) such failure is recorded in ViaWest’s trouble ticket system.  Network unavailability is measured from the time the trouble ticket is opened to the time ViaWest confirms that the affected Service is again able to transmit and receive data.  ViaWest shall use commercially reasonable efforts to notify Customer, via any immediately available method selected by ViaWest, including, without limitation, telephone, e-mail or posting at mysupport.viawest.net, of any known network unavailability affecting Customer’s Service.  If ViaWest fails to meet the network availability commitment set forth in this Section 13.E. and Customer provides ViaWest with a written request within five business days of the last day of the month in which such failure occurred, ViaWest shall provide a service credit to Customer’s account equal to ten percent (10%) of Customer’s Monthly Service Charges (as hereinafter defined) for the affected Service for each cumulative hour of unavailability or failure during the applicable month, up to a maximum of the total Monthly Service Charges charged by ViaWest to Customer during the applicable month for the affected Service.
 
13.F.                      ViaWest Power Availability Commitment .  This commitment shall apply only with respect to power Service provided by ViaWest to Customer in a colocation environment.  ViaWest’s commitment is to maintain availability of the AC power provided to Customer’s cabinet in the ViaWest data center one hundred percent (100%) of the time.  Unavailability of the AC power is measured by the number of minutes that power is not available to Customer’s cabinet measured from the time power unavailability is determined by ViaWest to the time power is restored.   AC power shall not be considered to be unavailable if provided through any secondary or supplemental power circuit without disconnection of service.  ViaWest shall use commercially reasonable efforts to notify Customer, via any immediately available method selected by ViaWest, including, without limitation, telephone, e-mail or posting at mysupport.viawest.net, of any known power unavailability affecting Customer’s cabinet.  If ViaWest fails to meet the power availability commitment set forth in this Section 13.F. and Customer provides ViaWest with a written request within five (5) business days of the last day of the month in which such failure occurred, ViaWest shall provide a service credit to Customer’s account equal to ten percent (10%) of Customer’s Monthly Service Charges for the affected Service for each cumulative hour of unavailability or failure during the applicable month, up to a maximum of the total Monthly Service Charges charged by ViaWest to Customer during the applicable month for the affected Service.
 
13.G.                    ViaWest Network Connections Availability Commitment .  ViaWest’s commitment is to maintain availability of Customer’s network connections (i.e., cross connects provided by ViaWest) one hundred percent (100%) of the time.  Unavailability of Customer’s network connections is measured over a calendar month and is based on total outage time incurred by Customer.  For purposes of this Section 13.G., Customer’s network connections shall begin at the initial piece of ViaWest owned and operated equipment to which the applicable circuit connects and shall end at the demarcation point installed in Customer’s cabinet and/or cage.  Network connection unavailability shall exist when (a) due to a failure of Customer’s network connection(s) (i.e., cross connects provided by ViaWest), a particular Customer Port is unable to transmit data from the ViaWest network connection(s) and (b) such failure is recorded in ViaWest’s trouble ticket system.  Network connection unavailability is measured from the time the trouble ticket is opened to the time ViaWest confirms that the affected Service is again able to transmit and receive data.  ViaWest shall use commercially reasonable efforts to notify Customer, via any immediately available method selected by ViaWest, including, without limitation, telephone, e-mail or posting at mysupport.viawest.net, of any known unavailability of Customer’s network connections affecting Customer’s Service.  If ViaWest fails to meet the network availability commitment set forth in this Section 13.G. and Customer provides ViaWest with a written request within five (5) business days of the last day of the month in which such failure occurred, ViaWest shall provide a service credit to Customer’s account equal to ten percent (10%) of Customer’s Monthly Service Charges (as hereinafter defined) for the affected Service for each cumulative hour of unavailability or failure during the applicable month, up to a maximum of the total Monthly Service Charges charged by ViaWest to Customer during the applicable month for the affected Service.
 
13.H.                   ViaWest Network Packet Loss Commitment .  ViaWest’s commitment is to maintain average packet loss of no more than 1% across the ViaWest Network.  Average packet loss across the ViaWest Network is measured over a twenty-four (24) hour period beginning at 12:01 A.M. MST each day.  Measurements shall be performed on an ongoing basis.  If ViaWest fails to meet the network packet loss commitment set forth in this Section 13.H. and Customer provides ViaWest with a written request within five (5) business days of the last day of the month in which such failure occurred, ViaWest shall provide a service credit to Customer’s account equal to ten percent (10%) of Customer’s Monthly Service Charges for the affected Service for each twenty-four (24) hour measurement period during which ViaWest fails to meet the commitment during the applicable month, up to a maximum of the total Monthly Service Charges charged by ViaWest to Customer during the applicable month for the affected Service.
 
13.I.                        ViaWest Network Roundtrip Delay Commitment .  ViaWest’s commitment is to maintain average roundtrip delay of no more than forty (40) milliseconds across the ViaWest Network.  Average roundtrip delay across the ViaWest Network is measured over a twenty-four (24) hour period beginning at 12:01 A.M. MST each day.  Measurements shall be performed on an ongoing basis.  If ViaWest fails to meet the network roundtrip delay commitment set forth in this Section 13.I. and Customer provides ViaWest with a written request within five (5) business days of the last day of the month in which such failure occurred, ViaWest shall provide a service credit to Customer’s account equal to ten percent (10%) of Customer’s Monthly Service Charges for the affected Service for each twenty-four (24) hour measurement period during which ViaWest fails to meet the commitment during the applicable month, up to a maximum of the total Monthly Service Charges charged by ViaWest to Customer during the applicable month for the affected Service.
 
13.J.                        ViaWest Non-Redundant Hardware Availability Commitment .   This commitment shall apply only with respect to Service provided by ViaWest to Customer in a hosting environment.  ViaWest’s commitment is to maintain availability of ViaWest-owned and operated hardware for which Customer has not ordered a redundant unit (the “Non-Redundant Hardware”) as follows:

hardware	 	availability	 	
1.	Communications, controller, routers, switches, firewalls, and other network infrastructure	 	99.9	%	
2.	Disk storage (Local, VSAN, DAS)	 	99.9	%	
3.	CPU and/or processing platforms	 	99.9	%	
 
Unavailability of the Non-Redundant Hardware is measured over a calendar month and is based on total outage time incurred by Customer.  Non-Redundant Hardware unavailability shall exist when (1) the unit that is in production for provision of the Service is unable to operate in accordance with industry standards and causes unavailability of the Service and (2) such failure is recorded in ViaWest’s trouble ticket system.  Non-Redundant Hardware unavailability is measured from the time the trouble ticket is opened to the time ViaWest confirms that the affected unit is again operational.  ViaWest shall use commercially reasonable efforts to notify Customer, via any immediately available method selected by ViaWest, including, without limitation, telephone, e-mail or posting at mysupport.viawest.net, of any Non-Redundant Hardware unavailability affecting Customer’s Service.  If ViaWest fails to meet the Non-Redundant Hardware availability commitment set forth in this Section 13.J. and Customer provides ViaWest with a written request within five business days of the last day of the month in which such failure occurred, ViaWest shall provide a service credit to Customer’s account equal to ten percent (10%) of Customer’s Monthly Service Charges for the affected Service for each cumulative hour of unavailability or failure during the applicable month, up to a maximum of the total Monthly Service Charges charged by ViaWest to Customer during the applicable month for the affected Service.
 
13.K.                   ViaWest Redundant Hardware Availability Commitment .   This commitment shall apply only with respect to Service provided by ViaWest to Customer in a hosting environment.  ViaWest’s commitment is to maintain availability of ViaWest-owned and operated hardware for which Customer has ordered a redundant unit (the “Redundant Hardware”) as follows:
 
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hardware	 	availability	 	
1.	Communications, controller, routers, switches, firewalls, and other network infrastructure	 	100	%	
2.	Disk storage (KINECTed)	 	100	%	
3.	CPU and/or processing platforms	 	100	%	
 
Unavailability of the Redundant Hardware is measured over a calendar month and is based on total outage time incurred by Customer.  Redundant Hardware unavailability shall exist when (1) both the primary and the redundant units that are in production for provision of the Service are unable to operate in accordance with industry standards and cause unavailability of the Service and (2) such failure is recorded in ViaWest’s trouble ticket system.  Redundant Hardware unavailability is measured from the time the trouble ticket is opened to the time ViaWest confirms that at least one of the affected units is again operational.  ViaWest shall use commercially reasonable efforts to notify Customer, via any immediately available method selected by ViaWest, including, without limitation, telephone, e-mail or posting at mysupport.viawest.net, of any Redundant Hardware unavailability affecting Customer’s Service.  If ViaWest fails to meet the Redundant Hardware availability commitment set forth in this Section 13.K. and Customer provides ViaWest with a written request within five business days of the last day of the month in which such failure occurred, ViaWest shall provide a service credit to Customer’s account equal to ten percent (10%) of Customer’s Monthly Service Charges for the affected Service for each cumulative hour of unavailability or failure during the applicable month, up to a maximum of the total Monthly Service Charges charged by ViaWest to Customer during the applicable month for the affected Service.
 
13.L.                     ViaWest Support Response Commitment .  ViaWest’s service support for colocation and hosting Service is available 24 x 7.  ViaWest’s commitment is to respond to any failure of Customer’s colocation or hosting Service within the following time frames following ViaWest’s confirmation of such failure:

Severity	 	Response Time	
Level 1 - Critical	 	15 minutes	
Level 2 — Non-Critical	 	2 hours	
 
For the purposes of this Section 13.L., (b) “Critical” issues shall mean all issues in which (i) Customer’s Operating System, Server Infrastructure, ViaWest Network Infrastructure, and/or the power to Customer’s space are unavailable for normal use, (ii) communications are significantly degraded, and/or (iii) data loss or corruption are observed; and (b) “response” shall mean that a ViaWest representative is working to resolve the issue.  If ViaWest fails to meet the support response commitment set forth in this Section 13.L. and Customer provides ViaWest with a written request within five business days of the last day of the month in which such failure occurred, ViaWest shall provide a service credit to Customer’s account equal to ten percent (10%) of Customer’s Monthly Service Charges (as hereinafter defined) for the affected Service for each cumulative hour of unavailability or failure during the applicable month, up to a maximum of the total Monthly Service Charges charged by ViaWest to Customer during the applicable month for the affected Service.
 
13.M.                 Service Credit Eligibility .  In the event that Customer is eligible to receive multiple credits under this Section 13 from the same event pursuant to different commitments, such credits shall not be cumulative and Customer shall be eligible to receive only the maximum credit available for such event under the service level commitment corresponding to the root service failure.  For purposes of this Section 13, “Monthly Service Charges” shall mean the service charges (excluding any taxes, pass-through charges, promotional or other credits, colocation space or other non-bandwidth charges, set-up or installation charges, or other one-time charges) billed for the affected or applicable Service during the applicable month.  THIS SECTION 13 SETS FORTH CUSTOMER’S SOLE AND EXCLUSIVE REMEDY FOR EQUIPMENT AND/OR SOFTWARE FAILURES, SERVICE INTERRUPTIONS, SERVICE RESPONSE ISSUES, AND/OR SERVICE DEFICIENCIES OF ANY KIND WHATSOEVER.
 
13.N.                    Service Credit Exceptions .  For each commitment set forth in this Section 13, service credits shall not be available to Customer in cases where (1) the Service is unavailable as a result of (a) the acts or omissions of Customer or its employees, contractors, agents or end-users; (b) the failure, malfunction, or limitation of throughput of equipment, network, software, applications or systems not owned or directly controlled by ViaWest (including third-party products and services that may be included in the Services); (c) circumstances or causes beyond the control of ViaWest, including, without limitation, events of force majeure and third-party attacks on the ViaWest Network (such as ping and denial of service attacks); (d) scheduled maintenance with prior notice posted at mysupport.viawest.net, which URL is subject to change upon prior notice; or (e) urgent maintenance with notice provided as soon as is commercially practicable under the circumstances or (2) Customer is not in compliance with its applicable ViaWest Service Agreement (including ViaWest’s then-current Acceptable Use Policy and  Data Center Rules).  Such credits shall be granted only if Customer provides ViaWest with all requested information in an expeditious manner and affords ViaWest full and free access to Customer’s premises and equipment to make necessary repairs, maintenance, testing, etc.
 
13.O.                    Rerouting .  ViaWest reserves the right to re-route IP data packets to any and all Internet carriers connected to the ViaWest Network based upon current load and service issues at the time of re-routing.  The removal of IP data packets and the re-routing to another Internet carrier shall not be calculated in the service level commitments set forth in this Section 13.
 
13.P.                      Chronic Alerts .  In the event that a single alert or one or more related alerts recur on a consistent basis, as reasonably determined by ViaWest, and ViaWest determines that the alert(s) are generated due to a condition or component that is outside the scope of the Service to be provided by ViaWest under this Agreement, ViaWest may flag the condition or component generating the alerts as being in a “testing” status rather than in a “production” status.  If a condition or component is flagged as being in a “testing” status, it means that (i) an error or condition has occurred because of development or other inherent issues unrelated to the Service provided by ViaWest and (ii) any alerts generated from such condition or component are not subject to ViaWest’s problem resolution and escalation process and shall not be addressed by ViaWest.  ViaWest shall notify Customer of any consistently recurring alerts due to a condition or component that is outside the scope of the Service to be provided by ViaWest and shall provide Customer with an opportunity to correct the condition or the component causing the alerts prior to placing it in a “testing” status.  Upon notification by Customer that the condition or component has been addressed to eliminate the recurring alerts, ViaWest shall bring the condition or component back to a “production” status unless ViaWest determines that the recurring alerts still are occurring.
 
14.A.                    Power Utilization .  This Section 14 shall apply with respect to all colocation-related Service provided to Customer pursuant to this Agreement.  For colocation-related Service provided on a per cabinet basis, in the event that Customer’s sustained power utilization exceeds 5,000 watts per cabinet, then one of the following must occur as determined by ViaWest:  (a) Customer shall purchase additional colocation cabinet space at the then-current rates in order to reduce power utilization below 5,000 watts per cabinet; (b) ViaWest shall increase Customer’s colocation cabinet and power pricing set forth on the applicable Order Form, at its reasonable discretion, to offset the increased power and data center support costs; or (c) Customer shall decrease its power utilization below 5,000 watts per cabinet.  For colocation-related Service provided on a square foot basis, in the event that Customer’s sustained power utilization exceeds 120 watts per square foot, then one of the following must occur as determined by ViaWest:  (a) Customer shall purchase additional colocation space at the then-current rates in order to reduce power utilization below 120 watts per square foot; (b) ViaWest shall increase Customer’s colocation space and power pricing set forth on the applicable Order Form, at its reasonable discretion, to offset the increased power and data center support costs; or (c) Customer shall decrease its power utilization below 120 watts per square foot.
 
14.B.                    Circuit Breaker Utilization .  In the event that any of Customer’s allocated circuit breaker(s) carry greater than eighty percent (80%) of its continuous current load based on National Fire Protection Association 70 Article 210.20 (A), then one of the following must occur as determined by ViaWest:  (a) Customer shall purchase additional power circuits at the then-current rates in order to reduce circuit breaker utilization to less than eighty percent (80%) of its rated current or (b) Customer shall decrease its circuit breaker utilization to eighty percent (80%) of its rated current.
 
14.C.                    Primary and Redundant Power .  In the event that Customer orders a primary power circuit or a redundant power circuit, such Service must be utilized as set forth on the applicable Order Form.  If Customer is found to be using a redundant power circuit as a primary power circuit, then one of the following must occur as determined by ViaWest: (a) ViaWest shall increase Customer’s power pricing set forth on the applicable Order Form, at its reasonable discretion, to the then-current rates for primary power circuit or (b) Customer shall begin utilizing the redundant power circuit in a redundant manner as reasonably determined by ViaWest.  For purposes of this Section 14.C., any redundant power circuit with utilization greater than 40% of the rated breaker capacity shall be deemed to being utilized as a primary power circuit.
 
15.                                Miscellaneous .  This Agreement, including the attached Order Form(s) and ViaWest’s AUP, Addendum and Data Center Rules, constitutes the entire
 
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agreement between the parties with respect to the Service and supersedes all prior representations, understandings, and agreements between the parties with respect to the Service.  This Agreement may only be amended in a writing signed by both parties.  ViaWest’s AUP and Data Center Rules and any applicable Addendum may be amended from time to time in ViaWest’s sole discretion provided, however, any such amendment shal only become effective as to Customer, following notification of Customer.This Agreement does not grant or create any property interest by the Customer in any real or personal property of ViaWest, nor shall Customer contend otherwise.  This Agreement is not, and shall not be deemed to be, a lease, a sublease or a license from ViaWest to the Customer, and Customer shall not contend otherwise.  ViaWest, in its discretion, may alter its provision of any Service upon notice to Customer, provided that such alteration does not result in a material adverse change in the Service, as determined in accordance with industry standards, provided, however, that ViaWest’s ability to alter provision of any Service shall not in any way alter or affect ViaWest’s obligations pursuant to Article 13 of this Agreement.  Customer shall cooperate with ViaWest in any investigation of the use or possible use of the Customer’s Equipment, the Data Center or the Services for any illegal purpose or other than in strict compliance with ViaWest’s AUP.  In connection therewith, Customer acknowledges that ViaWest may cooperate with law enforcement agencies in investigations of such use or possible use in accordance with ViaWest’s privacy statement available at http://www.viawest.com/privacy-statement.html. No failure by either party to insist upon strict performance of any provision of this Agreement shall be construed as a waiver of any of its rights hereunder.  In the event that any portion of this Agreement is held to be unenforceable, the unenforceable portion shall be construed as nearly as possible to reflect the original intent of the parties and the remainder shall remain in full force and effect.  All terms and provisions of this Agreement that should by their nature survive the termination of this Agreement shall so survive, including, without limitation, Sections 3, 4, 5, 6, 7, 8, 11, 12, and 15. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Signatures to this Agreement may be transmitted facsimile signature or in portable document format via electronic mail.
 
Agreed to and accepted by:

CUSTOMER:	Q2 Software, Inc.	 	 	 	
 	 	 	 	
/s/ Steve Blockburn	 	10/18/12	 	
Signature of Authorized Representative	 	Date	 	
 	 	 	 	
Steve Blockburn, VP of DC Ops.	 	 	 	
Name and Title of Authorized Representative	 	 	 	
 	 	 	 	
9430 Research Blvd.	 	 	 	
Customer Address	 	 	 	
 	 	 	 	
Bldg 4, STE 400	 	 	 	
Customer Address	 	 	 	

VIAWEST, INC.	 	 	 	
 	 	 	 	
/s/ Karen Johnson	 	10/18/12	 	
Signature of Authorized Representative	 	Date	 	
 	 	 	 	
Karen Johnson, VP	 	 	 	
Name and Title of Authorized Representative	 	 	 	
 	 	 	 	
6400 S. Fiddler’s Green Circle	 	 	 	
Suite 2000	 	 	 	
Greenwood Village, CO 80111	 	 	 	
 
6 

Exhibit 10.12

	MASTER SERVICE AGREEMENT
 	
4201 Southwest Freeway · Houston · TX 77027

Account No	Date	x New Customer
o New Service Addendum	
Customer Name (herein “Customer”) 
 Q2 Software, Inc.	 	 	
Address 
 9430 Research Blvd., Suite 400	 	 	
City, State, Zip Code 
 Austin, TX. 78759	 	State of Incorporation Delaware	
 
This Agreement is made as of the date of the last execution below (the “Effective Date”). Cyrus Networks, LLC, dba CyrusOne, a Delaware corporation with its principal place of business at 4201 Southwest Freeway, Houston, Texas 77027 hereby provides this Master Service Agreement ( the “Master Service Agreement” or this “Agreement”)for the services as ordered pursuant to the Customer Order Form. These terms for delivery of services shall apply and will be considered a part of any “Customer Order Form” for all Services delivered by CyrusOne. These terms including any attachments, schedules, supplements, agendas or exhibits incorporated herein and are applicable to sales of Services located in, originating or terminating in the United States. All Services ordered hereunder are subject to credit approval and availability.
 
Section 1 – BILLING INFORMATION

Primary Billing Address 
 9430 Research Blvd., Suite 400	City, State, Zip Code 
 Austin, TX. 78759	
Secondary Billing Address 
 9430 Research Blvd., Suite 400	City, State, Zip Code 
 Austin, TX. 78759	
Primary Billing Contact Name & Title 
 Keely Herod, Accountant	Secondary Billing Contact Name & Title 
 Amy Gorham, Accounting Manager	
Phone and Email 
 512-685-2093 kherod@q2ebanking.com	Phone and Email 
 512-685-2052, agorham@q2ebanking.com	
 
Section 2 – AUTHORIZATION
 
In accepting this offer, Customer is not relying on any representations or promises, whether written or oral, other than those contained in this Agreement. Any changes to this Agreement must be in writing and are subject to subsequent approval by an authorized representative of CyrusOne. Customer understands the information contained in this Master Service Agreement is confidential and subject to the requirements of law, agrees not to disclose the information to any third party. This Agreement is effective on last the date of execution by the authorized signatures of both parties. CyrusOne and Customer are hereinafter referred to collectively as the “Parties” or individually as a “Party”.

Customer Name	Cyrus Networks, LLC dba CyrusOne  	
 	 	
Signature	/s/ Adam Anderson	 	Signature	/s/ Blake McLane	
Print Name	Adam Anderson	Print Name	Blake McLane	
Title	Chief Technical Officer	Title	Sr. Vice President	
Date	1/7/2010	Date	1-11-2010	

 	Customer Initials 	 	
 
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MASTER SERVICE AGREEMENT
Confidential & Proprietary
 
Terms and Conditions
 
SECTION 1. DEFINITIONS
 
1.1                                Colocation Space: The location(s) within CyrusOne Facilities where Customer is permitted to colocate Customer Equipment pursuant to a Customer Order Form accepted by CyrusOne.
 
1.2                                Connection Notice: Written notice from CyrusOne that the Service ordered has been Installed by CyrusOne pursuant to the Customer Order Form, and has been tested and is functioning properly.
 
1.3                                Customer Equipment: Any equipment provided by the Customer which is located in the CyrusOne facilities which is being used for communications, Internet access, client server applications and general business computing.
 
1.4                                Customer Order Form: The approved Customer Order Form then in use by CyrusOne which contains customer’s request for Service and which is submitted with all required information, authorization and credit requirements and which has been executed by both Parties.
 
1.5                                Customer Premise: The location or locations occupied by Customer or its end users to which Service is delivered or for which Service is provided.
 
1.6                                Facilities: Property including personal property owned, leased or operated by CyrusOne, including buildings owned, leased or operated by CyrusOne and used to deliver Service and/or for the purpose of locating and colocating communications equipment.
 
1.7                                Service: Any Service offered by CyrusOne pursuant to a Customer Order Form, including but not limited to supplying Colocation Space, hosting, monitoring, outsourcing, equipment leasing or data communications and related products or services. For the purposes hereof, the services shall include those services identified in the Customer Order Form(s).
 
1.8                                Service Level Agreement (SLA): setting forth-additional terms and conditions or warranties, if any, pursuant to which the Facilities or any Services are provided.
 
1.9                                Service Commencement Date: The Service Commencement Date is the date that any Service is fully operational and Connection Notice has been delivered as stated on the applicable Customer Order Form. Where multiple Services are ordered pursuant to a Customer Order Form ,the calculation of the Service Term for which Customer shall be obligated to pay for the Services, shall begin on the last Service Commencement Date applicable to the Services.
 
1.10                         Service Term: The duration of time (measured starting on the Service Commencement Date) for which the Services are ordered and accepted by CyrusOne, as specified in the Customer Order Form. The Terms and Conditions of this Agreement shall continue to apply to any order for Services that have an extended term beyond the initial service order. The term set forth in each Customer Order Form shall automatically renew and remain in effect for the original contract duration unless either party gives sixty (60) day’s written notice to the other, sent via email, of its intent to cancel this Agreement or the Service Description Attachment.
 
1.11                         Service Description Attachment: The individual Service Description and pricing for Services contracted by Customer.
 
1.12                         Unavailable Service Periods: shall mean a total Interruption in Service unless such interruption of Service is caused by scheduled maintenance, Customer, Customer’s suppliers, Customer’s contractors, Customer’s telecommunications providers, Customer’s end users, or if Customer fails to utilize CyrusOne’s redundancy features.
 
SECTION 2. DELIVERY OF SERVICE
 
2.1                                Submission of Customer Order Forms. To order any Service, Customer shall submit a Customer Order Form requesting Service. The Customer Order Form and its backup detail must include a description of the Service requested, the non-recurring charges (NRC) and monthly recurring charges (MRC) for Service and any proposed Service Term .
 
2.2                                Acceptance by CyrusOne. Following execution of a Customer Order Form, CyrusOne will deliver a tentative installation date for the requested Service. CyrusOne will become obligated to deliver ordered Service only if CyrusOne has delivered a tentative installation date respecting the Service, Customer is in compliance with the terms for delivery of Service, and Customer has provided all required information and payments.
 
2.3                                Credit Approval and Deposits. Customer will provide CyrusOne with credit information as requested, and delivery of Service is subject to credit approval. CyrusOne may require Customer to make a deposit as a condition to CyrusOne’s acceptance of any Customer Order Form, or as a condition to CyrusOne’s continuation of Service. When Service is terminated, the amount of the deposit will be credited to Customer’s account and any remaining credit balance without Interest will be refunded within thirty (30) days.

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2.4                                CyrusOne Premises. Except as otherwise agreed, title to all Facilities shall remain with CyrusOne. CyrusOne will provide and maintain the Facilities in good working order subject to the terms of this Agreement. Customer shall not, and shall not permit others to, rearrange, disconnect, remove, and attempt to repair, or otherwise tamper with any Facilities or the Service, without the prior written consent of CyrusOne. Customer shall not take any action that causes the imposition of any lien or encumbrance on the Facilities. In no event will CyrusOne be liable to Customer or any other person for interruption of Service or for any other loss, cost or damage caused or related to improper use or maintenance of the Facilities by Customer or third parties provided access to the Facilities by Customer in violation of these terms, and Customer shall reimburse and indemnify CyrusOne for any damages incurred or claims as a direct result thereof.
 
2.5                                Customer-Provided Equipment. CyrusOne may install with prior mutual agreement certain Customer equipment. Upon installation of Service, however CyrusOne will not be responsible for the operation or maintenance of any Customer-provided equipment unless the Service has been specifically contracted for in accordance with the Customer Order Form and subject to the limitations contained herein. CyrusOne acknowledges and agrees Customer retains all right, title and interest in and to any Customer-Provided Equipment, and CyrusOne shall not place any liens or encumbrances on the Customer-Provided Equipment, provided that Customer is not in default of Section 3 or Section 4 of this Agreement.
 
SECTION 3. BILLING AND PAYMENT
 
Commencement of Billing. Upon installation and testing of the Service ordered in any Customer Order Form, CyrusOne will deliver to Customer a Connection Notice and billing shall commence. Customer will have five (5) days to provide written notification to CyrusOne that applicable Service items are not installed and functioning in accordance with the Customer Order Form. Following CyrusOne’s acknowledgment of such notification, CyrusOne will work with Customer to resolve the outstanding issues with specific items on the Customer Order Form and provide a second Connection Notice for those items and billing shall commence.
 
a)              Billing shall commence on the applicable Service Commencement Date regardless of whether Customer has procured services from third-party vendors (i.e., equipment suppliers, software developers, telecommunication carriers, etc.) required to operate the Service, and regardless of whether Customer is otherwise prepared to accept delivery of ordered Service.
 
b)              In the event that Customer is delayed in installing the Service more than sixty (60) days after the date of execution of the Customer Order Form for reasons other than failure of CyrusOne to meet its obligations under this Agreement for Force Majeure, Billing will commence on the first full month immediately following the end of the 60 day period.
 
3.1                                Pre-Payment. Prior to installation Customer will be required to pay the sum of the total Non-Recurring Charges (NRC) and one full month of Monthly Recurring Charges (MRC). This amount will be based upon the Customer Order Form.
 
a)              First Invoice. The first invoice will be sent to the Customer prior to the fifth (5 th ) day of the first month following the Service Commencement date. This invoice will be from the first date of the first of the month of Service Commencement and the following month’s Monthly Recurring Charges (MRC). The Pre-Payment will also be applied at this time.
 
3.2                                Invoicing. CyrusOne bills for one full month of Monthly Recurring Charges (MRC) in advance. Each MRC covers Service delivered from the first of the month through end of the month and is payable no later than one (1) month in advance of delivered Service. CyrusOne will bill usage based Services in arrears or as otherwise provided by the Service Description Attachment. Billing for partial months of Service are prorated based on a calendar month unless otherwise agreed.
 
a)              Payment of Invoices. All invoices are due upon receipt and become past due thirty (30) days from the invoice date. Past due amounts bear interest at a rate of 1.5% per month (prorated on a daily basis) or the highest rate allowed by law, whichever is less.
 
b)              Changes in Customer Information. Customer is responsible for communicating in writing any and all changes to billing information including, but not limited to, billing address, pay key, purchase order number or attention to information.
 
3.3                                Taxes and Fees. Except for taxes based on CyrusOne’s net income and ad valorem, personal and real property taxes imposed on CyrusOne’s and not Customer’s owned or leased property, Customer is responsible for payment of all property, sales, use, gross receipts, excise, access, bypass, franchise or other local, state and federal taxes, however designated, imposed on or based upon the provision of the Service.
 
3.4                                Regulatory and Legal Changes. Customer shall comply with all federal, state and local statutes and regulations regarding or related to Customer and/or CyrusOne’s conduct of activities in connection with the provision of Services hereunder. In the event of any change in applicable law, regulation, decision, rule, or order that materially increases the costs or other terms of delivery of Service, CyrusOne and Customer will negotiate regarding the rates to be charged to Customer to reflect such increase in cost, and in the event that the parties are unable to reach agreement respecting new rates within 30 days after CyrusOne’s delivery of written notice requesting renegotiation, then a) CyrusOne may pass any such increased costs through to Customer, and b) Customer may terminate the affected Customer Order Form without termination liability by delivering written notice of termination no later than sixty(60) days after the effective date of the rate increase.
 
3.5                                Disputed Invoices. If Customer reasonably disputes any portion of a CyrusOne invoice, Customer must pay the undisputed portion of the invoice in accordance with the terms and conditions of this Agreement or the Customer Order Form and submit a written claim to CyrusOne for the disputed amount. All claims must be submitted to CyrusOne within sixty (60) days from

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the invoice date for those Services. Customer waives the right to dispute any charges not disputed within the time frame set forth above. In the event that the dispute is resolved against Customer in accordance with the procedures hereunder, Customer shall pay such amounts plus interest at the rate referenced above.
 
3.6                                Termination Charges. In the event that, prior to the end of the Service Term, Customer terminates Service other than pursuant to Sections 3.4 or 4.3 or in the event that the delivery of Service is terminated due to a failure of Customer to dispute any portion of a CyrusOne invoice within the time frame set forth above, Customer shall pay termination charges. Such termination charges shall be computed in accordance with this Agreement and the Customer Order Form Termination charges shall equal 100% of the MRC that would have been incurred for all of the Services for the remainder of the contract term.
 
3.7                                Fraudulent Use of Services. Customer is responsible for all charges attributable to Customer incurred respecting Service, even if incurred as the result of fraudulent or unauthorized use of Service; unless the charge was related to CyrusOne’s negligence or willful misconduct.
 
3.8                                Service Term. Except as otherwise set forth herein on the Customer Order Form or other written agreement, CyrusOne shall deliver the Service for the entire duration of the Service Term, and Customer shall pay all charges for delivery thereof through the end of the Service Term plus any Termination Charges as defined herein.
 
3.9                                Changes in Power Costs. Customer acknowledges that CyrusOne receives its power feed from a third party power utility company, with rates that are subject to change without notice. CyrusOne reserves the right to pass on any such increases in power costs to the Customer which if incurred, shall be set forth in a written notice to Customer, prior to or in connection with an invoice for the Services.
 
SECTION 4. DISCONTINUANCE OF SERVICE
 
4.1             Discontinuance of Service by CyrusOne will occur without liability to CyrusOne when one or more of the following conditions have been met:
 
a)              Non-payment of invoice amounts, not including disputed items (see above reference), exceeding sixty (60) days past Invoice date. A service interruption notice will be sent to the Customer via email when an invoice becomes forty-five (45) days past invoice date;
 
b)              If Customer violates any law, rule, regulation or policy of any governmental authority related to Services or; If Customer makes a material misrepresentation to CyrusOne in connection with the ordering or delivery of Service if Customer engages in any fraudulent use of Service; or if a court or other governmental authority prohibits CyrusOne from furnishing Service under this Agreement or Customer Order Form;
 
c)               If Customer fails to cure its breach (other than a payment breach, which is addressed in a) above) of any of these terms or conditions in this Agreement, in any Customer Order Form or Acceptable Use Policy within ten (10) days after written notice thereof provided by CyrusOne;
 
d)              If Customer files bankruptcy or fails to discharge an involuntary petition within sixty (60) days.
 
4.2                                Effect of Discontinuance. Upon CyrusOne’s discontinuance of Service to Customer, CyrusOne may, in addition to all other remedies that may be available to CyrusOne at law or in equity, assess and collect from Customer all applicable termination charges due hereunder or under the Customer Order Form.
 
4.3                                Discontinuance of Service by Customer. Customer may terminate and discontinue affected Service prior to the end of the Service Term without penalty by notifying CyrusOne within five (5) days following the end of a calendar month in the event any of the following occurs:
 
a)              Customer experiences more than three (3 ) Unavailable Service Periods during the calendar month; or Customer experiences more than eight (8) consecutive hours of Unavailable Service due to any single event, twice during any calendar month. Such termination will be effective thirty (30) days after receipt of such notice by CyrusOne.
 
b)              For the purposes of the foregoing, the duration of any interruption will commence when Customer reports an outage to CyrusOne and will end when the Service is restored.
 
SECTION 5. LIABILITIES
 
5.1                                Service Interruptions and Delivery. CyrusOne provides specific remedies regarding installation of Services and availability of Services as set forth in the service level agreement (SLA). In the event of a failure to deliver the Services in accordance with any Service Level Agreement, Customer’s remedies are contained in the SLA and Section 4.3 above. Any and all damages shall be limited to Service Level Credits as set forth in the applicable SLA.
 
5.2                                No Special Consequential, Punitive or Other Damages. Notwithstanding any other provision hereof, neither party shall be liable for any indirect, incidental, special, consequential, exemplary or punitive damages (including but not limited to damages for lost profits, lost revenues or the cost of purchasing replacement services) arising out of the performance or failure to perform under this Agreement, any Customer Order Form or SLA.

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5.3                                NO WARRANTY.    CYRUSONE PROVIDES THE COLOCATION SPACE AND THE SERVICES AS IS.   EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR THE SLA, IN CONNECTION WITH THE SERVICES, CYRUSONE (A) MAKES NO WARRANTIES WHETHER EXPRESS OR IMPLIED, AND (B) DISCLAIMS ANY WARRANTY OF TITLE, MERCHANTABILITY, NONINFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE AND WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE. IN THE EVENT THAT CYRUSONE PROVIDES CUSTOMER WITH PRODUCTS IN CONJUNCTION WITH THE SERVICES, FOR EXAMPLE THIRD PARTY SOFTWARE PRODUCTS OR EQUIPMENT, CYRUSONE ALSO PROVIDES SUCH PRODUCTS AS IS WITHOUT WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED. CYRUSONE SHALL HAVE NO LIABILITY FOR FAILURE OF ANY PRODUCT OR SERVICE IT PROVIDES. CYRUSONE DOES NOT MONITOR OR EXERCISE CONTROL OVER THE CONTENT OF THE INFORMATION RESIDING ON CUSTOMER’S EQUIPMENT OR TRANSMITTED THROUGH ITS FACILITIES. USE OF ANY INFORMATION OBTAINED VIA CYRUSONE’S SERVICES IS AT CUSTOMER’S OWN RISK. CYRUSONE SPECIFICALLY DENIES ANY RESPONSIBILITY FOR THE ACCURACY OR QUALITY OF INFORMATION OBTAINED THROUGH ITS SERVICES.
 
SECTION 6. CONFIDENTIAL INFORMATION, PUBLICITY AND DATA PROTECTION
 
6.1                                Confidentiality. The existence and terms of this Agreement shall be held confidential by each Party, as shall each Party’s confidential or proprietary information (“Confidential Information”). CyrusOne’s performance, discounts, and prices under this Agreement or other correspondence between the parties, the quality of CyrusOne Services, and any data provided by CyrusOne to Customer regarding performance of CyrusOne’s Services shall be deemed CyrusOne’s Confidential Information. Each Party hereto may sign a confidentiality agreement, which shall remain in effect for the term hereof. If there is any conflict pertaining to issues of confidentiality, such confidentiality agreement shall prevail.
 
6.2                                Publicity. Neither Party shall have the right to use the other Party’s or its affiliates’ trademarks, service marks or trade names or to otherwise refer to the other Party in any marketing, promotional or advertising materials or activities. Either Party may issue a publication or press release relating to the creation and/or operation of a business relationship between CyrusOne and Customer, provided that such press release or publication is approved in advance by both parties, which approval shall not be unreasonably withheld.
 
6.3                                Data Protection. Customer represents and warrants that it has obtained informed and express consent to the processing of Data as set forth herein from its employees, customers, and any users of the Services.
 
6.4                                Disclosure of Customer Information. CyrusOne reserves the right to provide any customer or potential customer bound by a nondisclosure agreement access to a list of CyrusOne’s customers and a general description of Service purchased by such customers. Customer consents to such disclosure; including the listing of Customer’s name and Service purchased by Customer (financial terms relating to the purchase shall not be disclosed).
 
SECTION 7. COLOCATION SPACE AND SERVICES
 
7.1                                Grant of License. Customer is granted the right to occupy the Colocation Space and/or Facilities Identified in a Service Description or other mutual agreement. Customer shall be permitted reasonable access to the Colocation Space and/or Facilities subject to any and all rules, regulations and access requirements imposed by CyrusOne governing such access. Customer may submit multiple Customer Order Forms requesting use of Colocation Space and/or Facilities in multiple CyrusOne Facilities, each of which shall be governed by the terms and conditions contained herein. CyrusOne retains the right to access any and all of its Colocation Space and/or Facilities for any legitimate business purpose including compliance with the terms and conditions contained herein. CyrusOne retains the right to restrict Customer’s access to the facility if there is non-payment of invoice amounts, not including disputed items (see above reference), exceeding forty five (45) days past invoice date.
 
7.2                                Use of Colocation Space. Customer shall be permitted to use the Colocation Space only for placement and maintenance of data processing and communications equipment. Customer hereby agrees, within six (6) months of the Service Commencement Date for Colocation Space, to use the Colocation Space for placement and maintenance of data processing or communications equipment. CyrusOne may, upon 90 days’ written notice, reclaim any portion of Colocation Space not being used within such twelve (12) month period. Customer shall surrender such recaptured Colocation Space and the monthly recurring charges shall be appropriately reduced. No refunds shall be made to Customer regarding recaptured Colocation Space.
 
a)              Customer shall not provide or make available to any third Party, space within the Colocation Space without CyrusOne’s prior written consent. If Customer should provide, or make available to any third party, space within the Colocation Space without obtaining the written consent of CyrusOne, Customer shall be in breach of this Agreement and CyrusOne may pursue any legal or equitable remedy.
 
7.3                                CyrusOne Maintenance. CyrusOne shall perform janitorial services, environmental systems maintenance, power plant maintenance and other actions as are reasonably required to maintain the Facilities and Colocation Space in a condition which is suitable for the placement of data processing and communications equipment. Customer shall maintain the Colocation Space in an orderly and safe condition, and shall return the Colocation Space to CyrusOne at the conclusion of the Service Term set forth in the Customer Order Form in the same condition (reasonable wear and tear excepted) as when such Colocation Space was delivered to Customer.   EXCEPT AS EXPRESSLY STATED HEREIN OR IN ANY CUSTOMER

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ORDER FORM, THE SPACE SHALL BE DELIVERED AND ACCEPTED “AS IS” BY CUSTOMER, AND NO REPRESENTATION HAS BEEN MADE BY CYRUSONE AS TO THE FITNESS OF THE SPACE FOR CUSTOMER’S INTENDED PURPOSE.
 
7.4                                Prohibited Activities. Customer shall abide by any posted or otherwise communicated rules relating to use of, access to, or security measures respecting the Facilities and Colocation Space. Customer’s use of the Colocation Space will be immediately terminated in the event Customer or any of its agents or employees are in CyrusOne’s Facilities with any firearms, illegal drugs, alcohol or are engaging in any criminal activity, eavesdropping or foreign Intelligence. Persons found engaging in such activity or in possession of the aforementioned prohibited items will be immediately escorted from the Facilities. In the event that unauthorized parties gain access to the Colocation Space through access cards, keys or other access devices provided to Customer, Customer is responsible for the cost of replacing any security devices lost or stolen after delivery thereof to Customer. CyrusOne will use commercially reasonable efforts to notify Customer of such violation described in this section 7.4 and will provide Customer with ten (10) days to cure such violation, provided that CyrusOne will not be obligated to provide a cure period if such violations will negatively impact CyrusOne’s customers or contravene any law, rule, regulation or policy of any governmental authority
 
7.5                                Termination of Use. CyrusOne shall have the right to terminate Customer’s use of the Colocation Space or the Services delivered therein in the event that:
 
a)              Customer is in default of any material term and condition herein;
b)              Customer makes any material alternations to the Colocation Space without first obtaining the written consent of CyrusOne; or
c)               Customer allows personnel or contractors to enter the Colocation Space who have not been approved by CyrusOne in advance. With respect to items (c) and (d), unless in CyrusOne’s opinion, Customer’s actions interfere or have the potential to interfere with other CyrusOne customers, CyrusOne shall provide Customer a written notice and a ten (10) day opportunity to cure before terminating Customer’s rights to the Colocation Space.
 
7.6                                Sublicenses. Customer may sublicense the use of Facilities and Colocation Space under the following conditions:
 
a)              All proposed sublicenses must be approved, in writing, by CyrusOne in CyrusOne’s sole discretion;
b)              Customer hereby guarantees that all such parties shall abide by the terms of this Agreement;
c)               Customer shall indemnify, defend and hold CyrusOne harmless from all claims brought against CyrusOne arising from any act or omission of any sublicense or its agents;
d)              Such Party shall be considered Customer’s agent and all of its acts and omissions shall be attributable to Customer for the purposes of these terms.
 
7.7                                Changes in Configuration. CyrusOne reserves the right to change the location or configuration of the Facilities and Colocation Space so long as any new location is in Austin, Texas, provided, however, that CyrusOne shall not arbitrarily require such changes. CyrusOne and Customer shall work in good faith to minimize any disruption in Customer’s Services that may be caused by such changes in location or configuration of the Colocation Space. Any change of location or configuration shall be at CyrusOne’s sole cost and expense.
 
7.8                                Insurance. Prior to occupancy and during the Service Term, Customer shall procure and maintain the following minimum insurance coverage: (a) Workers’ Compensation in compliance with all applicable statutes of appropriate jurisdiction (including Employer’s Liability with limits of $500,000 each accident); (b) Commercial General Liability with combined single limits of $1,000,000 each occurrence; and (c) “All Risk” Property insurance covering all of Customer’s personal property located in the Colocation Space. Customer’s Commercial General Liability policy shall be endorsed to show CyrusOne (and any underlying property owner), as requested by CyrusOne as an additional insured. All policies shall provide that Customer’s insurers waive all rights of subrogation against CyrusOne. Customer shall furnish CyrusOne with certificates of Insurance demonstrating that Customer has obtained the required insurance coverage prior to use of the Facilities and Colocation Space. Such certificates shall contain a statement that the insurance coverage shall not be materially changed or cancelled without at least thirty (30) days prior written notice to CyrusOne. Customer shall require any contractor entering the Colocation Space on its behalf to procure and maintain the same types, amounts and coverage extensions as required for Customer above.
 
7.9        Customer Responsibilities.
 
a)              Performance of Customer Equipment. To ensure the Customer Equipment does not pose a physical threat to CyrusOne, its facilities, employees, customer and partners, Customer shall ensure that all Customer Equipment it brings into the Facilities will perform according to published technical specifications for all such equipment and complies with all specifications, policies, procedures, and security requirements provided by CyrusOne;
b)              Lawful Use. Customer acknowledges that CyrusOne is not responsible for the manner in which the Service is used by Customer or any other person or entity Customer permits to access such Service or the equipment used to deliver such Service (a “User”). Customer further agrees that it will not, and will use commercially reasonable efforts to ensure that any User will not violate CyrusOne’s Acceptable Use Policy which may be read at http://www.cyrusone.com/aup:
c)               Security. Customer shall comply with all of CyrusOne’s access procedures and security requirements for the Premises, shall use commercially reasonable efforts to ensure that all Designated Persons named on the Access List comply with such procedures, and shall monitor its Designated Persons to ensure their compliance. To the extent deemed reasonably necessary by CyrusOne in its good faith business judgment, CyrusOne may implement additional access and

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security procedures.  Customer agrees to repair at its own cost any damage to the Facility caused by its employees, agents, or Designated Persons.
 
SECTION 8. GENERAL TERMS
 
8.1                                Service Level Agreement. The SLA for the Services as described in the Customer Order Form apply only to Customers agreeing to a Term Commitment of at least one (1) year. CyrusOne reserves the right to amend the SLA from time to time effective upon notice to Customer; provided, that in the event of any amendment resulting in a material reduction of the SLA’s service levels or credits, Customer may terminate this Agreement without penalty by providing CyrusOne written notice of termination during thesixty(60) days following notice of such amendment. The SLA and Section 4.3 above set forth Customer’s remedies for any claim relating to the Services, including any failure to meet any guarantee set forth in the SLA. CyrusOne’s records and data shall be the basis for all SLA calculations and determinations. Notwithstanding anything to the contrary, the maximum amount of credit in any calendar month under the SLA shall not exceed twenty five percent (25%) of the MRC, which, absent the credit, would have been charged for CyrusOne Service that month.
 
8.2                                Force Majeure. Neither Party shall be liable, nor shall any credit allowance or other remedy be extended, for any failure of performance or equipment due to causes beyond such Party’s reasonable control including but not limited to acts of God, fire, acts or omissions of suppliers, flood or other catastrophe, any law, order or regulations or request of any governmental entity, national emergency, terrorist activities, insurrections, riots, work stoppages or disruptive labor activities, global or natural disasters or like events. In the event CyrusOne is unable to deliver Service for fourteen (14) consecutive days as a result of force majeure, Customer shall not be obligated to pay CyrusOne for the affected Service for so long as CyrusOne is unable to deliver.
 
8.3                                Assignment and Resale. Customer may not assign its rights and obligations under a Customer Order Form without the express prior written consent of CyrusOne. CyrusOne will not unreasonably withhold its consent to a proposed assignment provided that these terms shall apply to any permitted transferees or assignees that shall in writing fully accept all the terms and conditions contained herein. Customer shall remain liable for the payment of all charges due under each Customer Order Form. Customer may resell the Service to third party “end users”, provided that Customer agrees to indemnify, defend and hold CyrusOne harmless from claims made against CyrusOne by such end users and such end users agree in writing to be bound by the terms of this Agreement.
 
8.4                                Notices. Notices, other than those required by Section 1.1, hereunder shall be deemed properly given when delivered. If delivered in person, or when sent via facsimile, overnight courier, electronic mail or when deposited with the U.S. Postal Service, (a) with respect to Customer, the address listed on any Customer Order Form, or (b) with respect to CyrusOne, to: 4201 Southwest Freeway, Houston, Texas 77027. Customer shall notify CyrusOne of any changes to its address listed on any Customer Order Form.
 
8.5                                Indemnification. Each Party shall indemnify the other from any claims by third parties and expenses (including reasonable legal fees and court costs) respecting damage to tangible property, personal Injury or death caused by such Party’s negligence or willful misconduct.
 
8.6                                Application of Tariffs. CyrusOne may elect or be required to file with the appropriate regulatory agency tariffs respecting the delivery of certain Service. In the event that such tariffs are filed respecting Service ordered by Customer, then (to the extent such provisions are not inconsistent with the terms of a Customer Order Form) the terms set forth in the applicable tariff shall govern CyrusOne’s delivery of, and Customer’s consumption or use of, such Service.
 
8.7                                No Waiver. No failure by either Party to enforce any rights hereunder shall constitute a waiver of such right(s).
 
8.8                                Acceptable Use Policy. Customer’s use of Service shall at all times comply with CyrusOne’s then-current Acceptable Use Policy, as amended by CyrusOne from time to time and which are available through CyrusOne’s web site at www.cyrusone.com/aup.
 
8.9                                Control. CyrusOne exercises no control over and accepts no responsibility for the content of the information passing through or contained within CyrusOne’s Facilities. Customers shall indemnity and hold CyrusOne harmless for any claims, losses or damages arising out of or related to Customer’s content.
 
8.10                         Contractors. Customer acknowledges that certain installation, technical support, and consulting services may be provided by an unaffiliated third party contractor (“Contractor”) to CyrusOne. Customer hereby authorizes CyrusOne to provide Contractor all Customer location, equipment and contact information necessary to provide such Services. All Contractors who have access to that information are required to sign a CyrusOne Confidentiality Agreement.
 
8.11                         By execution of this Agreement, the parties acknowledge that they have read and understood each provision, term and obligation contained in this Agreement. This Agreement, although drawn by one Party, shall be construed fairly and reasonably and not more strictly against the drafting Party than the non-drafting Party.

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8.12                         Parol Evidence, Status of Agreement and Prior Understandings. This Agreement and the attached and incorporated exhibits, if any, contain the entire Agreement of the parties and there are no representations, inducements, promises, agreements, arrangements or undertakings, oral or written, between the parties to this Agreement other than those set forth in this Agreement and duly executed in writing.
 
8.13                         State Law and Venue Determination. This Agreement shall be subject to and governed under the laws of the State of Texas. Any and all obligations and payments are due and performable and payable in Harris County, Texas. The parties agree that venue for purposes of any and all lawsuits, causes of action, arbitrations, or other disputes shall be in Harris County, Texas.
 
8.14                         Corporate Authority. If any Party to this Agreement is a legal entity, including, but not limited to, an association, corporation, joint venture, limited partnership, partnership, or trust, that Party represents to the other that this Agreement and the transactions contemplated in this Agreement and the execution and delivery hereof have been duly authorized by all necessary corporate, partnership, or trust proceedings and actions including, but not limited to, actions on the part of the directors, officers and agents of the entity.
 
8.15                         Dispute or Contest: Arbitration. In the unlikely event that a dispute occurs applicable to the operation, construction, interpretation, or enforcement of this Agreement, the Parties may agree to submit the dispute to a commercial arbitrator so that the matter may be arbitrated in lieu of resolving the dispute in a court of law or equity. If the Parties agree to arbitration, then the Parties shall choose an arbitrator from the American Arbitration Association and utilize their procedures for complex commercial arbitrations.
 
8.16                         Independent Contractor Relationship; No Partnering Intended. It is agreed and understood that any work requested by the parties to this agreement shall be performed under the terms of the Agreement and that all parties are considered independent contractors.
 
8.17                         Severability. If any provision of this Agreement is for any reason held to violate any applicable law, governmental rule or regulation, or if the provision is held to be unenforceable or unconscionable, then the invalidity of that specific provision shall not be held to invalidate the remaining provisions of this Agreement. All other provisions and the entirety of this Agreement shall remain in full force and effect unless the removal of the invalid provision destroys the legitimate purposes of this Agreement, in which event this Agreement shall be canceled and terminated.
 
8.18                         Survival. The covenants and agreements contained in this Agreement with respect to payment of amounts due, confidentiality, liability and indemnification shall survive termination of this Agreement, regardless of the reason for termination. The rights and obligations under this Agreement shall survive any merger or sale of either Party and shall be binding upon the successors and permitted assigns of each Party.
 
8.19                         Conflict. In the event of any conflict between the terms of the Master Service Agreement, a Customer Order Form or a SLA, it is understood and agreed that the Customer Order Form will control.
 
8.20                         During the term of this Agreement, the Customer or any of its affiliates will not, directly or indirectly, for their own account or for or on behalf of any other person or entity, whether as an officer, director, employee, partner, principal, joint venture, consultant, investor, shareholder, independent contractor or otherwise, hire or employ, or attempt to hire or employ, in any fashion (whether as an employee, independent contractor or otherwise), any employee or independent contractor of CyrusOne, or solicit or induce, or attempt to solicit or induce or take away, any of CyrusOne’s employees, consultants, clients, customers, vendors, suppliers, or independent contractors to terminate their relationship with CyrusOne or the other Party.

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Exhibit 10.12.1

	Infrastructure Availability Service Level Agreement	
 
This Service Level Agreement, known as “SLA”, between Cyrus Networks, LLC dba CyrusOne, a Delaware corporation with its principal place of business at 4201 Southwest Freeway, Houston, Texas 77027 and Q2 Software, Inc., known as “Customer”, is entered into pursuant to the Master Services Agreement, known as “MSA’, dated 1/7/2010.
 
I.                 SLA Overview
 
a.               The purpose of the CyrusOne SLA is to set out the Customer expectations and service performance levels that will be provided, the metrics or performance indicators by which those SLAs will be measured, and the remedies that will be available to the Customer if the Service Levels are not achieved.
 
II.            Infrastructure Availability:
 
a.               Infrastructure shall consist of the following components that are provided as part CyrusOne’s Services:
 
i.                   Colocation space reserved for use by Customer in the CyrusOne data center, including quarter, half, or full cabinets and cage space;
ii.                Power provided to Customer’s colocation space; and
iii.             Internet access provided to Customer from the CyrusOne Internet Backbone.
 
b.               The Infrastructure Availability Percentage shall be calculated each month during the term of the Service Agreement monthly as follows:
 
i.                   Total minutes of Infrastructure Availability per month / Total minutes per month
 
c.                In the event that CyrusOne fails to meet its stated Infrastructure Availability SLA in any given month during the contract term, Customer shall be entitled to receive a Service Credit as the sole and exclusive remedy hereunder, by providing CyrusOne with a written request for a Service Credit within ninety (90) days after receipt of an invoice for the period in which the Infrastructure was unavailable. The amount of the Service Credit shall be determined by multiplying the applicable Service Credit Percentage, in accordance with Table 1 shown below, by the Monthly Recurring Charge, known as “MRC”, for the affected Service or Services.
 
Table 1: Incident Management Availability Matrix

Infrastructure Availability Percentage	 	Service Credit Percentage	 	
100%	 	0	%	
<99.99% > 99.5%	 	3	%	
<99.5% > 99.0%	 	5	%	
<99.0% > 98.5%	 	10	%	
<98.5	 	25	%	
 
d.               For purposes of determining the Infrastructure Availability Percentage, the following causes of Infrastructure unavailability will be excluded:
 
i.                   Outages due to scheduled maintenance or emergency maintenance,
ii.                Outages resulting from a Force Majeure event as stated in the MSA,
iii.             Outages caused directly by acts or omissions of Customer or its employees, agents, contractors or representatives,
iv.            Outages due to the use or failure of any Customer owned or provided equipment used in connection with the services,
v.               Outages resulting from CyrusOne following or implementing instructions or procedures issued by Customer,
vi.           Outages resulting from Denial of Service (“DoS”) and Distributed DoS attacks.
vii.         Outages resulting from Customer not utilizing or implementing the redundant components of the Infrastructure provided by CyrusOne,
 
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III.       Limitations. The SLA applies only to Customers agreeing to a Term Commitment of at least one (1) year. CyrusOne reserves the right to amend the SLA from time to time effective upon notice to Customer; provided, that in the event of any amendment resulting in a material reduction of the SLA’s service levels or credits, Customer may terminate this Agreement without penalty by providing CyrusOne written notice of termination during the thirty (30) cays following notice of such amendment. The SLA together with Section 4.3 of the MSA sets forth Customer’s remedies for any claim relating to the Services, including any failure to meet any guarantee set forth in the SLA. CyrusOne’s records and data shall be the basis for all SLA calculations and determinations. Notwithstanding anything to the contrary, the maximum amount of credit in any calendar month under the SLA shall not exceed 25% of the Monthly Recurring Charge (MRC), which, absent the credit, would have been charged for CyrusOne Service that month.
 
IV.        Customer Compliance. Without limiting the foregoing, Customer agrees that neither it nor its employees, agents, contractors or representatives shall attempt, in any way, to circumvent or otherwise interfere with any security precautions, procedural controls, Acceptable Use Policy, Change Management or other CyrusOne policies relating to the CyrusOne service offering. Any such actions may cause a disruption in service. Any disruption of services which results in the violation of these provisions shall be excluded from the Infrastructure Availability SLA and Customer will have no right to any Availability Service Credit or other remedy under this SLA or otherwise with respect to such disruption. Customer will be responsible and indemnify CyrusOne for, any damage or service interruptions caused by Customer or its employees, agents, contractors or representatives in violation of these provisions, including, without limitation, any damage to any CyrusOne provided equipment or colocation infrastructure or other affected customers or other affected customers’ equipment. Customer will pay CyrusOne, at the current published rates, for reasonable remedial services resulting from the Customer’s actions.
 
Change Management. CyrusOne will provide the Customer with at least seven (7) days prior written notice before performing scheduled maintenance and as much notice as possible when performing Emergency Change Controls. CyrusOne designs its Services around an N+1 redundancy philosophy that is used to minimize outages during planned change controls. CyrusOne will use commercially reasonable efforts to minimize the impact of any change control and, when possible, schedule the change control to eliminate or minimize impact to the Customer’s Service. However, CyrusOne reserves the right to proceed with any change control if it is determined, by CyrusOne in its sole discretion that a change control is necessary to maintain the overall integrity of the Services or such change control will not impact Customer’s service. By the signatures of their duly authorized representatives below, CyrusOne and Customer, intending to be legally bound, by the MSA, agree to all of the provisions of this SLA.

Customer	Cyrus Networks, LLC dba CyrusOne  	
 	 	
Signature	/s/ Adam Anderson	 	Signature	/s/ Blake McLane	
Print Name	Adam Anderson	Print Name	Blake McLane	
Title	Chief Technical Officer	Title	Sr. Vice President	
Date	1/7/2010	Date	1-11-2010	

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Exhibit 21.1
 
Exhibit 21.1 — List of Subsidiaries of the Registrant

Name of Subsidiary	 	Jurisdiction of Organization	
Q2 Software, Inc.	 	Delaware	

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 Exhibit 23.1

 Consent of Independent Registered Public Accounting Firm
        We consent to the reference to our firm under the caption "Experts" and to the use of our report dated December 20, 2013, in the Registration Statement (Form S-1) and related Prospectus of Q2 Holdings, Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Austin, Texas
February 12, 2014

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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm