EnerNOC, Inc.
ENERNOC INC (Form: 10-Q, Received: 08/09/2011 15:28:16)
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission File Number: 001-33471
EnerNOC, Inc.
(Exact Name of Registrant as Specified in Its Charter)
     
Delaware   87-0698303
(State or Other Jurisdiction of   (IRS Employer
Incorporation or Organization)   Identification No.)
     
101 Federal Street    
Suite 1100    
Boston, Massachusetts   02110
(Address of Principal Executive Offices)   (Zip Code)
(617) 224-9900
(Registrant’s Telephone Number, Including Area Code)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
     Indicate by check mark whether the 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):
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
     There were 26,763,839 shares of the registrant’s common stock, $0.001 par value per share, outstanding as of August 2, 2011.
 
 

 


 

EnerNOC, Inc.
Index to Form 10-Q
         
    Page
Part I — Financial Information
       
 
       
Item 1. Financial Statements
       
 
       
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  EX-10.1
  EX-10.2
  EX-31.1
  EX-31.2
  EX-32.1
  EX-101 INSTANCE DOCUMENT
  EX-101 SCHEMA DOCUMENT
  EX-101 CALCULATION LINKBASE DOCUMENT
  EX-101 LABELS LINKBASE DOCUMENT
  EX-101 PRESENTATION LINKBASE DOCUMENT
  EX-101 DEFINITION LINKBASE DOCUMENT

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EnerNOC, Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share data)
                 
    June 30, 2011     December 31, 2010  
ASSETS
               
Current assets
               
Cash and cash equivalents
  $ 79,236     $ 153,416  
Restricted cash
    71       1,537  
Trade accounts receivable, net of allowance for doubtful accounts of $200 and $150 at June 30, 2011 and December 31, 2010, respectively
    33,240       22,137  
Unbilled revenue
    17,081       73,144  
Inventory
    239        
Prepaid expenses, deposits and other current assets
    12,602       6,707  
Cash held by third party for potential acquisition
    28,082        
 
           
Total current assets
    170,551       256,941  
Property and equipment, net of accumulated depreciation of $42,934 and $36,309 at June 30, 2011 and December 31, 2010, respectively
    39,524       34,690  
Goodwill
    63,895       24,653  
Definite-lived intangible assets, net
    23,931       5,823  
Indefinite-lived intangible assets
    530       920  
Deposits and other assets
    6,392       2,872  
 
           
Total assets
  $ 304,823     $ 325,899  
 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities
               
Accounts payable
  $ 916     $ 111  
Accrued capacity payments
    42,467       65,792  
Accrued payroll and related expenses
    11,816       11,135  
Accrued expenses and other current liabilities
    10,403       9,307  
Accrued acquisition contingent consideration
          1,500  
Deferred revenue
    7,677       5,540  
Current portion of long-term debt
    17       37  
 
           
Total current liabilities
    73,296       93,422  
Long-term liabilities
               
Deferred acquisition consideration
    4,108        
Deferred tax liability
    1,842       1,141  
Deferred revenue, long-term
    6,609       4,696  
Other liabilities
    482       514  
 
           
Total long-term liabilities
    13,041       6,351  
Commitments and contingencies (Note 8 and Note 12)
           
Stockholders’ equity
               
Undesignated preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued
           
Common stock, $0.001 par value; 50,000,000 shares authorized, 26,552,123 and 25,155,067 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively
    27       25  
Additional paid-in capital
    318,516       293,942  
Accumulated other comprehensive loss
    (46 )     (75 )
Accumulated deficit
    (100,011 )     (67,766 )
 
           
Total stockholders’ equity
    218,486       226,126  
 
           
Total liabilities and stockholders’ equity
  $ 304,823     $ 325,899  
 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.

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EnerNOC, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2011     2010     2011     2010  
Revenues
  $ 58,904     $ 66,548     $ 90,666     $ 94,669  
Cost of revenues
    38,527       37,556       57,728       56,102  
 
                       
Gross profit
    20,377       28,992       32,938       38,567  
Operating expenses:
                               
Selling and marketing
    13,620       11,531       25,207       20,645  
General and administrative
    15,899       13,152       32,212       26,901  
Research and development
    3,350       2,494       6,582       4,551  
 
                       
Total operating expenses
    32,869       27,177       64,001       52,097  
 
                       
(Loss) income from operations
    (12,492 )     1,815       (31,063 )     (13,530 )
Other expense
    (142 )     (14 )     (14 )     (11 )
Interest expense
    (238 )     (466 )     (401 )     (491 )
 
                       
(Loss) income before income tax
    (12,872 )     1,335       (31,478 )     (14,032 )
(Provision for) benefit from income tax
    (101 )     (257 )     (767 )     910  
 
                       
Net (loss) income
  $ (12,973 )   $ 1,078     $ (32,245 )   $ (13,122 )
 
                       
 
                               
(Loss) income per common share
                               
Basic
  $ (0.51 )   $ 0.04     $ (1.27 )   $ (0.54 )
 
                       
Diluted
  $ (0.51 )   $ 0.04     $ (1.27 )   $ (0.54 )
 
                       
 
                               
Weighted average number of common shares outstanding
                               
Basic
    25,537,483       24,371,125       25,393,864       24,212,004  
Diluted
    25,537,483       25,861,957       25,393,864       24,212,004  
The accompanying notes are an integral part of these condensed consolidated financial statements.

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EnerNOC, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                 
    Six Months Ended June 30,  
    2011     2010  
Cash flows from operating activities
               
Net loss
  $ (32,245 )   $ (13,122 )
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Depreciation
    7,439       6,574  
Amortization of acquired intangible assets
    2,525       756  
Stock-based compensation expense
    7,267       8,004  
Impairment of property and equipment
    340       756  
Unrealized foreign exchange transaction (gain) loss
    (110 )     30  
Deferred taxes
    701       (317 )
Non-cash interest expense
    56       30  
Accretion of fair value of deferred purchase price consideration related to acquisition
    183        
Other, net
    159       43  
Changes in operating assets and liabilities, net of effects of acquisitions:
               
Accounts receivable, trade
    (8,765 )     (6,118 )
Unbilled revenue
    56,063       10,589  
Prepaid expenses and other current assets
    (2,506 )     (5,055 )
Inventory
    199        
Other assets
    (2,794 )     (2 )
Other noncurrent liabilities
    (32 )     1,220  
Deferred revenue
    3,920       2,863  
Accrued capacity payments
    (23,349 )     (299 )
Accrued payroll and related expenses
    1,114       365  
Accounts payable and accrued expenses and other current liabilities
    (2,113 )     4,659  
 
           
Net cash provided by operating activities
    8,052       10,976  
 
               
Cash flows from investing activities
               
Payments made for acquisitions of businesses, net of cash acquired
    (41,047 )     (2,001 )
Payments made for contingent consideration related to acquisitions
    (1,500 )      
Cash held by third party for potential acquisition
    (28,077 )      
Purchases of property and equipment
    (12,144 )     (12,039 )
Change in restricted cash and deposits
    (597 )     (607 )
Change in long-term assets
    (522 )      
 
           
Net cash used in investing activities
    (83,887 )     (14,647 )
 
               
Cash flows from financing activities
               
Proceeds from exercises of stock options
    1,737       2,473  
Repayment of borrowings and payments under capital leases
    (20 )     (18 )
 
           
Net cash provided by financing activities
    1,717       2,455  
Effects of exchange rate changes on cash
    (62 )     (12 )
 
           
Net change in cash and cash equivalents
    (74,180 )     (1,228 )
Cash and cash equivalents at beginning of period
    153,416       119,739  
 
           
Cash and cash equivalents at end of period
  $ 79,236     $ 118,511  
 
           
 
               
Non-cash financing and investing activities
               
Issuance of common stock in connection with acquisitions
  $ 15,132     $ 1,066  
 
           
Issuance of common stock in satisfaction of bonuses
  $ 440     $ 775  
 
           
Increase in deferred acquisition consideration
  $ 3,925     $  
 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.

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EnerNOC, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. Description of Business and Basis of Presentation
Description of Business
     EnerNOC, Inc. (the Company) is a service company that was incorporated in Delaware on June 5, 2003. The Company operates in a single segment providing clean and intelligent energy management applications and services for the smart grid, which include comprehensive demand response, data-driven energy efficiency, energy price and risk management, and enterprise carbon management applications and services. The Company’s energy management applications and services enable cost effective energy management strategies for its commercial, institutional and industrial end-users of energy (C&I customers) and its electric power grid operator and utility customers by reducing real-time demand for electricity, increasing energy efficiency, improving energy supply transparency, and mitigating emissions. The Company uses its Network Operations Center (NOC) and comprehensive demand response application, DemandSMART, to remotely manage and reduce electricity consumption across a growing network of C&I customer sites, making demand response capacity available to electric power grid operators and utilities on demand while helping C&I customers achieve energy savings, improved financial results and environmental benefits. To date, the Company has received substantially all of its revenues from electric power grid operators and utilities, who make recurring payments to the Company for managing demand response capacity that it shares with its C&I customers in exchange for those C&I customers reducing their power consumption when called upon.
     The Company builds on its position as a leading demand response services provider by using its NOC and energy management application platform to deliver a portfolio of additional energy management applications and services to new and existing C&I, electric power grid operator and utility customers. These additional energy management applications and services include its EfficiencySMART, SupplySMART and CarbonSMART applications and services. EfficiencySMART is its data-driven energy efficiency suite that includes commissioning and retro-commissioning authority services, energy consulting and engineering services, a persistent commissioning application and an enterprise energy management application for managing energy across a portfolio of sites. SupplySMART is its energy price and risk management application that provides its C&I customers located in restructured or deregulated markets throughout the United States with the ability to more effectively manage the energy supplier selection process, including energy supply product procurement and implementation, budget forecasting, and utility bill information management. CarbonSMART is its enterprise carbon management application that supports and manages the measurement, tracking, analysis, reporting and management of greenhouse gas emissions.
Reclassifications
     The Company has reclassified certain costs in its unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2010 totaling $754 and $1,491, respectively, previously included in selling and marketing expenses as general and administrative expenses to more appropriately reflect the nature of these costs.
Basis of Consolidation
     The unaudited condensed consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries and have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). Intercompany transactions and balances are eliminated upon consolidation.
     On January 3, 2011, the Company acquired all of the outstanding capital stock of Global Energy Partners, Inc. (Global Energy) in a purchase business combination. Accordingly, the results of Global Energy subsequent to that date are included in the Company’s unaudited condensed consolidated statements of operations.
     On January 25, 2011, the Company acquired all of the outstanding capital stock of M2M Communications Corporation (M2M) in a purchase business combination. Accordingly, the results of M2M subsequent to that date are included in the Company’s unaudited condensed consolidated statements of operations.

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Subsequent Events Consideration
     The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required.
Energy Response Holdings Pty Ltd Acquisition
     On July 1, 2011, the Company and one of its subsidiaries completed an acquisition of all of the outstanding stock of Energy Response Holdings Pty Ltd (Energy Response), a privately-held company headquartered in Australia specializing in demand response and other energy management services in Australia and New Zealand, pursuant to a definitive agreement dated July 1, 2011. The Company concluded that this acquisition represented a business combination and, therefore, has accounted for it as such. The Company believes Energy Response will enhance and broaden the Company’s service offerings in Australia and New Zealand.
     The Company acquired Energy Response for an aggregate purchase price of $29,286, plus an additional $470 paid as working capital and other adjustments, consisting of $27,265 in cash paid at closing and $2,491 representing the fair value of 156,697 shares of stock issued as of the acquisition date. In addition to the amounts paid at closing, the Company may be obligated to pay additional contingent purchase price consideration related to an earn-out amount of $10,718. The earn-out payment, if any, will be based on the development of a demand response reserve capacity market in the National Electricity Market in Australia by December 31, 2013 that meets certain market size and price per megawatt conditions. This milestone needs to be achieved in order for the earn-out payment to occur and there will be no partial payment if the milestone is not fully achieved. The Company is still gathering information in order to determine the fair value of the contingent purchase price consideration as of the acquisition date. Any changes in fair value after the completion of this fair value analysis will be recorded to the Company’s consolidated statements of operations. The difference between the $29,286 aggregate purchase price disclosed above and the $29,475 aggregate purchase price set forth in the definitive agreement was due to the fact that the fair value of stock issued in connection with the acquisition was based upon the Company’s stock price as of the closing date of the acquisition of $15.90 per share, as compared to a per share value of $17.10 determined in accordance with the definitive agreement, which is based upon the average of the per share last sale price for the Company’s common stock for the thirty trading day period ending two trading days prior to the closing.
     Transaction costs related to this business combination have been expensed as incurred, which are included in general and administrative expenses in the accompanying consolidated statements of operations. The Company’s consolidated financial statements will reflect Energy Response’s results of operations from July 1, 2011 forward.
     The Company is in the process of gathering information to complete its preliminary valuation of certain assets and liabilities in order to complete a preliminary purchase price allocation.
     There were no other material recognizable subsequent events recorded or requiring disclosure in the June 30, 2011 unaudited condensed consolidated financial statements.
Use of Estimates in Preparation of Financial Statements
     The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and include all adjustments (consisting of normal, recurring adjustments) necessary for the fair presentation of the Company’s financial position at June 30, 2011 and statements of operations and statements of cash flows for the three and six months ended June 30, 2011 and 2010. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year ending December 31, 2011.
     The preparation of these unaudited condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenue recognition, allowance for doubtful accounts, valuations and purchase price allocations related to business combinations, fair value of deferred acquisition consideration, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets and goodwill, estimated fair values of intangible assets and goodwill,

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amortization methods and periods, certain accrued expenses and other related charges, stock-based compensation, contingent liabilities, tax reserves and recoverability of the Company’s net deferred tax rates and related valuation allowance.
     Although the Company regularly assesses these estimates, actual results could differ materially. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if these results differ from historical experience or other assumptions prove not to be substantially accurate, even if such assumptions are reasonable when made.
     The Company is subject to a number of risks similar to those of other companies of similar and different sizes both inside and outside its industry, including, but not limited to, rapid technological changes, competition from substitute energy management applications and services provided by larger companies, customer concentration, government regulations, market or program rule changes, protection of proprietary rights and dependence on key individuals.
Restricted Cash, Cash Equivalents and Cash Held by Third Party for Potential Acquisition
     Restricted cash is comprised of certificates of deposit and cash held to collateralize the Company’s outstanding letters of credit and certain other commitments. Cash equivalents are highly liquid investments with insignificant interest rate risk and maturities of three months or less at the time of acquisition. Investments qualifying as cash equivalents consist of investments in money market funds, which have no withdrawal restrictions or penalties and totaled $62,638 and $108,000 at June 30, 2011 and December 31, 2010, respectively.
     Cash held by third party for potential acquisition represents cash that the Company transferred to a third party agent at the end of June 2011 in anticipation of the potential acquisition of Energy Response. On July 1, 2011, the Company completed its acquisition of all of the outstanding stock of Energy Response. Cash utilized to complete the acquisition of Energy Response totaled $27,265 and the excess cash held by the third party was returned to the Company in July 2011.
Revenue Recognition
     The Company recognizes revenues in accordance with Accounting Standards Codification (ASC) 605, Revenue Recognition . In all of the Company’s arrangements, it does not recognize any revenues until it can determine that persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and it deems collection to be reasonably assured. In making these judgments, the Company evaluates these criteria as follows:
    Evidence of an arrangement. The Company considers a definitive agreement signed by the customer and the Company or an arrangement enforceable under the rules of an open market bidding program to be representative of persuasive evidence of an arrangement.
    Delivery has occurred. The Company considers delivery to have occurred when service has been delivered to the customer and no post-delivery obligations exist. In instances where customer acceptance is required, delivery is deemed to have occurred when customer acceptance has been achieved.
    Fees are fixed or determinable. The Company considers the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within normal payment terms. If the fee is subject to refund or adjustment and the Company cannot reliably estimate this amount, the Company recognizes revenues when the right to a refund or adjustment lapses. If offered payment terms exceed the Company’s normal terms, the Company recognizes revenues as the amounts become due and payable or upon the receipt of cash.
    Collection is reasonably assured. The Company conducts a credit review at the inception of an arrangement to determine the creditworthiness of the customer. Collection is reasonably assured if, based upon evaluation, the Company expects that the customer will be able to pay amounts under the arrangement as payments become due. If the Company determines that collection is not reasonably assured, revenues are deferred and recognized upon the receipt of cash.
     The Company enters into contracts and open market bidding programs with utilities and electric power grid operators to provide demand response applications and services. Demand response revenues consist of two elements: revenue earned based on the Company’s ability to deliver committed capacity to its electric power grid operator and utility customers, which the Company refers to as capacity revenue; and revenue earned based on additional payments made to the Company for the amount of energy usage actually curtailed from the grid during a demand response event, which the Company refers to as energy event revenue.

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     The Company recognizes demand response revenue when it has provided verification to the electric power grid operator or utility of its ability to deliver the committed capacity which entitles the Company to payments under the contract or open market program. Committed capacity is generally verified through the results of an actual demand response event or a measurement and verification test. Once the capacity amount has been verified, the revenue is recognized and future revenue becomes fixed or determinable and is recognized monthly until the next demand response event or test. In subsequent verification events, if the Company’s verified capacity is below the previously verified amount, the electric power grid operator or utility customer will reduce future payments based on the adjusted verified capacity amounts. Ongoing demand response revenue recognized between demand response events or tests that are not subject to penalty or customer refund are recognized in revenue. If the revenue is subject to refund and the amount of refund cannot be reliably estimated, the revenue is deferred until the right of refund lapses.
     In one of the open market programs in which the Company participates, the program year operates on a June to May basis and performance is measured based on the aggregate performance during the months of June through September. As a result, fees received for the month of June could potentially be subject to adjustment or refund based on performance during the months of July through September. The Company has concluded that it can reliably estimate the amount of fees potentially subject to adjustment or refund and records a reserve for this amount in the month of June. As of June 30, 2011, the Company had recorded an estimated reserve of $9,260 related to potential subsequent performance adjustments. The fees under this program are fixed as of September 30 and the Company will record any change in estimate based on final performance during the three months ending September 30, 2011. Historically, the changes in estimate have not been material.
     As a result of a contractual amendment entered into during the three months ended March 31, 2011 to amend certain refund provisions included in one of the Company’s contracts with a utility customer, the Company concluded that it could reliably estimate the fees potentially subject to refund as of March 31, 2011 and therefore, the fees under this arrangement were fixed or determinable. As a result, during the three months ended March 31, 2011, the Company recognized as revenues $3,025 of fees that had been previously deferred as of December 31, 2010.
     Certain of the forward capacity programs in which the Company participates may be deemed derivative contracts under ASC 815, Derivatives and Hedging (ASC 815). In such situations, the Company believes it meets the scope exception under ASC 815 as a normal purchase, normal sale as that term is defined in ASC and, accordingly, the arrangement is not treated as a derivative contract.
     Energy event revenues are recognized when earned. Energy event revenue is deemed to be substantive and represents the culmination of a separate earnings process and is recognized when the energy event is initiated by the electric power grid operator or utility customer and the Company has responded under the terms of the contract or open market program.
     Under certain of the Company’s arrangements, in particular those arrangements entered into by M2M, the Company sells proprietary equipment to a C&I customer that is utilized to provide the ongoing services that the Company delivers. Currently, this equipment has been determined to not have stand-alone value. As a result, the Company defers the fees associated with the equipment and, once the C&I customer is receiving the ongoing services from the Company, recognizes those fees ratably over the expected C&I customer relationship period, which is generally three years. In addition, the Company capitalizes the associated direct and incremental costs, which primarily represent the equipment and third-party installation costs, and recognizes such costs over the expected C&I customer relationship period.
     In September 2009, the Financial Accounting Standards Board (FASB) ratified ASC Update No. 2009-13, Multiple-Deliverable Revenue Arrangements (ASU 2009-13). ASU 2009-13 amends existing revenue recognition accounting pronouncements that are currently within the scope of ASC Subtopic 605-25, which is the revenue recognition guidance for multiple-element arrangements. ASU 2009-13 provides for three significant changes to the existing multiple-element revenue recognition guidance as follows:
    deletes the requirement to have objective and reliable evidence of fair value for undelivered elements in an arrangement. This may result in more deliverables being treated as separate units of accounting;
    modifies the manner in which the arrangement consideration is allocated to the separately identified deliverables. ASU 2009-13 requires an entity to allocate revenue in an arrangement using its best estimate of selling prices (ESP) of deliverables if a vendor does not have vendor-specific objective evidence of selling price (VSOE) or third-party evidence of selling price (TPE), if VSOE is not available. Each separate unit of accounting must have a selling price, which can be based on management’s estimate when there is no other means (VSOE or TPE) to determine the selling price of that deliverable. The arrangement consideration is allocated based on the elements’ relative selling prices; and
    eliminates use of the residual method and requires an entity to allocate revenue using the relative selling price method, which results in the discount in the transaction being evenly allocated to the separate units of accounting.

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     As required, the Company adopted this new accounting guidance at the beginning of its first quarter of the fiscal year ending December 31, 2011 (fiscal 2011) on a prospective basis for transactions originating or materially modified on or after January 1, 2011. This accounting guidance generally does not change the units of accounting for the Company’s revenue transactions. The impact of adopting this new accounting guidance was not material to the Company’s financial statements during the six months ended June 30, 2011, and if they were applied in the same manner to the fiscal year ending December 31, 2010 (fiscal 2010) would not have had a material impact to revenue for the six months ended June 30, 2010. The Company does not expect the adoption of this new accounting guidance to have a significant impact on the timing and pattern of revenue recognition in the future due to the Company’s limited number of multiple element arrangements. The key impact that the Company expects the adoption of this new accounting guidance to have relates to certain EfficiencySMART service arrangements with C&I customers who also provide curtailment of capacity as part of the Company’s demand response arrangements. Historically, the Company had recorded the fees recognized under these arrangements as a reduction of cost of revenues as evidence of fair value did not exist for persistent commissioning services due to the limited history of selling these separately and lack of availability of TPE. As previously stated, the impact of this change has not been and is not expected to be material.
     The Company typically determines the selling price of its services based on VSOE. Consistent with its methodology under previous accounting guidance, the Company determines VSOE based on its normal pricing and discounting practices for the specific service when sold on a stand-alone basis. In determining VSOE, the Company’s policy is to require a substantial majority of selling prices for a product or service to be within a reasonably narrow range. The Company also considers the class of customer, method of distribution, and the geographies into which its products and services are sold into when determining VSOE. The Company typically has had VSOE for its products and services.
     In certain circumstances, the Company is not able to establish VSOE for all deliverables in a multiple element arrangement. This may be due to the infrequent occurrence of stand-alone sales for an element, a limited sales history for new services or pricing within a broader range than permissible by the Company’s policy to establish VSOE. In those circumstances, the Company proceeds to the alternative levels in the hierarchy of determining selling price. TPE of selling price is established by evaluating largely similar and interchangeable competitor products or services in stand-alone sales to similarly situated customers. The Company is typically not able to determine TPE and has not used this measure since the Company has been unable to reliably verify standalone prices of competitive solutions. ESP is established in those instances where neither VSOE nor TPE are available, considering internal factors such as margin objectives, pricing practices and controls, customer segment pricing strategies and the product life cycle. Consideration is also given to market conditions such as competitor pricing information gathered from experience in customer negotiations, market research and information, recent technological trends, competitive landscape and geographies. Use of ESP is limited to a very small portion of the Company’s services, principally certain EfficiencySMART services.
Comprehensive (Loss) Income
     Comprehensive (loss) income is defined as the change in equity of a business enterprise during a period resulting from transactions and other events and circumstances from non-owner sources. Comprehensive (loss) income is composed of net (loss) income and foreign currency translation adjustments. As of June 30, 2011 and 2010, accumulated other comprehensive loss was comprised solely of cumulative foreign currency translation adjustments. The Company presents its components of other comprehensive (loss) income, net of related tax effects, which have not been material to date.
Comprehensive (loss) income for the three and six months ended June 30, 2011 and 2010 was as follows:
                                 
    Three months ended June 30,     Six months ended June 30,  
    2011     2010     2011     2010  
Net (loss) income
  $ (12,973 )   $ 1,078     $ (32,245 )   $ (13,122 )
Foreign currency translation adjustments
    28       80       29       32  
 
                       
Total comprehensive (loss) income
  $ (12,945 )   $ 1,158     $ (32,216 )   $ (13,090 )
 
                       
Software Development Costs
     The Company applies the provisions of ASC 350-40, Internal-Use Software (ASC 350-40) . ASC 350-40 requires computer software costs associated with internal use software to be expensed as incurred until certain capitalization criteria are met, and it also defines which types of costs should be capitalized and which should be expensed. The Company capitalizes the payroll and payroll-related costs of employees and third-party consultants who devote time to the development of internal-use computer software. The

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Company amortizes these costs on a straight-line basis over the estimated useful life of the software, which is generally two to five years. The Company’s judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value and impairment of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized.
     Software development costs of $2,272 and $2,774 for the three months ended June 30, 2011 and 2010, respectively, and $3,109 and $4,018 for the six months ended June 30, 2011 and 2010, respectively, have been capitalized in accordance with ASC 350-40. The capitalized amount was included as software in property and equipment at June 30, 2011 and December 31, 2010. The Company capitalized $0 and $390 during the three months ended June 30, 2011 and 2010, respectively, and $13 and $968 for the six months ended June 30, 2011 and 2010, respectively, related to a company-wide enterprise resource planning systems implementation project, which was put into production in June 2011 and is being amortized over a five year useful life. Amortization of capitalized internal use software costs was $1,026 and $676 for the three months ended June 30, 2011 and 2010, respectively, and $1,868 and $1,374 for the six months ended June 30, 2011 and 2010, respectively. Accumulated amortization of capitalized internal use software costs was $9,002 and $7,134 as of June 30, 2011 and December 31, 2010, respectively.
Impairment of Property and Equipment
     The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. If these assets are considered to be impaired, the impairment is recognized in earnings and equals the amount by which the carrying value of the assets exceeds their fair market value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. If these assets are not impaired, but their useful lives have decreased, the remaining net book value is amortized over the revised useful life.
     During the three months ended June 30, 2011, the Company identified a potential impairment indicator related to certain demand response and back-up generator equipment as a result of lower than estimated demand response event performance by these assets. As a result of this potential indicator of impairment, the Company performed an impairment test during the three months ended June 30, 2011. The applicable long-lived assets are measured for impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets or liabilities. The Company determined that the undiscounted cash flows to be generated by the asset group over its remaining estimated useful life would not be sufficient to recover the carrying value of the asset group. The Company determined the fair value of the asset group using a discounted cash flow technique based on Level 3 inputs, as defined by ASC 820, Fair Value Measurements and Disclosures (ASC 820), and a discount rate of 11%, which the Company determined represents a market rate of return for the assets being evaluated for impairment. The Company determined that the fair value of the asset group was $57 compared to the carrying value of the asset group of $83, and as a result recorded an impairment charge of $26 during the three months ended June 30, 2011, which is reflected in cost of revenues in the accompanying unaudited condensed consolidated statements of operations. The impairment charge was allocated to the individual assets within the asset group on a pro-rata basis using the relative carrying amounts of those assets.
     During the three months ended June 30, 2011, the Company identified an impairment indicator related to certain demand response equipment as a result of the removal of such equipment from service during the three months ended June 30, 2011. As a result of this impairment indicator, the Company performed an impairment test during the three months ended June 30, 2011 and recognized an impairment charge of $204 during the three months ended June 30, 2011, representing the difference between the carrying value and fair market value of the demand response equipment, which is included in cost of revenues in the accompanying consolidated statements of operations. The fair market value was determined utilizing Level 3 inputs, as defined by ASC 820, based on the projected future cash flows discounted using the estimated market participant rate of return for this type of asset.
     During the three months ended March 31, 2011, the Company identified an impairment indicator related to certain demand response equipment as a result of the removal of such equipment from service during the three months ended March 31, 2011. As a result of this impairment indicator, the Company performed an impairment test during the three months ended March 31, 2011 and recognized an impairment charge of $110 during the three months ended March 31, 2011, representing the difference between the carrying value and fair market value of the demand response equipment, which is included in cost of revenues in the accompanying consolidated statements of operations. The fair market value was determined utilizing Level 3 inputs, as defined by ASC 820, based on the projected future cash flows discounted using the estimated market participant rate of return for this type of asset.
     As of June 30, 2011, approximately $1,819 of the Company’s generation equipment is utilized in open market programs. The recoverability of the carrying value of this generation equipment is largely dependent on the rates that the Company is compensated for its committed capacity within these programs. These rates represent market rates and can fluctuate based on the supply and demand of capacity. Although these market rates are established up to three years in advance of the service delivery, these market rates have not yet been established for the entire remaining useful life of this generation equipment. In performing its impairment analysis, the Company estimates the expected future market rates based on current existing market rates and trends. A decline in the expected future market rates of 10% by itself would not result in an impairment charge related to this generation equipment.

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Inventories
     Inventories are valued at the lower of cost or market on a first in, first out basis. Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. The valuation of inventory requires management to estimate excess and obsolete inventory. The Company employs a variety of methodologies to determine the net realizable value of its inventory. Provisions for excess and obsolete inventory are primarily based on management’s estimates of forecasted net sales and service usage levels. A significant change in the timing or level of demand for the Company’s products as compared to forecasted amounts may result in recording additional provisions for excess and obsolete inventory in the future. The Company records provisions for excess and obsolete inventory as cost of product sales. As of June 30, 2011, the Company had $239 of inventory, which primarily consisted of raw materials related to M2M.
Industry Segment Information
     The Company is required to disclose the standards for reporting information about its operating segments in annual financial statements and required selected information of these segments being presented in interim financial reports issued to stockholders. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance. The Company’s chief decision maker is considered to be the team comprised of the chief executive officer and the executive management team. The Company views its operations and manages its business as one operating segment.
     The Company operates in the several geographic areas, primarily the United States, Canada, United Kingdom and Australia. Revenues derived from United States operations comprise the majority of consolidated revenues. International subsidiaries comprised less than 10% of consolidated revenues for the three and six months ended June 30, 2011 and June 30, 2010, respectively, and are not expected to exceed 10% of consolidated revenues for fiscal 2011.
     As of June 30, 2011 and December 31, 2010, the long-lived assets related to the Company’s international subsidiaries were not material to the accompanying unaudited condensed consolidated financial statements taken as a whole.
2. Acquisitions
Global Energy Partners, Inc.
     In January 2011, the Company acquired all of the outstanding stock of Global Energy, a privately-held company located in California specializing in the design and implementation of utility energy efficiency and demand response programs. The Company believes that Global Energy’s service offerings will enhance and broaden its portfolio of service offerings in the area of energy efficiency and demand response.

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     The Company concluded that the acquisition of Global Energy did not represent a material business combination and therefore, no pro forma financial information has been provided herein. Subsequent to the acquisition date, the Company’s results of operations include the results of operations of Global Energy. The Company accounted for the acquisition of Global Energy as a purchase of a business under ASC 805, Business Combinations (ASC 805).
     The total purchase price paid by the Company at closing was approximately $26,658, consisting of $19,875 in cash and the remainder of which was paid by the issuance of 275,181 shares of the Company’s common stock that had a fair value of approximately $6,783. The fair value of these shares was measured as of the acquisition date using the closing price of the Company’s common stock, as reported on The NASDAQ Global Market (NASDAQ) on January 3, 2011. This acquisition had no contingent consideration or earn-out payments.
     Transaction costs related to this business combination were not material and have been expensed as incurred, which are included in general and administrative expenses in the accompanying consolidated statements of operations.
     During the three months ended June 30, 2011, based on additional information gathered related to the fair value of certain acquired assets and liabilities, the Company recorded adjustments to the allocation of the purchase price, resulting in a reduction of net tangible assets acquired of $120 and a corresponding increase to goodwill.
     The components and allocation of the purchase price consist of the following approximate amounts:
         
Net tangible assets acquired as of January 3, 2011
  $ 468  
Customer relationships
    6,430  
Non-compete agreements
    420  
Developed technology
    50  
Trade name
    260  
Goodwill
    19,030  
 
     
Total
  $ 26,658  
 
     
     Net tangible assets acquired in the acquisition of Global Energy primarily related to the following:
         
Cash
  $ 273  
Accounts receivable
    1,049  
Prepaids and other assets
    35  
Property and equipment
    183  
Accounts payable
    (196 )
Accrued expenses and other liabilities
    (876 )
 
     
Total
  $ 468  
 
     
Identifiable Intangible Assets
     As part of the preliminary purchase price allocation, the Company determined that Global Energy’s separately identifiable intangible assets were its customer relationships, non-compete agreements, developed technology and trade name. Developed technology represented certain proprietary software tools that Global Energy had developed and are utilized on certain consulting projects. As of the date of acquisition, the Company determined that there was no in-process research and development as the ongoing research and development efforts were nominal and related to routine, on-going maintenance efforts.
     The Company used the income approach to value the customer relationships, non-compete agreements, developed technology and trade name. This approach calculates fair value by discounting the after-tax cash flows back to a present value. The baseline data for this analysis was the cash flow estimates used to price the transaction. Cash flows were forecasted for each intangible asset then discounted based on an appropriate discount rate. The discount rates applied, which ranged between 10% and 16%, were benchmarked with reference to the implied rate of return from the transaction model as well as an estimate of a market-participant’s weighted average cost of capital based on the capital asset pricing model.
     In estimating the useful life of the acquired assets, the Company considered ASC 350-30-35 General Intangibles Other Than Goodwill (ASC 350-30-35), which lists the pertinent factors to be considered when estimating the useful life of an intangible asset.

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These factors included a review of the expected use by the combined company of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets, legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset or may enable the extension of the useful life of an acquired asset without substantial cost, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. The Company is amortizing these intangible assets over their estimated useful lives using a method that is based on estimated future cash flows, as the Company believes this will approximate the pattern in which the economic benefits of the assets will be utilized, or where the Company has determined if it was deemed that the cash flows were not reliably determinable, on a straight-line basis. The acquisition of Global Energy was deemed to be an asset purchase for income tax purposes. Accordingly, no deferred taxes were established relating to the fair value of the acquired intangible assets.
     The factors contributing to the recognition of this amount of goodwill were based upon several strategic and synergistic benefits that are expected to be realized from the combination. Substantially all of the goodwill is expected to be deductible for tax purposes.
M2M Communications Corporation
     On January 21, 2011, the Company entered into a definitive agreement to acquire M2M, a privately-held company located in Idaho. The acquisition closed on January 25, 2011. M2M is a leading provider of wireless technology solutions for demand response. By integrating M2M’s wireless technology solutions into the Company’s energy management applications and services, the Company believes that it will be able to enhance its automated demand response offering and deliver more value to its rapidly growing C&I customer base.
     The Company concluded that the acquisition of M2M did not represent a material business combination and therefore, no pro forma financial information has been provided herein. Subsequent to the acquisition date, the Company’s results of operations include the results of operations of M2M. The Company accounted for the acquisition of M2M as a purchase of a business under ASC 805.
     The total initial purchase price paid by the Company at closing was approximately $29,871, consisting of $17,597 in cash, $3,925 representing the estimated fair value of $7,000 of deferred purchase price consideration determined at closing, and the remainder of which was paid by the issuance of 351,665 shares of the Company’s common stock that had a fair value of approximately $8,349. The fair value of these shares was measured as of the acquisition date using the closing price of the Company’s common stock, as reported on NASDAQ on January 25, 2011. The deferred purchase price consideration of $7,000 will be paid upon the earlier of the satisfaction of certain conditions contained in the definitive agreement or seven years after the acquisition date of January 25, 2011. The deferred purchase price consideration is not subject to adjustment or forfeiture. The Company recorded its estimate of the fair value of the deferred purchase price consideration based on the evaluation of the likelihood of the achievement of the contractual conditions that would result in the payment of the deferred purchase price consideration prior to seven years from the acquisition date and weighted probability assumptions of these outcomes. This fair value measurement was based on significant inputs not observable in the market and therefore, represented a Level 3 measurement as defined in ASC 820, Fair Value Measurements and Disclosures (ASC 820). As of June 30, 2011, there were no significant changes in the estimated timing of payment of the deferred purchase price consideration. Since this liability has been discounted, as the time period to payment shortens, the liability will increase and this change in fair value is being recorded as an expense in the Company’s accompanying unaudited condensed consolidated statements of operations with a portion of the charge being recorded to cost of revenues related to the component of the deferred purchase price consideration related to the achievement of certain gross profit metrics and the remaining portion of the charge being recorded to general and administrative expenses. During the three and six months ended June 30, 2011, the Company recorded a charge of $110 and $183, respectively. Of the $110 recorded for the three months ended June 30, 2011, $52 was recorded to cost of revenues and $58 was recorded to general and administrative expenses. Of the $183 recorded for the six months ended June 30, 2011, $87 was recorded to cost of revenues and $96 was recorded to general and administrative expenses. At June 30, 2011, the liability was recorded at $4,108. This acquisition had no contingent consideration or earn-out payments.
     As a result of gathering information to update the Company’s valuation allocation, the Company asserted that the estimated merger consideration paid at the closing exceeded the final merger consideration. The Company and the former stockholders of M2M reached a settlement agreement to reduce the purchase price by $1,250, which was recorded in prepaids, deposits and other current assets in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2011. This reduction in purchase price reduced the fair value of the customer relationships and non-compete agreements intangible assets acquired by $100 and $10, respectively. The additional $1,140 reduction in purchase price was recorded as a reduction of goodwill. The Company will receive 45,473 shares of common stock, which is based on the fair value used to determine the stock consideration issued in connection with the acquisition of $23.74 per share and represents a fair value of $1,125, and cash of $125 from escrow.
     Transaction costs related to this business combination were not material and have been expensed as incurred, which are included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

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     The allocation of the purchase price is based upon preliminary estimates of the fair value of assets acquired and liabilities assumed as of January 25, 2011. The Company is in the process of gathering information to finalize its valuation of certain assets and liabilities. The purchase price allocation is preliminary and will be finalized once the Company has all necessary information to complete its estimate, but generally no later than one year from the date of acquisition.
     The components and allocation of the purchase price consist of the following approximate amounts:
         
Net tangible assets acquired as of January 25, 2011
  $ 1,148  
Customer relationships
    4,700  
Non-compete agreements
    270  
Developed technology
    3,000  
Trade name
    400  
Goodwill
    19,103  
 
     
Total
  $ 28,621  
 
     
     Net tangible assets acquired in the acquisition of M2M primarily related to the following:
         
Cash
  $ 70  
Accounts receivable
    1,444  
Inventory
    437  
Property and equipment
    272  
Other current assets
    182  
Accounts payable
    (458 )
Accrued expenses
    (286 )
Borrowing under line of credit arrangement
    (500 )
Other long-term liabilities
    (13 )
 
     
Total
  $ 1,148  
 
     
     In connection with the acquisition of M2M, the Company acquired M2M’s outstanding borrowing under M2M’s line of credit arrangement with a financial institution. At closing, the Company fully repaid these borrowings and M2M’s line of credit arrangement was terminated.
Identifiable Intangible Assets
     As part of the preliminary purchase price allocation, the Company determined that M2M’s separately identifiable intangible assets were its customer relationships, non-compete agreements, developed technology and trade name. Developed technology represented the products and related software that M2M had developed for its wireless technology applications. As of the date of the acquisition, the Company determined that there was no in-process research and development as the ongoing research and development efforts related solely to routine, on-going efforts to refine, enrich, or otherwise improve the qualities of the existing product, and the adaptation of existing capability to a particular requirement or customer’s need as part of a contractual arrangement (i.e. configuring equipment for specific customer requirements) which do not meet the criteria of in-process research and development.
     The Company used the income approach to value the customer relationships, non-compete agreements, developed technology and trade name. This approach calculates fair value by discounting the after-tax cash flows back to a present value. The baseline data for this analysis was the cash flow estimates used to price the transaction. Cash flows were forecasted for each intangible asset then discounted based on an appropriate discount rate. The discount rates applied, which ranged between 10% and 18%, were benchmarked with reference to the implied rate of return from the transaction model as well as an estimate of a market-participant’s weighted average cost of capital based on the capital asset pricing model.
     In estimating the useful life of the acquired assets, the Company considered ASC 350-30-35, which lists the pertinent factors to be considered when estimating the useful life of an intangible asset. These factors included a review of the expected use by the combined company of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets, legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset or may enable the extension of the useful life of an acquired asset without substantial cost, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. The Company is

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amortizing these intangible assets over their estimated useful lives using a method that is based on estimated future cash flows, as the Company believes this will approximate the pattern in which the economic benefits of the assets will be utilized, or where the Company has determined if it was deemed that the cash flows were not reliably determinable, on a straight-line basis. The acquisition of M2M was deemed to be an asset purchase for income tax purposes. Accordingly, no deferred taxes were established relating to the fair value of the acquired intangible assets.
     The factors contributing to the recognition of this amount of goodwill were based upon the Company’s determination that several strategic and synergistic benefits are expected to be realized from the combination. Substantially all of the goodwill is expected to be deductible for tax purposes.
Other Immaterial Acquisitions
     In January 2011, the Company completed its acquisition of a privately-held company specializing in demand response services. The Company believes that this acquisition will enhance and broaden the Company’s international service offerings.
     The Company concluded that the acquisition did not represent a material business combination and therefore, no pro forma financial information has been provided herein. Subsequent to the acquisition date, the Company’s results of operations include the results of operations of the acquired company. The Company accounted for this acquisition as a purchase of a business under ASC 805.
     The total purchase price paid by the Company at closing was approximately $5,193, consisting of $3,918 in cash at closing, $779 paid as consideration to settle the acquired company’s outstanding debt obligations and $496 of cash consideration to be paid upon satisfaction of certain general representations and warranties, which will be paid in one year or less and is included in accrued expenses and other current liabilities in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2011. This acquisition had no contingent consideration or earn-out payments. The Company did not issue any shares of its capital stock in connection with this acquisition.
     Transaction costs related to this business combination were not material and have been expensed as incurred, which are included in general and administrative expenses in the accompanying consolidated statements of operations.
     The allocation of the purchase price is based upon preliminary estimates of the fair value of assets acquired and liabilities assumed as of January 25, 2011. The Company is in the process of gathering information to finalize its valuation of certain assets and liabilities. The purchase price allocation is preliminary and will be finalized once the Company has all necessary information to complete its estimate, but generally no later than one year from the date of acquisition.
     The components and allocation of the purchase price consist of the following approximate amounts:
         
Net tangible liabilities assumed as of January 25, 2011
  $ (319 )
Customer relationships
    4,400  
Non-compete agreements
    20  
Trade name
    50  
Goodwill
    1,042  
 
     
Total
  $ 5,193  
 
     
     Net tangible liabilities assumed in this acquisition primarily related to the following:
         
Other receivables
  $ 35  
Accounts payable
    (354 )
 
     
Total
  $ (319 )
 
     
Identifiable Intangible Assets
     As part of the preliminary purchase price allocation, the Company determined that the acquired company’s separately identifiable intangible assets were its customer relationships, non-compete agreements and trade name. The acquired company had no developed technology nor were there any ongoing research and development efforts as of the date of acquisition.

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     The Company used the income approach to value the customer relationships, non-compete agreements and trade name. This approach calculates fair value by discounting the after-tax cash flows back to a present value. The baseline data for this analysis was the cash flow estimates used to price the transaction. Cash flows were forecasted for each intangible asset then discounted based on an appropriate discount rate. The discount rates applied, which ranged between 16% and 28%, were benchmarked with reference to the implied rate of return from the transaction model as well as an estimate of a market-participant’s weighted average cost of capital based on the capital asset pricing model.
     In estimating the useful life of the acquired assets, the Company considered ASC 350-30-35, which lists the pertinent factors to be considered when estimating the useful life of an intangible asset. These factors included a review of the expected use by the combined company of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets, legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset or may enable the extension of the useful life of an acquired asset without substantial cost, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. The Company is amortizing these intangible assets over their estimated useful lives using a method that is based on estimated future cash flows, as the Company believes this will approximate the pattern in which the economic benefits of the assets will be utilized, or where the Company has determined if it was deemed that the cash flows were not reliably determinable, on a straight-line basis.
     The factors contributing to the recognition of this amount of goodwill were based upon the Company’s determination that several strategic and synergistic benefits were expected to be realized from the combination. None of the goodwill is expected to be expected to be currently deductible for tax purposes.
3. Impairment of Intangible Assets and Goodwill
Definite-Lived Intangible Assets
     The Company amortizes its intangible assets that have finite lives using either the straight-line method or, if reliably determinable, based on the pattern in which the economic benefit of the asset is expected to be consumed utilizing expected undiscounted future cash flows. Amortization is recorded over the estimated useful lives ranging from one to ten years.
     The following table provides the gross carrying amount and related accumulated amortization of intangible assets as of June 30, 2011 and December 31, 2010:
                                         
            As of June 30, 2011     As of December 31, 2010  
    Weighted Average     Gross             Gross        
    Amortization     Carrying     Accumulated     Carrying     Accumulated  
    Period (in years)     Amount     Amortization     Amount     Amortization  
Customer contracts
    5.77     $ 4,217     $ (1,800 )   $ 4,217     $ (1,593 )
Employment agreements and non-compete agreements
    2.64       1,482       (479 )     772       (309 )
Software
    0.97       120       (83 )     120       (63 )
Developed technology
    3.46       3,440       (330 )            
Customer relationships
    4.80       19,283       (2,724 )     3,510       (1,016 )
Trade name
    2.88       825       (196 )     115       (115 )
Patents
    8.69       200       (24 )     200       (15 )
 
                               
Total
          $ 29,567     $ (5,636 )   $ 8,934     $ (3,111 )
 
                               
     The increase in intangibles assets from December 31, 2010 to June 30, 2011 was due to the allocation of purchase price related to the acquisitions in the six months ended June 30, 2011. Amortization expense related to intangible assets amounted to $1,373 and $368 for the three months ended June 30, 2011 and 2010, respectively, and $2,525 and $756 for six months ended June 30, 2011 and 2010, respectively. Amortization expense for developed technology, which was $199 for the three months ended June 30, 2011 and $330 for the six months ended June 30, 2011, is included in cost of revenues in the accompanying unaudited condensed consolidated statements of operations. Amortization expense for all other intangible assets is included as a component of operating expenses in the accompanying unaudited condensed consolidated statements of operations. The intangible asset lives range from one to ten years and the weighted average remaining life was 4.6 years at June 30, 2011. Estimated amortization is $5,477, $5,558, $5,496, $4,896, $2,588 and $2,441 for 2011, 2012, 2013, 2014, 2015 and thereafter, respectively.

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Indefinite-Lived Intangible Assets
     In connection with the Company’s acquisition of SmallFoot LLC (Smallfoot) and ZOX, LLC (Zox), the Company acquired certain in-process research and development projects with a carrying value of $390 and $530, respectively, through March 31, 2011. During the three months ended June 30, 2011, the Company concluded that the Smallfoot in-process research and development project had reached technological feasibility. Prior to re-classifying the asset as a definite-lived intangible asset, the Company performed an impairment test utilizing the income approach to assess whether the carrying value of the asset was impaired. The Company determined that the fair value exceeded the carrying value, and therefore, no impairment existed. Therefore, the Company re-classified the carrying value of $390 relating to the Smallfoot in-process research and development to a definite-lived intangible asset at June 30, 2011 with a useful life of three years. The amount of amortization expense recorded in the three months ended June 30, 2011 was immaterial.
     The Zox in-process research and development project has not reached technological feasibility and remained an indefinite-lived intangible asset at June 30, 2011. There were no interim impairment indicators that had been identified for Zox as of June 30, 2011.
Goodwill
     The following table shows the change of the carrying amount of goodwill from December 31, 2010 to June 30, 2011:
         
Balance at December 31, 2010
  $ 24,653  
Acquisitions
    40,195  
Purchase price adjustments related to Global Energy
    120  
Purchase price adjustments related to M2M
    (1,140 )
Foreign currency translation impact
    67  
 
     
Balance at June 30, 2011
  $ 63,895  
 
     

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4. Net Loss Per Share
     A reconciliation of basic and diluted share amounts for the three and six months ended June 30, 2011 and 2010 are as follows (shares in thousands):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Basic weighted average common shares outstanding
    25,537       24,371       25,394       24,212  
Weighted average common stock equivalents
          1,491              
 
                       
Diluted weighted average common shares outstanding
    25,537       25,862       25,394       24,212  
 
                       
 
                               
Weighted average anti-dilutive shares related to:
                               
Stock options
    1,818       986       1,918       3,029  
Nonvested restricted stock
    623       86       518       179  
Restricted stock units
    263       4       293       304  
Escrow shares
    304             292       149  
     In the reporting period in which the Company has reported net income, anti-dilutive shares comprise those common stock equivalents that have either an exercise price above the average stock price for the quarter or the common stock equivalent’s related average unrecognized stock compensation expense is sufficient to “buy back” the entire amount of shares. In those reporting periods in which the Company has a net loss, anti-dilutive shares comprise the impact of those number of shares that would have been dilutive had the Company had net income plus the number of common stock equivalents that would be anti-dilutive had the Company had net income.
     The Company excludes the shares issued in connection with restricted stock awards from the calculation of basic weighted average common shares outstanding until such time as those shares vest. In addition, in connection with certain of the Company’s business combinations, the Company has issued shares that were held in escrow upon closing of the applicable business combination. The Company excludes shares held in escrow from the calculation of basic weighted average common shares outstanding where the release of such shares is contingent upon an event and not solely subject to the passage of time.
5. Disclosure of Fair Value of Financial Instruments
     The Company’s financial instruments mainly consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and debt obligations. The carrying amounts of the Company’s cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these instruments. At June 30, 2011, the Company had no borrowings and outstanding letters of credit totalling $43,507 under the $75,000 senior secured revolving credit facility pursuant to the credit agreement entered into in April 2011 (2011 credit facility) with Silicon Valley Bank (SVB). At December 31, 2010, the Company had no borrowings and outstanding letters of credit totalling $36,561 under the previous credit facility pursuant to the loan and security agreement entered into with SVB in August 2008 (2008 credit facility). For additional information regarding the 2011 credit facility, see Note 7.
6. Fair Value Measurements
     ASC 820 establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:
    Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 instruments include securities traded on active exchange markets, such as the New York Stock Exchange.
 
    Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
 
    Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions market participants would use in pricing the asset or liability.

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     The table below presents the balances of assets and liabilities measured at fair value on a recurring basis at June 30, 2011:
                                 
    Fair Value Measurement at June 30, 2011 Using  
            Quoted Prices in     Significant        
            Active Markets     Other        
            for Identical     Observable     Unobservable  
    Totals     Assets (Level 1)     Inputs (Level 2)     Inputs (Level 3)  
Money market funds (1)
  $ 62,638     $ 62,638     $     $  
Deferred acquisition consideration (2)
  $ 4,108     $     $     $ 4,108  
 
(1)   Included in cash and cash equivalents in the accompanying consolidated balance sheets.
 
(2)   Deferred acquisition consideration, which is a liability, represents the only asset or liability that the Company measures and records at fair value on a recurring basis using significant unobservable inputs (Level 3). The increase in fair value for the three and six months ended June 30, 2011 of $110 and $183, respectively, is due to the increase in the liability as a result of the amortization of the applicable discount. See Note 2 for further discussion.
     With respect to assets measured at fair value on a non-recurring basis, which would be impaired long-lived assets, refer to Note 1 for discussion of the determination of fair value of these assets.
     At June 30, 2011, the Company had restricted cash of approximately $71 collateralizing certain other commitments. All certificates of deposit have contractual maturities of twelve months or less. The Company’s investments in certificates of deposit have a fair value that approximates cost.
7. Financing Arrangements
     In April 2011, the Company and one of its subsidiaries entered into the 2011 credit facility. Subject to continued covenant compliance, the 2011 credit facility provides for a two-year revolving line of credit in the aggregate amount of $75,000, the full amount of which may be available for issuances of letters of credit and up to $5,000 of which may be available for swing line loans. The revolving line of credit is subject to increase from time to time up to an aggregate amount of $100,000 with additional commitments from the lenders or new commitments from financial institutions acceptable to SVB. The interest on revolving loans under the 2011 credit facility will accrue, at the Company’s election, at either (i) the Eurodollar Rate with respect to the relevant interest period plus 2.00% or (ii) the ABR (defined as the highest of (x) the “prime rate” as quoted in the Wall Street Journal , (y) the Federal Funds Effective Rate plus 0.50% and (z) the Eurodollar Rate for a one-month interest period plus 1.00%) plus 1.00%. In connection with the issuance or renewal of letters of credit for the Company’s account, the Company is charged a letter of credit fee of 2.125% pursuant to the 2011 credit facility. The Company expenses the interest and letter of credit fees, as applicable, in the period incurred. The 2011 credit facility terminates and all amounts outstanding thereunder are due and payable in full on April 15, 2013.
     The 2011 credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, enter into transactions with affiliates, transfer assets, pay dividends or make distributions on, or repurchase, the Company’s common stock, consolidate or merge with other entities, or suffer a change in control. In addition, the Company is required to meet certain financial covenants customary with this type of credit facility, including maintaining a minimum specified tangible net worth and a minimum specified ratio of current assets to current liabilities.
     The 2011 credit facility contains customary events of default, including for payment defaults, breaches of representations, breaches of affirmative or negative covenants, cross defaults to other material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs and is not cured within any applicable cure period or is not waived, the lenders may accelerate the Company’s obligations under the 2011 credit facility. The 2011 credit facility replaced the 2008 credit facility which existed as of March 31, 2011.

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     As of June 30, 2011, the Company was not in compliance with one covenant under the 2011 credit facility as a result of the transfer of cash to fund the acquisition of Energy Response and obtained a waiver of this covenant default from SVB. At June 30, 2011, the Company had no borrowings and outstanding letters of credit totaling $43,507 under the 2011 credit facility.
     In April 2011, the Company and one of its subsidiaries entered into a guarantee and collateral agreement with SVB for the benefit of the lenders. The guarantee and collateral agreement provides that the obligations under the 2011 credit facility are secured by all domestic assets of the Company and several of its subsidiaries, excluding the Company’s foreign subsidiaries.
     The Company incurred financing costs of $543 in connection with the 2011 credit facility, which were deferred and are being amortized to interest expense over the life of the 2011 credit facility, which matures on April 15, 2013.
     In April 2011, the Company was required to provide financial assurance in connection with its capacity bid in a certain open market bidding program. The Company provided this financial assurance utilizing approximately $56,000 of its available cash on hand and a $39,000 letter of credit issued under the 2011 credit facility. In May 2011, based on the capacity that the Company cleared in the above open market bidding program and the required post auction financial assurance requirements, the Company recovered all of the $56,000 of its available cash that it had provided as financial assurance prior to the auction and was able to reduce the $39,000 letter of credit to $13,500.
     In June 2011, the Company and one of its subsidiaries entered into an amendment to the 2011 credit facility, which modified certain of its covenant requirements.
8. Commitments and Contingencies
     The Company is contingently liable under outstanding letters of credit. Restricted cash balances in the amount of $0 and $1,300, respectively, collateralize certain outstanding letters of credit and cover financial assurance requirements in certain of the programs in which the Company participated at June 30, 2011 and December 31, 2010. Restricted cash to secure certain other commitments was $71 and $237 at June 30, 2011 and December 31, 2010, respectively.
     The Company is subject to performance guarantee requirements under certain utility and electric power grid operator customer contracts and open market bidding program participation rules. The Company had deposits held by certain customers of $4,750 and $3,467, respectively, at June 30, 2011 and December 31, 2010. These amounts primarily represent up-front payments required by utility and electric power grid operator customers as a condition of participation in certain demand response programs and to ensure that the Company will deliver its committed capacity amounts in those programs. If the Company fails to meet its minimum committed capacity requirements, a portion or all of the deposit may be forfeited. The Company assessed the probability of default under these customer contracts and open market bidding programs and has determined the likelihood of default and loss of deposits to be remote. In addition, under certain utility and electric power grid operator customer contracts, if the Company does not achieve the required performance guarantee requirements, the customer can terminate the arrangement and the Company would potentially be subject to termination penalties. Under these arrangements, the Company defers all fees received up to the amount of the potential termination penalty until the Company has concluded that it can reliably determine that the potential termination penalty will not be incurred or the termination penalty lapses. As of June 30, 2011, the Company had deferred fees totaling approximately $2,304, which are included in deferred revenue, long-term in the accompanying consolidated balance sheets. As of June 30, 2011, the maximum termination penalty that the Company was subject to under these arrangements, which the Company has not deemed probable of incurring, is approximately $6,375.
     In connection with the Company’s participation in an open market bidding program, the Company entered into an arrangement with a third party during the second quarter of 2009 to bid capacity into the program and provide the corresponding financial assurance required in connection with the bid. The arrangement included an up-front payment by the Company equal to $2,000, of which $1,100 was expensed as interest expense during the second quarter of 2009 and $900 was deferred and will be recognized ratably as a charge to cost of revenues as revenue is recognized over the 2012/2013 delivery year. In addition, the Company will be required to pay the third party an additional contingent fee, up to a maximum of $3,000, based on the revenue that the Company expects to earn in 2012 in connection with the bid. This additional fee will be recognized as earned.
Indemnification Provisions
     The Company includes indemnification provisions in certain of its contracts. These indemnification provisions include provisions indemnifying the customer against losses, expenses, and liabilities from damages that could be awarded against the customer in the event that the Company’s services and related enterprise software platforms are found to infringe upon a patent or copyright of a third party. The Company believes that its internal business practices and policies and the ownership of information limits the Company’s risk in paying out any claims under these indemnification provisions.

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9. Stock-Based Compensation
Stock Options
     The Company’s Amended and Restated 2003 Stock Option and Incentive Plan (2003 Plan) and the Amended and Restated 2007 Employee, Director and Consultant Stock Plan (the 2007 Plan, and together with the 2003 Plan, the Plans) provide for the grant of incentive stock options, nonqualified stock options, restricted and unrestricted stock awards and other stock-based awards to eligible employees, directors and consultants of the Company. Options granted under the Plans are exercisable for a period determined by the Company, but in no event longer than ten years from the date of the grant. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock on the date of grant. Options, restricted stock awards and restricted stock unit awards generally vest over four years, with certain exceptions. The 2003 Plan expired upon the Company’s initial public offering (IPO) in May 2007. Any forfeitures under the 2003 Plan that occurred after the effective date of the IPO are available for future grant under the 2007 Plan up to a maximum of 1,000,000 shares. The 2007 Plan provides for an annual increase to the shares issuable under the 2007 Plan by an amount equal to the lesser of 520,000 shares or an amount determined by the Company’s board of directors. This annual increase is effective on the first day of each fiscal year through 2017. During the six months ended June 30, 2011 and 2010, the Company issued 18,211 shares of its common stock and 24,681 shares of its common stock, respectively, to certain executives to satisfy a portion of the Company’s compensation obligations to those individuals. As of June 30, 2011, 2,078,154 shares were available for future grant under the 2007 Plan.
     For stock options granted prior to January 1, 2009, the fair value of each option was estimated at the date of grant using a Black-Scholes option-pricing model. For stock options granted on or after January 1, 2009, the fair value of each option has been and will be estimated on the date of grant using a lattice valuation model. The lattice valuation model considers characteristics of fair value option pricing that are not available under the Black-Scholes option pricing model. Similar to the Black-Scholes option pricing model, the lattice valuation model takes into account variables such as expected volatility, dividend yield rate, and risk free interest rate. However, in addition, the lattice valuation model considers the probability that the option will be exercised prior to the end of its contractual life and the probability of termination or retirement of the option holder in computing the value of the option. For these reasons, the Company believes that the lattice model provides a fair value that is more representative of actual experience and future expected experience than that value calculated using the Black-Scholes option pricing model.
     The fair value of options granted was estimated at the date of grant using the following weighted average assumptions:
                 
    Six Months Ended June 30,
    2011   2010
Risk-free interest rate
    3.3 %     3.6 %
Vesting term, in years
    2.22       2.16  
Expected annual volatility
    79 %     86 %
Expected dividend yield
    %     %
Exit rate pre-vesting
    7.3 %     5.94 %
Exit rate post-vesting
    14.06 %     10.89 %
     Volatility measures the amount that a stock price has fluctuated or is expected to fluctuate during a period. As there was no public market for the Company’s common stock prior to the effective date of the IPO, the Company determined the volatility based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted through September 30, 2010 was determined using an average of the historical volatility measures of this peer group of companies. During the three months ended September 30, 2010, the Company determined that it had sufficient history to utilize Company-specific volatility in accordance with ASC 718, Stock Compensation (ASC 718) and is now calculating volatility using a component of implied volatility and historical volatility to determine the value of share-based payments. The risk-free interest rate is the rate available as of the option date on zero-coupon United States government issues with a term equal to the expected life of the option. During the three months ended March 31, 2010, the Company changed its vesting for new grants of stock options and restricted stock to a 25% cliff vest after one year of grant and quarterly thereafter for three years as compared to its primary vesting for historical grants of 25% cliff vest after one year of grant and monthly thereafter for three years. The change in vesting resulted in the vesting term changing in 2010 for new grants awarded with this new vesting. The Company has not paid dividends on its common stock in the past and does not plan to pay any dividends in the foreseeable future. In addition, the terms of the 2011 credit facility preclude the Company from paying dividends. During the three months ended June 30, 2011, the Company updated its estimated exit rate pre-vesting and post-vesting applied to options, restricted stock and restricted stock units based on an evaluation of demographics of its

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employee groups and historical forfeitures for these groups in order to determine its option valuations as well as its stock-based compensation expense. The changes in estimate of the volatility, exit rate pre-vesting and exit rate post-vesting did not have a material impact on the Company’s stock-based compensation expense recorded in the accompanying unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2011.
     The Company accounts for transactions in which services are received from non-employees in exchange for equity instruments based on the fair value of such services received or of the equity instruments issued, whichever is more reliably measurable.
The components of stock-based compensation expense are disclosed below:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Stock options
  $ 1,364     $ 2,371     $ 3,145     $ 4,676  
Restricted stock and restricted stock units
    2,421       1,287       4,122       3,328  
 
                       
Total
  $ 3,785     $ 3,658     $ 7,267     $ 8,004  
 
                       
     Stock-based compensation is recorded in the accompanying unaudited condensed consolidated statements of operations, as follows:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Selling and marketing expenses
  $ 1,255     $ 1,141     $ 2,298     $ 2,189  
General and administrative expenses
    2,212       2,319       4,380       5,450  
Research and development expenses
    318       198       589       365  
 
                       
Total
  $ 3,785     $ 3,658     $ 7,267     $ 8,004  
 
                       
     The Company recognized no material income tax benefit from stock-based compensation arrangements during the three and six months ended June 30, 2011 and 2010. In addition, no material compensation cost was capitalized during the three and six months ended June 30, 2011 and 2010.
     The following is a summary of the Company’s stock option activity during the six months ended June 30, 2011:
                                 
    Six Months Ended June 30, 2011  
    Number of             Weighted-        
    Shares     Exercise     Average     Aggregate  
    Underlying     Price Per     Exercise Price     Intrinsic  
    Options     Share     Per Share     Value  
Outstanding at December 31, 2010
    2,112,359     $ 0.17 - $48.06     $ 14.38     $ 23,948  (2)
Granted
    39,950               19.43          
Exercised
    (236,352 )             7.35     $ 2,789  (3)
Cancelled
    (158,066 )             15.55          
 
                       
Outstanding at June 30, 2011
    1,757,891     $ 0.17 - $48.06       15.33     $ 9,413  (4)
 
                       
Weighted average remaining contractual life in years: 5.3
                               
Exercisable at end of period
    1,234,183     $ 0.17 - $48.06     $ 11.94     $ 8,754  (4)
 
                       
Weighted average remaining contractual life in years: 5.0
                               
Vested or expected to vest at June 30, 2011 (1)
    1,724,392     $ 0.17 - $48.06     $ 15.13     $ 9,399  (4)
 
                       

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(1)   This represents the number of vested options as of June 30, 2011 plus the number of unvested options expected to vest as of June 30, 2011 based on the unvested options outstanding at June 30, 2011, adjusted for the estimated forfeiture rate of 7.3%.
 
(2)   The aggregate intrinsic value was calculated based on the positive difference between the estimated fair value of the Company’s common stock on December 31, 2010 of $23.91 and the exercise price of the underlying options.
 
(3)   The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Company’s common stock on the applicable exercise dates and the exercise price of the underlying options.
 
(4)   The aggregate intrinsic value was calculated based on the positive difference between the estimated fair value of the Company’s common stock on June 30, 2011 of $15.74 and the exercise price of the underlying options.
Additional Information About Stock Options
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2011   2010   2011   2010
    In thousands, except share and   In thousands, except share and
    per share amounts   per share amounts
Total number of options granted during the period
    23,600       71,500       39,950       251,275  
Weighted-average fair value per share of options granted
  $ 11.03     $ 19.45     $ 11.96     $ 18.66  
Total intrinsic value of options exercised(1)
  $ 528     $ 4,108     $ 2,789     $ 9,961  
 
(1)   Represents the difference between the market price at exercise and the price paid to exercise the options.
     Of the stock options outstanding as of June 30, 2011, 1,743,898 options were held by employees and directors of the Company and 13,993 options were held by non-employees. For outstanding unvested stock options related to employees as of June 30, 2011, the Company had $7,023 of unrecognized stock-based compensation expense, which is expected to be recognized over a weighted average period of 2.2 years. There were no material unvested non-employee options as of June 30, 2011.
Restricted Stock and Restricted Stock Units
     For non-vested restricted stock and restricted stock units outstanding as of June 30, 2011, the Company had $16,595 of unrecognized stock-based compensation expense, which is expected to be recognized over a weighted average period of 2.5 years.
Restricted Stock
     The following table summarizes the Company’s restricted stock activity during the six months ended June 30, 2011:
                 
            Weighted Average
    Number of   Grant Date Fair
    Shares   Value Per Share
Nonvested at December 31, 2010
    254,896     $ 30.03  
Granted
    454,381       19.68  
Vested
    (46,122 )     25.32  
Cancelled
    (20,443 )     29.31  
 
               
Nonvested at June 30, 2011
    642,712     $ 23.08  
 
               
     All shares underlying awards of restricted stock are restricted in that they are not transferable until they vest. Restricted stock typically vests ratably over a four-year period from the date of issuance, with certain exceptions. Included in the above table are 2,000 shares of restricted stock granted to certain non-executive employees and 16,000 shares of restricted stock granted to the Company’s board of directors during the six months ended June 30, 2011 that were immediately vested. The fair value of the restricted stock is expensed ratably over the vesting period. The Company records any proceeds received for unvested shares of restricted stock in accrued expenses and the amount is amortized into additional paid-in capital as the shares vest. If the employee who received the restricted stock leaves the Company prior to the vesting date for any reason, the shares of restricted stock will be forfeited and returned to the Company.

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Additional Information about Restricted Stock
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2011   2010   2011   2010
    in thousands, except share and per
    share amounts
Total number of shares of restricted stock granted during the period
    79,600       39,542       454,381       84,792  
Weighted average fair value per share of restricted stock granted
  $ 17.86     $ 30.02     $ 19.68     $ 29.59  
Total number of shares of restricted stock vested during the period
    15,214       23,866       46,122       87,327  
Total fair value of shares of restricted stock vested during the period
  $ 263     $ 697     $ 886     $ 2,551  
Restricted Stock Units
     The following table summarizes the Company’s restricted stock unit activity during the six months ended June 30, 2011:
                 
            Weighted Average  
    Number of     Grant Date Fair  
    Shares     Value Per Share  
Nonvested at December 31, 2010
    388,124     $ 26.11  
Granted
           
Vested
    (81,709 )     26.46  
Cancelled
    (54,562 )     25.60  
 
             
Nonvested at June 30, 2011
    251,853     $ 26.10  
 
             
     The total fair value of restricted stock units that vested during the six months ended June 30, 2011 was $1,466. The weighted average grant date fair value of restricted stock units granted during the six months ended June 30, 2010 was $28.60 per share.
10. Income Taxes
     The Company accounts for income taxes in accordance with ASC 740, Income Taxes (ASC 740), which is the asset and liability method for accounting and reporting income taxes. Under ASC 740, deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. In addition, ASC 740 requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
     ASC 740 also provides criteria for the recognition, measurement, presentation and disclosures of uncertain tax positions. A tax benefit from an uncertain tax position may be recognized if it is “more likely than not” that the position is sustainable based solely on its technical merits. As of June 30, 2011 and December 31, 2010, the Company had no material unrecognized tax benefits.
     In accordance with ASC 740, each interim period is considered an integral part of the annual period and tax expense is measured using an estimated annual effective tax rate. An enterprise is required, at the end of each interim reporting period, to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. Generally, if an enterprise has an ordinary loss for the year to date at the end of an interim period and anticipates ordinary income for the fiscal year, the enterprise will record an interim period tax benefit based on applying the estimated annual effective tax rate to the ordinary loss as long as the tax benefits are realized during the year or recognizable as a deferred tax asset as of the end of the year. However, if an enterprise is unable to make a reliable estimate of its annual effective tax rate then the actual effective tax rate for the year-to-date may be the best estimate of the annual effective tax rate. The Company has determined that it is currently unable to make a reliable estimate of its annual effective tax rate as of June 30, 2011 due to unusual sensitivity to the rate as

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it relates to the current forecasted fiscal 2011 U.S. ordinary income. As a result, the Company recorded a tax provision for the six months ended June 30, 2011 based on its actual effective tax rate for six months ended June 30, 2011. The tax provision recorded for the three and six months ended June 30, 2011 was $101 and $767, respectively, and represented the following:
    estimated foreign taxes resulting from guaranteed profit allocable to certain of the Company’s foreign subsidiaries, which have been determined to be limited-risk service providers acting on behalf of the U.S. parent for tax purposes, for which there are no tax net operating loss carryforwards; and
 
    amortization of tax deductible goodwill, which generates a deferred tax liability that cannot be offset by net operating losses or other deferred tax assets since its reversal is considered indefinite in nature.
     If the Company is able to make a reliable estimate of its annual effective tax rate as of September 30, 2011 and if the Company is still anticipating U.S. ordinary income for fiscal 2011, then as required by ASC 740, the Company will utilize that rate to provide for income taxes on a current year-to-date basis, which could result in a significant provision from income taxes being recorded during the three months ended September 30, 2011, which would be predominantly offset by a significant benefit recorded during the three months ending December 31, 2011. If the Company continues to be unable to make a reliable estimate of its annual effective tax rate as of September 30, 2011, the Company expects to follow a consistent methodology as applied for the three and six months ended June 30, 2011.
     The Company reviews all available evidence to evaluate the recovery of deferred tax assets, including the recent history of accumulated losses in all tax jurisdictions over the last three years, as well as its ability to generate income in future periods. As of June 30, 2011, due to the uncertainty related to the ultimate use of the Company’s deferred income tax assets, the Company provided a full valuation allowance on all of its U.S. deferred tax assets.
11. Concentrations of Credit Risk
     The following table presents the Company’s significant customers. With respect to PJM Interconnection (PJM) and ISO-New England, Inc. (ISO-NE), these customers are regional electric power grid operator customers, which are comprised of multiple utilities and were formed to control the operation of a regional power system, coordinate the supply of electricity, and establish fair and efficient markets.
                                 
    Three Months Ended June 30,  
    2011     2010  
          % of Total           % of Total  
    Revenues     Revenues     Revenues     Revenues  
PJM Interconnection
  $ 30,756       52 %   $ 38,784       58 %
ISO-New England, Inc.
    8,406       14       14,830       22  
 
                       
Total
  $ 39,162       66 %   $ 53,614       80 %
 
                       
                                 
    Six Months Ended June 30,  
    2011     2010  
          % of Total           % of Total  
    Revenues     Revenues     Revenues     Revenues  
PJM Interconnection
  $ 31,373       35 %   $ 39,100       41 %
ISO-New England, Inc.
    20,123       22       32,250       34  
 
                       
Total
  $ 51,496       57 %   $ 71,350       75 %
 
                       
     Accounts receivable from PJM was approximately $7,417 and $7,848 at June 30, 2011 and December 31, 2010, respectively. Accounts receivable from ISO-NE was approximately $2,486 and $3,351 at June 30, 2011 and December 31, 2010, respectively.
     No additional customers provided 10% of more of the accounts receivable balance at June 30, 2011. Southern California Edison Company was the only additional customer that provided 10% or more of the accounts receivable balance at December 31, 2010 at 15% of the accounts receivable balance. Unbilled revenue related to PJM was $16,907 and $72,887 at June 30, 2011 and December 31, 2010, respectively. There was no significant unbilled revenue for any other customers at June 30, 2011 and December 31, 2010.

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12. Legal Proceedings
     The Company is subject to legal proceedings, claims and litigation arising in the ordinary course of business. The Company does not expect the ultimate costs to resolve these matters to have a material adverse effect on its consolidated financial condition, results of operations or cash flows.
13. Recent Accounting Pronouncements
Business Combinations
     In December 2010, the FASB issued Accounting Standards Update No. 2010-29, Business Combinations — Disclosure of Supplementary Pro Forma Information for Business Combinations (ASU 2010-29). ASU 2010-29 requires a public entity to disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the prior year. It also requires a description of the nature and amount of material, nonrecurring adjustments directly attributable to the business combination included in the reported revenue and earnings. The new disclosure was effective for the Company’s first quarter of fiscal 2011. The adoption of ASU 2010-29 will require additional disclosure in the event of a business combination but will not have a material impact on the Company’s financial condition and results of operations during the three and six months ended June 30, 2011. As a result of the acquisition of Energy Response in July 2011, the Company will be required to meet certain disclosure requirements and provide pro-forma financial information. Refer to Note 1 for further information on the acquisition of Energy Response.
Intangibles — Goodwill and Other
     In December 2010, the FASB issued ASU 2010-28, Intangibles- Goodwill and Other (ASU 2010-28). ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is effective for fiscal years that begin after December 15, 2010, which is fiscal 2011 for the Company. The adoption of this standard did not have a material impact on the Company’s results from operations and financial condition.
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS
     In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS , which amends its accounting guidance related to fair value measurements in order to more closely align its disclosure requirements with those in International Financial Reporting Standards. This guidance clarifies the application of existing fair value measurement and disclosure requirements and also changes certain principles or requirements for measuring fair value or for disclosing information about fair value measurements. The guidance is effective for interim and annual periods beginning after December 15, 2011. The adoption of this guidance is not expected to have a material effect on the Company’s financial position or results of operations.
Presentation of Comprehensive Income
     In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which represents new accounting guidance related to the presentation of other comprehensive income (OCI). This guidance eliminates the option to present components of OCI as part of the statement of changes in shareholders’ equity, which is the option that the Company currently uses to present OCI. The guidance allows for a one-statement or two-statement approach, outlined as follows:

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    One-statement approach: Present the components of net income and total net income, the components of OCI and a total for OCI, along with the total of comprehensive income in a single continuous statement.
 
    Two-statement approach: Present the components of net income and total net income in the statement of net income. A statement of OCI would immediately follow the statement of net income and include the components of OCI and a total for OCI, along with the total of comprehensive income.
     The guidance also requires an entity to present on the face of the financial statements any reclassification adjustments for items that are reclassified from OCI to net income. The guidance is effective for interim and annual periods beginning after December 15, 2011. The adoption of this guidance will not have an effect on the Company’s financial position or results of operations, but will only impact how certain information related to OCI is presented in the Company’s consolidated financial statements.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
      The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q , as well as our audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as filed with the Securities and Exchange Commission, or the SEC, on March 1, 2011. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Without limiting the foregoing, the words “may,” “will,” “should,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “target” and variations of those terms or the negatives of those terms and similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on current expectations, estimates, forecasts and projections and the beliefs and assumptions of our management including, without limitation, our expectations regarding our results of operations, operating expenses and the sufficiency of our cash for future operations. We assume no obligation to revise or update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain important factors, including those set forth below under this Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 1A — “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q , as well as in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. You should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the SEC.
Overview
     We are a leading provider of clean and intelligent energy management applications and services for the smart grid, which include comprehensive demand response, data-driven energy efficiency, energy price and risk management, and enterprise carbon management applications and services. Our energy management applications and services enable cost effective energy management strategies for commercial, institutional and industrial end-users of energy, which we refer to as our C&I customers, and our electric power grid operator and utility customers by reducing real-time demand for electricity, increasing energy efficiency, improving energy supply transparency, and mitigating emissions.
     We believe that we are the largest demand response service provider to C&I customers in the United States. As of June 30, 2011, we managed approximately 6,650 megawatts, or MW, of demand response capacity across a C&I customer base of approximately 4,500 accounts and 10,700 sites throughout multiple electric power grids. Demand response is an alternative to traditional power generation and transmission infrastructure projects that enables electric power grid operators and utilities to reduce the likelihood of service disruptions, such as brownouts and blackouts, during periods of peak electricity demand, and otherwise manage the electric power grid during short-term imbalances of supply and demand or during periods when energy prices are high. We use our Network Operations Center, or NOC, and comprehensive demand response application, DemandSMART, to remotely manage and reduce electricity consumption across a growing network of C&I customer sites, making demand response capacity available to electric power grid operators and utilities on demand while helping C&I customers achieve energy savings, improved financial results and environmental benefits. To date, we have received substantially all of our revenues from electric power grid operators and utilities, who make recurring payments to us for managing demand response capacity that we share with our C&I customers in exchange for those C&I customers reducing their power consumption when called upon.
     We build on our position as a leading demand response services provider by using our NOC and energy management application platform to deliver a portfolio of additional energy management applications and services to new and existing C&I, electric power grid operator and utility customers. These additional energy management applications and services include our EfficiencySMART, SupplySMART and CarbonSMART applications and services. EfficiencySMART is our data-driven energy efficiency suite that includes commissioning and retro-commissioning authority services, energy consulting and engineering services, a persistent commissioning application and an enterprise energy management application for managing energy across a portfolio of sites. SupplySMART is our energy price and risk management application that provides our C&I customers located in restructured or deregulated markets throughout the United States with the ability to more effectively manage the energy supplier selection process, including energy supply product procurement and implementation, budget forecasting, and utility bill management. CarbonSMART is our enterprise carbon management application that supports and manages the measurement, tracking, analysis, reporting and management of greenhouse gas emissions.

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     Since inception, our business has grown substantially. We began by providing demand response services in one state in 2003 and had expanded to providing our portfolio of energy management applications and services in several regions throughout the United States, as well as internationally in Australia, Canada and the United Kingdom, by June 30, 2011.
Significant Recent Developments
     In July 2011, we completed our acquisition of all of the outstanding stock of Energy Response Holdings Pty Ltd, or Energy Response, pursuant to a stock purchase agreement dated July 1, 2011. Energy Response specializes in demand response and other energy management services in Australia and New Zealand. The total purchase price paid by us at closing was A$27.9 million, of which A$2.5 million was paid in shares of our common stock and the balance of which was paid in cash. The actual number of shares of our common stock issued in the transaction was based upon the average of the per share last sale price for our common stock on The NASDAQ Global Market for the thirty trading day period ending three trading days prior to the closing. In addition, the former stockholders of Energy Response may be entitled to an additional earn-out payment of A$10.0 million, of which A$3.3 million will be paid in shares of our common stock and the balance of which will be paid in cash, upon the development of a demand response reserve capacity market in the National Electricity Market in Australia by December 31, 2013 that meets certain market size and price per megawatt conditions. The Australian dollar to United States dollar conversion rate on July 1, 2011 was 1.0718 to 1.
Revenues and Expense Components
Revenues
     We derive recurring revenues from the sale of our energy management applications and services. We do not recognize any revenues until persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and we deem collection to be reasonably assured.
     Our revenues from our demand response services primarily consist of capacity and energy payments, including ancillary services payments. We derive revenues from demand response capacity that we make available in open market programs and pursuant to contracts that we enter into with electric power grid operators and utilities. In certain markets, we enter into contracts with electric power grid operators and utilities, generally ranging from three to 10 years in duration, to deploy our demand response services. We refer to these contracts as utility contracts.
     Where we operate in open market programs, our revenues from demand response capacity payments may vary month-to-month based upon our enrolled capacity and the market payment rate. Where we have a utility contract, we receive periodic capacity payments, which may vary monthly or seasonally, based upon enrolled capacity and predetermined payment rates. Under both open market programs and utility contracts, we receive capacity payments regardless of whether we are called upon to reduce demand for electricity from the electric power grid, and we recognize revenue over the applicable delivery period, even where payments are made over a different period. We generally demonstrate our capacity either through a demand response event or a measurement and verification test. This demonstrated capacity is typically used to calculate the continuing periodic capacity payments to be made to us until the next demand response event or measurement and verification test establishes a new demonstrated capacity amount. In most cases, we also receive an additional payment for the amount of energy usage that we actually curtail from the grid during a demand response event. We refer to this as an energy payment.
     As program rules may differ for each open market program in which we participate and for each utility contract, we assess whether or not we have met the specific service requirements under the program rules and recognize or defer revenues as necessary. We recognize demand response capacity revenues when we have provided verification to the electric power grid operator or utility of our ability to deliver the committed capacity under the open market program or utility contract. Committed capacity is verified through the results of an actual demand response event or a measurement and verification test. Once the capacity amount has been verified, the revenues are recognized and future revenues become fixed or determinable and are recognized monthly over the performance period until the next demand response event or measurement and verification test. In subsequent demand response events or measurement and verification tests, if our verified capacity is below the previously verified amount, the electric power grid operator or utility customer will reduce future payments based on the adjusted verified capacity amounts. Under certain utility contracts and open market program participation rules, our performance and related fees are measured and determined over a period of time. If we

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can reliably estimate our performance for the applicable performance period, we will reserve the entire amount of estimated penalties that will be incurred, if any, as a result of estimated underperformance prior to the commencement of revenue recognition. If we are unable to reliably estimate the performance and any related penalties, we defer the recognition of revenues until the fee is fixed or determinable. Any changes to our original estimates of net revenues are recognized as a change in accounting estimate in the earliest reporting period that such a change is determined.
     We defer incremental direct costs incurred related to the acquisition or origination of a utility contract or open market program in a transaction that results in the deferral or delay of revenue recognition. As of June 30, 2011 and December 31, 2010, the incremental direct costs deferred were approximately $1.4 million and $0.9 million, respectively. These deferred expenses would not have been incurred without our participation in a certain open market program and will be expensed in proportion to the related revenue being recognized. During the three and six months ended June 30, 2011 and 2010, we did not defer any contract origination costs. In addition, we capitalize the costs of our production and generation equipment utilized in the delivery of our demand response services and expense this equipment over the lesser of its useful life or the term of the contractual arrangement. During the three months ended June 30, 2011 and 2010, we capitalized $4.7 million and $2.8 million, respectively, of production and generation equipment costs. During the six months ended June 30, 2011 and 2010, we capitalized $6.6 million and $4.0 million, respectively, of production and generation equipment costs. We believe that this accounting treatment appropriately matches expenses with the associated revenue.
     As of June 30, 2011, we had approximately 6,650 MW under management in our demand response network, meaning that we had entered into definitive contracts with our C&I customers representing approximately 6,650 MW of demand response capacity. In determining our MW under management in the seasonal demand response programs in which we participate, we typically count the maximum demand response capacity for a C&I customer site over a trailing twelve-month period as the MW under management for that C&I customer site, although the trailing period could be longer in certain programs under which significant rule changes have occurred. We generally begin earning revenues from our MW under management within approximately one month from the date on which we enable the MW, or the date on which we can reduce the MW from the electricity grid if called upon to do so. The most significant exception is the PJM Interconnection, or PJM, forward capacity market, which is a market from which we derive a substantial portion of our revenues. Because PJM operates on a June to May program-year basis, a MW that we enable after June of each year may not begin earning revenue until June of the following year. This results in a longer average revenue recognition lag time in our C&I customer portfolio from the point in time when we consider a MW to be under management to when we earn revenues from that MW. Certain other markets in which we currently participate, such as the ISO-New England, Inc., or ISO-NE, market, or choose to participate in the future operate or may operate in a manner that could create a delay in recognizing revenue from the MW that we enable in those markets. Additionally, not all of our MW under management may be enrolled in a demand response program or may earn revenue in a given program period or year based on the way that we manage our portfolio of demand response capacity.
     Under certain utility contracts and open market programs, such as PJM’s Emergency Load Response Program, the period during which we are required to perform may be shorter than the period over which we receive payments under that contract or program. In these cases, we record revenue, net of reserves for estimated penalties related to potential delivered capacity shortfalls, over the mandatory performance obligation period, and a portion of the revenues that have been earned is recorded and accrued as unbilled revenue. Our unbilled revenue related to PJM of $16.9 million as of June 30, 2011 will be billed and collected through May 31, 2012. Due to the lower pricing that will take effect in the PJM market in 2011 and 2012, as well as the discontinuance of PJM’s Interruptible Load for Reliability program, or the ILR program, beginning in 2012 and an expected decrease in MW enrolled in the PJM market in 2012 as compared to 2011, we currently expect that our revenues derived from the PJM market will significantly decrease as a percentage of our total annual revenues in 2011 and 2012 as compared to prior years, and that our ability to grow our overall revenues in 2011 and 2012 at levels consistent with prior years will be negatively impacted.
     In February 2011, PJM and Monitoring Analytics, LLC, the PJM market monitor, issued a joint statement concerning settlements in PJM’s capacity market for participants using a certain baseline methodology for the measurement and verification of demand response. We refer to this as the PJM statement. The PJM statement, among other things, asserted that certain market practices in the PJM capacity market were no longer appropriate or acceptable and unilaterally implied that compensation should no longer be determined by actual measured reductions in C&I customers’ electrical load, unless the reductions are below such C&I customer’s peak demand for electricity in the prior year. We filed for and were granted expedited declaratory relief with the Federal Energy Regulatory Commission, or FERC, which clarified that we may continue to manage our portfolio of demand response capacity in PJM as we have in the past and continue to receive settlement in accordance with the current PJM market rules approved by FERC. However, PJM continues to take steps to modify the market rules according to the PJM statement, including by filing proposed tariff changes with FERC. In the event that PJM is successful at modifying the market rules in the future to reflect its position as set forth in the PJM statement, our revenues for 2011 and beyond could be significantly reduced. Furthermore, the attention of our management and other personnel has been, and may continue to be, diverted as we defend our position with respect to the PJM statement, which has had, and may continue to have, a negative impact on our sales efforts in, and revenues derived from, the PJM region as well as our other operating regions.

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     Revenues generated from open market sales to PJM accounted for 52% and 58%, respectively, of our total revenues for the three months ended June 30, 2011 and 2010 and 35% and 41%, respectively, of our total revenues for the six months ended June 30, 2011 and 2010.
     Revenues generated from open market sales to ISO-NE accounted for 14% and 22%, respectively, of our total revenues for the three months ended June 30, 2011 and 2010 and 22% and 34%, respectively, of our total revenues for the six months ended June 30, 2011 and 2010.
     In addition to demand response revenues, we generally receive either a subscription-based fee, consulting fee or a percentage savings fee for arrangements under which we provide our other energy management applications and services, specifically our EfficiencySMART, SupplySMART and CarbonSMART applications and services. Revenues derived from these applications and services were $6.3 million and $3.1 million, respectively, for the three months ended June 30, 2011 and 2010 and $12.3 million and $6.5 million, respectively, for the six months ended June 30, 2011 and 2010.
     Our revenues have historically been higher in our second and third fiscal quarters compared to other quarters in our fiscal year due to seasonality related to the demand response market.
Cost of Revenues
     Cost of revenues for our demand response services consists primarily of amounts owed to our C&I customers for their participation in our demand response network and are generally recognized over the same performance period as the corresponding revenue. We enter into contracts with our C&I customers under which we deliver recurring cash payments to them for the capacity they commit to make available on demand. We also generally make an additional payment when a C&I customer reduces consumption of energy from the electric power grid during a demand response event. The equipment and installation costs for our devices located at our C&I customer sites, which monitor energy usage, communicate with C&I customer sites and, in certain instances, remotely control energy usage to achieve committed capacity are capitalized and depreciated over the lesser of the remaining estimated customer relationship period or the estimated useful life of the equipment, and this depreciation is reflected in cost of revenues. We also include in cost of revenues our amortization of acquired developed technology, amortization of capitalized internal-use software costs related to our DemandSMART application, the monthly telecommunications and data costs we incur as a result of being connected to C&I customer sites and our internal payroll and related costs allocated to a C&I customer site. Certain costs such as equipment depreciation and telecommunications and data costs are fixed and do not vary based on revenues recognized. These fixed costs could impact our gross margin trends described below during interim periods. Cost of revenues for our EfficiencySMART, SupplySMART and CarbonSMART applications and services include our amortization of capitalized internal-use software costs related to those applications and services, third party services, equipment costs, equipment depreciation and the wages and associated benefits that we pay to our project managers for the performance of their services.
Gross Profit and Gross Margin
     Gross profit consists of our total revenues less our cost of revenues. Our gross profit has been, and will be, affected by many factors, including (a) the demand for our energy management applications and services, (b) the selling price of our energy management applications and services, (c) our cost of revenues, (d) the way in which we manage, or are permitted to manage by the relevant electric power grid operator or utility, our portfolio of demand response capacity, (e) the introduction of new clean and intelligent energy management applications and services, (f) our demand response event performance and (g) our ability to open and enter new markets and regions and expand deeper into markets we already serve. Our outcomes in negotiating favorable contracts with our C&I customers, as well as with our electric power grid operator and utility customers, the effective management of our portfolio of demand response capacity and our demand response event performance are the primary determinants of our gross profit and gross margin.

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Operating Expenses
     Operating expenses consist of selling and marketing, general and administrative, and research and development expenses. Personnel-related costs are the most significant component of each of these expense categories. We grew from 462 full-time employees at June 30, 2010 to 554 full-time employees at June 30, 2011. In addition, we incur significant up-front costs associated with the expansion of the number of MW under our management, which we expect to continue for the foreseeable future. We expect our overall operating expenses to increase in absolute dollar terms for the foreseeable future and to increase as a percentage of total annual revenues in the near term as we continue to invest in our business and employee base in order to capitalize on emerging opportunities, expand the development of our energy management applications and services, and grow our MW under management. In addition, amortization expense from intangible assets acquired in future acquisitions will increase our operating expenses in future periods.
Selling and Marketing
     Selling and marketing expenses consist primarily of (a) salaries and related personnel costs, including costs associated with share-based payment awards, related to our sales and marketing organization, (b) commissions, (c) travel, lodging and other out-of-pocket expenses, (d) marketing programs such as trade shows and (e) other related overhead. Commissions are recorded as an expense when earned by the employee. We expect our selling and marketing expenses to continue to increase in absolute dollar terms for the foreseeable future and to slightly increase as a percentage of total annual revenues in the near term as we further increase the number of our sales professionals.
General and Administrative
     General and administrative expenses consist primarily of (a) salaries and related personnel costs, including costs associated with share-based payment awards and bonuses, related to our executive, finance, human resource, information technology and operations organizations, (b) facilities expenses, (c) accounting and legal professional fees, (d) depreciation and amortization and (e) other related overhead. We expect general and administrative expenses to continue to increase in absolute dollar terms for the foreseeable future and to slightly increase as a percentage of total annual revenues in the near term as we further invest in our infrastructure and employee base to support our continued growth.
Research and Development
     Research and development expenses consist primarily of (a) salaries and related personnel costs, including costs associated with share-based payment awards, related to our research and development organization, (b) payments to suppliers for design and consulting services, (c) costs relating to the design and development of new energy management applications and services and enhancement of existing energy management applications and services, (d) quality assurance and testing and (e) other related overhead. During the three and six months ended June 30, 2011, we capitalized software development costs of $2.3 million and $3.1 million, respectively, and the amount is included as software in property and equipment at June 30, 2011. During the three and six months ended June 30, 2010, we capitalized software development costs of $2.8 million and $4.0 million, respectively, and the amount is included as software in property and equipment at June 30, 2010. We capitalized $0 and $0.4 million during the three months ended June 30, 2011 and 2010, respectively, and $13,000 and $1.0 million during the six months ended June 30, 2011 and 2010, respectively, related to a company-wide enterprise resource planning systems implementation project, which was put into production in June 2011 and is being amortized over a five year useful life. We expect research and development expenses to increase in absolute dollar terms for the foreseeable future and to slightly increase as a percentage of total annual revenues in the near term as we develop new technologies and further invest in our research and development organization.
Stock-Based Compensation
     We account for stock-based compensation in accordance with Accounting Standards Codification, or ASC, 718, Stock Compensation . As such, all share-based payments to employees, including grants of stock options, restricted stock and restricted stock units, are recognized in the statement of operations based on their fair values as of the date of grant. For stock options granted prior to January 1, 2009, the fair value for these options was estimated at the date of grant using a Black-Scholes option-pricing model, and for stock options granted on or after January 1, 2009, the fair value of each award is estimated on the date of grant using a lattice valuation model. For the three months ended June 30, 2011 and 2010, we recorded expenses of approximately $3.8 million and $3.7 million, respectively, in connection with share-based payment awards to employees and non-employees. For the six months ended June 30, 2011 and 2010, we recorded expenses of approximately $7.3 million and $8.0 million, respectively, in connection with share-based payment awards to employees and non-employees. With respect to option grants through June 30, 2011, a future expense of non-vested options of approximately $7.0 million is expected to be recognized over a weighted average period of 2.2 years. With respect to restricted stock and restricted stock units issued through June 30, 2011, a future expense of unvested restricted stock and restricted stock unit awards of approximately $16.6 million is expected to be recognized over a weighted average period of 2.5 years.

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Other Income and Expense, Net
     Other income and expense consist primarily of interest income earned on cash balances, gain or loss on transactions designated in currencies other than our or our subsidiaries’ functional currency and other non-operating income. We historically have invested our cash in money market funds, treasury funds, commercial paper, municipal bonds and auction rate securities.
Interest Expense
     Interest expense consists of interest on our capital lease obligations, fees associated with the credit facility that we entered into with Silicon Valley Bank, or SVB, in August 2008, which we refer to as the 2008 credit facility, fees associated with the $75.0 million senior secured revolving credit facility that we entered into with SVB and certain other lenders in April 2011, which we refer to as the 2011 credit facility, and fees associated with issuing letters of credit and other financial assurances.
Consolidated Results of Operations
Three and Six Months Ended June 30, 2011 Compared to the Three and Six Months Ended June 30, 2010
Revenues
     The following table summarizes our revenues for the three and six months ended June 30, 2011 and 2010 (dollars in thousands):
                                 
    Three Months Ended June 30,     Dollar     Percentage  
    2011     2010     Change     Change  
Revenues:
                               
DemandSMART
  $ 52,578     $ 63,420     $ (10,842 )     (17.1 )%
EfficiencySMART, SupplySMART and CarbonSMART
    6,326       3,128       3,198       102.2
 
                         
Total
  $ 58,904     $ 66,548     $ (7,644 )     (11.5 )%
 
                         
                                 
    Six Months Ended June 30,     Dollar     Percentage  
    2011     2010     Change     Change  
Revenues:
                               
DemandSMART
  $ 78,394     $ 88,147     $ (9,753 )     (11.1 )%
EfficiencySMART, SupplySMART and CarbonSMART
    12,272       6,522       5,750       88.2
 
                         
Total
  $ 90,666     $ 94,669     $ (4,003 )     (4.2 )%
 
                       
     For the three months ended June 30, 2011, our DemandSMART revenues decreased by $10.8 million, or 17%, as compared to the three months ended June 30, 2010. For the six months ended June 30, 2011, our DemandSMART revenues decreased by $9.8 million, or 11%, as compared to the six months ended June 30, 2010. The decrease in our DemandSMART revenues was primarily attributable to changes in the following existing operating areas (dollars in thousands):
                 
    Revenue (Decrease) Increase:     Revenue (Decrease) Increase:  
    Three Months Ended     Six Months Ended  
    June 30, 2010 to     June 30, 2010 to  
    June 30, 2011     June 30, 2011  
PJM
  $ (8,028 )   $ (7,727 )
ERCOT
    181       1,784  
New England
    (6,424 )     (12,127 )
Ontario Power Authority
    1,907       6,590  
New York
    (295 )     (922 )
California
    369       776  
Other (1)
    1,448       1,873  
 
           
Total increased DemandSMART response revenues
  $ (10,842 )   $ (9,753 )
 
           
 
(1)   The amounts included in this category relate to increases in various demand response programs, none of which are individually material.

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     The decrease in DemandSMART revenues during the three and six months ended June 30, 2011 as compared to the same periods in 2010 was primarily due to less favorable pricing in PJM, as well as an increase in the estimated reserve for potential performance adjustments recorded in the three months ended June 30, 2011. The decrease in DemandSMART revenues during the three and six months ended June 30, 2011 was also attributable to the commencement of an ISO-NE program in which we currently participate, which started on June 1, 2010, under which we enrolled fewer MW at lower pricing compared to a prior, similar ISO-NE program in which we participated. In addition, the pricing of this new ISO-NE program was lower for June 2011 compared to June 2010. The decrease in our DemandSMART revenues was also attributable to less favorable pricing in New York during the three and six months ended June 30, 2011.
     The decrease in our DemandSMART revenues during the three and six months ended June 30, 2011 was offset in part by an increase in revenues recognized in Canada under our utility contract with Ontario Power Authority, or the OPA contract. As a result of an amendment to certain refund provisions under the OPA contract entered into during the three months ended March 31, 2011, we concluded that we can reliably estimate the fees potentially subject to refund as of March 31, 2011 and therefore, we recorded revenues under the OPA contract for which the corresponding cost of revenues were recorded in prior periods. Prior to March 31, 2011, we had not recognized any revenues related to the OPA contract. In addition, we recognized revenues related to fees received based on the finalization of performance related to a certain California demand response program for which we had earned additional revenues related to our performance during the year ended December 31, 2010 and for which the corresponding cost of revenues were recorded in 2010. An increase in our MW under management in certain of our demand response programs, specifically ERCOT, also offset the decrease in our DemandSMART revenues. With respect to ERCOT, the increase in revenues for the three months ended June 30, 2011 was lower than the increase in revenues for the three months ended March 31, 2011 as a result of an increase in MW under management being offset by a reduction in fees due to underperformance.
     For the three and six months ended June 30, 2011, our EfficiencySMART, SupplySMART and CarbonSMART applications and services revenues increased by $3.2 million and $5.8 million, respectively, as compared to the same periods in 2010 primarily due to our acquisition of Global Energy Partners, Inc, or Global Energy, a company specializing in the design and implementation of utility energy efficiency and demand response programs, which occurred in January 2011.
     We currently expect our total revenues to increase slightly for the year ending December 31, 2011 as compared to 2010. Although our MW under management have increased in the PJM market in 2011 as compared to 2010, until PJM prices return in 2013 to more historical levels, we expect our revenues derived from the PJM market to decrease as a percentage of total annual revenues in 2011 and 2012 as significantly lower capacity prices in this market take effect for those years. These lower prices in PJM will negatively impact our ability to grow our overall revenues in 2011 and 2012 at levels consistent with prior years.
     In addition, the discontinuance of the ILR program by PJM beginning in 2012 will reduce the flexibility that we currently have to manage our portfolio of demand response capacity in the PJM market and will negatively impact our future revenues. We also expect a decrease in MW enrolled in the PJM market in 2012 as compared to 2011, which will also negatively impact our revenues in 2012. In connection with the PJM statement, we filed for and were granted expedited declaratory relief with FERC, which clarified that we may continue to manage our portfolio of demand response capacity in PJM as we have in the past and continue to receive settlement in accordance with the current PJM market rules approved by FERC. However, PJM continues to take steps to modify the market rules according to the PJM statement, including by filing proposed tariff changes with FERC. In the event that PJM is successful at modifying the market rules in the future to reflect its position as set forth in the PJM statement, our revenues for 2011 and beyond could be significantly reduced. Furthermore, the attention of our management and other personnel has been, and may continue to be, diverted as we defend our position with respect to the PJM statement, which has had, and may continue to have, a negative impact on our sales efforts in, and revenues derived from, the PJM region as well as our other operating regions.

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Gross Profit and Gross Margin
     The following table summarizes our gross profit and gross margin percentages for our energy management applications and services for the three and six months ended June 30, 2011 and 2010 (dollars in thousands):
                         
Three Months Ended June 30,  
2011     2010  
Gross Profit   Gross Margin     Gross Profit     Gross Margin  
$                                     20,377
    34.6 %   $ 28,992       43.6 %
 
                   
 
Six Months Ended June 30,  
2011     2010  
Gross Profit   Gross Margin     Gross Profit     Gross Margin  
$                                     32,938
    36.3 %   $ 38,567       40.7 %
 
                     
     The decrease in gross profit during the three and six months ended June 30, 2011 as compared to the same periods in 2010 was primarily due to less favorable pricing in PJM and ISO-NE. Additionally, gross profit decreased as a result of an increase in the estimated reserve for potential performance adjustments in PJM recorded in the three months ended June 30, 2011. The decrease in gross profit was offset in part by the recognition of revenues in connection with the OPA contract pursuant to which we recognized the cost of such revenues in previous periods. The decrease in gross profit was also offset by our strong demand response event performance, particularly in the ISO-NE region, which resulted in higher energy payments for the six months ended June 30, 2011 as compared to the same period in 2010, as well as an increase in gross profit due to certain acquisitions that we recently completed.
     Our gross margin decreased during the three and six months ended June 30, 2011 as compared to the same periods in 2010 primarily due to less favorable pricing in PJM and ISO-NE, which were not entirely offset by lower payments to our C&I customers. Our gross margins were also impacted by an increase in the estimated reserve for potential performance adjustments in PJM recorded in the three months ended June 30, 2011. Additionally, our gross margin was also impacted by deferring certain revenues related to Global Energy and M2M for which the corresponding cost of revenues was recorded in the three and six months ended June 30, 2011. This decrease was offset in part by the recognition of revenues in connection with the OPA contract and a California demand response program in which we participate, pursuant to which we recognized the cost of such revenues in previous periods.
     We currently expect that our gross margin for the year ending December 31, 2011 will be slightly above our gross margin for the year ended December 31, 2010 of 42.9%, and that our gross margin for the three months ending September 30, 2011 will be the highest gross margin among our four quarterly reporting periods in 2011, consistent with our gross margin pattern in 2010, due to seasonality related to the demand response market. In addition, until the prices in the PJM market improve in 2013, we expect the lower capacity prices that will take effect in the PJM market in 2011 and 2012 to negatively impact our ability to grow our overall gross profits and gross margins in 2011 and 2012 at levels consistent with prior years. Moreover, the discontinuance of the ILR program by PJM beginning in 2012 will reduce the flexibility that we currently have to manage our portfolio of demand response capacity in the PJM market and will negatively impact our future gross profits and gross margins. We also expect a decrease in MW enrolled in the PJM market in 2012 as compared to 2011, which will also negatively impact our gross profits and gross margins in 2012. In addition, in connection with the PJM statement or otherwise, in the event that PJM is successful at modifying the market rules in the future or the attention of our management and other personnel continues to be diverted, our gross profits for 2011 and beyond could be further reduced and our gross margins for the same period could be negatively impacted.
Operating Expenses
     The following table summarizes our operating expenses for the three and six months ended June 30, 2011 and 2010 (dollars in thousands):
                         
    Three Months Ended June 30,     Percentage  
    2011     2010     Change  
Operating Expenses:
                       
Selling and marketing
  $ 13,620     $ 11,531       18.1 %
General and administrative
    15,899       13,152       20.9 %
Research and development
    3,350       2,494       34.3 %
 
                   
Total
  $ 32,869     $ 27,177       20.9 %
 
                   

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    Six Months Ended June 30,     Percentage  
    2011     2010     Change  
Operating Expenses:
                       
Selling and marketing
  $ 25,207     $ 20,645       22.1 %
General and administrative
    32,212       26,901       19.7 %
Research and development
    6,582       4,551       44.6 %
 
                   
Total
  $ 64,001     $ 52,097       22.8 %
 
                   
     In certain forward capacity markets in which we choose to participate, such as PJM, we may enable our C&I customers, meaning we may install our equipment at a C&I customer site to allow for the curtailment of MW from the electric power grid, up to twelve months in advance of enrolling the C&I customer in a particular program. This market feature creates a longer average revenue recognition lag time across our C&I customer portfolio from the point in time when we consider a MW to be under management to when we earn revenues from that MW. Because we incur operational expenses, including salaries and related personnel costs, at the time of enablement, there has been a trend of incurring operating expenses associated with enabling our C&I customers in advance of recognizing the corresponding revenues.
      Selling and Marketing Expenses
                         
    Three Months Ended June 30,     Percentage  
    2011     2010     Change  
Payroll and related costs
  $ 9,417     $ 7,998       17.7 %
Stock-based compensation
    1,255       1,108       13.3 %
Other
    2,948       2,425       21.6 %
 
                   
Total
  $ 13,620     $ 11,531       18.1 %
 
                   
                         
    Six Months Ended June 30,     Percentage  
    2011     2010     Change  
Payroll and related costs
  $ 17,066     $ 13,801       23.7 %
Stock-based compensation
    2,298       2,124       8.2 %
Other
    5,843       4,720       23.8 %
 
                   
Total
  $ 25,207     $ 20,645       22.1 %
 
                   
     The increase in selling and marketing expenses for the three and six months ended June 30, 2011 compared to the same periods in 2010 was primarily due to an increase in payroll and related costs associated with an increase in the number of selling and marketing full-time employees from 174 at June 30, 2010 to 209 at June 30, 2011.
     The increase in payroll and related costs for the three months ended June 30, 2011 compared to the same period in 2010 was also attributable to an increase in sales commissions payable to members of our sales organization of $0.2 million, as well as the timing associated with our hiring new full-time employees during 2011 as compared to 2010. These increases were offset by a slight decrease in salary rates per full-time employee. The increase in payroll and related costs for the six months ended June 30, 2011 compared to the same period in 2010 was also primarily attributable to an increase in sales commissions payable to members of our sales organization of $0.8 million, as well as the timing associated with our hiring new full-time employees during 2011 as compared to 2010 and an increase in salary rates per full-time employee.
     The increase in stock-based compensation for the three and six months ended June 30, 2011 compared to the same periods in 2010 was primarily due to annual stock-based awards granted to certain of our officers and costs related to equity awards granted to certain of our employees, offset in part by significant stock-based awards granted in 2006 that became fully expensed.
     The increase in other selling and marketing expenses for the three months ended June 30, 2011 compared to the same period in 2010 was attributable to us allocating company-wide costs to selling and marketing expenses based on headcount, which

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resulted in an increase in facility costs of $0.9 million due to the expansion of our office space as a result of recent acquisitions and an increase of $0.1 million due to technology and communication costs. This increase was offset in part by a decrease in marketing costs of $0.5 million due to decreases in costs associated with third-party marketing personnel, employee attendance at conferences and seminars, and costs associated with rebranding efforts in 2010. The increase in other selling and marketing expenses for the six months ended June 30, 2011 compared to the same period in 2010 was attributable to us allocating company-wide costs to selling and marketing expenses based on headcount, which resulted in an increase in facility costs of $1.4 million due to the expansion of our office space as a result of recent acquisitions. This increase was also attributable to increases in professional services of $0.1 million, primarily due to increased legal fees. This increase was offset in part by decreases in marketing costs of $0.4 million due to decreases in costs associated with third-party marketing personnel, employee attendance at conferences and seminars, and costs associated with rebranding efforts in 2010.
      General and Administrative Expenses
                         
    Three Months Ended June 30,     Percentage  
    2011     2010     Change  
Payroll and related costs
  $ 8,540     $ 7,109       20.1 %
Stock-based compensation
    2,212       2,352       (6.0 )%
Other
    5,147       3,691       39.4 %
 
                   
Total
  $ 15,899     $ 13,152       20.9 %
 
                   
                         
    Six Months Ended June 30,     Percentage  
    2011     2010     Change  
Payroll and related costs
  $ 18,057     $ 14,104       28.0 %
Stock-based compensation
    4,380       5,515       (20.6 )%
Other
    9,775       7,282       34.2 %
 
                   
Total
  $ 32,212     $ 26,901       19.7 %
 
                   
     The increase in general and administrative expenses for the three and six months ended June 30, 2011 compared to the same periods in 2010 was primarily due to an increase in payroll and related costs due to an increase in executive compensation and severance. The increase in payroll and related costs for the three and six months ended June 30, 2011 compared to the same periods in 2010 was also attributable to an increase in full-time employees from 232 at June 30, 2010 to 278 at June 30, 2011.
     The decrease in stock-based compensation for the three and six months ended June 30, 2011 compared to the same periods in 2010 was primarily due to a fully-vested stock award granted to an executive in the six months ended June 30, 2010 compared with no such award granted in the six months ended June 30, 2011, as well as fully-vested stock awards granted to our board of directors with a lesser grant-date fair value in the six months ended June 30, 2011 than the same amount of stock-based awards granted during the same period in 2010. Additionally, we recognized a reversal of stock-based compensation expense related to the forfeiture of stock-based awards that were granted to our former senior vice president and chief operating officer, who terminated employment with us in February 2011 prior to the vesting of these awards.
     The increase in other general and administrative expenses for the three months ended June 30, 2011 compared to the same period in 2010 was attributable to an increase in professional services fees of $0.9 million primarily due to increased accounting, consulting and legal fees as a result of recent acquisitions, and an increase in technology and communication costs of $0.3 million. Additionally, we allocated company-wide costs to general and administrative expenses based on headcount, which resulted in a $0.3 million increase of facility costs related to increased rent expense due to the expansion of our office space.
     The increase in other general and administrative expenses for the six months ended June 30, 2011 compared to the same period in 2010 was attributable to an increase in professional services fees of $1.1 million primarily due to increased accounting, consulting and legal fees as a result of our acquisitions. The increase was also attributable to miscellaneous expenses, including finance charges and other taxes, of $0.5 million due to the growth of our business. Additionally, the increase was due to technology and communication costs of $0.5 million. We also allocated company-wide costs to general and administrative expenses based on headcount, which resulted in a $0.4 million increase of facility costs related to increased rent expense due to the expansion of our office space.

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      Research and Development Expenses
                         
    Three Months Ended June 30,     Percentage  
    2011     2010     Change  
Payroll and related costs
  $ 1,917     $ 1,582       21.2 %
Stock-based compensation
    318       198       60.6 %
Other
    1,115       714       56.2 %
 
                   
Total
  $ 3,350     $ 2,494       34.3 %
 
                   
                         
    Six Months Ended June 30,     Percentage  
    2011     2010     Change  
Payroll and related costs
  $ 3,672     $ 2,773       32.4 %
Stock-based compensation
    589       365       61.4 %
Other
    2,321       1,413       64.3 %
 
                   
Total
  $ 6,582     $ 4,551       44.6 %
 
                   
     The increase in research and development expenses for the three and six months ended June 30, 2011 compared to the same periods in 2010 was primarily driven by the costs associated with an increase in the number of research and development full-time employees from 56 at June 30, 2010 to 67 at June 30, 2011, as well as an increase in salary rates per full-time employee. The increase in research and development expenses for the three and six months ended June 30, 2011 compared to the same periods in 2010 was also attributable to lower capitalized internal payroll and related costs of $0.2 million and $0.4 million, respectively.
     The increase in stock-based compensation for the three and six months ended June 30, 2011 compared to the same periods in 2010 was primarily due to stock-based awards granted to certain employees in connection with our acquisition of SmallFoot LLC, or Smallfoot, and ZOX, LLC, or Zox, in March 2010, as well as costs related to equity awards granted to certain of our employees.
     The increase in other research and development expenses for the three months ended June 30, 2011 compared to the same period in 2010 was primarily related to a $0.3 million increase in technology and communications related to software licenses and fees used in the development of our energy management applications and $0.1 million related to professional services fees for consulting services associated with the development of our energy management applications. The increase in other research and development expenses for the six months ended June 30, 2011 compared to the same period in 2010 was primarily related to a $0.5 million increase in technology and communications related to software licenses and fees used in the development of our energy management applications and $0.3 million related to professional services fees for consulting services associated with the development of our energy management applications. We also allocated company-wide costs to research and development expenses based on headcount, which resulted in a $0.1 million increase of facility costs related to increased rent expense due to the expansion of our office space.
Other Expense, Net
     Other expense, net for the three and six months ended June 30, 2011 and the three and six months ended June 30, 2010 was primarily comprised of a nominal amount of interest income offset by a nominal amount of foreign currency losses related to certain receivables denominated in foreign currencies.
Interest Expense
     Interest expense for the three and six months ended June 30, 2011 includes interest on our outstanding capital leases and letters of credit origination fees. The decrease in interest expense for the three and six months ended June 30, 2011 compared to the same periods in 2010 was due to lower fees incurred in connection with outstanding letters of credit.

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Income Taxes
     The tax provision recorded for the three and six months ended June 30, 2011 was $0.1 million and $0.8 million, respectively, and represented the following:
    estimated foreign taxes resulting from guaranteed profit allocable to our foreign subsidiaries, which have been determined to be limited-risk service providers acting on behalf of the U.S. parent for tax purposes, for which there are no tax net operating loss carryforwards; and
 
    amortization of tax deductible goodwill, which generates a deferred tax liability that cannot be offset by net operating losses or other deferred tax assets since its reversal is considered indefinite in nature.
     In accordance with ASC 740, Income Taxes, or ASC 740, each interim period is considered an integral part of the annual period and tax expense is measured using an estimated annual effective tax rate. An enterprise is required, at the end of each interim reporting period, to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. Generally, if an enterprise has an ordinary loss for the year to date at the end of an interim period and anticipates ordinary income for the fiscal year, the enterprise will record an interim period tax benefit based on applying the estimated annual effective tax rate to the ordinary loss as long as the tax benefits are realized during the year or recognizable as a deferred tax asset as of the end of the year. However, if an enterprise is unable to make a reliable estimate of its annual effective tax rate, then actual effective tax rate for the year-to-date may be the best estimate of the annual effective tax rate. We have determined that we are currently unable to make a reliable estimate of our annual effective tax rate as of June 30, 2011 due to unusual sensitivity to the rate as it relates to the current forecasted U.S. ordinary income for the fiscal year ending December 31, 2011, or fiscal 2011. As a result, we recorded a tax provision for the three and six months ended June 30, 2011 based on our actual effective tax rate for the six months ended June 30, 2011.
     If we are able to make a reliable estimate of our annual effective tax rate as of September 30, 2011 and if we are still anticipating U.S. ordinary income for fiscal 2011, then as required by ASC 740, we will utilize that rate to provide for income taxes on a current year-to-date basis, which could result in a significant provision from income taxes being recorded during the three months ending September 30, 2011, which would be predominantly offset by a significant benefit recorded during the three months ending December 31, 2011. If we continue to be unable to make a reliable estimate of our annual effective tax rate as of September 30, 2011, we expect to follow a consistent methodology as applied for the three and six months ended June 30, 2011.
     We reviewed all available evidence to evaluate the recovery of deferred tax assets, including the recent history of accumulated losses in all tax jurisdictions over the last three years, as well as our ability to generate income in future periods. As of June 30, 2011, due to the uncertainty related to the ultimate use of our deferred income tax assets, we have provided a full valuation allowance on all of our U.S. deferred tax assets.
     For the three months ended June 30, 2010, we recorded a provision for income taxes of $0.3 million. For the six months ended June 30, 2010, we recorded a benefit from income taxes of $0.9 million.
Liquidity and Capital Resources
      Overview
     Since inception, we have generated significant cumulative losses. As of June 30, 2011, we had an accumulated deficit of $100.0 million. As of June 30, 2011, our principal sources of liquidity were cash and cash equivalents totalling $79.2 million, a decrease of $74.2 million from the December 31, 2010 balance of $153.4 million. As of June 30, 2011, we were contingently liable for $43.5 million in connection with outstanding letters of credit under the 2011 credit facility. As of June 30, 2011 and December 31, 2010, we had restricted cash balances of $0.1 million and $1.5 million, respectively, which relate to amounts to collateralize unused outstanding letters of credit and cover financial assurance requirements in certain of the programs in which we participate and certain other commitments. At June 30, 2011 and December 31, 2010, our excess cash was primarily invested in money market funds.
     We believe our existing cash and cash equivalents at June 30, 2011, amounts available under the 2011 credit facility and our anticipated net cash flows from operating activities will be sufficient to meet our anticipated cash needs, including investing activities, for at least the next 12 months. Our future working capital requirements will depend on many factors, including, without limitation, the rate at which we sell certain of our energy management applications and services to electric power grid operators and utilities and the increasing rate at which letters of credit or security deposits are required by those electric power grid operators and utilities, the introduction and market acceptance of

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new energy management applications and services, the expansion of our sales and marketing and research and development activities, and the geographic expansion of our business operations. To the extent that our cash and cash equivalents, amounts available under the 2011 credit facility and our anticipated cash flows from operating activities are insufficient to fund our future activities or planned future acquisitions, we may be required to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses, technologies or products. In addition, we may elect to raise additional funds even before we need them if the conditions for raising capital are favorable. Accordingly, we have filed a shelf registration statement with the SEC to register shares of our common stock and other securities for sale, giving us the opportunity to raise funding when needed or otherwise considered appropriate at prices and on terms to be determined at the time of any such offerings. We currently have the ability to sell approximately $62.1 million of our securities under the shelf registration statement. Any equity or equity-linked financing could be dilutive to existing stockholders. In the event we require additional cash resources, we may not be able to obtain bank credit arrangements or effect any equity or debt financing on terms acceptable to us or at all.
      Cash Flows
     The following table summarizes our cash flows for the six months ended June 30, 2011 and 2010 (dollars in thousands):
                 
    Six Months Ended June 30,  
    2011     2010  
Cash flows provided by operating activities
  $ 8,052     $ 10,976  
Cash flows used in investing activities
    (83,887 )     (14,647 )
Cash flows provided by financing activities
    1,717       2,455  
Effects of exchange rate changes on cash
    (62 )     (12 )
 
           
Net change in cash and cash equivalents
  $ (74,180 )   $ (1,228 )
 
           
      Cash Flows Provided by Operating Activities
     Cash provided by operating activities primarily consists of net loss adjusted for certain non-cash items including depreciation and amortization, stock-based compensation expenses, and the effect of changes in working capital and other activities.
     Cash provided by operating activities for the six months ended June 30, 2011 was $8.1 million and consisted of $21.7 million of net cash provided by working capital and other activities and $18.6 million of non-cash expense items, primarily consisting of depreciation and amortization, deferred taxes, stock-based compensation charges and impairment charges of property and equipment, offset by a net loss of $32.2 million.
     Cash provided by working capital and other activities consisted of a decrease of $56.1 million in unbilled revenues relating to the PJM demand response market, a decrease of $0.1 million in inventory, an increase of $3.9 million in deferred revenue and an increase of $1.1 million in accrued payroll and related expenses. These amounts were offset by cash used in working capital and other activities consisting of an increase of $8.8 million in accounts receivable due to the timing of cash receipts under the programs in which we participate, an increase in prepaid expenses and other assets of $5.3 million, a decrease of accrued capacity payments of $23.3 million, the majority of which was related to the PJM demand response market, and a decrease of $2.1 million in accounts payable and accrued expenses and other current liabilities due to the timing of payments.
     Cash provided by operating activities for the six months ended June 30, 2010 was $11.0 million and consisted of a net loss of $13.1 million offset by $8.2 million of net cash provided by working capital and other activities and $15.9 million of non-cash items, primarily consisting of depreciation and amortization, deferred taxes, stock-based compensation charges and impairment of property and equipment. Cash provided by working capital and other activities consisted of a decrease of $10.6 million in unbilled revenues relating to the PJM demand response market, a $2.9 million increase in deferred revenue, an increase in other non-current liabilities of $1.2 million, an increase of $4.7 million in accounts payable and accrued expenses due to the timing of C&I customer payments, and an increase of $0.3 million in accrued payroll and related expenses. These amounts were partially offset by cash used in working capital and other activities, which reflected an increase in prepaid expenses and other assets of $5.1 million, an increase in accounts receivable of $6.1 million due to the timing of cash receipts under the demand response programs in which we participate and a $0.3 million decrease in accrued capacity payments, the majority of which was related to the PJM demand response market.

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      Cash Flows Used in Investing Activities
     Cash used in investing activities was $83.9 million for the six months ended June 30, 2011. During the six months ended June 30, 2011, we acquired Global Energy for a purchase price of $26.7 million, of which $19.9 million was paid in cash, and M2M Communications Corporation, or M2M, for a purchase price of $29.9 million, of which $17.6 million was paid in cash. During the six months ended June 30, 2011, we also completed an immaterial acquisition for a purchase price of $5.2 million, of which $3.9 million was paid in cash. Additionally, our cash investments included the cash portion of the acquisition contingent consideration for Cogent Energy, Inc., or Cogent, of $1.5 million. During the six months ended June 30, 2011, a portion of our cash totaling $28.1 million was transferred to a third party agent at the end of June 2011 in anticipation of the potential acquisition of Energy Response. On July 1, 2011, we completed the Energy Response acquisition for $27.3 million and the excess cash held by the third party was returned to us in July 2011. Our principal cash investments during the six months ended June 30, 2011 related to capitalizing internal use software costs used to build out and expand our energy management applications and services and purchases of property and equipment. During the six months ended June 30, 2011, we also incurred $12.1 million in capital expenditures primarily related to the purchase of office equipment and demand response equipment and other miscellaneous expenditures.
     Cash used in investing activities was $14.6 million for the six months ended June 30, 2010. Our principal cash investments during the six months ended June 30, 2010 related to capitalizing internal use software costs used to build out and expand our demand response and other energy management applications and services and purchases of property and equipment. During the six months ended June 30, 2010, we acquired Smallfoot and Zox for a purchase price of $1.4 million, of which $1.1 million was paid in cash. Additionally, our cash investments included the cash portion of the earn-out payment due in connection with our acquisition of South River Consulting, LLC, or SRC, of $0.9 million. We had an increase in restricted cash and deposits resulting in a reduction of cash of $0.6 million primarily as a result of our cash deposits made in connection with demand response programs in which we participate. During the six months ended June 30, 2010, we also incurred $12.0 million in capital expenditures primarily related to the purchase of office equipment and demand response equipment and other miscellaneous expenditures.
      Cash Flows Provided by Financing Activities
     Cash provided by financing activities was $1.7 million and $2.5 million for the six months ended June 30, 2011 and 2010, respectively, and consisted primarily of proceeds that we received from exercises of options to purchase shares of our common stock during the six months ended June 30, 2011 and 2010.
      Credit Facility Borrowings
     In April 2011, we and one of our subsidiaries entered into the 2011 credit facility. Subject to continued covenant compliance, the 2011 credit facility provides for a two-year revolving line of credit in the aggregate amount of $75.0 million, the full amount of which may be available for issuances of letters of credit and up to $5.0 million of which may be available for swing line loans. The revolving line of credit is subject to increase from time to time up to an aggregate amount of $100.0 million with additional commitments from the lenders or new commitments from financial institutions acceptable to SVB. The interest on revolving loans under the 2011 credit facility will accrue, at our election, at either (i) the Eurodollar Rate with respect to the relevant interest period plus 2.00% or (ii) the ABR (defined as the highest of (x) the “prime rate” as quoted in the Wall Street Journal , (y) the Federal Funds Effective Rate plus 0.50% and (z) the Eurodollar Rate for a one-month interest period plus 1.00%) plus 1.00%. In connection with the issuance or renewal of letters of credit for our account, we are charged a letter of credit fee of 2.125% pursuant to the 2011 credit facility. We expense the interest and letter of credit fees, as applicable, in the period incurred. The 2011 credit facility terminates and all amounts outstanding thereunder are due and payable in full on April 15, 2013. As of June 30, 2011, we were not in compliance with one covenant under the 2011 credit facility as a result of the transfer of cash to fund the acquisition of Energy Response and obtained a waiver of this covenant default from SVB. At June 30, 2011, we had no borrowings and letters of credit totaling $43.5 million outstanding under the 2011 credit facility.
     The 2011 credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on the ability of us and our subsidiaries to incur additional indebtedness, create liens, enter into transactions with affiliates, transfer assets, pay dividends or make distributions on, or repurchase our common stock, consolidate or merge with other entities, or suffer a change in control. In addition, we are required to meet certain financial covenants customary with this type of credit facility, including maintaining a minimum specified tangible net worth and a minimum specified ratio of current assets to current liabilities.
     The 2011 credit facility contains customary events of default, including for payment defaults, breaches of representations, breaches of affirmative or negative covenants, cross defaults to other material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs and is not cured within any applicable cure period or is not waived, the lenders may accelerate our obligations under the 2011 credit facility. The 2011 credit facility replaces the 2008 credit facility, which was in place as of March 31, 2011.
     On April 15, 2011, we and one of our subsidiaries entered into a guarantee and collateral agreement with SVB for the benefit of the lenders under the 2011 credit facility. The guarantee and collateral agreement provides that the obligations under the 2011 credit facility are secured by all domestic assets of us and several of our subsidiaries, excluding our foreign subsidiaries.

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     We incurred financing costs of $0.5 million in connection with the 2011 credit facility, which were deferred and are being amortized to interest expense over the life of the 2011 credit facility, which matures on April 15, 2013.
     In April 2011, we were required to provide financial assurance in connection with our capacity bid in a certain open market bidding program. We provided this financial assurance utilizing approximately $56.0 million of our available cash on hand and a $39.0 million letter of credit issued under the 2011 credit facility. In May 2011, based on the capacity that we cleared in this open market bidding program and the required post-auction financial assurance requirements, we recovered all the $56.0 million of our available cash that we had provided as financial assurance prior to the auction and were able to reduce the $39.0 million letter of credit to $13.5 million.
     In June 2011, we and one of our subsidiaries entered into an amendment to the 2011 credit facility, which modified certain of our covenant requirements.
Contingent Earn-Out Payments
     In connection with our acquisition of Cogent, we agreed to make a single contingent earn-out payment of $1.5 million in cash, to be paid based on the achievement of a certain minimum revenue-based milestone and a certain earnings-based milestone of Cogent for the year ended December 31, 2010. Both of these milestones needed to be achieved in order for the earn-out payment to occur, and there would be no partial payment if the milestones were not fully achieved. As we believed that it was remote that the earn-out payment would not be made, we determined the fair value of the earn-out payment based on the present value of the $1.5 million and recorded this in connection with our purchase accounting for the acquisition of Cogent. The milestones were achieved and we paid the earn-out payment in January 2011.
Capital Spending
     We have made capital expenditures primarily for general corporate purposes to support our growth and for equipment installation related to our business. Our capital expenditures totaled $12.1 million and $12.0 million during the six months ended June 30, 2011 and 2010, respectively. As we continue to grow, we expect our capital expenditures for 2011 to increase as compared to 2010.
Contractual Obligations
     As of June 30, 2011, the contractual obligations disclosure contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which we filed with the SEC on March 1, 2011, has not materially changed.
Off-Balance Sheet Arrangements
     As of June 30, 2011, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. We have issued letters of credit in the ordinary course of our business in order to participate in certain demand response programs. As of June 30, 2011, we had outstanding letters of credit totaling $43.5 million. For information on these commitments and contingent obligations, see “Liquidity and Capital Resources — Credit Facility Borrowings” above and Note 8 to our unaudited condensed consolidated financial statements contained herein.
Critical Accounting Policies and Use of Estimates
     The discussion and analysis of our financial condition and results of operations are based upon our interim unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition for multiple element arrangements, allowance for doubtful accounts, valuations and purchase price allocations related to business combinations, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets and goodwill, estimated fair values of intangible assets and goodwill, amortization methods and periods, certain accrued expenses and other related charges, stock-based compensation, contingent liabilities, tax reserves and recoverability of our net deferred tax assets and related valuation allowance. We

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base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates if past experience or other assumptions do not turn out to be substantially accurate. Any differences may have a material impact on our financial condition and results of operations.
     The critical accounting estimates used in the preparation of our financial statements that we believe affect our more significant judgments and estimates used in the preparation of our interim condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010, which we filed with the SEC on March 1, 2011. Except as disclosed herein, there have been no material changes to our critical accounting policies or estimates during the three and six months ended June 30, 2011.
Revenue Recognition
     We recognize revenues in accordance with ASC 605, Revenue Recognition . In all of our arrangements, we do not recognize any revenues until we can determine that persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and we deem collection to be reasonably assured. In making these judgments, we evaluate these criteria as follows:
    Evidence of an arrangement. We consider a definitive agreement signed by the customer and us or an arrangement enforceable under the rules of an open market bidding program to be representative of persuasive evidence of an arrangement.
 
    Delivery has occurred. We consider delivery to have occurred when service has been delivered to the customer and no post-delivery obligations exist. In instances where customer acceptance is required, delivery is deemed to have occurred when customer acceptance has been achieved.
 
    Fees are fixed or determinable. We consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within normal payment terms. If the fee is subject to refund or adjustment and we cannot reliably estimate this amount, we recognize revenues when the right to a refund or adjustment lapses. If offered payment terms exceed the normal terms, we recognize revenues as the amounts become due and payable or upon the receipt of cash.
 
    Collection is reasonably assured. We conduct a credit review at the inception of an arrangement to determine the creditworthiness of the customer. Collection is reasonably assured if, based upon evaluation, we expect that the customer will be able to pay amounts under the arrangement as payments become due. If we determine that collection is not reasonably assured, revenues are deferred and recognized upon the receipt of cash.
     We enter into utility contracts and open market bidding programs to provide demand response applications and services. Demand response revenues consist of two elements: revenue earned based on our ability to deliver committed capacity to our electric power grid operator and utility customers, which we refer to as capacity revenue; and revenue earned based on additional payments made to us for the amount of energy usage actually curtailed from the grid during a demand response event, which we refer to as energy event revenue.
     We recognize demand response revenue when we have provided verification to the electric power grid operator or utility of our ability to deliver the committed capacity which entitles us to payments under the utility contract or open market program. Committed capacity is generally verified through the results of an actual demand response event or a measurement and verification test. Once the capacity amount has been verified, the revenue is recognized and future revenue becomes fixed or determinable and is recognized monthly until the next demand response event or test. In subsequent verification events, if our verified capacity is below the previously verified amount, the electric power grid operator or utility customer will reduce future payments based on the adjusted verified capacity amounts. Ongoing demand response revenue recognized between demand response events or tests that are not subject to penalty or customer refund are recognized in revenue. If the revenue is subject to refund and the amount of refund cannot be reliably estimated, the revenue is deferred until the right of refund lapses.
     With respect to one of the open market programs in which we participate, performance is measured based on the aggregate performance during the months of June through September. June is the commencement of the program year. As a result, fees received for the month of June could potentially be subject to adjustment or refund based on performance during the months of July through September. We have concluded that we can reliably estimate the amount of fees potentially subject to adjustment or refund and record a reserve for this amount in the month of June. As of June 30, 2011, we recorded an estimated reserve of $9.3 million related to potential subsequent performance adjustments. The fees under this program are fixed as of September 30 and we will record any change in estimate based on final performance during the three months ending September 30, 2011. Historically, the changes in estimate have not been material.

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     As a result of a contractual amendment entered into during the three months ended March 31, 2011 to amend certain refund provisions included in one of our utility contracts, we concluded that we could reliably estimate the fees potentially subject to refund as of March 31, 2011 and therefore, the fees under this arrangement were fixed or determinable. As a result, during the three months ended March 31, 2011, we recognized as revenues $3.0 million of fees that had been previously deferred as of December 31, 2010.
     Certain of the forward capacity programs in which we participate may be deemed derivative contracts under ASC 815, Derivatives and Hedging (ASC 815). In such situations, we believe we meet the scope exception under ASC 815 as a normal purchase, normal sale as that term is defined in ASC 815 and, accordingly, the arrangement is not treated as a derivative contract.
     Energy event revenues are recognized when earned. Energy event revenue is deemed to be substantive and represents the culmination of a separate earnings process and is recognized when the energy event is initiated by the electric power grid operator or utility customer and we have responded under the terms of the utility contract or open market program.
     Under certain of our arrangements, in particular those arrangements entered into by M2M, we sell equipment to the C&I customer that is utilized to provide the ongoing services that we deliver. Currently, this equipment has been determined to not have stand-alone value. As a result, we defer the fees associated with the equipment and, once the C&I customer is receiving the ongoing services from us, recognizes those fees ratably over the expected C&I customer relationship period, which is generally three years. In addition, we capitalize the direct and incremental costs, which primarily represent the equipment and third-party installation costs, and recognize such costs over the expected C&I customer relationship period.
     In September 2009, the Financial Accounting Standards Board, or FASB, ratified ASC Update No. 2009-13, Multiple-Deliverable Revenue Arrangements , or ASU 2009-13. ASU 2009-13 amends existing revenue recognition accounting pronouncements that are currently within the scope of ASC Subtopic 605-25, which is the revenue recognition guidance for multiple-element arrangements. ASU 2009-13 provides for three significant changes to the existing multiple element revenue recognition guidance as follows:
    deletes the requirement to have objective and reliable evidence of fair value for undelivered elements in an arrangement. This may result in more deliverables being treated as separate units of accounting;
 
    modifies the manner in which the arrangement consideration is allocated to the separately identified deliverables. ASU 2009-13 requires an entity to allocate revenue in an arrangement using its best estimate of selling prices, or ESP, of deliverables if a vendor does not have vendor-specific objective evidence of selling price, or VSOE, or third-party evidence of selling price, or TPE, if VSOE is not available. Each separate unit of accounting must have a selling price, which can be based on management’s estimate when there is no other means (VSOE or TPE) to determine the selling price of that deliverable. The arrangement consideration is allocated based on the elements’ relative selling prices; and
 
    eliminates use of the residual method and requires an entity to allocate revenue using the relative selling price method, which results in the discount in the transaction being evenly allocated to the separate units of accounting.
     As required, we adopted ASU 2009-13 at the beginning of our first quarter of fiscal 2011 on a prospective basis for transactions originating or materially modified on or after January 1, 2011. ASU 2009-13 generally does not change the units of accounting for our revenue transactions. The impact of adopting ASU 2009-13 was not material to our financial statements during the six months ended June 30, 2011, and if they were applied in the same manner to fiscal 2010 would not have had a material impact to revenue for the six months ended June 30, 2010. We do not expect the adoption of ASU 2009-13 to have a significant impact on the timing and pattern of revenue recognition in the future due to the limited number of multiple element arrangements. The key impact that we expect the adoption of ASU 2009-13 to have relates to certain EfficiencySMART service arrangements with C&I customers who also provide curtailment of capacity as part of our demand response arrangements. Historically, we had recorded the fees recognized under these arrangements as a reduction of cost of revenues as evidence of fair value did not exist for persistent commissioning services due to limited history of selling separately and no available TPE. As previously stated, the impact of ASU 2009-13 has not been and is not expected to be material.
     We typically determine the selling price of its services based on VSOE. Consistent with our methodology under previous accounting guidance, we determine VSOE based on our normal pricing and discounting practices for the specific service when sold on a stand-alone basis. In determining VSOE, our policy is to require a substantial majority of selling prices for a product or service to be within a reasonably narrow range. We also consider the class of customer, method of distribution, and the geographies into which our products and services are sold into when determining VSOE. We typically have had VSOE for our products and services.

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     In certain circumstances, we are not able to establish VSOE for all deliverables in a multiple element arrangement. This may be due to the infrequent occurrence of stand-alone sales for an element, a limited sales history for new services or pricing within a broader range than permissible by our policy to establish VSOE. In those circumstances, we proceed to the alternative levels in the hierarchy of determining selling price. TPE of selling price is established by evaluating largely similar and interchangeable competitor products or services in stand-alone sales to similarly situated customers. We are typically not able to determine TPE and we have not used this measure since we are unable to reliably verify stand-alone prices of competitive solutions. ESP is established in those instances where neither VSOE nor TPE are available, considering internal factors such as margin objectives, pricing practices and controls, customer segment pricing strategies and the product life cycle. Consideration is also given to market conditions such as competitor pricing strategies information gathered from experience in customer negotiations, market research and information, recent technological trends, competitive landscape and geographies. Use of ESP is limited to a very small portion of our services, principally certain EfficiencySMART services.
Recent Accounting Pronouncements
Business Combinations
     In December 2010, the FASB issued Accounting Standards Update No. 2010-29, Business Combinations — Disclosure of Supplementary Pro Forma Information for Business Combinations , or ASU 2010-29. ASU 2010-29 requires a public entity to disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the prior year. It also requires a description of the nature and amount of material, nonrecurring adjustments directly attributable to the business combination included in the reported revenue and earnings. The new disclosure was effective for our first quarter of fiscal 2011. The adoption of ASU 2010-29 will require additional disclosure in the event of a business combination but will not have a material impact on our financial condition and results of operations during the three and six months ended June 30, 2011. As a result of the acquisition of Energy Response in July 2011, we will be required to meet certain disclosure requirements and provide pro-forma financial information.
Intangibles — Goodwill and Other
     In December 2010, the FASB issued ASU 2010-28, Intangibles- Goodwill and Other , or ASU 2010-28. ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is effective for fiscal years that begin after December 15, 2010, which is fiscal 2011 for us. The adoption of this standard did not have a material impact on our results from operations and financial condition.
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS
     In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS , which amends its accounting guidance related to fair value measurements in order to more closely align its disclosure requirements with those in International Financial Reporting Standards. This guidance clarifies the application of existing fair value measurement and disclosure requirements and also changes certain principles or requirements for measuring fair value or for disclosing information about fair value measurements. The guidance is effective for interim and annual periods beginning after December 15, 2011. The adoption of this guidance is not expected to have a material effect on our financial position or results of operations.
Presentation of Comprehensive Income
     In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which represents new accounting guidance related to the presentation of other comprehensive income, or OCI. This guidance eliminates the option to present components of OCI as part of the statement of changes in shareholders’ equity, which is the option that we currently use to present OCI. The guidance allows for a one-statement or two-statement approach, outlined as follows:
    One-statement approach: Present the components of net income and total net income, the components of OCI and a total for OCI, along with the total of comprehensive income in a single continuous statement.

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    Two-statement approach: Present the components of net income and total net income in the statement of net income. A statement of OCI would immediately follow the statement of net income and include the components of OCI and a total for OCI, along with the total of comprehensive income.
     The guidance also requires an entity to present on the face of the financial statements any reclassification adjustments for items that are reclassified from OCI to net income. The guidance is effective for interim and annual periods beginning after December 15, 2011. The adoption of this guidance will not have an effect on our financial position or results of operations, but will only impact how certain information related to OCI is presented in our consolidated financial statements.
Additional Information
Non-GAAP Financial Measures
     To supplement our consolidated financial statements presented on a GAAP basis, we disclose certain non-GAAP measures that exclude certain amounts, including non-GAAP net income (loss), non-GAAP net income (loss) per share, adjusted EBITDA and free cash flow. These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States.
     The GAAP measure most comparable to non-GAAP net income (loss) is GAAP net income (loss); the GAAP measure most comparable to non-GAAP net income (loss) per share is GAAP net income (loss) per share; the GAAP measure most comparable to adjusted EBITDA is GAAP net income (loss); and the GAAP measure most comparable to free cash flow is cash flows from operating activities. Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP measure are included below.
Use and Economic Substance of Non-GAAP Financial Measures Used by EnerNOC
     Management uses these non-GAAP measures when evaluating our operating performance and for internal planning and forecasting purposes. Management believes that such measures help indicate underlying trends in our business, are important in comparing current results with prior period results, and are useful to investors and financial analysts in assessing our operating performance. For example, management considers non-GAAP net income (loss) to be an important indicator of the overall performance because it eliminates the effects of events that are either not part of our core operations or are non-cash compensation expenses. In addition, management considers adjusted EBITDA to be an important indicator of our operational strength and performance of our business and a good measure of our historical operating trend. Moreover, management considers free cash flow to be an indicator of our operating trend and performance of our business.
     The following is an explanation of the non-GAAP measures that we utilize, including the adjustments that management excluded as part of the non-GAAP measures for the three and six months ended June 30, 2011 and 2010, respectively, as well as reasons for excluding these individual items:
    Management defines non-GAAP net income (loss) as net income (loss) before expenses related to stock-based compensation and amortization expenses related to acquisition-related intangible assets, net of related tax effects.
 
    Management defines adjusted EBITDA as net income (loss), excluding depreciation, amortization, stock-based compensation, interest, income taxes and other income (expense). Adjusted EBITDA eliminates items that are either not part of our core operations or do not require a cash outlay, such as stock-based compensation. Adjusted EBITDA also excludes depreciation and amortization expense, which is based on our estimate of the useful life of tangible and intangible assets. These estimates could vary from actual performance of the asset, are based on historic cost incurred to build out our deployed network and may not be indicative of current or future capital expenditures.
 
    Management defines free cash flow as net cash provided by (used in) operating activities less capital expenditures. Management defines capital expenditures as purchases of property and equipment, which includes capitalization of internal-use software development costs.
Material Limitations Associated with the Use of Non-GAAP Financial Measures
     Non-GAAP net income (loss), non-GAAP net income (loss) per share, adjusted EBITDA and free cash flow may have limitations as analytical tools. The non-GAAP financial information presented here should be considered in conjunction with, and not as a substitute for or superior to, the financial information presented in accordance with GAAP and should not be considered measures of our liquidity. There are significant limitations associated with the use of non-GAAP financial measures. Further, these measures may differ from the non-GAAP information, even where similarly titled, used by other companies and therefore should not be used to compare our performance to that of other companies.

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Non-GAAP Net Loss and Non-GAAP Net Loss per Share
     Net loss for the three months ended June 30, 2011 was $13.0 million, or $0.51 per basic and diluted share, compared to a net income of $1.1 million, or $0.04 per basic and diluted share, for the three months ended June 30, 2010. Net loss for the six months ended June 30, 2011 was $32.2 million, or $1.27 per basic and diluted share, compared to a net loss of $13.1 million, or $0.54 per basic and diluted share, for the six months ended June 30, 2010. Excluding stock-based compensation charges and amortization of expenses related to acquisition-related assets, net of tax effects, non-GAAP net loss for the three months ended June 30, 2011 was $7.8 million, or $0.31 per basic and diluted share, compared to a non-GAAP net income of $4.3 million, or $0.18 per basic share and $0.17 per diluted share, for the three months ended June 30, 2010. Excluding stock-based compensation charges and amortization of expenses related to acquisition-related assets, net of tax effects, non-GAAP net loss for the six months ended June 30, 2011 was $22.5 million, or $0.88 per basic and diluted share, compared to a non-GAAP net loss of $4.9 million, or $0.20 per basic and diluted share, for the six months ended June 30, 2010. The reconciliation of non-GAAP net loss to GAAP net loss is set forth below:
                 
    Three Months Ended June 30,  
    2011     2010  
    (In thousands, except share and per share data)  
GAAP net (loss) income
  $ (12,973 )   $ 1,078  
ADD: Stock-based compensation
    3,785       3,658  
ADD: Amortization expense of acquired intangible assets
    1,373       368  
LESS: Income tax effect on Non-GAAP adjustments(1)
          (775 )
 
           
Non-GAAP net (loss) income
  $ (7,815 )   $ 4,329  
 
           
 
               
GAAP net (loss) income per basic share
  $ (0.51 )   $ 0.04  
ADD: Stock-based compensation
    0.15       0.15  
ADD: Amortization expense of acquired intangible assets
    0.05       0.02  
LESS: Income tax effect on Non-GAAP adjustments(1)
          (0.03 )
 
           
Non-GAAP net (loss) income per basic share
  $ (0.31 )   $ 0.18  
 
           
 
               
GAAP net (loss) income per diluted share
  $ (0.51 )   $ 0.04  
ADD: Stock-based compensation
    0.15       0.14  
ADD: Amortization expense of acquired intangible assets
    0.05       0.02  
LESS: Income tax effect on Non-GAAP adjustments(1)
          (0.03 )
 
           
Non-GAAP net (loss) income per diluted share
  $ (0.31 )   $ 0.17  
 
           
 
               
Weighted average number of common shares outstanding
               
Basic
    25,537,483       24,371,125  
Diluted
    25,537,483       25,861,957  

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    Six Months Ended June 30,  
    2011     2010  
    (In thousands, except share and per share data)  
GAAP net loss 
  $ (32,245 )   $ (13,122 )
ADD: Stock-based compensation
    7,267       8,004  
ADD: Amortization expense of acquired intangible assets
    2,525       756  
LESS: Income tax effect on Non-GAAP adjustments(2)
          (568 )
 
           
Non-GAAP net loss 
  $ (22,453 )   $ (4,930 )
 
           
 
               
GAAP net loss per basic share
  $ (1.27 )   $ (0.54 )
ADD: Stock-based compensation
    0.29       0.33  
ADD: Amortization expense of acquired intangible assets
    0.10       0.03  
LESS: Income tax effect on Non-GAAP adjustments(2)
          (0.02 )
 
           
Non-GAAP net loss per basic share
  $ (0.88 )   $ (0.20 )
 
           
 
               
GAAP net loss per diluted share
  $ (1.27 )   $ (0.54 )
ADD: Stock-based compensation
    0.29       0.33  
ADD: Amortization expense of acquired intangible assets
    0.10       0.03  
LESS: Income tax effect on Non-GAAP adjustments(2)
          (0.02 )
 
           
Non-GAAP net loss per diluted share
  $ (0.88 )   $ (0.20 )
 
           
 
               
Weighted average number of common shares outstanding
               
Basic
    25,393,864       24,212,004  
Diluted
    25,393,864       24,212,004  
 
(1)   Represents the increase in the income tax provision recorded for the three months ended June 30, 2010 based on our effective tax rate for the three months ended June 30, 2010. The non-GAAP adjustments would have no impact on the provision for income taxes recorded for the three months ended June 30, 2011.
 
(2)   Represents the reduction in the income tax benefit recorded for the six months ended June 30, 2010 based on the effective tax rate for the six months ended June 30, 2010. The non-GAAP adjustments would have no impact on the provision for income taxes recorded for the six months ended June 30, 2011.
Adjusted EBITDA
     Adjusted EBITDA was negative $3.5 million and positive $9.2 million for the three months ended June 30, 2011 and 2010, respectively. Adjusted EBITDA was negative $13.8 million and positive $1.8 million for the six months ended June 30, 2011 and 2010, respectively.
     The reconciliation of adjusted EBITDA to net (loss) income is set forth below:
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2011     2010     2011     2010  
Net (loss) income
  $ (12,973 )   $ 1,078     $ (32,245 )   $ (13,122 )
Add back:
                               
Depreciation and amortization
    5,187       3,711       9,964       7,330  
Stock-based compensation expense
    3,785       3,658       7,267       8,004  
Other expense
    142       14       14       11  
Interest expense
    238       466       401       491  
Provision for (benefit from) income tax
    101       257       767       (910 )
 
                       
Adjusted EBITDA
  $ (3,520 )   $ 9,184     $ (13,832 )   $ 1,804  
 
                       

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Free Cash Flow
     Cash flow provided by operating activities was $13.7 million and $8.1 million for the three and six months ended June 30, 2011, respectively. Cash flow provided by operating activities was $7.9 million and $11.0 million for the three and six months ended June 30, 2010, respectively. We incurred positive free cash flows of $5.1 million and $1.4 million for the three months ended June 30, 2011 and 2010, respectively. We incurred negative free cash flows of $4.1 million and $1.1 million for the six months ended June 30, 2011 and 2010, respectively. The reconciliation of free cash flow to cash flow from operating activities is set forth below:
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2011     2010     2011     2010  
Net cash provided by operating activities
  $ 13,740     $ 7,854     $ 8,052     $ 10,976  
Subtract:
                               
Purchases of property and equipment
    (8,680 )     (6,443 )     (12,144 )     (12,039 )
 
                       
Free cash flow
  $ 5,060     $ 1,411     $ (4,092 )   $ (1,063 )
 
                       
Item 3. Quantitative and Qualitative Disclosures About Market Risk
     At June 30, 2011, there had not been a material change in the interest rate risk information and foreign exchange risk information disclosed in the “Quantitative and Qualitative Disclosures About Market Risk” subsection of the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which we filed with the SEC on March 1, 2011.
Item 4. Controls and Procedures
Disclosure Controls and Procedures.
     Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting.
     No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
     We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. We do not expect the ultimate costs to resolve these matters to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Item 1A. Risk Factors
     We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I — Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, or our 2010 Form 10-K, which we filed with the SEC on March 1, 2011. During the three months ended June 30, 2011, there were no material changes to the risk factors that were disclosed in Part I — Item 1A under the heading “Risk Factors” in our 2010 Form 10-K, other than as set forth below:

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          The risk factor titled “ We are exposed to potential risks and will continue to incur significant costs as a result of the internal control testing and evaluation process mandated by Section 404 of the Sarbanes-Oxley Act of 2002 ” is deleted in its entirety from the risk factors set forth in our 2010 Form 10-K.
          The following risk factors replace and supersede the corresponding risk factors set forth in our 2010 Form 10-K:
Our future profitability may fluctuate, and we expect to incur net losses in the near term.
          As of June 30, 2011, we had an accumulated deficit of $100.0 million. Although we achieved profitability for the year ended December 31, 2010 with net income of $9.6 million, our net losses for the six months ended June 30, 2011 were $32.2 million, our net losses for the years ended December 31, 2009 and 2008 were $6.8 million and $36.7 million, respectively, and we expect to incur additional operating losses in the near term. Our operating losses have historically been driven by start-up costs, costs of developing our technology, and operating expenses related to increased headcount and the expansion of the number of MW under our management. As we seek to grow our revenues and customer base, we plan to continue to invest in our business and employee base in order to capitalize on emerging opportunities and expand our energy management applications and services, which will require increased operating expenses. We expect these increased operating expenses, as well as other factors, to cause us to incur net losses in the near term, and there can be no assurance that we will be able to grow our revenues at rates that will allow us to maintain profitability in the long term.
A substantial majority of our revenues are and have been generated from contracts with, and open market program sales to, a limited number of electric power grid operator and utility customers, and the modification or termination of these open market programs or sales relationships could materially adversely affect our business.
     During the years ended December 31, 2010, 2009 and 2008, revenues generated from open market sales to PJM, an electric power grid operator customer, accounted for 60%, 52% and 28%, respectively, of our total revenues. During the six months ended June 30, 2011, revenues generated from open market sales to PJM accounted for 35% of our total revenues. The modification or termination of our sales relationship with PJM, or the modification or termination of any of PJM’s open market programs in which we participate, could significantly reduce our future revenues and profit margins and have a material adverse effect on our results of operations and financial condition. For example, beginning in June 2012, PJM will discontinue the ILR program, which is a program in which we have historically been an active participant. The discontinuance of the ILR program by PJM will reduce the flexibility that we currently have to manage our portfolio of demand response capacity in the PJM market and will negatively impact our future revenues and profit margins. In addition, in February 2011, PJM and Monitoring Analytics, LLC, the PJM market monitor, issued the PJM statement. The PJM statement, among other things, asserted that certain market practices in the PJM capacity market were no longer appropriate or acceptable and unilaterally implied that compensation should no longer be determined by actual measured reductions in C&I customers’ electrical load, unless the reductions are below such C&I customers’ peak demand for electricity in the prior year. We filed for and were granted expedited declaratory relief with FERC, which clarified that we may continue to manage our portfolio of demand response capacity in PJM as we have in the past and continue to receive settlement in accordance with the current PJM market rules approved by FERC. However, PJM continues to take steps to modify the market rules according to the PJM statement, including by filing proposed tariff changes with FERC. In the event that PJM is successful at modifying the market rules in the future, our ability to manage our portfolio of demand response capacity in the PJM market would be harmed, which will significantly reduce our future revenues and profit margins and which may have a material adverse effect on our results of operations and financial condition. Furthermore, the attention of our management and other personnel has been, and may continue to be, diverted as we defend our position with respect to the PJM statement, which has had, and may continue to have, a negative impact on our sales efforts in, and revenues and gross profits derived from, the PJM region as well as our other operating regions.
     In addition, revenues generated from two fixed price contracts with, and open market sales to ISO-NE, an electric power grid operator customer, accounted for 18%, 29% and 36%, respectively, of our total revenues for the years ended December 31, 2010, 2009 and 2008. During the six months ended June 30, 2011, revenues generated from open market sales to ISO-NE accounted for 22% of our total revenues. The modification or termination of our sales relationship with ISO-NE, or the modification or termination of any of ISO-NE’s open market programs in which we participate, could significantly reduce our future revenues and profit margins and have a material adverse effect on our results of operations and financial condition.
Varying regulatory structures, program rules and program designs or an oversupply of electric generation capacity in certain regional electric power markets could negatively affect our business and results of operations.
     Unfavorable regulatory decisions in markets where we currently operate could also significantly and negatively affect our business. For example, in connection with the PJM statement, in the event that FERC approves the proposed tariff changes filed by PJM with FERC and modifies the PJM market rules accordingly, or to the extent PJM is otherwise successful at modifying the market rules in the future, our future revenues and profit margins will be significantly reduced and our future results of operations and financial condition will be negatively impacted. Regulators could also modify market rules in certain areas to further limit the use of back-up generators in demand response markets or could implement bidding floors or caps that could lower our revenue opportunities. A limit on back-up generators would mean that some of the demand response capacity reductions we aggregate from C&I customers willing to reduce consumption from the electric power grid by activating their own back-up generators during demand response events would not qualify as capacity, and we would have to find alternative sources of capacity from C&I customers willing to reduce load by curtailing consumption rather than by generating electricity themselves. Market rules could also be modified to change the design of a particular demand response program, which may adversely affect our participation in that program, or a demand response program in which we currently participate could be eliminated in its entirety. Any elimination or change in the design of a demand response program, including any supplemental program, in which we participate, especially in the PJM or ISO-NE markets, could adversely impact our ability to successfully provide our demand response application and services or manage our portfolio of demand response capacity in that program.
     In addition, a buildup of new electric generation facilities or reduced demand for electric capacity could result in excess electric generation capacity in certain regional electric power markets. In addition, the electric power industry is highly regulated. The regulatory structures in regional electricity markets are varied and some regulatory requirements make it more difficult for us to provide some or all of our energy management applications and services in those regions. For instance, in some markets, regulated quantity or payment levels for demand response capacity or energy make it more difficult for us to cost-effectively enroll and manage many C&I customers in demand response programs. Further, some markets have regulatory structures that do not yet include demand response as a qualifying resource for purposes of short-term reserve requirements known as ancillary services. As part of our business strategy, we intend to expand into additional regional electricity markets. However, the combination of excess electric generation capacity and unfavorable regulatory structures could limit the number of regional electricity markets available to us for expansion.

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We may not be able to identify suitable acquisition candidates or complete acquisitions successfully, which may inhibit our rate of growth, and acquisitions that we complete may expose us to a number of unanticipated operational and financial risks.
     In addition to organic growth, we intend to continue to pursue growth through the acquisition of companies or assets that may enable us to enhance our technology and capabilities, expand our geographic market, add experienced management personnel and increase our service offerings. However, we may be unable to implement this growth strategy if we cannot identify suitable acquisition candidates, reach agreement on potential acquisitions on acceptable terms, successfully integrate personnel or assets that we acquire or for other reasons. Our acquisition efforts may involve certain risks, including:
    an acquisition may involve unexpected costs or liabilities, may cause us to fail to meet our previously stated financial guidance, or the effects of purchase accounting may be different from our expectations;
 
    problems may arise with our ability to successfully integrate the acquired businesses, which may result in us not operating as effectively and efficiently as expected, and may include:
    diversion of management time, as well as a shift of focus from operating the businesses to issues related to integration and administration or inadequate management resources available for integration activity and oversight;
 
    failure to retain and motivate key employees;
 
    failure to successfully manage relationships with customers and suppliers;
 
    failure of customers to accept our new energy management applications and services;
 
    failure to effectively coordinate sales and marketing efforts;
    failure to combine service offerings quickly and effectively;
 
    failure to effectively enhance acquired technology, applications and services or develop new applications and services relating to the acquired businesses;
 
    difficulties and inefficiencies in managing and operating businesses in multiple locations or operating businesses in which we have either limited or no direct experience;
 
    difficulties integrating financial reporting systems;
 
    difficulties in the timely filing of required reports with the SEC; and
 
    difficulties in implementing controls, procedures and policies, including disclosure controls and procedures and internal controls over financial reporting, appropriate for a larger public company at companies that, prior to their acquisition, lacked such controls, procedures and policies, which may result in ineffective disclosure controls and procedures or material weaknesses in internal controls over financial reporting;
    we may not be able to achieve the expected synergies from an acquisition, or it may take longer than expected to achieve those synergies;
 
    an acquisition may result in future impairment charges related to diminished fair value of businesses acquired as compared to the price we paid for them;
 
    an acquisition may involve restructuring operations or reductions in workforce, which may result in substantial charges to our operations; and
 
    future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, or contingent liabilities, which could harm our financial condition.
     In January 2011, we acquired Global Energy, M2M and DMT, and in July 2011 we acquired Energy Response. There can be no assurance that we will be able to successfully integrate these companies or any other companies, products or technologies that we acquire.
If we fail to successfully educate existing and potential electric power grid operator and utility customers regarding the benefits of our energy management applications and services or a market otherwise fails to develop for those applications and services, our ability to sell our energy management applications and services and grow our business could be limited.
     Our future success depends on commercial acceptance of our clean and intelligent energy management applications and services and our ability to enter into additional utility contracts and new open market bidding programs. We anticipate that revenues related to our demand response application and services will constitute a substantial majority of our revenues for the foreseeable future. The market for clean and intelligent energy management applications and services in general is relatively new. If we are unable to educate our potential customers about the advantages of our energy management applications and services over competing products and services, or our existing customers no longer rely on our energy management applications and services, our ability to sell our energy management applications and services will be limited. In addition, because the clean and intelligent energy management applications and services sector is rapidly evolving, we cannot accurately assess the size of the market, and we may have limited insight into trends that may emerge and affect our business. For example, we may have difficulty predicting customer needs and developing clean and intelligent energy management applications and services that address those needs. Further, we are subject to the risk that the current global economic and market conditions will result in lower overall demand for electricity in the United States and other markets that we are seeking to penetrate over the next few years. Such a reduction in the demand for electricity could create a corresponding reduction in both supply- and demand-side resources being implemented by electric power grid operators and utilities. If the market for our energy management applications and services does not continue to develop, our ability to grow our business could be limited and we may not be able to operate profitably.

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An increased rate of terminations by our C&I customers, or their failure to renew contracts when they expire, would negatively impact our business by reducing our revenues and requiring us to spend more money to maintain and grow our C&I customer base.
     Our ability to provide demand response capacity under our utility contracts and in open market bidding programs depends on the amount of MW that we manage across C&I customers who enter into contracts with us to reduce electricity consumption on demand. If our existing C&I customers do not renew their contracts as they expire, we will need to acquire MW from additional C&I customers or expand our relationships with existing C&I customers in order to maintain our revenues and grow our business. The loss of revenues resulting from C&I customer contract terminations could be significant, and limiting C&I customer terminations is an important factor in our ability to return to profitability in future periods. If we are unsuccessful in limiting our C&I customer terminations, we may be unable to acquire a sufficient amount of MW or we may incur significant costs to replace MW in our portfolio, which could cause our revenues to decrease and our cost of revenues to increase.
We expect to continue to expand our sales and marketing, operations, and research and development capabilities, as well as our financial and reporting systems, and as a result we may encounter difficulties in managing our growth, which could disrupt our operations.
     We expect to experience growth in the number of our employees and significant growth in the scope of our operations. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational, financial and reporting systems, expand our facilities, and continue to recruit and train additional qualified personnel. All of these measures will require significant expenditures and will demand the attention of management. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and adequately train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
     We compete for personnel and advisors with other companies and other organizations, many of which are larger and have greater name recognition and financial and other resources than we do. If we are not able to hire, train and retain the necessary personnel, or if these managerial, operational, financial and reporting improvements are not implemented successfully, we could lose customers and revenues.
     We allocate our operations, sales and marketing, research and development, general and administrative, and financial resources based on our business plan, which includes assumptions about current and future utility contracts and open market programs with grid operator and utility customers, current and future contracts with C&I customers, variable prices in open market programs for demand response capacity, the development of ancillary services markets which enable demand response as a revenue generating resource and a variety of other factors relating to electricity markets, and the resulting demand for our energy management applications and services. However, these factors are uncertain. If our assumptions regarding these factors prove to be incorrect or if alternatives to those offered by our energy management applications and services gain further acceptance, then actual demand for our energy management applications and services could be significantly less than the demand we anticipate and we may not be able to sustain our revenue growth or return to profitability in future periods.
The 2011 credit facility contains financial and operating restrictions that may limit our access to credit. If we fail to comply with covenants in the 2011 credit facility, we may be required to repay our indebtedness thereunder, which may have an adverse effect on our liquidity.
     Provisions in the 2011 credit facility impose restrictions on our ability to, among other things:
    incur additional indebtedness;
 
    create liens;
 
    enter into transactions with affiliates;

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    transfer assets;
 
    pay dividends or make distributions on, or repurchase, EnerNOC stock; or
 
    merge or consolidate.
     In addition, we are required to meet certain financial covenants customary with this type of credit facility, including maintaining a minimum specified tangible net worth and a minimum specified ratio of current assets to current liabilities. The 2011 credit facility also contains other customary covenants. We may not be able to comply with these covenants in the future. Our failure to comply with these covenants may result in the declaration of an event of default and could cause us to be unable to borrow under the 2011 credit facility. In addition to preventing additional borrowings under the 2011 credit facility, an event of default, if not cured or waived, may result in the acceleration of the maturity of indebtedness outstanding under the 2011 credit facility, which would require us to pay all amounts outstanding. In addition, in the event that we default under the 2011 credit facility while we have letters of credit outstanding, we will be required to post up to 105% of the value of the letters of credit in cash with SVB to collateralize those letters of credit. As of June 30, 2011, we were contingently liable for $43.5 million in connection with outstanding letters of credit under the 2011 credit facility. If an event of default occurs, we may not be able to cure it within any applicable cure period, if at all. If the maturity of our indebtedness is accelerated, we may not have sufficient funds available for repayment or we may not have the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us, or at all.
We expect our quarterly revenues and operating results to fluctuate. If we fail in future periods to meet our publicly announced financial guidance or the expectations of market analysts or investors, the market price of our common stock could decline substantially.
     Our quarterly revenues and operating results have fluctuated in the past and may vary from quarter to quarter in the future. Accordingly, we believe that period-to-period comparisons of our results of operations may be misleading. The results of one quarter should not be used as an indication of future performance. We provide public guidance on our expected results of operations for future periods. This guidance is comprised of forward-looking statements subject to risks and uncertainties, including the risks and uncertainties described in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and in our other public filings and public statements, and is based necessarily on assumptions we make at the time we provide such guidance. Our revenues and operating results may fail to meet our previously stated financial guidance or the expectations of securities analysts or investors in some quarter or quarters. Our failure to meet such expectations or our financial guidance could cause the market price of our common stock to decline substantially.
     Our quarterly revenues and operating results may vary depending on a number of factors, including:
    demand for and acceptance of our clean and intelligent energy management applications and services;
 
    the seasonality of our demand response business in certain of the markets in which we operate, where revenues recognized under certain utility contracts and pursuant to certain open market bidding programs can be higher or concentrated in particular seasons and months;
 
    changes in open market bidding program rules and reductions in pricing for demand response capacity;
 
    delays in the implementation and delivery of our clean and intelligent energy management applications and services, which may impact the timing of our recognition of revenues;
 
    delays or reductions in spending for clean and intelligent energy management applications and services by our electric power grid operator or utility customers and potential customers;
 
    the long lead time associated with securing new customer contracts;
 
    the structure of any forward capacity market in which we participate, which may impact the timing of our recognition of revenues related to that market;

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    the mix of our revenues during any period, particularly on a regional basis, since local fees recognized as revenues for demand response capacity tend to vary according to the level of available capacity in given regions;
 
    the termination or expiration of existing contracts with electric power grid operator and utility customers and C&I customers;
 
    the potential interruptions of our customers’ operations;
 
    development of new relationships and maintenance and enhancement of existing relationships with customers and strategic partners;
 
    temporary capacity programs that could be implemented by electric power grid operators and utilities to address short-term capacity deficiencies;
 
    the imposition of penalties or the reversal of deferred revenue due to our failure to meet a capacity commitment;
 
    flaws in the design or the elimination or modification of any demand response program in which we participate;
 
    global economic and credit market conditions; and
 
    increased expenditures for sales and marketing, software development and other corporate activities.
Our stock price has been and is likely to continue to be volatile and the market price of our common stock may fluctuate substantially.
     Prior to our IPO, there was not a public market for our common stock. There is a limited history on which to gauge the volatility of our stock price; however, since our common stock began trading on The NASDAQ Global Market, or NASDAQ, on May 18, 2007 through December 31, 2010, our stock price has fluctuated from a low of $4.80 to a high of $50.50. Furthermore, the stock market has recently experienced significant volatility. The volatility of stocks for companies in the energy and technology industry often does not relate to the operating performance of the companies represented by the stock. Some of the factors that may cause the market price of our common stock to fluctuate include:
    demand for and acceptance of our clean and intelligent energy management applications and services;
 
    our ability to develop new relationships and maintain and enhance existing relationships with customers and strategic partners;
 
    changes in open market bidding program rules and reductions in pricing for demand response capacity;
 
    the termination or expiration of existing contracts with electric power grid operator and utility customers and C&I customers;
 
    general market conditions and overall fluctuations in equity markets in the United States;
 
    flaws in the design or the elimination or modification of any demand response program in which we participate;
 
    introduction of technological innovations or new energy management applications or services by us or our competitors;

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    actual or anticipated variations in quarterly revenues and operating results;
 
    the financial guidance we may provide to the public, any changes in such guidance or our failure to meet such guidance;
 
    changes in estimates or recommendations by securities analysts that cover our common stock;
 
    delays in the implementation and delivery of our clean and intelligent energy management applications and services, which may impact the timing of our recognition of revenues;
 
    litigation or regulatory enforcement actions;
 
    changes in the regulations affecting our industry in the United States and internationally;
 
    the way in which we recognize revenues and the timing associated with our recognition of revenues;
 
    developments or disputes concerning patents or other proprietary rights;
 
    period-to-period fluctuations in our financial results;
 
    the potential interruptions of our customers’ operations;
 
    the seasonality of our demand response business in certain of the markets in which we operate;
 
    failure to secure adequate capital to fund our operations, or the future sale or issuance of equity securities at prices below fair market price or in general; and
 
    economic and other external factors or other disasters or crises.
     These and other external factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. Our stock price has been particularly volatile recently, we believe due in large part to the PJM statement. Although as of the date of filing of this Annual Report on Form 10-K we have not received notice of any lawsuit brought against us by any of our stockholders, we are aware that several plantiffs’ law firms have announced that they are investigating securities claims against us. While we would vigorously defend any such lawsuit, we could incur substantial costs defending any such lawsuit. Such a lawsuit could also divert the time and attention of our management.

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Item 6. Exhibits.
     
10.1  
Credit Agreement among EnerNOC, Inc., ENOC Securities Corporation, Silicon Valley Bank and T.D. Bank, N.A., dated as of April 15, 2011, as amended by the First Amendment to Credit Agreement, dated as of June 30, 2011.
 
10.2  
Guarantee and Collateral Agreement made by EnerNOC, Inc. and ENOC Securities Corporation in favor of Silicon Valley Bank, dated as of April 15, 2011.
 
31.1  
Certification of Chief Executive Officer of EnerNOC, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
 
31.2  
Certification of Chief Financial Officer of EnerNOC, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
 
32.1  
Certification of the Chief Executive Officer and Chief Financial Officer of EnerNOC, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101 @  
The following materials from EnerNOC, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.
 
@   Users of the XBRL data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  EnerNOC, Inc.
 
 
Date: August 9, 2011  By:   /s/ Timothy G. Healy    
    Timothy G. Healy   
    Chief Executive Officer
(principal executive officer) 
 
 
     
Date: August 9, 2011  By:   /s/ Timothy Weller    
    Timothy Weller   
    Chief Financial Officer and Treasurer
(principal financial officer) 
 
 

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Exhibit Index
     
Number   Exhibit Title
   
 
10.1  
Credit Agreement among EnerNOC, Inc., ENOC Securities Corporation, Silicon Valley Bank and T.D. Bank, N.A., dated as of April 15, 2011, as amended by the First Amendment to Credit Agreement, dated as of June 30, 2011.
 
10.2  
Guarantee and Collateral Agreement made by EnerNOC, Inc. and ENOC Securities Corporation in favor of Silicon Valley Bank, dated as of April 15, 2011.
 
31.1  
Certification of Chief Executive Officer of EnerNOC, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
 
31.2  
Certification of Chief Financial Officer of EnerNOC, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
 
32.1  
Certification of the Chief Executive Officer and Chief Financial Officer of EnerNOC, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101 @  
The following materials from EnerNOC, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.
 
@   Users of the XBRL data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

59

Exhibit 10.1
$75,000,000 SENIOR SECURED CREDIT FACILITY
CREDIT AGREEMENT
AMONG
ENERNOC, INC.,

AND
ENOC SECURITIES CORPORATION
AS BORROWER,
THE SEVERAL LENDERS FROM TIME TO TIME PARTIES HERETO,
AND
SILICON VALLEY BANK,
AS ADMINISTRATIVE AGENT, ISSUING LENDER AND SWINGLINE LENDER
DATED AS OF APRIL 15, 2011

 


 

Table of Contents
         
    Page  
SECTION 1 DEFINITIONS
    1  
1.1 Defined Terms
    1  
1.2 Other Definitional Provisions
    23  
SECTION 2 AMOUNT AND TERMS OF COMMITMENTS
    24  
2.1 Revolving Commitments
    24  
2.2 Procedure for Revolving Loan Borrowing
    24  
2.3 Swingline Commitment
    25  
2.4 Procedure for Swingline Borrowing; Refunding of Swingline Loans
    25  
2.5 Commitment Fees, etc.
    27  
2.6 Termination or Reduction of Commitments
    27  
2.7 Optional Prepayments
    28  
2.8 Conversion and Continuation Options
    28  
2.9 Limitations on Eurodollar Tranches
    28  
2.10 Interest Rates and Payment Dates
    29  
2.11 Computation of Interest and Fees
    29  
2.12 Inability to Determine Interest Rate
    30  
2.13 Pro Rata Treatment and Payments
    30  
2.14 Requirements of Law
    32  
2.15 Taxes
    33  
2.16 Indemnity
    35  
2.17 Change of Lending Office
    36  
2.18 Notes
    36  
2.19 Defaulting Lenders
    36  
2.20 Replacement of Lenders
    38  
2.21 Increase in Commitments
    39  
SECTION 3 LETTERS OF CREDIT
    41  
3.1 L/C Commitment
    41  
3.2 Procedure for Issuance of Letters of Credit
    43  
3.3 Fees and Other Charges
    43  

-i-


 

Table of Contents
(continued)
         
    Page  
3.4 L/C Participations
    44  
3.5 Reimbursement
    44  
3.6 Obligations Absolute
    45  
3.7 Letter of Credit Payments
    45  
3.8 Applications
    46  
3.9 Interim Interest
    46  
3.10 Additional Issuing Lenders
    46  
3.11 Resignation of the Issuing Lender
    46  
SECTION 4 REPRESENTATIONS AND WARRANTIES
    47  
4.1 Financial Condition
    47  
4.2 No Change
    47  
4.3 Existence; Compliance with Law
    47  
4.4 Power, Authorization; Enforceable Obligations
    47  
4.5 No Legal Bar
    48  
4.6 Litigation
    48  
4.7 No Default
    48  
4.8 Ownership of Property; Liens; Investments
    48  
4.9 Intellectual Property
    49  
4.10 Taxes
    49  
4.11 Federal Regulations
    49  
4.12 Labor Matters
    49  
4.13 ERISA
    49  
4.14 Investment Company Act; Other Regulations
    50  
4.15 Subsidiaries
    50  
4.16 Use of Proceeds
    50  
4.17 Environmental Matters
    50  
4.18 Accuracy of Information, etc.
    51  
4.19 Security Documents
    52  
4.20 Solvency
    52  
4.21 Regulation H
    52  

-ii-


 

Table of Contents
(continued)
         
    Page  
4.22 Designated Senior Indebtedness
    52  
4.23 Insurance
    53  
4.24 No Casualty
    53  
SECTION 5 CONDITIONS PRECEDENT
    53  
5.1 Conditions to Effectiveness
    53  
5.2 Conditions to Each Extension of Credit
    55  
SECTION 6 AFFIRMATIVE COVENANTS
    56  
6.1 Financial Statements
    56  
6.2 Certificates; Other Information
    57  
6.3 Payment of Obligations
    58  
6.4 Maintenance of Existence; Compliance
    58  
6.5 Maintenance of Property; Insurance
    58  
6.6 Books and Records
    59  
6.7 Notices
    59  
6.8 Environmental Laws
    59  
6.9 Accounts; Collections
    60  
6.10 Audits
    60  
6.11 Additional Collateral, etc.
    61  
6.12 Use of Proceeds
    62  
6.13 Designated Senior Indebtedness
    63  
6.14 Further Assurances
    63  
SECTION 7 NEGATIVE COVENANTS
    63  
7.1 Financial Condition Covenants
    63  
7.2 Indebtedness
    63  
7.3 Liens
    64  
7.4 Fundamental Changes
    65  
7.5 Disposition of Property
    66  
7.6 Restricted Payments
    66  
7.7 Investments
    67  
7.8 Modifications of Certain Preferred Stock and Debt Instrument
    67  

-iii-


 

Table of Contents
(continued)
         
    Page  
7.9 Transactions with Affiliates
    68  
7.10 Sale Leaseback Transactions
    68  
7.11 Swap Agreements
    68  
7.12 Changes in Fiscal Periods
    68  
7.13 Negative Pledge Clauses
    68  
7.14 Clauses Restricting Subsidiary Distributions
    68  
7.15 Lines of Business
    69  
7.16 Amendments to Organizational Agreements and Material Contracts
    69  
SECTION 8 EVENTS OF DEFAULT
    69  
8.1 Events of Default
    69  
8.2 Application of Funds
    72  
SECTION 9 THE ADMINISTRATIVE AGENT
    73  
9.1 Appointment and Authority
    73  
9.2 Delegation of Duties
    74  
9.3 Exculpatory Provisions
    74  
9.4 Reliance by Administrative Agent
    75  
9.5 Notice of Default
    75  
9.6 Non-Reliance on Administrative Agent and Other Lenders
    76  
9.7 Indemnification
    76  
9.8 Agent in Its Individual Capacity
    77  
9.9 Successor Administrative Agent
    77  
SECTION 10 MISCELLANEOUS
    78  
10.1 Amendments and Waivers
    78  
10.2 Notices
    79  
10.3 No Waiver; Cumulative Remedies
    80  
10.4 Survival of Representations and Warranties
    80  
10.5 Payment of Expenses and Taxes
    80  
10.6 Successors and Assigns; Participations and Assignments
    82  
10.7 Adjustments; Set-off
    85  

-iv-


 

Table of Contents
(continued)
         
    Page  
 
       
10.8 Counterparts
    85  
10.9 Severability
    85  
10.10 Integration
    86  
10.11 GOVERNING LAW
    86  
10.12 Submission To Jurisdiction; Waivers
    86  
10.13 Acknowledgements
    86  
10.14 Releases of Guarantees and Liens
    87  
10.15 Confidentiality
    87  
10.16 Additional Waivers
    88  
10.17 Patriot Act
    89  
Exhibits
     
Exhibit A:
  Form of Guarantee and Collateral Agreement
 
   
Exhibit B:
  Form of Compliance Certificate
 
   
Exhibit C:
  Form of Closing Certificate
 
   
Exhibit D:
  Form of Solvency Certificate
 
   
Exhibit E:
  Form of Assignment and Assumption
 
   
Exhibit F:
  Form of Exemption Certificate
 
   
Exhibit G:
  [Reserved]
 
   
Exhibit H-1:
  Form of Revolving Loan Note
 
   
Exhibit H-2:
  Form of Swingline Loan Note
 
   
Exhibit I:
  Form of Collateral Information Certificate
 
   
Exhibit J:
  Form of Notice of Borrowing
 
   
Exhibit K:
  Form of Notice of Conversion/Continuation

-v-


 

           CREDIT AGREEMENT (this “ Agreement ”), dated as of April 15, 2011, among (a) ENERNOC, INC. , a Delaware corporation (“ EnerNOC ”), (b) ENOC SECURITIES CORPORATION , a Massachusetts corporation (the “ ENOC Securities ”) (hereinafter, EnerNOC and ENOC Securities are, jointly and severally, individually and collectively, referred to as the “ Borrower ”), (c) the several banks and other financial institutions or entities from time to time parties to this Agreement (the “ Lenders ”), (d) SILICON VALLEY BANK (“ SVB ”), as Administrative Agent; (e) SVB , as an Issuing Lender; and (f) SVB , as swingline lender (in such capacity, the “ Swingline Lender ”).
Witnesseth:
      Whereas , the Borrower desires to obtain working capital financing and letter of credit facilities;
      Whereas , the Lenders have agreed to extend certain credit facilities to the Borrower in an aggregate amount not to exceed $75,000,000, consisting of up to $75,000,000 in aggregate principal amount of Revolving Commitments, and $75,000,000 in aggregate principal amount of availability for Letters of Credit (as a sublimit of the Revolving Commitments);
      Whereas , the Borrower has agreed to secure all of its Obligations by granting to the Administrative Agent, for the benefit of the Secured Parties, a first priority lien on substantially all of its assets; and
      Whereas , each of the Guarantors has agreed to guarantee the Obligations of the Borrower and to secure their respective Obligations by granting to the Administrative Agent, for the benefit of the Secured Parties, a first priority lien on substantially all of their assets.
      Now, Therefore , the parties hereto hereby agree as follows:
SECTION 1
DEFINITIONS
      1.1 Defined Terms . As used in this Agreement (including the recitals hereof), the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1.
     “ ABR ”: for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the highest of (a) the Prime Rate in effect on such day; (b) the Federal Funds Effective Rate as determined on such day plus one-half of one percent (0.50%); or (c) the Eurodollar Rate for a one (1) month Interest Period as determined on such day plus one percent (1.00%). Any change in the ABR due to a change in the Prime Rate, the Federal Funds Effective Rate, or the Eurodollar Rate, as applicable, shall be effective as of the opening of business on the effective day of such change in the Prime Rate, the Federal Funds Effective Rate, or the Eurodollar Rate, as applicable.
     “ ABR Loans ”: Loans, the rate of interest applicable to which is based upon the ABR.
     “ Accommodation Payment ”: as defined in Section 10.16(d).

 


 

     “ Account Debtor ”: any Person who may become obligated to any Person under, with respect to, or on account of, an Account, chattel paper or general intangibles (including a payment intangible).
     “ Accounts ”: all “accounts” (as defined in the UCC) of a Person, including, without limitation, accounts, accounts receivable, monies due or to become due and obligations in any form (whether arising in connection with contracts, contract rights, instruments, general intangibles, or chattel paper), in each case whether arising out of goods sold or services rendered or from any other transaction and whether or not earned by performance, now or hereafter in existence, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing.
     “ Administrative Agent ”: SVB, as the administrative agent under this Agreement and the other Loan Documents, together with any of its successors in such capacity.
     “ Additional Revolving Commitment Lender ”: as defined in Section 2.21(a)(ii).
     “ Affiliate ”: as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the power, directly or indirectly, either to (a) vote ten percent (10%) or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.
     “ Aggregate Exposure ”: with respect to any Lender at any time, an amount equal to the amount of such Lender’s Revolving Commitment (including, without duplication, such Lender’s L/C Commitment) then in effect or, if the Revolving Commitment has been terminated, the amount of such Lender’s Revolving Extensions of Credit then outstanding.
     “ Aggregate Exposure Percentage ”: with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time.
     “ Agreement ”: as defined in the preamble hereto.
     “ Allocable Amount ”: as defined in Section 10.16(d).
     “ Applicable Margin ”: 2.00% per annum in the case of Eurodollar Loans, and 1.00% per annum in the case of ABR Loans.
     “ Application ”: an application, in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to issue a Letter of Credit.
     “ Approved Fund ”: as defined in Section 10.6(b).
     “ Assignment and Assumption ”: an Assignment and Assumption, substantially in the form of Exhibit E.

2


 

     “ Auto-Extension Letter of Credit ”: as defined in Section 3.1(a).
     “ Available Revolving Commitment ”: an amount equal to (a) the Total Revolving Commitments, minus (b) the aggregate undrawn amount of all outstanding Letters of Credit at such time and the aggregate amount of all L/C Disbursements that have not yet been reimbursed or converted into Revolving Loans at such time, minus (c) the outstanding principal balance of any Revolving Loans, minus (d) the outstanding principal balance of any Swingline Loans.
     “ Bankruptcy Code ”: Title 11 of the United States Code entitled “Bankruptcy,” as now or hereafter in effect, or any successor thereto.
     “ Benefitted Lender ”: as defined in Section 10.7(a).
     “ Board ”: the Board of Governors of the Federal Reserve System of the United States (or any successor).
     “ Borrower ”: as defined in the preamble hereto.
     “ Borrowing Date ”: any Business Day specified by the Borrower as a date on which the Borrower requests the relevant Lenders to make Loans hereunder.
     “ Business ”: as defined in Section 4.17(b).
     “ Business Day ”: a day other than a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law to close; provided that with respect to notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, such day is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market.
     “ Capital Expenditures ”: for any period, with respect to any Person, the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Lease Obligations which is capitalized on the consolidated balance sheet of such Person and its Subsidiaries) by such Person and its Subsidiaries during such period for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) that, in conformity with GAAP, are included in “additions to property, plant or equipment” or comparable items reflected in the consolidated statement of cash flows of such Person and its Subsidiaries.
     “ Capital Lease Obligations ”: as to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP.
     “ Capital Stock ”: any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests

3


 

in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.
     “ Cash Equivalents ”: (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States or any state thereof having combined capital and surplus of not less than $250,000,000; (c) commercial paper of an issuer rated at least A-1 by S&P or P-1 by Moody’s, or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than thirty (30) days, with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s; (f) securities with maturities of six (6) months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; (g) money market mutual or similar funds that invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition; or (h) money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, as amended, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000.
      Cash Management Services : Cash management services which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in the applicable Lender’s or other Secured Party’s (or any of their Affiliates) cash management services agreements.
     “ Certificated Securities ”: as defined in Section 4.19(a) .
     “ Change of Control ”:
          (a) EnerNOC shall cease to own, directly or indirectly, 100% of the Capital Stock of ENOC Securities and each of the Wholly Owned Subsidiary Guarantors except as expressly permitted hereunder.
          (b) at any time, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), shall become, or obtain rights (whether by means or warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act),

4


 

directly or indirectly, of forty percent (40%) or more of the ordinary voting power for the election of directors of the Borrower (determined on a fully diluted basis); or
          (c) during any period of twelve (12) consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors).
     “ Closing Date ”: the date on which the conditions precedent set forth in Sections 5.1 and 5.2 shall have been satisfied, which date is April 15, 2011.
     “ Code ”: the Internal Revenue Code of 1986, as amended from time to time.
     “ Collateral ”: all property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document.
     “ Collateral Information Certificate ”: the Collateral Information Certificate to be executed and delivered by the Borrower and each other Loan Party, substantially in the form of Exhibit I.
     “ Commitment ”: as to any Lender, the Revolving Commitment (including, without duplication, such Lender’s L/C Commitment) of such Lender.
     “ Commitment Fee ”: as defined in Section 2.5(b).
     “ Commitment Fee Rate ”: a per annum rate of one-quarter of one percent (0.25%).
     “ Commonly Controlled Entity ”: an entity, whether or not incorporated, that is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group that includes the Borrower and that is treated as a single employer under Section 414 of the Code.
     “ Compliance Certificate ”: a certificate duly executed by a Responsible Officer of the Borrower substantially in the form of Exhibit B.
     “ Contractual Obligation ”: as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

5


 

     “ Control Agreement ”: as defined in Section 6.9 .
     “ Copyright Security Agreement ”: as defined in the Guarantee and Collateral Agreement.
     “ Default ”: any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied.
     “ Defaulting Lender ”: subject to Section 2.19(b) , any Lender that, as reasonably determined by the Administrative Agent, (a) has failed to perform any of its funding obligations hereunder, including in respect of its Loans (including Swingline Loans) or participations in respect of Letters of Credit, within one (1) Business Day of the date required to be funded by it hereunder, (b) has notified the Borrower, the Administrative Agent or any Lender that it does not intend to comply with its funding obligations or has made a public statement to that effect with respect to its funding obligations hereunder or under other agreements in which it commits to extend credit, (c) has failed, within three (3) Business Days after request by the Administrative Agent, to confirm in a manner reasonably satisfactory to the Administrative Agent that it will comply with its funding obligations, or (d) has, or has a direct or indirect parent company that has, (i) become the subject of an Insolvency Proceeding, (ii) had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or a custodian appointed for it, or (iii) taken any action in furtherance of, or indicated its consent to, approval of or acquiescence in any such proceeding or appointment; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority.
     “ Disposition ”: with respect to any property (including, without limitation, Capital Stock of any Subsidiary of the Borrower), any sale, lease, Sale Leaseback Transaction, assignment, conveyance, transfer or other disposition thereof and any issuance of Capital Stock of the Borrower or any of its Subsidiaries. The terms “ Dispose ” and “ Disposed of ” shall have correlative meanings.
     “ Dollars ” and “ $ ”: dollars in lawful currency of the United States.
     “ Domestic Subsidiary ”: any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States.
     “ EBITDAR ”: for any period, (a) the sum, without duplication, of the amounts for such period of (i) Net Income, plus (ii) Interest Expense, plus (iii) provisions for current taxes based on income and payable in cash, plus (iv) total depreciation expense, plus (v) total amortization expense, plus (vi) total rent expense, plus (vii) non-cash stock compensation expense, plus (viii) non-cash impairment of fixed assets.
     “ Eligible Assignee ”: (a) a Lender, an Affiliate of a Lender or any Approved Fund; or (b) any commercial bank, insurance company, investment or mutual fund or other entity that is an “accredited investor” (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its substantial businesses; provided that neither the Borrower nor any Affiliate of the Borrower shall be an Eligible Assignee.

6


 

     “ EnerNOC ”: as defined in the preamble hereto.
     “ EnerNOC Canada ”: means EnerNOC Ltd., a company organized under the laws of Ontario, Canada.
     “ ENOC Securities ”: as defined in the preamble hereto.
     “ Environmental Laws ”: any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect.
     “ ERISA ”: the Employee Retirement Income Security Act of 1974, as amended from time to time.
     “ Eurocurrency Reserve Requirements ”: for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves) under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board) maintained by a member bank of the Federal Reserve System.
     “ Eurodollar Base Rate ”: with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum determined by reference to the British Bankers’ Association Interest Settlement Rates for deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period in Dollars, determined as of approximately 11:00 A.M. (London, England time) two (2) Business Days prior to the beginning of such Interest Period (as set forth by Bloomberg Information Service or any successor thereto or any other service selected by the Administrative Agent which has been nominated by the British
Bankers’ Association as an authorized information vendor for the purpose of displaying such rates). In the event that the rate referenced in the preceding sentence is not available, the “ Eurodollar Base Rate ” shall be determined by reference to the rate per annum equal to the offered quotation rate to first class banks in the London interbank market by SVB for deposits (for delivery on the first day of the relevant Interest Period) in Dollars of amounts in same day funds comparable to the principal amount of the applicable Loan of the Administrative Agent, in its capacity as a Lender, for which the Eurodollar Base Rate is then being determined with maturities comparable to such period as of approximately 11:00 A.M. (London, England time) two (2) Business Days prior to the beginning of such Interest Period.
     “ Eurodollar Loans ”: Loans, the rate of interest applicable to which is based upon the Eurodollar Rate.
     “ Eurodollar Rate ”: with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula:

7


 

     
    Eurodollar Base Rate
     
    1.00 – Eurocurrency Reserve Requirements
     “ Eurodollar Tranche ”: the collective reference to Eurodollar Loans under a particular Facility, the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day).
     “ Event of Default ”: any of the events specified in Section 8; provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied.
     “ Excluded Foreign Subsidiary ”: any Foreign Subsidiary in respect of which either (a) the pledge of more than 65% (or such greater percentage as would not, in the good faith judgment of the Borrower, result in material adverse tax consequences to the Borrower) of the Capital Stock of such Subsidiary as Collateral or (b) the guaranteeing by such Subsidiary of the Obligations, would, in the good faith judgment of the Borrower, result in material adverse tax consequences to the Borrower.
     “ Excluded Taxes ”: with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document any of the following taxes imposed on or with respect to any Person: (a) taxes measured by net income (including branch profit taxes) and franchise taxes imposed in lieu of net income taxes, in each case imposed on any Person as a result of a present or former connection between such Person and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein; (b) withholding taxes to the extent that the obligation to withhold amounts existed on the date that such Person became a party to this Agreement in the capacity under which such Person makes a claim under Section 2.15(a) or designates a new lending office (except to the extent the transferor to such Person (if any) was entitled, at the time the transfer to such Person became effective, to receive additional amounts under Section 2.15(a)); (c) taxes that are attributable to a failure to deliver the documentation required to be delivered pursuant to Section 2.15(e); and (d) in the case of a Non-U.S. Lender Party, any United States federal withholding taxes imposed on amounts payable to such Non-U.S. Lender Party as a result of such Non-U.S. Lender Party’s failure to comply with FATCA to establish a complete exemption from withholding thereunder.
     “ Existing Letters of Credit ”: each of the letters of credit described by date of issuance, amount, beneficiary and the date of expiry on Schedule 1.1B hereto.
     “ Facility ”: each of (a) the L/C Facility (which is a sub-facility of the Revolving Facility), and (b) the Revolving Facility.
     “ FATCA ”: sections 1471, 1472, 1473, and 1474 of the Code, the United States Treasury Regulations promulgated thereunder and published guidance with respect thereto.
     “ Federal Funds Effective Rate ”: for any day, 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

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Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by SVB from three federal funds brokers of recognized standing selected by it.
     “ Fee Letter ”: the letter agreement dated April 15, 2011 between Borrower and Administrative Agent.
     “ Fixed Charge Coverage Ratio ”: for any period, the ratio of (a) recurring EBITDAR for such period minus Capital Expenditures made during such period (excluding the principal amount funded with the Loans) to (b) Fixed Charges for such period.
     “ Fixed Charges ”: for any period ending on any determination date (the “ determination date ”), the sum (without duplication) of (a) Interest Expense for such period, plus (b) scheduled payments made or required to be made during those fiscal quarters of the Borrower ending during the fiscal year in which the determination date occurs on account of principal of Indebtedness of the Borrower and its Subsidiaries (including scheduled principal payments in respect of any Capital Lease Obligations)) plus (c) income taxes paid or required to be paid in such period, plus (d) dividends paid in such period, plus (e) total rent expense for such period.
     “ Foreign Currency ”: lawful money of a country other than the United States.
     “ Foreign Subsidiary ”: any Subsidiary of the Borrower that is not a Domestic Subsidiary.
     “ FX Forward Contract ”: Foreign exchange contracts with a Lender or other Secured Party (or any of their Affiliates) under which the Borrower, its Subsidiaries or any other Loan Party commits to purchase from or sell to a Lender or other Secured Party (or any of their Affiliates) a specific amount of Foreign Currency on a specified date.
     “ GAAP ”: generally accepted accounting principles in the United States as in effect from time to time, except that for purposes of Section 7.1, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements referred to in Section 4.1(b). In the event that any “ Accounting Change ” (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations to amend such provisions of this Agreement so as to reflect equitably such Accounting Changes with the desired result that the criteria for evaluating the Borrower’s financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. “ Accounting Changes ” refers to 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, if applicable, the SEC.
     “ Governmental Approval ”: any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

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     “ Governmental Authority ”: any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization (including the National Association of Insurance Commissioners).
     “ Group Members ”: the collective reference to the Borrower and its Subsidiaries, excluding any Immaterial Subsidiary.
     “ Guarantee and Collateral Agreement ”: the Guarantee and Collateral Agreement to be executed and delivered by the Borrower and each Subsidiary Guarantor, substantially in the form of Exhibit A.
     “ Guarantee Obligation ”: as to any Person (the “ guaranteeing person ”), any obligation, including a reimbursement, counterindemnity or similar obligation, of the guaranteeing person that guarantees or in effect guarantees, or which is given to induce the creation of a separate obligation by another Person (including any bank under any letter of credit) that guarantees or in effect guarantees, any Indebtedness, leases, dividends or other obligations (the “ primary obligations ”) of any other third Person (the “ primary obligor ”) in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith.
     “ Guarantors ”: the collective reference to the Subsidiary Guarantors.
      Hostile Acquisition : means the acquisition of the capital stock or other equity interests of a Person through a tender offer or similar solicitation of the owners of such capital stock or other equity interests which has not been approved (prior to such acquisition) by resolutions of the Board of Directors of such Person or by similar action if such Person is not a corporation, or as to which such approval has been withdrawn.

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     “ Immaterial Subsidiary ” means each of Borrower’s Subsidiaries listed on Schedule 1.1C hereto as such Schedule may be revised or supplemented from time with the consent of the Required Lenders, provided that such Subsidiaries do not, individually or in the aggregate (a) at any time have total assets (excluding goodwill) with a book value equal to or in excess of $15,000,000, (b) have revenues equal to or greater than $15,000,000 tested as of the last day of the fiscal quarter then most recently ended for the trailing 12 months ended on such date, in each case as determined in accordance with GAAP or (c) have a month-end cash balance in excess of $3,000,000.
     “ Indebtedness ”: of any Person at any date, without duplication: (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person for the deferred purchase price of property or services (other than current trade payables incurred in the ordinary course of such Person’s business) solely to the extent that such obligations are not contingent; (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments; (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (e) all Capital Lease Obligations and all Synthetic Lease Obligations of such Person; (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under or in respect of acceptances, letters of credit, surety bonds or similar arrangements; (g) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (f) above; (h) all obligations of the kind referred to in clauses (a) through (g) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation; and (i) all obligations of such Person in respect of Swap Agreements. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor.
     “ Indemnified Liabilities ”: as defined in Section 10.5.
     “ Indemnitee ”: as defined in Section 10.5.
     “ Insolvency ”: with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA.
     “ Insolvent ”: pertaining to a condition of Insolvency.
     “ Intellectual Property ”: the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

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     “ Intellectual Property Security Agreements ”: the collective reference to each Copyright Security Agreement, Patent Security Agreement and Trademark Security Agreement executed and delivered by the Loan Parties, or any of them, and the Administrative Agent.
     “ Intercompany Subordination Agreement ”: a Subordination Agreement among the Administrative Agent, for the benefit of the Secured Parties, and the Loan Parties in form and substance acceptable to the Administrative Agent.
     “ Interest Expense ”: for any period, total cash interest expense (including that attributable to Capital Lease Obligations) of the Borrower and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries (including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Swap Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP).
     “ Interest Payment Date ”: (a) as to any ABR Loan (including any Swingline Loan), the first day of each month to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last Business Day of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period, and (d) as to any Loan (other than any Revolving Loan that is an ABR Loan and any Swingline Loan), the date of any repayment or prepayment made in respect thereof.
     “ Interest Period ”: as to any Eurodollar Loan: (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one (1), two (2), three (3) or six (6) months thereafter, subject to availability, as selected by the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one (1), two (2), three (3) or six (6) months thereafter, subject to availability, as selected by the Borrower by irrevocable notice to the Administrative Agent in a Notice of Conversion/Continuation not later than 10:00 A.M., Eastern time, on the date that is three (3) Business Days prior to the last day of the then current Interest Period with respect thereto; provided that all of the foregoing provisions relating to Interest Periods are subject to the following:
                (i)  if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;
                (ii)  the Borrower may not select an Interest Period under a particular Facility that would extend beyond the Revolving Termination Date;
                (iii)  any 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

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month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and
                (iv)  the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan.
     “ Interest Rate Agreement ”: any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar agreement or arrangement, each of which is (i) for the purpose of hedging the interest rate exposure associated with Borrower’s and its Subsidiaries’ operations, (ii) approved by Administrative Agent, and (iii) not for speculative purposes.
     “ Inventory ”: all “inventory,” as such term is defined in the New York UCC, now owned or hereafter acquired by any Loan Party, wherever located, and in any event including inventory, merchandise, goods and other personal property that are held by or on behalf of any Loan Party for sale or lease or are furnished or are to be furnished under a contract of service, or that constitute raw materials, work in process, finished goods, returned goods, or materials or supplies of any kind used or consumed or to be used or consumed in such Loan Party’s business or in the processing, production, packaging, promotion, delivery or shipping of the same, including all supplies and embedded software.
     “ Investments ”: as defined in Section 7.7.
     “ ISP ”: with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).
     “ Issuer Documents ”: with respect to any Letter of Credit, the Application, and any other document, agreement and instrument entered into by the L/C Issuer and the Borrower or in favor the L/C Issuer and relating to any such Letter of Credit.
     “ Issuing Lender ”: as the context may require, (a) SVB or any Affiliate thereof, in its capacity as issuer of any Letter of Credit (including, without limitation, each Existing Letter of Credit), and (b) any other Lender that may become an Issuing Lender pursuant to Section 3.10 or 3.11, with respect to Letters of Credit issued by such Lender. The Issuing Lender may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Lender or other financial institutions, in which case the term “Issuing Lender” shall include any such Affiliate or other financial institution with respect to Letters of Credit issued by such Affiliate or other financial institution.
     “ Issuing Lender Fees ”: as defined in Section 3.3(a).
     “ L/C Commitment ”: as to any L/C Lender, the obligation of such L/C Lender, if any, to purchase an undivided interest in the Issuing Lender’s obligations and rights under and in respect of each Letter of Credit (including to make payments with respect to draws made under any Letter of Credit pursuant to Section 3.5(b)) in an aggregate principal amount not to exceed the amount set forth under the heading “L/C Commitment” opposite such L/C Lender’s name on Schedule 1.1A or in the Assignment and Assumption pursuant to which such L/C Lender became

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a party hereto, as the same may be changed from time to time pursuant to the terms hereof. The L/C Commitment is a sublimit of the Revolving Commitment and the L/C Commitments shall not exceed the Available Revolving Commitment at any time.
     “ L/C Disbursements ”: a payment or disbursement made by the Issuing Lender pursuant to a Letter of Credit.
     “ L/C Exposure ”: at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all L/C Disbursements that have not yet been reimbursed or converted into Revolving Loans at such time. The L/C Exposure of any L/C Lender at any time shall equal its L/C Percentage of the aggregate L/C Exposure at such time.
     “ L/C Facility ”: the L/C Commitments and the extensions of credit made thereunder.
     “ L/C Fee Payment Date ”: as defined in Section 3.3(a).
     “ L/C Lender ”: a Lender with an L/C Commitment.
     “ L/C Percentage ”: as to any L/C Lender at any time, the percentage of the Total L/C Commitments represented by such L/C Lender’s L/C Commitment.
     “ Lenders ”: as defined in the preamble hereto.
     “ Letter of Credit ”: as defined in Section 3.1(a); provided that such term shall include each Existing Letter of Credit as in effect on the Closing Date.
     “ Letter of Credit Availability Period ”: the period from and including the Closing Date to but excluding the Letter of Credit Maturity Date.
     “ Letter of Credit Maturity Date ”: the Revolving Termination Date.
     “ Lien ”: any mortgage, deed of trust, pledge, hypothecation, collateral assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing).
     “ Loan ”: any loan made or maintained by any Lender pursuant to this Agreement.
     “ Loan Documents ”: this Agreement, the Security Documents, the Notes, the Fee Letter, any Intercompany Subordination Agreement, the Collateral Information Certificate, each Compliance Certificate, any amendment, waiver, supplement or other modification to any of the foregoing and any other documents or instruments executed and delivered in connection with the foregoing.
     “ Loan Parties ”: each Group Member that is a party to a Loan Document.

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     “ Material Adverse Effect ”: (a) a material adverse change in, or a material adverse effect on, the operations, business, assets, properties, liabilities (actual or contingent), or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole; (b) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any loan documentation, or of the ability of the Borrower or any Guarantor to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Borrower or any Guarantor of any Loan Documents to which it is a party.
     “ Materials of Environmental Concern ”: any substance, material or waste that is defined, regulated, governed or otherwise characterized under any Environmental Law as hazardous or toxic or as a pollutant or contaminant (or by words of similar meaning and regulatory effect), any petroleum or petroleum products, asbestos, polychlorinated biphenyls, urea-formaldehyde insulation, molds or fungus, and radioactivity, radiofrequency radiation at levels known to be hazardous to human health and safety.
     “ Maximum Lawful Rate ”: as defined in Section 2.11(c).
     “ Moody’s ”: Moody’s Investors Service, Inc.
     “ Mortgaged Properties ”: the real properties as to which, pursuant to Section 6.11(b) or otherwise, the Administrative Agent, for the benefit of the Secured Parties, shall be granted a Lien pursuant to the Mortgages.
     “ Mortgages ”: each of the mortgages, deeds of trust, deeds to secure debt or such equivalent documents hereafter entered into and executed and delivered by one or more of the Loan Parties to the Administrative Agent, in each case, as such documents may be amended, amended and restated, supplemented or otherwise modified, renewed or replaced from time to time and in form and substance reasonably acceptable to the Administrative Agent.
     “ Multiemployer Plan ”: a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
     “ Net Income ”: for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower and its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary.
     “ New York UCC ”: the Uniform Commercial Code as in effect from time to time in the State of New York.

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     “ Non-Excluded Taxes ”: as defined in Section 2.15(a).
     “ Non-Extension Notice Date ”: as defined in Section 3.1(a).
     “ Non-U.S. Lender Party ”: each Lender and each Participant, in each case that is not a “United States person” as defined in Section 7701(a)(30) of the Code.
     “ Note ”: a Revolving Loan Note or a Swingline Loan Note.
     “ Notice of Borrowing ”: means a notice substantially in the form of Exhibit J.
     “ Notice of Conversion/Continuation ”: means a notice substantially in the form of Exhibit K.
     “ Obligations ”: the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and interest, fees, costs, expenses and indemnities accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower or any Guarantor, whether or not a claim for post-filing or post-petition interest, fees, costs, expenses or indemnities is allowed in such proceeding) the Loans and all other obligations and liabilities of the Borrower or any other Loan Party to the Administrative Agent or any Lender or any other Secured Party, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Cash Management Services, FX Forward Contracts, the Letters of Credit, any Specified Swap Agreement or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including all fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by the Borrower or any Guarantor pursuant hereto) or otherwise.
     “ Other Taxes ”: any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.
     “ Participant ”: as defined in Section 10.6(c).
     “ Patent Security Agreement ”: as defined in the Guarantee and Collateral Agreement.
     “ Patriot Act ”: the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, Title III of Pub. L. 107-56, signed into law October 26, 2001.
     “ PBGC ”: the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor).
     “ Permitted Acquisition ” means the purchase or other acquisition by any Group Member of the Capital Stock in a Person that, upon the consummation thereof, will be a Subsidiary

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(including as a result of a merger or consolidation) or all or substantially all of the assets of, or assets constituting one or more business units of, any Person; provided that , with respect to each such purchase or other acquisition:
     (a) each such purchase or acquisition is of a Person or ongoing business engaged in business activities in which the Borrower is permitted to engage pursuant to Section 7.15;
     (b) (i) immediately before and immediately after giving effect to any such purchase or other acquisition, no Default or Event of Default shall have occurred and be continuing, and (ii) immediately after giving effect to such purchase or other acquisition, on a pro forma basis, the Borrowers and its Subsidiaries shall be in compliance with each of the covenants set forth in this Agreement (including Section 7.1);
     (c) any Person so acquired becomes a guarantor under the Guarantee and Collateral Agreement and the other requirements of Section 6.11 (subject to the limitations therein with respect to Excluded Foreign Subsidiaries) and the Security Documents are satisfied within the applicable time periods set forth therein;
     (d) the total consideration for such purchases or other acquisitions shall not exceed (i) $5,000,000 for any single purchase or acquisition or (ii) $15,000,000 in the aggregate for all purchases or acquisitions during the term of this Agreement;
     (e) no Indebtedness is assumed or incurred in connection with any such purchase or acquisition other than Indebtedness permitted by the terms of Section 7.2 hereof;
     (f) after giving effect to such purchase or acquisition, the net effect of such purchase or acquisition shall be accretive to the Borrower’s EBITDAR on a pro forma basis for the 12 month period ended one year after the proposed date of consummation of such proposed purchase or acquisition;
     (g) the acquisition shall not be a Hostile Acquisition; and
     (h) the Borrower shall have delivered to the Administrative Agent and each Lender, at least five (5) Business Days prior to the date on which any such purchase or other acquisition is to be consummated (or such later date as is agreed by the Administrative Agent in its sole discretion), a certificate of a Responsible Officer, in form and substance reasonably satisfactory to the Administrative Agent, certifying that all of the requirements set forth in this definition have been satisfied or will be satisfied on or prior to the consummation of such purchase or other acquisition.
     “ Person ”: an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature.
     “ Plan ”: at a particular time, any employee benefit plan that is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

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     “ Preferred Stock ”: the preferred Capital Stock of the Borrower.
     “ Prime Rate ”: is with respect at any day, the rate of interest per annum reported as the “Prime Rate” as quoted in the Wall Street Journal print edition on such day (or, if such day is not a day on which the Wall Street Journal is published, the immediately preceding day on which the Wall Street Journal was published).
     “ Projections ”: as defined in Section 6.2(b).
     “ Properties ”: as defined in Section 4.17(a).
     “ Qualified Counterparty ”: with respect to any Specified Swap Agreement, any counterparty thereto that, at the time such Specified Swap Agreement was entered into or as of the Closing Date, was the Administrative Agent or a Lender or an Affiliate of the Administrative Agent or a Lender.
     “ Quick Assets ”: on any date, the sum of Borrower’s (i) unrestricted cash, (ii) marketable securities that are immediately available for sale, (iii) accounts receivable and (iv) unbilled revenue on Borrower’s balance sheet that are contractually owing to Borrower that are payable within the next twelve (12) months, determined according to GAAP; provided that for purposes of the foregoing clause (iv), the amount of unbilled revenue on any date shall not exceed the lesser of (A) $50,000,000 or (B) 60% of the sum of the items specified in foregoing clauses (i) through (iii) on such date.
     “ Quick Ratio ”: the ratio of (a) Quick Assets, to (b) all of Borrower’s liabilities and Obligations under this Agreement and the other Loan Documents (including Obligations in respect of issued Letters of Credit).
     “ Refunded Swingline Loans ”: as defined in Section 2.4(b).
     “ Regulation U ”: Regulation U of the Board as in effect from time to time.
     “ Related Parties ”: with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.
     “ Reorganization ”: with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA.
     “ Replaced Lender ”: as defined in Section 2.20.
     “ Reportable Event ”: any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. § 4043.
     “ Required Lenders ”: at any time, any two or more Lenders holding more than sixty-six and two-thirds percent (66.67%) of the Total Revolving Extensions of Credit (including, without duplication, any L/C Disbursements that have not yet been reimbursed or converted into

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Revolving Loans at such time) or, prior to any termination of the Revolving Commitments, the holders of more than sixty-six and two-thirds percent (66.67%) of the Total Revolving Commitments (including, without duplication, the L/C Commitments), but in any event excluding Defaulting Lenders and their Revolving Commitments and Revolving Extensions of Credit.
     “ Requirement of Law ”: as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
     “ Responsible Officer ”: the chief executive officer, president, vice president, chief financial officer, chief accounting officer, treasurer, controller or comptroller of the Borrower, but in any event, with respect to financial matters, the chief financial officer, chief accounting officer, treasurer, controller or comptroller of the Borrower.
     “ Restricted Payments ”: as defined in Section 7.6.
     “ Revolving Commitment ”: as to any Lender, the obligation of such Lender, if any, to make Revolving Loans and participate in Swingline Loans and Letters of Credit in an aggregate principal amount not to exceed the amount set forth under the heading “Revolving Commitment” opposite such Lender’s name on Schedule 1.1A or in the Assignment and Assumption pursuant to which such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms hereof (including in connection with assignments permitted hereunder). The Revolving Commitment of each Lender shall include, in any event, its L/C Commitment.
     “ Revolving Commitment Increase ”: as defined in Section 2.21(a)2.21(a).
     “ Revolving Commitment Increase Effective Date ”: as defined in Section 2.21(a)(iii).
     “ Revolving Commitment Period ”: the period from and including the Closing Date to the Revolving Termination Date.
      " Revolving Extensions of Credit ”: as to any Revolving Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Revolving Loans held by such Lender then outstanding, (b) the aggregate undrawn amount of all outstanding Letters of Credit at such time and the aggregate amount of all L/C Disbursements that have not yet been reimbursed or converted into Revolving Loans at such time and (c) such Lender’s Revolving Percentage of the aggregate principal amount of Swingline Loans then outstanding.
     “ Revolving Facility ”: the Revolving Commitments and the extensions of credit made thereunder.
     “ Revolving Lender ”: each Lender that has a Revolving Commitment or that holds Revolving Loans.
     “ Revolving Loan Conversion ”: as defined in Section 3.5(b).

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     “ Revolving Loan Funding Office ”: the office of the Administrative Agent specified in Section 10.2 or such other office as may be specified from time to time by the Administrative Agent as its funding office by written notice to the Borrower and the Lenders.
     “ Revolving Loan Note ”: a promissory note in the form of Exhibit H-1, as it may be amended, supplemented or otherwise modified from time to time.
     “ Revolving Loan Register ”: as defined in Section 10.6(b).
     “ Revolving Loans ”: as defined in Section 2.1(a).
     “ Revolving Percentage ”: as to any Revolving Lender at any time, the percentage which such Lender’s Revolving Commitment then constitutes of the Total Revolving Commitments or, at any time after the Revolving Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender’s Revolving Extensions of Credit then outstanding constitutes of the aggregate principal amount of the Total Revolving Extensions of Credit then outstanding.
     “ Revolving Termination Date ”: April 15, 2013.
     “ S&P ”: Standard & Poor’s Ratings Services.
     “ Sale Leaseback Transaction ”: any arrangement with any Person or Persons, whereby in contemporaneous or substantially contemporaneous transactions a Loan Party sells substantially all of its right, title and interest in any property and, in connection therewith, acquires, leases or licenses back the right to use all or a material portion of such property.
     “ SEC ”: the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority.
     “ Secured Parties ”: the collective reference to the Administrative Agent, the Lenders (including any Issuing Lender in its capacity as Issuing Lender), any Qualified Counterparties and any Affiliates of the Administrative Agent or any Lender who have provided Cash Management Services or FX Forward Contracts to any Loan Party.
     “ Securities Act ”: the Securities Act of 1933, as amended from time to time and any successor statute.
     “ Security Documents ”: the collective reference to the Guarantee and Collateral Agreement, the Intellectual Property Security Agreements, the Mortgages and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document.
     “ Single Employer Plan ”: any Plan that is covered by Title IV of ERISA, but that is not a Multiemployer Plan.
     “ Solvent ”: when used with respect to any Person, means that, as of any date of determination, (a) the amount of the “fair value” of the assets of such Person will, as of such

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date, exceed the amount of all “liabilities of such Person, contingent or otherwise”, as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the “present fair saleable value” of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) “debt” means liability on a “claim”, and (ii) “claim” means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured.
     “ Specified Swap Agreement ”: any Swap Agreement entered into by the Borrower, any Subsidiary of Borrower or any other Loan Party and any Qualified Counterparty (or any Person who was a Qualified Counterparty as of the Closing Date or as of the date such Swap Agreement was entered into) in respect of interest rates to the extent permitted under Section 7.12.
     “ Stated Rate ”: as defined in Section 2.11(c).
     “ Subordinated Indebtedness ”: any Indebtedness which is expressly subordinated in right of payment to the prior payment in full of the Obligations (the subordination terms of which are satisfactory to the Required Lenders) and which Indebtedness is in form and on terms approved in writing by the Required Lenders.
     “ Subsidiary ”: as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a “ Subsidiary ” or to “ Subsidiaries ” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.
     “ Subsidiary Guarantor ”: each Subsidiary of the Borrower other than any Excluded Foreign Subsidiary or any Immaterial Subsidiary.
     “ Surety Indebtedness ”: as of any date of determination, indebtedness (contingent or otherwise) owing to sureties arising from surety bonds issued on behalf the Borrower and its Subsidiaries as support for, among other things, their contracts with customers, whether such indebtedness is owing directly or indirectly by the Borrower and its Subsidiaries.
     “ SVB ”: as defined in the preamble hereto.

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     “ Swap Agreement ”: any agreement with respect to any swap, hedge, forward, future or derivative transaction or option or similar agreement (including, without limitation, any Interest Rate Agreement and FX Forward Contract) involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower and its Subsidiaries shall be a “Swap Agreement”.
     “ Swingline Commitment ”: the obligation of the Swingline Lender to make Swingline Loans pursuant to Section 2.3 in an aggregate principal amount at any one time outstanding not to exceed $5,000,000.
     “ Swingline Lender ”: as defined in the preamble hereto.
     “ Swingline Loan Note ”: a promissory note in the form of Exhibit H-2, as it may be amended, supplemented or otherwise modified from time to time.
     “ Swingline Loans ”: as defined in Section 2.3.
     “ Swingline Participation Amount ”: as defined in Section 2.4(c).
     “ Synthetic Lease Obligation ”: the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease or (b) an agreement for the use of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
     “ Total L/C Commitment ”: at any time, the sum of all L/C Commitments at such time, as the same may be reduced from time to time pursuant to Section 2.6 or 3.5(b). The initial amount of the Total L/C Commitments on the Closing Date is $75,000,000. The Total L/C Commitment is a sublimit of the Total Revolving Commitment.
     “ Total Revolving Commitment ”: at any time, the aggregate amount of the Revolving Commitments then in effect. The original amount of the Total Revolving Commitment is $75,000,000.
     “ Total Revolving Extensions of Credit ”: at any time, the aggregate amount of the Revolving Extensions of Credit of the Revolving Lenders outstanding at such time.
     “ Trademark Security Agreement ”: as defined in the Guarantee and Collateral Agreement.
     “ Transferee ”: any Eligible Assignee or Participant.
     “ Type ”: as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.

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     “ UCP 600 ”: the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce and dated as of July 1, 2007 (or such later version thereof as may be in effect at the time of issuance).
     “ UFCA ”: as defined in Section 10.16(d) .
     “ UFTA ”: as defined in Section 10.16(d) .
     “ Uniform Commercial Code ” or “ UCC ”: the Uniform Commercial Code (or any similar or equivalent legislation) as in effect from time to time in any applicable jurisdiction.
     “ United States ”: the United States of America.
     “ U.S. Lender Party ”: the Administrative Agent, each Lender and each Participant, in each case that is a “United States person” as defined in Section 7701(a)(30) of the Code.
     “ Wholly Owned Subsidiary ”: as to any Person, any other Person all of the Capital Stock of which (other than directors’ qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries.
     “ Wholly Owned Subsidiary Guarantor ”: any Subsidiary Guarantor that is a Wholly Owned Subsidiary of the Borrower.
      1.2 Other Definitional Provisions.
           (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto.
           (b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, (i) accounting terms relating to any Group Member not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP, (ii) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, (iii) the word “incur” shall be construed to mean incur, create, issue, assume, become liable in respect of or suffer to exist (and the words “incurred” and “incurrence” shall have correlative meanings), (iv) 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, including cash, Capital Stock, securities, revenues, accounts, leasehold interests and contract rights, and (v) references to agreements (including this Agreement) or other Contractual Obligations shall, unless otherwise specified, be deemed to refer to such agreements or Contractual Obligations as amended, supplemented, restated, amended and restated or otherwise modified from time to time.
           (c) The words “ hereof ”, “ herein ” and “ hereunder ” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified.

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           (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.
SECTION 2
AMOUNT AND TERMS OF COMMITMENTS
      2.1 Revolving Commitments.
           (a) Subject to the terms and conditions hereof, each Revolving Lender severally agrees to make revolving credit loans (“ Revolving Loans ”) to the Borrower from time to time during the Revolving Commitment Period in an aggregate principal amount at any one time outstanding which, when added to the aggregate outstanding amount of the Swingline Loans, and the aggregate undrawn amount of all outstanding Letters of Credit and the aggregate amount of all L/C Disbursements that have not yet been reimbursed or converted into Revolving Loans, incurred on behalf of the Borrower and owing to such Lender, does not exceed the amount of such Lender’s Revolving Commitment; provided that the Total Revolving Extensions of Credit shall in no event exceed the Total Revolving Commitment. During the Revolving Commitment Period, the Borrower may use the Revolving Commitments by borrowing, prepaying the Revolving Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. The Revolving Loans may from time to time be Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.8 .
           (b) The Borrower shall repay all outstanding Revolving Loans on the Revolving Termination Date.
      2.2 Procedure for Revolving Loan Borrowing . Subject to the terms and conditions hereof, the Borrower may borrow under the Revolving Commitment during the Revolving Commitment Period on any Business Day; provided that the Borrower shall give the Administrative Agent an irrevocable Notice of Borrowing (which must be received by the Administrative Agent prior to 10:00 A.M., Eastern time, (a) three (3) Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one (1) Business Day prior to the requested Borrowing Date, in the case of ABR Loans (in each case, with originals to follow within three (3) Business Days)) ( provided that any such Notice of Borrowing of ABR Loans under the Revolving Facility to finance payments under Section 3.5(a) may be given not later than 10:00 A.M., Eastern time, on the date of the proposed borrowing), specifying (i) the amount and Type of Revolving Loans to be borrowed, (ii) the requested Borrowing Date, (iii) in the case of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Period therefor, and (iv) instructions for remittance of the applicable Loans to be borrowed. Unless otherwise agreed by the Administrative Agent in its sole discretion, no Revolving Loan may be made as, converted into or continued as a Eurodollar Loan having an Interest Period in excess of one (1) month prior to the date that is thirty (30) days after the Closing Date. Each borrowing under the Revolving Commitment shall be in an amount equal to, in the case of ABR Loans, $100,000 or a whole multiple of $100,000 in excess thereof (or, if the then aggregate Available Revolving Commitments are less than $100,000, such lesser amount); provided that the Swingline Lender may request, on behalf of the Borrower,

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borrowings under the Revolving Commitments that are ABR Loans in other amounts pursuant to Section 2.4 . Upon receipt of any such Notice of Borrowing from the Borrower, the Administrative Agent shall promptly notify each Revolving Lender thereof. Each Revolving Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the Revolving Loan Funding Office prior to 12:00 P.M., Eastern time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Upon satisfaction of the applicable conditions set forth in Section 5.2, such borrowing will then be made available to the Borrower by the Administrative Agent crediting such account as is designated in writing to the Administrative Agent by the Borrower with the aggregate of the amounts made available to the Administrative Agent by the Revolving Lenders and in like funds as received by the Administrative Agent. No Revolving Loan will be made on the Closing Date. The Borrower promises to pay to the Administrative Agent, for the account of the Revolving Lenders, in accordance with their respective Revolving Percentages, all amounts due under the Revolving Loans on the Revolving Termination Date or such earlier date as required hereunder.
      2.3 Swingline Commitment . Subject to the terms and conditions hereof, the Swingline Lender agrees to make a portion of the credit otherwise available to the Borrower under the Revolving Commitment from time to time during the Revolving Commitment Period by making swing line loans (“ Swingline Loans ”) to the Borrower; provided that (i) the aggregate principal amount of Swingline Loans outstanding at any time shall not exceed the Swingline Commitment then in effect and (ii) the Borrower shall not request, and the Swingline Lender shall not make, any Swingline Loan if, after giving effect to the making of such Swingline Loan, the aggregate amount of the Available Revolving Commitments would be less than zero. During the Revolving Commitment Period, the Borrower may use the Swingline Commitment by borrowing, repaying and reborrowing, all in accordance with the terms and conditions hereof. Swingline Loans shall be ABR Loans only. The Borrower shall repay to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the Revolving Termination Date. The Borrower promises to pay to the Swingline Lender all amounts due under the Swingline Loans on the Revolving Termination Date or such earlier date as required hereunder.
      2.4 Procedure for Swingline Borrowing; Refunding of Swingline Loans.
           (a) Whenever the Borrower desires that the Swingline Lender make Swingline Loans, it shall give the Swingline Lender irrevocable telephonic notice (which telephonic notice must be received by the Swingline Lender not later than 12:00 P.M., Eastern time, on the proposed Borrowing Date) confirmed promptly in writing by a Notice of Borrowing, specifying (i) the amount to be borrowed and (ii) the requested Borrowing Date (which shall be a Business Day during the Revolving Commitment Period). Each borrowing under the Swingline Commitment shall be in an amount equal to $100,000 or a whole multiple of $100,000 in excess thereof. Promptly thereafter and so long as the applicable conditions set forth in Section 5.2 are satisfied, on the Borrowing Date specified in a notice in respect of Swingline Loans, the Swingline Lender shall make available to the Borrower an amount in immediately available funds equal to the amount of the Swingline Loan to be made by depositing such amount in the account designated in writing to the Administrative Agent by the Borrower.

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           (b) The Swingline Lender, at any time and from time to time in its sole and absolute discretion may, on behalf of the Borrower (which hereby irrevocably directs the Swingline Lender to act on its behalf), on one (1) Business Day’s telephonic notice given by the Swingline Lender no later than 12:00 Noon, Eastern time, and promptly confirmed in writing, request each Revolving Lender to make, and each Revolving Lender hereby agrees to make, a Revolving Loan, in an amount equal to such Revolving Lender’s Revolving Percentage of the aggregate amount of the Swingline Loans (the “ Refunded Swingline Loans ”) outstanding on the date of such notice, to repay the Swingline Lender. Each Revolving Lender shall make the amount of such Revolving Loan available to the Administrative Agent at the Revolving Loan Funding Office in immediately available funds, not later than 10:00 A.M., Eastern time, one (1) Business Day after the date of such notice. The proceeds of such Revolving Loans shall be immediately made available by the Administrative Agent to the Swingline Lender for application by the Swingline Lender to the repayment of the Refunded Swingline Loans. The Borrower irrevocably authorizes the Swingline Lender to charge the Borrower’s accounts with the Administrative Agent (up to the amount available in each such account) to immediately pay the amount of such Refunded Swingline Loans to the extent amounts received from the Revolving Lenders are not sufficient to repay in full such Refunded Swingline Loans.
           (c) If, prior to the time a Revolving Loan has been made pursuant to Section 2.4(b) , one of the events described in Section 8.1(f) shall have occurred with respect to the Borrower or if for any other reason, as determined by the Swingline Lender in its sole discretion, Revolving Loans may not be made as contemplated by Section 2.4(b) , each Revolving Lender shall, on the date such Revolving Loan was to have been made pursuant to the notice referred to in Section 2.4(b) or on the date requested by the Swingline Lender (with at least one (1) Business Day’s notice to the Revolving Lenders), purchase for cash an undivided participating interest in the then outstanding Swingline Loans by paying to the Swingline Lender an amount (the “ Swingline Participation Amount” ) equal to (i) such Revolving Lender’s Revolving Percentage multiplied by (ii) the sum of the aggregate principal amount of Swingline Loans then outstanding that were to have been repaid with such Revolving Loans.
           (d) Whenever, at any time after the Swingline Lender has received from any Revolving Lender such Lender’s Swingline Participation Amount, the Swingline Lender receives any payment on account of the Swingline Loans, the Swingline Lender will distribute to such Lender its Swingline Participation Amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s participating interest was outstanding and funded and, in the case of principal and interest payments, to reflect such Lender’s pro rata portion of such payment if such payment is not sufficient to pay the principal of and interest on all Swingline Loans then due); provided that , in the event that such payment received by the Swingline Lender is required to be returned, such Revolving Lender will return to the Swingline Lender any portion thereof previously distributed to it by the Swingline Lender.
           (e) Each Revolving Lender’s obligation to make the Loans referred to in Section 2.4(b) and to purchase participating interests pursuant to Section 2.4(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any setoff, counterclaim, recoupment, defense or other right that such Revolving Lender or the Borrower may have against the Swingline Lender, the Borrower or any other Person for any reason whatsoever, (ii) the occurrence of a Default or an Event of Default or the failure to satisfy any of

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the other conditions specified in Section 5.2 , (iii) any adverse change in the condition (financial or otherwise) of the Borrower, (iv) any breach of this Agreement or any other Loan Document by the Borrower, any other Loan Party or any other Revolving Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.
      2.5 Commitment Fees, etc.
           (a) On or prior to the Closing Date, the Borrower agrees to pay to the Administrative Agent, for the account of the Lenders, the commitment fee in the amount set forth in the Fee Letter with the Administrative Agent.
           (b) As additional compensation for the Revolving Commitment, the Borrower shall pay the Administrative Agent, for the account of the Revolving Lenders, in arrears, on the first day of each calendar quarter prior to the Revolving Termination Date and on the Revolving Termination Date, a fee (the “ Commitment Fee ”) for the Borrower’s non-use of available funds in an amount equal to the Commitment Fee Rate (calculated on the basis of a 360 day year for actual days elapsed) multiplied by the difference between (x) the Total Revolving Commitment (as it may be reduced from time to time) and (y) the average daily Total Revolving Extensions of Credit during the period for which such Commitment Fee is due reduced by the average daily aggregate principal amount of Swingline Loans outstanding for such period.
           (c) The Borrower agrees to pay to the Administrative Agent the other fees in the amounts and on the dates as set forth in the Fee Letter with the Administrative Agent and to perform any other obligations contained therein.
      2.6 Termination or Reduction of Commitments .
           (a) The Borrower shall have the right, upon not less than three (3) Business Days’ notice to the Administrative Agent, to terminate the Total Revolving Commitment or, from time to time, to reduce the amount of the Total Revolving Commitment; provided that no such termination or reduction of the Total Revolving Commitment shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Loans and Swingline Loans made on the effective date thereof, the Total Revolving Extensions of Credit would exceed the Total Revolving Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Total Revolving Commitment then in effect. The Total L/C Commitment shall automatically reduce by an amount equal to any reduction in the Total Revolving Commitment pursuant to this Section 2.6(a). In addition to the foregoing, the Borrower shall have the right, upon not less than three (3) Business Days’ notice to the Administrative Agent, to terminate the Total L/C Commitment or, from time to time, to reduce the amount of the Total L/C Commitment; provided that no such termination or reduction of the Total L/C Commitment shall be permitted if, after giving effect thereto, the Total L/C Commitments shall be reduced to an amount that would result in the aggregate L/C Exposure exceeding the Total L/C Commitments (as so reduced). Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Total L/C Commitment then in effect.

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      2.7 Optional Prepayments . The Borrower may at any time and from time to time prepay the Loans, in whole or in part, upon irrevocable notice delivered to the Administrative Agent no later than 10:00 A.M., Eastern time, three (3) Business Days prior thereto, in the case of Eurodollar Loans, and no later than 10:00 A.M., Eastern time, one (1) Business Day prior thereto, in the case of ABR Loans, which notice shall specify the date and amount of prepayment; provided that , if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.16 ; provided further that , if such notice of prepayment indicates that such prepayment is to be funded with the proceeds of a refinancing or the sale of the Loan Parties, such notice of prepayment may be revoked if the financing or such sale is not consummated. Upon receipt of any such notice, the Administrative Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (except in the case of Revolving Loans that are ABR Loans and Swingline Loans) accrued interest to such date on the amount prepaid. Partial prepayments of Revolving Loans shall be in an aggregate principal amount of at least $500,000 or, if greater, in whole multiples of $250,000. Partial prepayments of Swingline Loans shall be in an aggregate principal amount of $100,000 or a whole multiple thereof.
      2.8 Conversion and Continuation Options.
           (a) The Borrower may elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent prior irrevocable notice in a Notice of Conversion/Continuation of such election no later than 10:00 A.M., Eastern time, on the Business Day preceding the proposed conversion date; provided that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent prior irrevocable notice in a Notice of Conversion/Continuation of such election no later than 10:00 A.M., Eastern time, on the third Business Day preceding the proposed conversion date (which notice shall specify the length of the initial Interest Period therefor); provided that no ABR Loan may be converted into a Eurodollar Loan when any Default or Event of Default has occurred and is continuing. Upon receipt of any such notice, the Administrative Agent shall promptly notify each Revolving Lender thereof.
           (b) Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving irrevocable notice in a Notice of Conversion/Continuation to the Administrative Agent, in accordance with the applicable provisions of the term “Interest Period” set forth in Section 1.1 , of the length of the next Interest Period to be applicable to such Loans; provided that no Eurodollar Loan may be continued as such when any Default or Event of Default has occurred and is continuing, and; provided further that , if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso, such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.
      2.9 Limitations on Eurodollar Tranches . Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions and continuations of Eurodollar Loans and all

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selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $1,000,000 or a whole multiple of $100,000 in excess thereof and (b) no more than five (5) Eurodollar Tranches shall be outstanding at any one time.
      2.10 Interest Rates and Payment Dates.
           (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin.
           (b) Each ABR Loan shall bear interest at a rate per annum equal to the ABR plus the Applicable Margin.
           (c) After the occurrence and during the continuance of (x) an Event of Default under Section 8.1(a) or (f), or (y) any other Event of Default if requested by the Required Lenders in their discretion, all outstanding Loans shall bear interest at a rate per annum equal to the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section 2.10 plus two percent (2.00%).
           (d) Interest shall be payable in arrears on each Interest Payment Date; provided that interest accruing pursuant to Section 2.10(c) shall be payable from time to time on demand.
      2.11 Computation of Interest and Fees.
           (a) Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to ABR Loans the rate of interest on which is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall, as soon as practicable, notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall, as soon as practicable, notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate.
           (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower or any Lender, deliver to the Borrower or the applicable Lender a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.11(a) .
           (c) In no event shall the interest charged hereunder, with respect to the notes (if any) or any other obligations of Loan Parties under any Loan Documents exceed the maximum amount permitted under applicable law. Notwithstanding anything to the contrary

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herein or elsewhere, if at any time the rate of interest payable hereunder or under any note or other Loan Document (the “ Stated Rate ”) would exceed the highest rate of interest permitted under any applicable law to be charged (the " Maximum Lawful Rate ”), then for so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall be equal to the Maximum Lawful Rate; provided , however , that if at any time thereafter the Stated Rate is less than the Maximum Lawful Rate, Borrower shall, to the extent permitted by law, continue to pay interest at the Maximum Lawful Rate until such time as the total interest received is equal to the total interest which would have been received had the Stated Rate been (but for the operation of this provision) the interest rate payable. Thereafter, the interest rate payable shall be the Stated Rate unless and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply. In no event shall the total interest received by any Lender exceed the amount which it could lawfully have received, had the interest been calculated for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the prior sentence, any Lender has received interest hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance of such Lender’s Loan or to other amounts (other than interest) payable hereunder, and if no such principal or other amounts are then outstanding, such excess or part thereof remaining shall be paid to Borrower. In computing interest payable with reference to the Maximum Lawful Rate applicable to any Lender, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made.
      2.12 Inability to Determine Interest Rate . If, prior to the first day of any Interest Period, (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans under the relevant Facility requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans under the relevant Facility that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans under the relevant Facility shall be converted, on the last day of the then-current Interest Period, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans under the relevant Facility shall be made or continued as such, nor shall the Borrower have the right to convert Loans under the relevant Facility to Eurodollar Loans.
      2.13 Pro Rata Treatment and Payments.
           (a) Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower on account of the Commitment Fee and any reduction of the Commitments shall be made pro rata according to the respective L/C Percentages or Revolving Percentages, as the case may be, of the relevant Lenders.

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           (b)  Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Revolving Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Loans then held by the Revolving Lenders.
           (c)  All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 10:00 A.M., Pacific time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Revolving Loan Funding Office, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension.
           (d)  Unless the Administrative Agent shall have been notified in writing by any Lender prior to the date of any borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon, at a rate equal to the greater of (i) the Federal Funds Effective Rate and (ii) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, for the period until such Lender makes such amount immediately available to the Administrative Agent. If such Lender’s share of such borrowing is not made available to the Administrative Agent by such Lender within three (3) Business Days after such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to ABR Loans under the relevant Facility, on demand, from the Borrower.
           (e)  Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment due to be made by the Borrower hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount. If such payment is not made to the Administrative Agent by the Borrower within three (3) Business Days after such due date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing

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herein shall be deemed to limit the rights of Administrative Agent or any Lender against the Borrower.
           (f)  Notwithstanding anything to the contrary in this Agreement, the Administrative Agent may, in its discretion at any time or from time to time, without the Borrower’s request and even if the conditions set forth in Section 5.2 would not be satisfied, make a Revolving Loan in an amount equal to the portion of the Obligations constituting interest and fees and Swingline Loans from time to time due and payable to itself, any Revolving Lender, the Swingline Lender or the Issuing Lender, and apply the proceeds of any such Revolving Loan to those Obligations; provided that , after giving effect to any such Revolving Loan, the aggregate outstanding Revolving Loans will not exceed the Total Revolving Commitments; provided that , to the extent that the Administrative Agent chooses to exercise this right on behalf of itself or SVB in any capacity, the Administrative Agent shall also exercise this right on behalf of each other Lender.
      2.14 Requirements of Law.
           (a)  If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date on which a Lender becomes a party to this Agreement shall:
                (i)  impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender that is not otherwise included in the determination of the Eurodollar Rate; or
                (ii)  impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender, by an amount that such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable; provided , however , that no such additional amounts shall be payable to such Lender for taxes pursuant to this Section 2.14 to the extent that (x) such Lender received additional amounts with respect to such taxes pursuant to Section 2.15 or (y) such amounts constitute Excluded Taxes. If any Lender becomes entitled to claim any additional amounts pursuant to this paragraph, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled.
           (b)  If any Lender shall have determined that the adoption of, or any change in, any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the

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rate of return on such Lender’s or such corporation’s capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or such corporation’s policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction.
           (c)  A certificate as to any additional amounts payable pursuant to this Section 2.14 submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. Notwithstanding anything to the contrary in this Section 2.14, the Borrower shall not be required to compensate a Lender pursuant to this Section 2.14 for any amounts incurred more than six (6) months prior to the date that such Lender notifies the Borrower of such Lender’s intention to claim compensation therefor; provided that if the circumstances giving rise to such claim have a retroactive effect, then such six-month period shall be extended to include the period of such retroactive effect. The obligations of the Borrower pursuant to this Section 2.14 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.
           (d)  For purposes of this Agreement, the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, guidelines, or directives in connection therewith are deemed to have gone into effect and been adopted after the date of this Agreement.
      2.15 Taxes.
           (a)  Except as otherwise provided in this Section 2.15, all payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority (collectively, but excluding Excluded Taxes, the “ Non-Excluded Taxes ”). If any such Non-Excluded Taxes or Other Taxes are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement; provided that the Borrower shall not be required to increase any such amounts payable to any Lender with respect to any Excluded Taxes.
           (b)  In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
           (c)  Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, pursuant to this Section 2.15, as promptly as practicable thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of the relevant Lender, as

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the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof.
           (d)  The Borrower shall reimburse and indemnify, within thirty (30) days after receipt of demand therefor, each Lender, the Issuing Lender, and the Administrative Agent for all Non-Excluded Taxes and Other Taxes (including any Non-Excluded Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.15) paid by such Lender or the Administrative Agent and any liabilities arising therefrom or with respect thereto, including any amendment, supplement, or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents, or any such other documents. A certificate of the Lender or the Administrative Agent claiming any compensation under this Section 2.15, setting forth the amounts to be paid thereunder and delivered to the Borrower with copy to the Administrative Agent, shall be conclusive, binding and final for all purposes, absent manifest error. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure.
           (e) (i) Each U.S. Lender Party shall (A) on or prior to the date such U.S. Lender Party becomes a “U.S. Lender Party” hereunder, (B) on or prior to the date on which any such form or certification expires or becomes obsolete, (C) after the occurrence of any event requiring a change in the most recent form or certification previously delivered by it pursuant to this Section 2.15(e) and (D) from time to time if requested by the Borrower or the Administrative Agent (or, in the case of a Participant, the relevant Lender), provide the Administrative Agent and the Borrower (or, in the case of a Participant, the relevant Lender) with two completed originals of Form W-9 (certifying that such U.S. Lender Party is entitled to an exemption from U.S. backup withholding tax) or any successor form.
                (ii)  Each Non-U.S. Lender Party that, at any of the following times, is entitled to an exemption from United States withholding tax or, after a change in any Requirement of Law, is subject to such withholding tax at a reduced rate under an applicable tax treaty, shall (w) on or prior to the date such Non-U.S. Lender Party becomes a “Non-U.S. Lender Party” hereunder, (x) on or prior to the date on which any such form or certification expires or becomes obsolete, (y) after the occurrence of any event requiring a change in the most recent form or certification previously delivered by it pursuant to this Section 2.15(e)(ii) and (z) from time to time if requested by the Borrower or the Administrative Agent (or, in the case of a Participant, the relevant Lender), provide the Administrative Agent and the Borrower (or, in the case of a Participant, the relevant Lender) with two completed originals of each of the following, as applicable: (A) Forms W-8ECI (claiming exemption from U.S. withholding tax because the income is effectively connected with a U.S. trade or business), W-8BEN (claiming exemption from, or a reduction of, U.S. withholding tax under an income tax treaty) and/or W-8IMY or any successor forms, (B) in the case of a Non-U.S. Lender Party claiming exemption under Sections 871(h) or 881(c) of the Code, Form W-8BEN (claiming exemption from U.S. withholding tax under the portfolio interest exemption) or any successor form and a certificate in form and substance reasonably acceptable to the Borrower and Administrative Agent that such Non-U.S. Lender Party is not (1) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (2) a

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“10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code or (3) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code or (C) any other applicable document prescribed by the IRS certifying as to the entitlement of such Non-U.S. Lender Party to such exemption from United States withholding tax or reduced rate with respect to all payments to be made to such Non-U.S. Lender Party under the Loan Documents. Unless the Borrower and the Administrative Agent have received forms or other documents described above indicating that payments under any Loan Document to or for a Non-U.S. Lender Party are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Loan Parties and the Administrative Agent shall withhold amounts required to be withheld by applicable Requirements of Law from such payments at the applicable statutory rate.
                (iii)  If a payment made to a Non-U.S. Lender Party would be subject to United States federal withholding tax imposed by FATCA if such Non-U.S. Lender Party fails to comply with the applicable reporting requirements of FATCA, such Non-U.S. Lender Party shall deliver to the Administrative Agent and Borrower any documentation under any Requirement of Law sufficient for the Administrative Agent or Borrower to comply with their obligations under FATCA and to determine that such Non-U.S. Lender has complied with such applicable reporting requirements.
           (f)  If the Administrative Agent or any Lender determines, in its sole discretion, that it has received a refund of any Non-Excluded Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.15, it shall pay over such refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.15 with respect to the Non-Excluded Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. This paragraph shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.
           (g)  The agreements in this Section 2.15 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.
      2.16 Indemnity . The Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any loss or expense that such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment of or conversion from Eurodollar Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto. Such

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indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed, reduced, converted or continued, for the period from the date of such prepayment or of such failure to borrow, reduce, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, reduce, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest or other return for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.
      2.17 Change of Lending Office . Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Sections 2.18 or 2.19(a) with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage; provided further that nothing in this Section 2.17 shall affect or postpone any of the obligations of the Borrower or the rights of any Lender pursuant to Sections 2.14 or 2.15(a).
      2.18 Notes . If so requested by any Lender by written notice to the Borrower (with a copy to the Administrative Agent), the Borrower shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 10.6) (promptly after the Borrower’s receipt of such notice) a Note or Notes to evidence such Lender’s Loans.
      2.19 Defaulting Lenders .
           (a)  Adjustments . Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:
                (i)  Waivers and Amendments . Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders.
                (ii)  Reallocation of Payments . Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Section 8 or otherwise, and including any amounts made available to the Administrative Agent by such Defaulting Lender pursuant to Section 10.7), shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any

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amounts owing by such Defaulting Lender to the Issuing Lender hereunder; third, if so determined by the Administrative Agent or requested by the Issuing Lender, to be held as cash collateral for future funding obligations of such Defaulting Lender of any participation in any Letter of Credit; fourth, as the Borrower may request (so long as no Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of such Defaulting Lender to fund Loans under this Agreement; sixth, to the payment of any amounts owing to the Lenders, the L/C Lenders, or the Issuing Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender, any L/C Lender, or Issuing Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Event of Default has occurred and is continuing, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (A) such payment is a payment of the principal amount of any Loans or L/C Advances in respect of which such Defaulting Lender has not fully funded its appropriate share and (B) such Loans or L/C Advances were made at a time when the conditions set forth in Section 5.2 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and L/C Advances owed to, all non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or L/C Advances owed to, such Defaulting Lender. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 2.19(a)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
                (iii)  Certain Fees . A Defaulting Lender (A) shall not be entitled to receive any fee pursuant to Section 2.5 for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to such Defaulting Lender) and (B) shall be limited in its right to receive letter of credit fees as provided in Section 3.3.
                (iv)  Reallocation of Pro Rata Share to Reduce Fronting Exposure . During any period in which there is a Defaulting Lender, for purposes of computing the amount of the obligation of each non-Defaulting Lender to acquire, refinance or fund participations in Letters of Credit pursuant to Section 3.4 or in Swingline Loans pursuant to Section 2.4(c) the pro rata share of each non-Defaulting Lender of any such Letter of Credit or Swingline Loan shall be computed without giving effect to the Revolving Commitment of such Defaulting Lender; provided , that , (A) each such reallocation shall be given effect only if, at the date the applicable Lender becomes a Defaulting Lender, no Event of Default has occurred and is continuing; and (B) the aggregate obligation of each non-Defaulting Lender to acquire, refinance or fund participations in Letters of Credit shall not exceed the positive difference, if any, of (1) the Revolving Commitment of that non-Defaulting Lender minus (2) the aggregate outstanding amount of the Revolving Loans of that Lender plus the aggregate amount of that Lender’s Revolving Percentage of then outstanding Letters of Credit and Swingline Loans.

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           (b)  Defaulting Lender Cure . If the Borrower, the Administrative Agent and the Issuing Lender agree in writing in their sole discretion that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any cash collateral), that Lender will, to the extent applicable, purchase that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit and Swingline Loans to be held on a pro rata basis by the Lenders in accordance with their Revolving Percentages (without giving effect to Section 2.19(a)(iv)), whereupon that Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender having been a Defaulting Lender.
      2.20 Replacement of Lenders .
     (i) If any Lender requests compensation under Section 2.14 , (ii) if Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15 , (iii) if any Lender is a Defaulting Lender, or (iv) if a Lender refuses to consent to an amendment, modification or waiver of this Agreement that, pursuant to Section 10.1 requires consent of 100% of the Lenders or 100% of the Lenders with Obligations affected thereby (and the Required Lenders have consented thereto or, as applicable, 66 2/3% of affected Lenders), then Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender (the Replaced Lender ) to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.6 ), all of its interests, rights and obligations under this Agreement to a willing assignee selected by Borrower that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (a) Borrower shall have received the prior written consent of the Administrative Agent (except where the Administrative Agent is the Replaced Lender) and the Issuing Bank, which consents, so long as no Default has occurred and is continuing, shall not unreasonably be withheld; provided , however , that for purposes of clauses (iii) and (iv) with respect to a Defaulting Lender, such consent will not be unreasonably withheld, regardless of the occurrence and continuance of a Default, (b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in any Cash Management Services, FX Forward Agreements, and Specified Swap Agreements, and accrued interest thereon, fees, and all other amounts from the assignee (to the extent of such outstanding principal and accrued interest) or Borrower (in the case of all other amounts), (c) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.15 , such assignment will result in a material reduction in such compensation or payments, and (d) in the case of any such assignment resulting from a Lender refusing to consent to an amendment, modification or waiver of this Agreement, then such assignee shall consent, at the time of such assignment, to each matter in respect of which such Lender did not consent. For the avoidance of doubt, if a Lender refused to consent to an amendment, modification or waiver that required the consent of 100% of

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Lenders (and the Required Lenders having consented thereto) with Obligations directly affected thereby (which amendment, modification or waiver did not accordingly require the consent of 100% of all Lenders), the Loans and Commitments of such Lender that are subject to the assignments required by this Section shall include only those Loans and Commitments that constitute the Obligations directly affected by the amendment, modification or waiver to which such Lender refused to provide its consent. A Lender shall not be required to make any such assignment and delegation if prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling Borrower to require such assignment and delegation cease to apply. In connection with the foregoing, the Administrative Agent shall have the authority to execute the Assignment and Assumption on behalf of any Lender making an assignment hereunder.
      2.21 Increase in Commitments .
           (a)  Increase in Revolving Commitments . Provided no Default or Event of Default then exists or would arise therefrom, upon notice to the Administrative Agent (which shall promptly notify the Revolving Lenders), the Borrower may from time to time, request an increase in the Total Revolving Commitment by an amount (for all such requests) not exceeding $25,000,000 (each such increase, a “ Revolving Commitment Increase ”); provided that (i) any such request for an increase shall be in a minimum amount of $2,500,000, (ii) the Borrower may make a maximum of four such requests, and (iii) each Revolving Commitment Increase is subject to the prior written consent of each Lender providing such Revolving Commitment Increase. At the time of sending such notice, the Borrower (in consultation with the Administrative Agent) shall specify the time period within which each Revolving Lender is requested to respond to such request for a Revolving Commitment Increase (which shall in no event be less than ten (10) Business Days from the date of delivery of such notice to the Revolving Lenders).
                (i)  Revolving Lender Elections to Increase . Each Revolving Lender shall notify the Administrative Agent within such time period whether or not it agrees to increase its Revolving Commitment and, if so, whether by an amount equal to, greater than, or less than its Revolving Percentage of such requested increase. Any Revolving Lender not responding within such time period shall be deemed to have declined to increase its Revolving Commitment.
                (ii)  Notification by Administrative Agent; Additional Revolving Commitment Lenders . The Administrative Agent shall notify the Borrower and each Revolving Lender of the Revolving Lenders’ responses to each request made hereunder. To achieve the full amount of a requested increase and subject to the approval of the Administrative Agent and the Issuing Lender (which approvals shall not be unreasonably withheld or delayed), to the extent that the existing Revolving Lenders decline to increase their Revolving Commitments, or decline to increase their Revolving Commitments to the amount requested by the Borrower, the Administrative Agent, in consultation with the Borrower, will use its reasonable efforts to arrange for other Eligible Assignees to become Revolving Lenders hereunder and to issue commitments in an amount equal to the amount of the increase in the Total Revolving Commitments requested by the Borrower and not accepted by the existing Revolving Lenders (each such Person issuing, or Revolving Lender increasing, its Revolving Commitment, an “ Additional Revolving Commitment Lender ”); provided , however , that (i) no Revolving Lender shall be obligated to provide a Revolving Commitment Increase as a result of any such request

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by the Borrower, and (ii) without the consent of the Administrative Agent, at no time shall the Revolving Commitment of any Additional Revolving Commitment Lender be less than $5,000,000.
                (iii)  Effective Date and Allocations . If the Total Revolving Commitments are increased in accordance with this Section 2.21(a), the Administrative Agent and the Borrower shall determine the effective date (the “ Revolving Commitment Increase Effective Date ”) and the final allocation of such Revolving Commitment Increase. The Administrative Agent shall promptly notify the Borrower and the Revolving Lenders of the final allocation of such Revolving Commitment Increase and the Revolving Commitment Increase Effective Date and, on the Revolving Commitment Increase Effective Date, (i) the Total Revolving Commitments under, and for all purposes of, this Agreement shall be increased by the aggregate amount of such Revolving Commitment Increases, and (ii) Schedule 1.1A shall be deemed modified, without further action, to reflect the revised Revolving Commitments and Revolving Percentages of the Revolving Lenders.
           (b)  Conditions to Effectiveness of Revolving Commitment Increase . As a condition precedent to such Revolving Commitment Increase: (i) the Borrower shall deliver to the Administrative Agent a certificate of the Borrower dated as of the Revolving Commitment Increase Effective Date (in sufficient copies for each Revolving Lender), signed by a Responsible Officer of the Borrower, (A) certifying and attaching the resolutions adopted by the Borrower approving or consenting to such increase, and (B) certifying that, before and after giving effect to such increase, the representations and warranties contained in Section 4 hereof and the other Loan Documents are true and correct in all material respects on and as of the Revolving Commitment Increase Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date; (ii) the Borrower, the Administrative Agent, and any Additional Revolving Commitment Lender shall have executed and delivered a joinder to the Loan Documents in such form as the Administrative Agent shall reasonably require; (iii) the Borrower shall have paid such fees and other compensation to the Additional Revolving Commitment Lenders as the Borrower and such Additional Revolving Commitment Lenders shall agree; (iv) the Borrower shall have paid such arrangement fees to the Administrative Agent as the Borrower and the Administrative Agent may agree; (v) the Borrower shall deliver to the Administrative Agent and the Lenders an opinion or opinions, in form and substance reasonably satisfactory to the Administrative Agent, from counsel to the Borrower reasonably satisfactory to the Administrative Agent and dated such date; (vi) to the extent requested by any Additional Revolving Commitment Lender, a Note evidencing the Revolving Loans will be issued at the Borrower’s expense, to each such Additional Revolving Commitment Lender; (vii) the Borrower and the Additional Revolving Commitment Lender shall have delivered such other instruments, documents and agreements as the Administrative Agent may reasonably have requested; (ix) no Default exists; and (viii) no Material Adverse Effect shall have occurred since the date of the most recent financial statements delivered to the Administrative Agent pursuant to Section 6.1. The Borrower shall prepay any Revolving Loans outstanding on the Revolving Commitment Increase Effective Date (and pay any additional amounts required pursuant to Section 2.16), to the extent necessary to keep the outstanding Revolving Loans ratable with any revised Revolving Percentages arising from any nonratable increase in the Revolving Commitments under this Section 2.21.

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           (c)  The provisions of this Section 2.21 do not constitute a “commitment” to lend, and the Commitments of the Lenders shall not be increased until satisfaction of the provisions of this Section 2.21 and actual increase of the Commitments as provided herein.
SECTION 3
LETTERS OF CREDIT
      3.1 L/C Commitment.
           (a)  Subject to the terms and conditions hereof, the Issuing Lender agrees to issue letters of credit (“ Letters of Credit ”) for the account of the Borrower on any Business Day during the Letter of Credit Availability Period in such form as may be approved from time to time by the Issuing Lender; provided that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, the L/C Exposure would exceed either the Total L/C Commitment or the Available Revolving Commitment at such time. Each Letter of Credit shall (i) be denominated in Dollars and (ii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date that is five (5) Business Days prior to the Letter of Credit Maturity Date; provided that any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above) subject to the Borrower’s satisfaction of the conditions set forth in Section 5.2 at the time of any such renewal. If the Borrower so requests in any applicable Letter of Credit Application, the L/C Issuer may, in its sole discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an “ Auto-Extension Letter of Credit ”); provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “ Non-Extension Notice Date ”) in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the L/C Issuer, the Borrower shall not be required to make a specific request to the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Letter of Credit at any time to an expiry date not later than the date that is five (5) Business Days prior to the Letter of Credit Maturity Date; provided , however , that the L/C Issuer shall not permit any such extension if (A) the L/C Issuer has determined that it would not be permitted, or would have no obligation, at such time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of Section 3.1(b) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is seven (7) Business Days before the Non-Extension Notice Date from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in Section 5.2 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension.
           (b)  The Issuing Lender shall not at any time be obligated to issue any Letter of Credit if:

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(i) such issuance would conflict with, or cause the Issuing Lender or any L/C Lender to exceed any limits imposed by, any applicable Requirement of Law, including, without limitation, any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Lender from issuing the Letter of Credit, or any law applicable to the Issuing Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing Lender refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or shall impose upon the Issuing Lender with respect to the Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Lender is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Lender any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Lender in good faith deems material to it;
(ii) the issuance of the Letter of Credit would violate one or more policies of the Issuing Lender applicable to letters of credit generally;
(iii) except as otherwise agreed by the Administrative Agent and the Issuing Lender, the Letter of Credit is in an initial stated amount less than $100,000, in the case of a commercial Letter of Credit, or $500,000, in the case of a standby Letter of Credit;
(iv) any Lender is at that time a Defaulting Lender, unless the Issuing Lender has entered into arrangements, including the delivery of cash collateral, satisfactory to the Issuing Lender (in its sole discretion) with the Borrower or such Lender to eliminate the Issuing Lender’s actual or potential fronting exposure with respect to the Defaulting Lender arising from either the Letter of Credit then proposed to be issued or that Letter of Credit and all other Obligations under Letters of Credit as to which the Issuing Lender has actual or potential fronting exposure, as it may elect in its sole discretion;
(v) such Letter of Credit contains any provisions for automatic reinstatement of the stated amount thereof after any drawing thereunder; or
(vi) subject to Section 3.1(a), the expiry date of such requested Letter of Credit would occur more than twelve (12) months after the date of issuance thereof.
           (c)  Unless otherwise expressly agreed by the L/C Issuer and the Borrower when a Letter of Credit is issued (including any such agreement applicable to an Existing Letter of Credit), (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of UCP 600 at the time of issuance shall apply to each commercial Letter of Credit.
           (d)  Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided , however , that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated

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amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
      3.2 Procedure for Issuance of Letters of Credit . The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall, subject to the satisfaction of the conditions set forth in Section 5.2, promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three (3) Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by the Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower promptly following the issuance thereof. The Issuing Lender shall promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the Lenders, notice of the issuance of each Letter of Credit (including the amount thereof).
      3.3 Fees and Other Charges.
           (a)  The Borrower agrees to pay to the Administrative Agent, for the account of the L/C Lenders, with respect to each outstanding Letter of Credit issued for the account of (or at the request of) the Borrower letter of credit fees at the Applicable Margin applicable to Eurodollar Loans on the drawable amount of such Letter of Credit, payable quarterly in arrears on the last Business Day of March, June, September and December of each year and on the Letter of Credit Maturity Date (each, an “ L/C Fee Payment Date ”) after the issuance date of such Letter of Credit, as well as the Issuing Lender’s standard and reasonable fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit issued for the account of (or at the request of) the Borrower or processing of drawings thereunder, including, without limitation, a fronting fee for the issuance or renewal of Letters of Credit of one-eighth of one percent (0.125%) per annum of the face amount of each Letter of Credit issued, upon the issuance, each anniversary of the issuance, and the renewal of such Letter of Credit by the issuing Lender (collectively, the “ Issuing Lender Fees ”). Notwithstanding the foregoing, with respect to Existing Letters of Credit, Issuing Lender Fees shall not be charged for the remaining term of such Existing Letters of Credit; provided that upon renewal of an Existing Letter of Credit, such Existing Letter of Credit shall accrue Issuing Lender Fees as set forth above. All Issuing Lender Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days.
           (b)  In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit.

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      3.4 L/C Participations . The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Lender, and, to induce the Issuing Lender to issue Letters of Credit, each L/C Lender irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions set forth below, for such L/C Lender’s own account and risk an undivided interest equal to such L/C Lender’s L/C Percentage in the Issuing Lender’s obligations and rights under and in respect of each Letter of Credit and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Lender agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrower pursuant to Section 3.5(a), such L/C Lender shall pay to the Issuing Lender upon demand at the Issuing Lender’s address for notices specified herein an amount equal to such L/C Lender’s L/C Percentage of the amount of such draft, or any part thereof, that is not so reimbursed. Each L/C Lender’s obligation to pay such amount shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any setoff, counterclaim, recoupment, defense or other right that such L/C Lender may have against the Issuing Lender, the Borrower or any other Person for any reason whatsoever, (ii) the occurrence of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Section 5, (iii) any adverse change in the condition (financial or otherwise) of the Borrower, (iv) any breach of this Agreement or any other Loan Document by the Borrower, any other Loan Party or any other L/C Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.
      3.5 Reimbursement.
           (a)  If the Issuing Lender shall make any L/C Disbursement in respect of a Letter of Credit, the Borrower shall pay or cause to be paid to the Issuing Lender an amount equal to the entire amount of such L/C Disbursement not later than the immediately following Business Day. Each such payment shall be made to the Issuing Lender at its address for notices referred to herein in Dollars and in immediately available funds.
           (b)  If the Issuing Lender shall not have received from the Borrower the payment that it is required to make pursuant to Section 3.5(a) with respect to a Letter of Credit within the time specified in such Section, the Issuing Lender will promptly notify the Administrative Agent of the L/C Disbursement and the Administrative Agent will promptly notify each L/C Lender of such L/C Disbursement and its L/C Percentage thereof, and each L/C Lender shall pay to the Issuing Lender upon demand at the Issuing Lender’s address for notices specified herein an amount equal to such L/C Lender’s L/C Percentage of such L/C Disbursement; upon such payment pursuant to this paragraph to reimburse the Issuing Lender for any L/C Disbursement, the Borrower shall be required to reimburse the L/C Lenders for such payments (including interest accrued thereon from the date of such payment until the date of such reimbursement at the rate applicable to Revolving Loans that are ABR Loans plus (two percent (2.00%) per annum) on demand; provided that if at the time of and after giving effect to such payment by the L/C Lenders, the conditions to borrowings and Revolving Loan Conversions set forth in Section 5.2 are satisfied, the Borrower may, by written notice to the Administrative Agent certifying that such conditions are satisfied and that all interest owing under this paragraph has been paid, request that such payments by the L/C Lenders be converted into Revolving Loans (a “ Revolving Loan Conversion ”), in which case, if such conditions are in fact satisfied, the L/C Lenders shall be deemed to have extended, and the Borrower shall be

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deemed to have accepted, a Revolving Loan in the aggregate principal amount of such payment without further action on the part of any party, and the Total L/C Commitments shall be permanently reduced by such amount; any amount so paid pursuant to this paragraph shall, on and after the payment date thereof, be deemed to be Revolving Loans for all purposes hereunder; provided that the Issuing Lender, at its option, may effectuate a Revolving Loan Conversion regardless of whether the conditions to borrowings and Revolving Loan Conversions set forth in Section 5.2 are satisfied.
      3.6 Obligations Absolute . The Borrower’s obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment that the Borrower may have or have had against the Issuing Lender, any beneficiary of a Letter of Credit or any other Person. The Borrower also agrees with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Borrower’s obligations hereunder shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Issuing Lender. The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct, shall be binding on the Borrower and shall not result in any liability of the Issuing Lender to the Borrower.
          In addition to amounts payable as elsewhere provided in the Agreement, Borrower hereby agrees to pay and to protect, indemnify, and save the Issuing Lender harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys’ fees and allocated costs of internal counsel) that the Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit, or (B) the failure of the Issuing Lender or of any L/C Lender to honor a demand for payment under any Letter of Credit thereof as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority, in each case other than to the extent solely as a result of the gross negligence or willful misconduct of the Issuing Lender or such L/C Lender (as finally determined by a court of competent jurisdiction).
      3.7 Letter of Credit Payments . If any draft shall be presented for payment under any Letter of Credit, the Issuing Lender shall promptly notify the Borrower and the Administrative Agent of the date and amount thereof. The responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of

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Credit in connection with such presentment are substantially in conformity with such Letter of Credit.
      3.8 Applications . To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply.
      3.9 Interim Interest . If the Issuing Lender shall make any L/C Disbursement in respect of a Letter of Credit, then, unless either the Borrower shall reimburse such L/C Disbursement in full within the time period specified in Section 3.5(a) or the L/C Lenders shall reimburse such L/C Disbursement in full on such date as provided in Section 3.5(b), in each case the unpaid amount thereof shall bear interest for the account of the Issuing Lender, for each day from and including the date of such L/C Disbursement to but excluding the date of payment by the Borrower, at the rate per annum that would apply to such amount if such amount were a Revolving Loan that is an ABR Loan; provided that the provisions of Section 2.10(c) shall be applicable to any such amounts not paid when due.
      3.10 Additional Issuing Lenders . The Borrower may, at any time and from time to time with the consent of the Administrative Agent (which consent shall not be unreasonably withheld) and such Lender, designate one or more additional Lenders to act as an issuing bank under the terms of this Agreement. Any Lender designated as an issuing bank pursuant to this paragraph shall be deemed to be an “ Issuing Lender ” (in addition to being a Lender) in respect of Letters of Credit issued or to be issued by such Lender, and, with respect to such Letters of Credit, such term shall thereafter apply to the other Issuing Lender and such Lender.
      3.11 Resignation of the Issuing Lender . The Issuing Lender may resign at any time by giving at least thirty (30) days’ prior written notice to the Administrative Agent, the Lenders and the Borrower. Subject to the next succeeding paragraph, upon the acceptance of any appointment as the Issuing Lender hereunder by a Lender that shall agree to serve as successor Issuing Lender, such successor shall succeed to and become vested with all the interests, rights and obligations of the retiring Issuing Lender and the retiring Issuing Lender shall be discharged from its obligations to issue additional Letters of Credit hereunder without affecting its rights and obligations with respect to Letters of Credit previously issued by it. At the time such resignation shall become effective, the Borrower shall pay all accrued and unpaid fees pursuant to Section 3.3. The acceptance of any appointment as the Issuing Lender hereunder by a successor Lender shall be evidenced by an agreement entered into by such successor, in a form satisfactory to the Borrower and the Administrative Agent, and, from and after the effective date of such agreement, (i) such successor Lender shall have all the rights and obligations of the previous Issuing Lender under this Agreement and the other Loan Documents and (ii) references herein and in the other Loan Documents to the term “Issuing Lender” shall be deemed to refer to such successor or to any previous Issuing Lender, or to such successor and all previous Issuing Lenders, as the context shall require. After the resignation of the Issuing Lender hereunder, the retiring Issuing Lender shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Lender under this Agreement and the other Loan Documents with respect to Letters of Credit issued by it prior to such resignation, but shall not be required to issue additional Letters of Credit.

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SECTION 4
REPRESENTATIONS AND WARRANTIES
     To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans and issue the Letters of Credit, the Borrower hereby represents and warrants to the Administrative Agent and each Lender that:
      4.1 Financial Condition.
           (a)  The audited consolidated balance sheets of Borrower and its Subsidiaries as of December 31, 2008, December 31, 2009, and December 31, 2010, and the related consolidated statements of operations, changes in stockholders’ (deficit) equity and comprehensive loss and cash flows each of the years then ended on such dates, reported on by and accompanied by an unqualified report from Ernst & Young LLP, present fairly in all material respects the consolidated financial condition of Borrower and its Subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). Except as set forth on Schedule 4.1, no Group Member has, as of the Closing Date, any material (i) Guarantee Obligations, (ii) contingent liabilities and (iii) liabilities for taxes, or any material long-term leases or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the most recent financial statements referred to in this paragraph. During the period from December 31, 2010 to and including the date hereof there has been no Disposition by any Group Member of any material part of its business or property.
      4.2 No Change . Since December 31, 2010, there has been no development or event that has had or could reasonably be expected to have a Material Adverse Effect.
      4.3 Existence; Compliance with Law. Except as set forth in Schedule 4.3, each Group Member (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation or other organization and in good standing under the laws of each jurisdiction where the failure to be so qualified could reasonably be expected to have a Material Adverse Effect and (d) is in material compliance with all Requirements of Law.
      4.4 Power, Authorization; Enforceable Obligations . Each Loan Party has the power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to obtain extensions of credit hereunder. Each Loan Party has taken all necessary organizational action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the extensions of credit on the terms and conditions of this Agreement. No Governmental Approval or consent or authorization of, filing with, notice to or other act by

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or in respect of, any other Person is required in connection the extensions of credit hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents by or in respect of any Group Member, except (i) Governmental Approvals, consents, authorizations, filings and notices described in Schedule 4.4, which Governmental Approvals, consents, authorizations, filings and notices have been obtained or made and are in full force and effect, (ii) the filings referred to in Section 4.19 and (iii) Governmental Approvals described in Schedule 4.5. Each Loan Document has been duly executed and delivered on behalf of each Loan Party party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party party thereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).
      4.5 No Legal Bar . The execution, delivery and performance of this Agreement and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder and the use of the proceeds thereof by each Group Member will not violate any Requirement of Law (except as set forth in Schedule 4.5) or any material Contractual Obligation of any Group Member and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents). No Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. The absence of obtaining the Governmental Approvals described in Schedule 4.5 and the violations of Requirements of Law referenced in Schedule 4.5 shall not have, or reasonably be expected to have, an adverse effect on any rights of the Lenders, the Administrative Agent pursuant to the Loan Documents or an adverse effect on the Group Members with regard to their continuing operations or operations.
      4.6 Litigation . Except as set forth in Schedule 4.6, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against any Group Member or against any of their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) that could reasonably be expected to have a Material Adverse Effect.
      4.7 No Default . No Group Member is in default under or with respect to any of its Contractual Obligations in any respect that could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred, nor shall either result from the making of a Credit Extension.
      4.8 Ownership of Property; Liens; Investments . Each Group Member has title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any Lien except as permitted by Section 7.3. No Loan Party owns any Investment except as permitted by Section 7.8. Section 8 of the Collateral Information Certificate sets forth a complete and accurate list of all real property owned by each Loan Party as of the date hereof, if any. Section

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9 of the Collateral Information Certificate sets forth a complete and accurate list of all leases of real property under which any Loan Party is the lessee as of the date hereof.
      4.9 Intellectual Property . Each Group Member owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted. No claim has been asserted and is pending by any Person challenging or questioning any Group Member’s use of any Intellectual Property or the validity or effectiveness of any Group Member’s Intellectual Property, nor does the Borrower know of any valid basis for any such claim, unless such claim could not reasonably be expected to have a Material Adverse Effect. The use of Intellectual Property by each Group Member, and the conduct of such Group Member’s business, as currently conducted, does not infringe on or otherwise violate the rights of any Person, unless such infringement could not reasonably be expected to have a Material Adverse Effect, and there are no claims pending or, to the knowledge of the Borrower, threatened to such effect.
      4.10 Taxes . Except as set forth in Schedule 4.10, each Group Member has filed or caused to be filed all Federal and state income tax returns and other material tax returns that are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other material taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any taxes, the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the relevant Group Member and tax obligations which do not individually or in the aggregate exceed $250,000); no tax Lien has been filed, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such tax already due and payable and not being contested in good faith.
      4.11 Federal Regulations . No part of the proceeds of any Loans, and no other extensions of credit hereunder, will be used (a) for “buying” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect for any purpose that violates the provisions of the Regulations of the Board or (b) for any purpose that violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in Regulation U.
      4.12 Labor Matters . Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes against any Group Member pending or, to the knowledge of the Borrower, threatened; (b) hours worked by and payment made to employees of each Group Member have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters; and (c) all payments due from any Group Member on account of employee health and welfare insurance have been paid or accrued as a liability on the books of the relevant Group Member.
      4.13 ERISA . Neither a Reportable Event nor an “ accumulated funding deficiency ” (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with

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respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a material amount. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan that has resulted or could reasonably be expected to result in a material liability under ERISA, and neither the Borrower nor any Commonly Controlled Entity would become subject to any material liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent.
      4.14 Investment Company Act; Other Regulations . No Loan Party is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended. Except as set forth in Schedule 4.4 and Schedule 4.5, no Loan Party is subject to regulation under any Requirement of Law (other than Regulation X of the Board) that limits its ability to incur Indebtedness. No Loan Party is subject to or is not exempt from regulation as a “holding company” under the Public Utility Holding Company Act of 2005 or as a “public utility” under the Federal Power Act 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.
      4.15 Subsidiaries . Except as disclosed to the Administrative Agent by the Borrower in writing from time to time after the Closing Date, (a) Schedule 4.15 sets forth the name and jurisdiction of organization of each Subsidiary and, as to each such Subsidiary, the percentage of each class of Capital Stock owned by any Loan Party, and (b) there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to employees or directors and directors’ qualifying shares) of any nature relating to any Capital Stock of the Borrower or any Subsidiary, except as created by the Loan Documents.
      4.16 Use of Proceeds . The proceeds of the Revolving Loans, the Swingline Loans and the Letters of Credit, shall be used for general corporate and working capital purposes.
      4.17 Environmental Matters . Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect:
           (a)  the facilities and properties owned, leased or operated by any Group Member (the “ Properties ”) do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations or under circumstances that constitute or constituted a violation of, or could give rise to liability under, any Environmental Law;
           (b)  no Group Member has received or is aware of any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters

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or compliance with Environmental Laws with regard to any of the Properties or the business operated by any Group Member (the “ Business ”), nor does the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened;
           (c)  Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location that could give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Law;
           (d)  no judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Borrower, threatened, under any Environmental Law to which any Group Member is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business;
           (e)  there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of any Group Member in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws;
           (f)  the Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the Business; and
           (g)  no Group Member has assumed any liability of any other Person under Environmental Laws.
      4.18 Accuracy of Information, etc. (a) No statement or information contained in this Agreement, any other Loan Document or any other document, certificate or statement furnished by or on behalf of any Loan Party to the Administrative Agent or the Lenders, or any of them, for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or certificate was so furnished, any untrue statement of a material fact or omitted to state a material fact necessary to make the statements contained herein or therein not misleading. The projections and pro forma financial information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount.

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     (b) There is no fact known to any Loan Party that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, or in the other Loan Documents or otherwise disclosed to the Administrative Agent and the Lenders.
      4.19 Security Documents .
           (a) The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. In the case of the Pledged Stock (as defined in the Guarantee and Collateral Agreement) that are securities represented by stock certificates or otherwise constituting certificated securities within the meaning of Section 8-102(a)(4) of the New York UCC or the corresponding code or statute of any other applicable jurisdiction (“ Certificated Securities ”), when certificates representing such Pledged Stock are delivered to the Administrative Agent, and in the case of the other Collateral constituting personal property described in the Guarantee and Collateral Agreement, when UCC-1 financing statements in appropriate form are filed in the offices specified on Schedule 4.19(a), the Administrative Agent, for the benefit of the Secured Parties, shall have a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, as security for the Obligations, in each case prior and superior in right to any other Person (except, in the case of Collateral other than Pledged Stock, Liens expressly permitted to have priority by Section 7.3). As of the Closing Date, none of the Borrower or any Subsidiary Guarantor that is a limited liability company or partnership has any Capital Stock that is a Certificated Security.
           (b) Each of the Mortgages delivered after the Closing Date will be, upon execution, effective to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a legal, valid and enforceable Lien on the Mortgaged Properties described therein and proceeds thereof, and when the Mortgages are filed in the offices for the applicable jurisdictions in which the Mortgaged Properties are located, each such Mortgage shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in the Mortgaged Properties and the proceeds thereof, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person.
      4.20 Solvency . Each Loan Party is, and after giving effect to the incurrence of all Indebtedness and obligations being incurred in connection herewith and the other Loan Documents will be and will continue to be, Solvent.
      4.21 Regulation H . No Mortgage encumbers improved real property that is located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has not been made available under the National Flood Insurance Act of 1968.
      4.22 Designated Senior Indebtedness. The Loan Documents and all of the Obligations shall be deemed “Designated Senior Indebtedness” or a similar concept thereof for purposes of any Indebtedness of the Loan Parties.

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      4.23 Insurance . All insurance maintained by the Loan Parties is in full force and effect, all premiums have been duly paid, no Loan Party has received notice of violation or cancellation thereof, and there exists no default under any requirement of such insurance. Each Loan Party maintains insurance with financially sound and reputable insurance companies insurance on all its property (and also with respect to its foreign receivables) in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business
      4.24 No Casualty . No Loan Party has received any notice of, nor does any Loan Party have any knowledge of, the occurrence or pendency or contemplation of any casualty event or condemnation proceeding affecting all or any portion of the Collateral.
SECTION 5
CONDITIONS PRECEDENT
      5.1 Conditions to Effectiveness . The effectiveness of this Agreement on the Closing Date is subject to the following conditions precedent:
           (a) Loan Documents . (i) Each Lender shall have received (A) this Agreement executed and delivered by the Administrative Agent, the Borrower and each Lender listed on Schedule 1.1A, (B) the Guarantee and Collateral Agreement, executed and delivered by the Borrower and each Subsidiary Guarantor, and (C) an Acknowledgement and Consent in the form attached to the Guarantee and Collateral Agreement, executed and delivered by each Issuer (as defined therein), if any, that is not a Loan Party, and (D) its Note to the extent requested pursuant to Section 2.18, and (ii) the Administrative Agent shall have received each other Loan Document, executed and delivered by the parties thereto.
           (b) Financial Statements; Projections . The Lenders shall have received the audited consolidated financial statements of Borrower and its Subsidiaries as of December 31, 2008, 2009 and 2010 at least fifteen (15) days before the Closing Date. The Administrative Agent shall have received a detailed business plan of the Borrower and its Subsidiaries for the 2011 fiscal year through the 2012 fiscal year, in form and substance satisfactory to the Administrative Agent.
           (c) Approvals . Except for the Governmental Approvals described in Schedule 4.5, all Governmental Approvals and consents and approvals of, or notices to, any other Person required in connection with the execution and performance of the Loan Documents, the continuing operations of the Group Members, and the other transactions contemplated hereby shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority that could reasonably be expected to restrain, prevent or otherwise impose burdensome conditions on the financing contemplated hereby. The absence of obtaining the Governmental Approvals described in Schedule 4.5 shall not have an adverse effect on any rights of the Lenders, or the Administrative Agent pursuant to the Loan Documents or an adverse effect on the Group Members with regard to their continuing operations or operations.

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           (d) Lien Searches . The Administrative Agent shall have received the results of a recent lien search in all appropriate jurisdictions (including the jurisdiction of formation or organization of each Group Member), and such search shall reveal no liens on any of the assets of the Loan Parties except for liens permitted by Section 7.3 or discharged on or prior to the Closing Date pursuant to documentation satisfactory to the Administrative Agent.
           (e) Fees . The Lenders and the Administrative Agent shall have received all fees required to be paid, and all expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel), on or before the Closing Date.
           (f) Secretary’s Certificate; Certified Certificate of Organization; Good Standing Certificates. The Administrative Agent shall have received (i) a certificate of each Loan Party, dated the Closing Date, substantially in the form of Exhibit C, with appropriate insertions and attachments, including the certificate of incorporation or other similar organizational document of each Loan Party certified by the relevant authority of the jurisdiction of organization of such Loan Party, the bylaws or other similar organizational document of each Loan Party and the relevant board resolutions or written consents of each Loan Party authorizing the transactions contemplated hereunder, and (ii) a long form good standing certificate for each Loan Party from its jurisdiction of organization.
           (g) Legal Opinions . The Administrative Agent and each Lender shall have received the executed legal opinions of Goodwin Procter LLP, counsel to Borrower and its Subsidiaries, in a form reasonably satisfactory to the Administrative Agent. Such legal opinions shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require.
           (h) Pledged Stock; Stock Powers; Pledged Notes . The Administrative Agent shall have received (i) the original certificates representing the shares of Capital Stock pledged pursuant to the Security Documents, together with an undated stock power for each such certificate executed and dated in blank by a duly authorized officer of the pledgor thereof, and (ii) each original promissory note (if any) pledged to the Administrative Agent pursuant to the Security Documents, endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof.
           (i) Filings, Registrations and Recordings . Each document (including any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 7.3), shall be in proper form for filing, registration or recordation.
           (j) Solvency Certificate . The Administrative Agent shall have received a solvency certificate from the chief financial officer or treasurer of the Borrower, substantially in the form of Exhibit D, certifying that each Loan Party is, and after giving effect to the incurrence of all Indebtedness and Obligations being incurred in connection herewith and the other Loan Documents will be, and will continue to be, Solvent.

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           (k) Patriot Act . The Administrative Agent shall have received, prior to the Closing Date, all documentation and other information required by Governmental Authorities under applicable “know your customer” and anti-money-laundering rules and regulations, including the Patriot Act.
           (l) Insurance . The Administrative Agent shall have received insurance certificates (and underlying endorsements) satisfying the requirements of Section 5.2 of the Guarantee and Collateral Agreement and Section 6.5 hereunder.
           (m) No Material Adverse Effect . There shall not have occurred since September 30, 2010 any event or condition that has had or could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
           (n) No Litigation . No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of any Group Member, threatened, that has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
           (o) Representations and Warranties . Each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct in all respects except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been true and correct in all respects as of such earlier date.
           (p) No Default . No Default or Event of Default shall have occurred and be continuing.
      5.2 Conditions to Each Extension of Credit . The agreement of each Lender to make any extension of credit requested to be made by it on any date including, but not limited to, any Loan to be advanced and such Lender’s participation in any Letter of Credit to be issued hereunder (including its initial extension of credit) is subject to the satisfaction of the following conditions precedent on the date of such extension of credit including, but not limited to, the date of the advance of any such Loan and the date of the issuance of any such Letter of Credit:
           (a) Representations and Warranties . Each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects as of such earlier date and except that for purposes of this Section 5.2 , the representations and warranties contained in Section 4.1 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.1 ;
           (b) No Default . No Default or Event of Default shall have occurred as of or on such date or after giving effect to the extensions of credit requested to be made on such date; and

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           (c) No Material Adverse Effect . There shall not have occurred any event or condition that has had or could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder and each Revolving Loan Conversion shall constitute a representation and warranty by the Borrower as of the date of such extension of credit and each Revolving Loan Conversion that the conditions contained in this Section 5.2 have been satisfied.
SECTION 6
AFFIRMATIVE COVENANTS
     The Borrower hereby agrees that, until all Commitments have been terminated and the principal of and interest on each Loan, all fees and all other expenses or amounts payable under any Loan Document (other than inchoate indemnity obligations) shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, the Borrower shall, as to itself and each Borrower’s Subsidiaries, and shall cause each of its Subsidiaries to:
      6.1 Financial Statements . Furnish to the Administrative Agent, for distribution to each Lender:
           (a) as soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of operations, changes in stockholders’ (deficit) equity and comprehensive loss and cash flows each of the years then ended on such dates, setting forth in each case in comparative form the figures for the previous year, reported on by and accompanied by an unqualified report from Ernst & Young LLP or other independent certified public accountant reasonably acceptable to the Administrative Agent; and
           (b) as soon as available, but in any event not later than forty five (45) days after the end of each fiscal quarter of the Borrower, the unaudited consolidated and consolidating balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated and consolidating statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments).
     All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied (except as approved by such accountants or officer, as the case may be, and disclosed in reasonable detail therein) consistently throughout the periods reflected therein and with prior periods. Documents required to be delivered pursuant to the terms of the foregoing clauses (a) and (b) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered

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electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrower’s website on the Internet at Borrower’s website address.
      6.2 Certificates; Other Information . Furnish to the Administrative Agent, for distribution to each Lender (or, in the case of clause (g), to the relevant Lender):
           (a) (i) within forty five (45) days after the end of each month and concurrently with the delivery of the financial statements referred to in Section 6.1(a), (A) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer’s knowledge, each Loan Party during such period has observed or performed all of its covenants and other agreements, and satisfied every condition contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, (B) to the extent not previously disclosed to the Administrative Agent, a description of any change in the jurisdiction of organization of any Loan Party and a list of any Intellectual Property acquired by any Loan Party since the date of the most recent report delivered pursuant to this clause (B) (or, in the case of the first such report so delivered, since the Closing Date) and (C) a Compliance Certificate containing all information and calculations necessary for determining compliance by each Group Member with the provisions of this Agreement referred to therein as of the last day of the month (it being understood and agreed that such Compliance Certificate shall not be required to contain information and calculations with respect to those financial covenants that are not required to be tested on the last day of such month); provided that a five (5) day grace period shall apply to the delivery requirement relating to the monthly Compliance Certificate set forth in this clause (C);
           (b) as soon as available, and in any event no later than sixty (60) days after the end of each fiscal year of the Borrower, a detailed consolidated budget for the following fiscal year approved by the board of directors of the Borrower (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of each fiscal quarter of such fiscal year, the related consolidated statements of projected cash flow, projected changes in financial position and projected income and a description of the underlying assumptions applicable thereto), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such fiscal year (collectively, the “ Projections ”), which Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect;
           (c) within five (5) days after the same are sent, copies of all financial statements and reports that the Borrower sends to the holders of any class of its debt securities or public equity securities and, within five (5) days after the same are filed, copies of all financial statements and reports that the Borrower may make to, or file with, the SEC; Documents required to be delivered pursuant to the terms of this clause (d) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which

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Borrower posts such documents, or provides a link thereto, on Borrower’s website on the Internet at Borrower’s website address;
           (d) upon request by the Administrative Agent, within five (5) days after the same are sent or received, copies of all correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material effect on any of the Governmental Approvals or otherwise on the operations of the Group Members;
           (e) upon request by the Administrative Agent no more frequently than monthly, (i) an aged listing of accounts receivable (by invoice date), (ii) an aged listing of accounts payable (by invoice date), and (iii) statements detailing the balances of cash and Cash Equivalents of Borrower and its Subsidiaries; and
           (f) promptly, such additional financial and other information as the Administrative Agent or any Lender may from time to time reasonably request.
      6.3 Payment of Obligations . Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the relevant Group Member.
      6.4 Maintenance of Existence; Compliance . (a) (i) Preserve, renew and keep in full force and effect its organizational existence and (ii) take all reasonable action to maintain or obtain all Governmental Approvals and all other rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 7.4 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect; and (c) comply with all Governmental Approvals, and any term, condition, rule, filing or fee obligation, or other requirement related thereto, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.
      6.5 Maintenance of Property; Insurance . (a) Keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance policies on all its property (and also with respect to its foreign receivables) in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business which insurance policies shall identify the Administrative Agent, for the benefit of the Secured Parties, as loss payee or additional insured, as the case may be, and shall provide the Administrative Agent with at least thirty (30) days prior notice of termination.

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      6.6 Books and Records . Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities.
      6.7 Notices . Promptly give notice to the Administrative Agent and each Lender of:
           (a) the occurrence of any Default or Event of Default;
           (b) any (i) default or event of default under any Contractual Obligation of any Group Member or (ii) litigation, investigation or proceeding that may exist at any time between any Group Member and any Governmental Authority, that in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect;
           (c) any litigation or proceeding affecting any Group Member (i) in which the amount involved is $500,000 or more and not covered by insurance, (ii) in which injunctive or similar relief is sought or (iii) which relates to any Loan Document;
           (d) the following events, as soon as possible and in any event within thirty (30) days after the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan; and
           (e) any development or event that has had or could reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the relevant Group Member proposes to take with respect thereto.
      6.8 Environmental Laws .
           (a) Comply in all material respects with, and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws.
           (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws.

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      6.9 Accounts; Collections .
           (a) Maintain the Borrower’s and its Domestic Subsidiaries’ primary depository and operating accounts and securities accounts with one or more of the Lenders or one or more of the Lenders’ Affiliates, which accounts shall represent at least 75% of the dollar value of the Borrower’s and such Domestic Subsidiaries’ accounts at all financial institutions. All of the Loan Parties’ depository, operating and securities accounts shall be and remain subject to an account control agreement in form and substance reasonably satisfactory to the Administrative Agent (each, a “ Control Agreement ”) duly executed on behalf of the applicable financial institution. Notwithstanding the foregoing, the Borrower may maintain two accounts at JPMorgan Chase Bank, N.A., that are not subject to a Control Agreement provided that the aggregate amount on deposit in such accounts does exceed $300,000 at any time.
           (b) Deposit on a daily basis directly into an account with a Lender or one or more of the Lenders’ Affiliates (which account, if maintained with an Affiliate of a Lender, shall be subject to a Control Agreement) (or cause the ACH or wire transfer of) all of the Borrower’s cash receipts and collections, including, without limitation, (i) all collections from Account Debtors of the Borrower, (ii) all of the Borrower’s available cash receipts from the sale of Inventory and other assets, and (iii) all cash payments received from any Person or from any source or on account of any sale or other transaction or event.
           (c) No Group Member or Immaterial Subsidiary shall maintain any depository account, operating account, securities account or other bank or investment account outside of the United States; provided , that the Excluded Foreign Subsidiaries may maintain depository accounts, operating accounts, securities accounts or other bank or investment accounts outside the United States provided that the aggregate value of all assets in all such accounts shall at no time exceed $10,000,000.
      6.10 Audits. At reasonable times and as often as may be reasonably desired, on one (1) Business Day’s notice ( provided that no notice is required if an Event of Default has occurred and is continuing), the Administrative Agent, any Lender, or any of their agents, shall have the right to inspect the Collateral and the right to audit, copy, and make abstracts from any and all of any Group Member’s books and records including ledgers, federal and state tax returns, records regarding assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information, to visit and inspect any of the Group Member’s properties, and to discuss the business, operations, properties and financial and other condition of the Group Members with officers and employees of the Group Members and with their independent certified public accountants. The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850 per person per day (or such higher amount as shall represent the Administrative Agent’s then-current standard charge for the same), plus reasonable out-of-pocket expenses; provided , prior to the occurrence and continuance of an Event of Default, that such expenses shall not exceed $15,000 in any year, so long as no Default or Event of Default shall have occurred and be continuing, the Borrower shall be not obligated to reimburse the Administrative Agent or such Lender for more than one (1) audit per year.

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      6.11 Additional Collateral, etc .
           (a) With respect to any property (to the extent included in the definition of Collateral) acquired after the Closing Date by any Loan Party (other than (x) any property described in paragraph (b), (c) or (d) below, and (y) any property subject to a Lien expressly permitted by Section 7.3(g)) as to which the Administrative Agent, for the benefit of the Secured Parties, does not have a perfected Lien, promptly (and in any event within three (3) Business Days) (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Administrative Agent deems necessary or advisable to evidence that they are a Guarantor and to grant to the Administrative Agent, for the benefit of the Secured Parties, a security interest in such property and (ii) take all actions necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority (except as expressly permitted by Section 7.3) security interest in such property, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent.
           (b) With respect to any fee interest in any real property having a value (together with improvements thereof) of at least $500,000 acquired after the Closing Date by any Loan Party (other than any such real property subject to a Lien expressly permitted by Section 7.3(g)), promptly (i) execute and deliver a first priority Mortgage, in favor of the Administrative Agent, for the benefit of the Secured Parties, covering such real property, (ii) if requested by the Administrative Agent, provide the Lenders with (x) title and extended coverage insurance covering such real property in an amount at least equal to the purchase price of such real property (or such other amount as shall be reasonably specified by the Administrative Agent) as well as a current ALTA survey thereof, together with a surveyor’s certificate, and (y) any consents or estoppels reasonably deemed necessary or advisable by the Administrative Agent in connection with such Mortgage, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.
           (c) With respect to any new Subsidiary (other than an Excluded Foreign Subsidiary or an Immaterial Subsidiary) created or acquired after the Closing Date by any Group Member (which, for the purposes of this Section 6.11(c), shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary or Immaterial Subsidiary), promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in the Capital Stock of such new Subsidiary (other than an Excluded Foreign Subsidiary or an Immaterial Subsidiary) that is owned by any Loan Party, (ii) deliver to the Administrative Agent such documents and instruments as may be required to grant, perfect, protect and ensure the priority of such security interest, including but not limited to, the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the relevant Group Member, (iii) cause such new Subsidiary (other than an Excluded Foreign Subsidiary or an Immaterial Subsidiary) (x) to become a Borrower or a

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Subsidiary Guarantor party to this Agreement and/or the Guarantee and Collateral Agreement, (y) to take such actions necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement, with respect to such new Subsidiary (other than an Excluded Foreign Subsidiary or an Immaterial Subsidiary), including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent and (z) to deliver to the Administrative Agent a certificate of such Subsidiary (other than an Excluded Foreign Subsidiary or an Immaterial Subsidiary), in a form reasonably satisfactory to the Administrative Agent, with appropriate insertions and attachments, (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent, and (v) in the case of a new Borrower hereunder, deliver an allonge executed by such new Borrower to each Lender amending its Note.
           (d) With respect to any new Excluded Foreign Subsidiary created or acquired after the Closing Date by any Loan Party, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement, as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in the Capital Stock of such new Excluded Foreign Subsidiary that is owned by any such Group Member ( provided that in no event shall more than 65% of the total outstanding voting Capital Stock of any such new Excluded Foreign Subsidiary be required to be so pledged), (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the relevant Group Member, and take such other action as may be necessary or, in the opinion of the Administrative Agent, desirable to perfect the Administrative Agent’s security interest therein, and (iii) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.
           (e) Each Loan Party shall use commercially reasonable efforts to obtain a landlord’s agreement or bailee letter, as applicable, from the lessor of each leased property or bailee with respect to any warehouse, processor or converter facility or other location where Collateral is stored or located, which agreement or letter shall contain a waiver or subordination of all Liens or claims that the landlord or bailee may assert against the Collateral at that location, and shall otherwise be reasonably satisfactory in form and substance to the Administrative Agent. After the Closing Date, no real property or warehouse space shall be leased by any Loan Party and no Inventory shall be shipped to a processor or converter under arrangements established after the Closing Date, without the prior written consent of the Administrative Agent or unless and until a reasonably satisfactory landlord agreement or bailee letter, as appropriate, shall first have been obtained with respect to such location. Each Loan Party shall timely and fully pay and perform its obligations under all leases and other agreements with respect to each leased location or public warehouse where any Collateral is or may be located.
      6.12 Use of Proceeds . Use the proceeds of each Credit Extension only for the purposes set forth in Section 4.16 and not prohibited under Section 4.11.

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      6.13 Designated Senior Indebtedness . Cause the Loan Documents and all of the Obligations to be deemed “Designated Senior Indebtedness” or a similar concept thereof for purposes of any Indebtedness of the Loan Parties.
      6.14 Further Assurances . Execute any further instruments and take such further action as the Administrative Agent reasonably deems necessary to perfect, protect, ensure the priority of or continue the Administrative Agent’s Lien on the Collateral or to effect the purposes of this Agreement.
SECTION 7
NEGATIVE COVENANTS
     Borrower hereby agrees that, until all Commitments have been terminated and the principal of and interest on each Loan, all fees and all other expenses or amounts payable under any Loan Document (other than inchoate indemnity obligations) shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, the Borrower shall not, as to itself, nor shall the Borrower permit any of its Subsidiaries to, directly or indirectly:
      7.1 Financial Condition Covenants .
           (a) Modified Quick Ratio . Permit the Quick Ratio to be tested as of the last day of each month, to be less than 2.00 to 1.00; provided that Borrower shall not be required to comply with the foregoing covenant for the months ending on April 30, 2011, May 31, 2011, April 30, 2012 and May 31, 2012, so long as the Borrower has unrestricted cash on deposit with the Administrative Agent of not less than $50,000,000 as of the applicable month-end date.
           (b) Minimum EBITDAR . Permit EBITDAR to be less than (i) $25,000,000 for the twelve months ending on March 31, 2011 and June 30, 2011, and (ii) $35,000,000 for the twelve months ending on September 30, 2011 and on the last day of each fiscal quarter thereafter.
           (c) Fixed Charge Coverage Ratio . Permit the Fixed Charge Coverage Ratio, calculated as of the last day of each fiscal quarter on a trailing twelve month basis, during the periods set forth below to be less than the ratio set forth below opposite such period:
     
    Consolidated Fixed Charge
Period   Coverage Ratio
January 1, 2011 through June 30, 2011
  1.25:1.00
July 1, 2011 and thereafter
  1.75:1.00
      7.2 Indebtedness . Create, issue, incur, assume, become liable in respect of or suffer to exist any Indebtedness, except:

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           (a) Indebtedness of any Loan Party pursuant to any Loan Document;
           (b) so long as an Intercompany Subordination Agreement is in full force and effect, Indebtedness of (i) the Borrower or any Subsidiary Guarantor to any other Loan Party or (ii) any Subsidiary (which is not a Subsidiary Guarantor) to any other Subsidiary (which is not a Subsidiary Guarantor);
           (c) Guarantee Obligations incurred in the ordinary course of business by the Borrower and its Subsidiaries of obligations of any Wholly Owned Subsidiary Guarantor;
           (d) Indebtedness outstanding on the date hereof and listed on Schedule 7.2(d) and any refinancings, refundings, renewals or extensions thereof (without shortening the maturity thereof, increasing the principal amount thereof or increasing the rate of interest thereon);
           (e) Indebtedness (including, without limitation, Capital Lease Obligations) secured by Liens permitted by Section 7.3(g) in an aggregate principal amount not to exceed $500,000 at any one time outstanding and any refinancings, refundings, renewals or extensions thereof (without shortening the maturity thereof, increasing the principal amount thereof or increasing the rate of interest thereon);
           (f) Surety Indebtedness;
     Indebtedness of the type described in clause (b) of the definition of Indebtedness consisting of earn-out or other acquisition-related obligations incurred in connection with acquisitions by the Borrower or any of its Subsidiaries that are otherwise permitted by the terms of this Agreement; provided , that , the total amount of such Indebtedness consisting of earn-out or other acquisition-related obligations shall not exceed (i) $1,000,000 for any single acquisition or (ii) $3,000,000 in the aggregate for all acquisitions during the term of this Agreement; and
           (g) additional Indebtedness of the Borrower or any of its Subsidiaries in an aggregate principal amount (for the Borrower and all Subsidiaries) not to exceed $500,000 at any one time outstanding.
      7.3 Liens . Create, incur, assume or suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired, except:
           (a) Liens for taxes not yet due or that are being contested in good faith by appropriate proceedings; provided that adequate reserves with respect thereto are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP;
           (b) carriers’, warehousemen’s, landlord’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business that are not overdue for a period of more than thirty (30) days or that are being contested in good faith by appropriate proceedings;
           (c) pledges or deposits in connection with workers’ compensation, unemployment insurance and other social security legislation;

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           (d)  deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
           (e)  easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, are not substantial in amount and that do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or its Subsidiaries;
           (f)  Liens in existence on the date hereof listed on Schedule 7.3(f), securing Indebtedness permitted by Section 7.2(d); provided that no such Lien is spread to cover any additional property after the Closing Date and that the amount of Indebtedness secured thereby is not increased;
           (g)  Liens securing Indebtedness of the Borrower or any Subsidiary incurred pursuant to Section 7.2(e) to finance the acquisition of fixed or capital assets; provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (iii) the amount of Indebtedness secured thereby is not increased;
           (h)  Liens created pursuant to the Security Documents;
           (i)  any interest or title of a lessor under any lease entered into by the Borrower or any Subsidiary in the ordinary course of its business and covering only the assets so leased;
           (j)  judgment Liens that do not constitute a Default or Event of Default under Section 8.1(h) of this Agreement; and
           (k)  Liens not otherwise permitted by this Section 7.3 securing obligations permitted hereunder so long as neither (i) the aggregate outstanding principal amount of the obligations secured thereby nor (ii) the aggregate fair market value (determined as of the date such Lien is incurred) of the assets subject thereto exceeds (as to the Borrower and its Subsidiaries) $500,000 at any one time.
      7.4 Fundamental Changes . Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its property or business, except that:
           (a)  any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower ( provided that the Borrower shall be the continuing or surviving Person) or with or into any Wholly Owned Subsidiary Guarantor ( provided that the Wholly Owned Subsidiary Guarantor shall be the continuing or surviving Person);
           (b)  any Subsidiary of the Borrower may Dispose of any or all of its assets (i) to the Borrower or any Wholly Owned Subsidiary Guarantor (upon voluntary liquidation or otherwise) or (ii) pursuant to a Disposition permitted by Section 7.5; and

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           (c)  any Investment expressly permitted by Section 7.8 may be structured as a merger, consolidation or amalgamation.
      7.5 Disposition of Property . Dispose of any of its property, whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary’s Capital Stock to any Person, except:
           (a)  the Disposition of obsolete, worn out, or surplus property in the ordinary course of business;
           (b)  the sale of Inventory in the ordinary course of business;
           (c)  Dispositions permitted by clause (i) of Section 7.4(b);
           (d)  the sale or issuance of any Subsidiary’s Capital Stock to the Borrower or any Wholly Owned Subsidiary Guarantor so long as such Capital Stock is pledged to the Administrative Agent for the benefit of the Secured Parties;
           (e)  subject in all respects to Section 8.1(k), the sale or issuance of the Borrower’s Capital Stock;
           (f)  the use or transfer of money or Cash Equivalents in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents;
           (g)  the licensing of patents, trademarks, copyrights, and other intellectual property rights on a non exclusive basis in the ordinary course of business; and
           (h)  the Disposition of other property having a fair market value not to exceed $500,000 in the aggregate for any fiscal year of the Borrower.
      7.6 Restricted Payments . 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, or declare or pay any dividend (other than dividends payable solely in common stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of any Group Member, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of any Group Member (collectively, “ Restricted Payments ”), except that:
           (a)  any Subsidiary may make Restricted Payments to its parent ( provided such parent is a Loan Party or, if such parent is not a Loan Party, such Restricted Payment is promptly distributed to a Loan Party), to the Borrower, or to any Wholly Owned Subsidiary Guarantor; and
           (b)  so long as no Default or Event of Default shall have occurred and be continuing, the Borrower may: (i) purchase common stock or common stock options from

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present or former officers, directors or employees of any Group Member upon the death, disability or termination of employment of such officer, director, or employee; provided that the aggregate amount of payments under this clause (i) shall not exceed $250,000 during any fiscal year of the Borrower; and (ii) repurchase or redeem common stock of EnerNOC held by its public stockholders, provided that both immediately before and after making such repurchase or redemption pursuant to this clause (ii), the Borrower and its Subsidiaries shall be in pro forma compliance with all of the covenants set forth in Section 7.1 and no Default or Event of Default shall have occurred and be continuing and provided further that the aggregate amount of repurchases under this clause (ii) shall not exceed $1,000,000 during any fiscal year of the Borrower.
      7.7 Investments . Make any advance, loan, extension of credit (by way of guarantee or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting a business unit of, or make any other investment in, any Person (all of the foregoing, “ Investments ”), except:
           (a)  extensions of trade credit in the ordinary course of business;
           (b)  Investments in cash and Cash Equivalents;
           (c)  Guarantee Obligations permitted by Section 7.2;
           (d)  loans and advances to employees of any Group Member in the ordinary course of business (including for travel, entertainment and relocation expenses) in an aggregate amount for all Group Members not to exceed $250,000 at any one time outstanding;
           (e)  intercompany Investments by any Group Member in the Borrower or any Person that, prior to such investment, is a Wholly Owned Subsidiary Guarantor;
           (f)  Investments in the ordinary course of business consisting of endorsements of negotiable instruments for collection or deposit;
           (g)  Investments received in settlement of amounts due to the Borrower or any of its Subsidiaries effected in the ordinary course of business or owing to the Borrower 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 the Borrower or its Subsidiaries;
           (h)  Permitted Acquisitions; and
           (i)  (i) Investments of a Subsidiary that is not a Borrower hereunder in or to other Subsidiaries or a Borrower, (ii) Investments of a Borrower in another Borrower, and (iii) Investments by Borrower in Subsidiaries that are not Borrowers hereunder for the ordinary and necessary current operating expenses of such Subsidiaries so long as the aggregate amount of such Investments does not exceed Five Million Dollars ($5,000,000.00) per fiscal year.
      7.8 Modifications of Certain Preferred Stock and Debt Instrument . (a) Amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of any Preferred Stock (i) that would move to an earlier date

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the scheduled redemption date or increase the amount of any scheduled redemption payment or increase the rate or move to an earlier date any date for payment of dividends thereon or (ii) that would be otherwise materially adverse to any Lender or any other Secured Party; or (b) amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of any Indebtedness permitted by Section 7.2 (other than Indebtedness pursuant to any Loan Document) that would shorten the maturity or increase the amount of any payment of principal thereof or the rate of interest thereon or shorten any date for payment of interest thereon or that would be otherwise materially adverse to any Lender or any other Secured Party.
      7.9 Transactions with Affiliates . Enter into any transaction, including any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Borrower or any Wholly Owned Subsidiary Guarantor) unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of business of the relevant Group Member, and (c) upon fair and reasonable terms no less favorable to the relevant Group Member than it would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate.
      7.10 Sale Leaseback Transactions . Enter into any Sale Leaseback Transaction.
      7.11 Swap Agreements . Enter into any Swap Agreement, except (a) Swap Agreements entered into to hedge or mitigate risks to which the Borrower or any Subsidiary has actual exposure (other than those in respect of Capital Stock) and (b) Swap Agreements entered into to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of the Borrower or any Subsidiary.
      7.12 Changes in Fiscal Periods . Permit the fiscal year of the Borrower to end on a day other than December 31 or change the Borrower’s method of determining fiscal quarters.
      7.13 Negative Pledge Clauses . Enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of any Group Member to create, incur, assume or suffer to exist any Lien upon any of its property or revenues, whether now owned or hereafter acquired, to secure its obligations under the Loan Documents to which it is a party other than (a) this Agreement and the other Loan Documents, (b) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby) and (c) customary restrictions on the assignment of leases, licenses and other agreements.
      7.14 Clauses Restricting Subsidiary Distributions . Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the Borrower to (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any Subsidiary of the Borrower, (b) make loans or advances to, or other Investments in, the Borrower or any Subsidiary of the Borrower or (c) transfer any of its assets to the Borrower or any Subsidiary of the Borrower, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents, (ii) any restrictions with respect to a Subsidiary imposed

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pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary, (iii) customary restrictions on the assignment of leases, licenses and other agreements, and (iv) restrictions of the nature referred to in clause (c) above under agreements governing purchase money liens or Capital Lease Obligations otherwise permitted hereby which restrictions are only effective against the assets financed thereby.
      7.15 Lines of Business . In the case of the Borrower and its Subsidiaries, enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or that are reasonably related thereto.
      7.16 Amendments to Organizational Agreements and Material Contracts . No Loan Party shall (a) amend or permit any amendments to any Loan Party’s organizational documents, if such amendment would be adverse to the Administrative Agent or the Lenders or (b) amend or permit any amendments to, or terminate or waive any provision of, any material Contractual Obligation if such amendment, termination, or waiver would be adverse to Administrative Agent or the Lenders.
SECTION 8
EVENTS OF DEFAULT
      8.1 Events of Default . If any of the following events shall occur:
           (a)  the Borrower shall fail to pay any principal of any Loan when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan, or any other amount payable hereunder or under any other Loan Document, within three (3) Business Days after any such interest or other amount becomes due in accordance with the terms hereof; or
           (b)  any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made (or if any representation or warranty is expressly stated to have been made as of a specific date, inaccurate in any material respect as of such specific date); or
           (c)  (1) any Loan Party shall default in the observance or performance of any agreement contained in clause (i) or (ii) of Section 6.4(a) (with respect to the Borrower only), Sections 6.5(b), 6.7(a), 6.9, 6.10, 6.12, 6.13, or Section 7 of this Agreement or (2) an “ Event of Default ” under and as defined in any Mortgage shall have occurred or (3) any Loan Party shall default in the observance or performance of any agreement contained in Sections 6.1 or 6.2 of this Agreement, and such default shall continue unremedied for a period of three (3) days thereafter, or

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           (d)  any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section 8), and such default shall continue unremedied for a period of thirty (30) days thereafter; or
           (e)  any Group Member shall (i) default in making any payment of any principal of any Indebtedness (including any Guarantee Obligation, but excluding the Loans) on the scheduled or original due date with respect thereto, or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created, or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to (x) cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or, in the case of any such Indebtedness constituting a Guarantee Obligation, to become payable or (y) to cause, with the giving of notice if required, any Group Member to purchase or redeem or make an offer to purchase or redeem such Indebtedness prior to its stated maturity; provided that a default, event or condition described in clauses (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) or (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the outstanding principal amount of which exceeds in the aggregate $500,000; or
           (f)  (i) any Group Member shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Group Member shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Group Member any case, proceeding or other action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (iii) there shall be commenced against any Group Member any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (iv) any Group Member shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (i), (ii), or (iii) above; or (v) any Group Member shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or
           (g)  (i) any Person shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan; (ii) any “accumulated

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funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of any Group Member or any Commonly Controlled Entity; (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA; (v) any Group Member or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan; or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could, in the sole judgment of the Required Lenders, reasonably be expected to have a Material Adverse Effect; or
           (h)  one or more judgments or decrees shall be entered against any Group Member involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) of $500,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within thirty (30) days from the entry thereof; or
           (i)  any of the Security Documents shall cease, for any reason, to be in full force and effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or
           (j)  the guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in full force and effect or any Loan Party or any Affiliate of any Loan Party shall so assert; or
           (k)  a Change of Control shall occur; or
           (l)  any of the Governmental Approvals shall have been (i) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or (ii) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of the Governmental Approvals or that could result in the Governmental Authority taking any of the actions described in clause (i) above, and such decision or such revocation, rescission, suspension, modification or nonrenewal (A) has, or could reasonably be expected to have, a Material Adverse Effect, or (B) adversely affects the legal qualifications of any Group Member to hold any of the Governmental Approvals in any applicable jurisdiction and such revocation, rescission, suspension, modification or nonrenewal could reasonably be expected to affect the status of or legal qualifications of any Group Member to hold any of the Governmental Approvals in any other jurisdiction;
then, during the continuance of any such event, (a) if such event is an Event of Default specified in clauses (i) or (ii) of paragraph (f) above with respect to the Borrower, the Commitments shall immediately terminate automatically and the Loans (with accrued interest thereon) and all other

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amounts owing under this Agreement and the other Loan Documents shall automatically immediately become due and payable, and (b) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the Revolving Commitments to be terminated forthwith, whereupon the Revolving Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon and all amounts drawn thereunder have been reimbursed in full and all other obligations of the Borrower hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto). Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrower.
      8.2 Application of Funds . After the exercise of remedies provided for in Section 8.1 (or after the Loans have automatically become immediately due and payable as set forth in the proviso to Section 8.1 ), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:
           (a)  first , to pay any costs and expenses (including cost or expense reimbursements) or indemnities then due to the Administrative Agent under the Loan Documents, until paid in full;
           (b)  second , to pay any fees or premiums then due to the Administrative Agent under the Loan Documents until paid in full;
           (c)  third , ratably, to pay any costs and expenses (including cost or expense reimbursements) or indemnities then due to any of the Lenders under the Loan Documents, until paid in full;
           (d)  fourth , ratably, to pay any fees or premiums then due to any of the Lenders under the Loan Documents until paid in full;
           (e)  fifth , to pay interest accrued in respect of the Swingline Loans until paid in full;

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           (f)  sixth , to pay the principal of all Swingline Loans until paid in full;
           (g)  seventh , ratably, to pay interest accrued in respect of the Revolving Loans until paid in full;
           (h)  eighth , ratably, (i) to pay the principal of all Revolving Loans until paid in full, and (ii) to the Administrative Agent, to be held by the Administrative Agent for the benefit of the Issuing Lender (and for the ratable benefit of each of the Revolving Lenders that have an obligation to pay to the Administrative Agent, for the account of the Issuing Lender, a share of each L/C Disbursement), as cash collateral in an amount up to 105% of the L/C Exposure (to the extent permitted by applicable law, such cash collateral shall be applied to the reimbursement of any L/C Disbursement as and when such disbursement occurs and, if a Letter of Credit expires undrawn, the cash collateral held by the Administrative Agent in respect of such Letter of Credit shall, to the extent permitted by applicable law, be reapplied pursuant to this Section 8.2 , beginning with tier (a) hereof);
           (i)  ninth , to pay any other Obligations (including being paid, ratably, to the Lenders on account of all amounts then due and payable in respect of Cash Management Services, FX Forward Agreements, and Specified Swap Agreements, with any balance to be paid to the Administrative Agent, to be held by the Administrative Agent, for the ratable benefit of the Lenders, as cash collateral (which cash collateral may be released by the Administrative Agent to the applicable Lender and applied by such Lender to the payment or reimbursement of any amounts due and payable with respect to Cash Management Services, FX Forward Agreements, or Specified Swap Agreements owed to the applicable Lender as and when such amounts first become due and payable and, if and at such time as all such Obligations arising from Cash Management Services, FX Forward Agreements, and Specified Swap Agreements are paid or otherwise satisfied in full, the cash collateral held by the Administrative Agent in respect of such Cash Management Services, FX Forward Agreements, and Specified Swap Agreements shall be reapplied pursuant to this Section 8.2 , beginning with tier (a) hereof); and
           (j)  tenth , to the Borrower or such other Person entitled thereto under applicable law.
SECTION 9
THE ADMINISTRATIVE AGENT
      9.1 Appointment and Authority .
           (a)  Each of the Lenders hereby irrevocably appoints SVB to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.
           (b)  The provisions of Section 9 are solely for the benefit of the Administrative Agent, the Lenders and the Issuing Lender, and neither the Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions. Notwithstanding any

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provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities to any Lender or any other Person, except those expressly set forth herein, or any fiduciary relationship with any Lender, 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 the Administrative Agent.
      9.2 Delegation of Duties . The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Section 9 shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as the Administrative Agent.
      9.3 Exculpatory Provisions . The Administrative Agent shall have no duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent shall not:
           (a)  be subject to any fiduciary or other implied duties, regardless of whether any Default or any Event of Default has occurred;
           (b)  have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), as applicable; provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and
           (c)  except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and the Administrative Agent shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by any Person serving as the Administrative Agent or any of its Affiliates in any capacity.
     The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 10.1) or (ii) in the absence of its own gross negligence or willful misconduct.
     The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other

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document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Section 5 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
      9.4 Reliance by Administrative Agent . The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or such other number or percentage of Lenders as shall be provided for herein or in the other Loan Documents) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or such other number or percentage of Lenders as shall be provided for herein or in the other Loan Documents), and such request and any action taken or failure to act pursuant thereto shall be binding upon the Lenders and all future holders of the Loans.
      9.5 Notice of Default . The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “ notice of default ”. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action or refrain from taking such action with

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respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.
      9.6 Non-Reliance on Administrative Agent and Other Lenders . Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys in fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including any review of the affairs of a Group Member or any affiliate of a Group Member, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Group Members and their Affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent 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 analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Group Members and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall have no duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Group Member or any Affiliate of a Group Member that may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys in fact or Affiliates.
      9.7 Indemnification . Each of the Lenders agrees to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrower or any other Loan Party and without limiting the obligation of the Borrower or any other Loan Party to do so), according to its Aggregate Exposure Percentage in effect on the date on which indemnification is sought under this Section 9.7 (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, in accordance with its Aggregate Exposure Percentage immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted primarily from the Administrative Agent’s gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.

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      9.8 Agent in Its Individual Capacity . The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include each such Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
      9.9 Successor Administrative Agent . The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the State of New York, or an Affiliate of any such commercial bank with an office in the State of New York. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that , if the retiring Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that, in the case of any collateral security held by the Administrative Agent on behalf of the Secured Parties under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed and such collateral security is assigned to such successor Administrative Agent) and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this paragraph. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this paragraph). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Section 9 and Section 10.5 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as the Administrative Agent.

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SECTION 10
MISCELLANEOUS
      10.1 Amendments and Waivers .
           (a)  Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 10.1. The Required Lenders and each Loan Party party to the relevant Loan Document may, from time to time, (i) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (ii) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided that no such waiver and no such amendment, supplement or modification shall (A) forgive the principal amount or extend the final scheduled date of maturity of any Loan, reduce the stated rate of any interest or fee payable hereunder (except 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 fees for purposes of this clause (A)) or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Lender’s Revolving Commitment, in each case without the written consent of each Lender directly affected thereby; (B) eliminate or reduce the voting rights of any Lender under this Section 10.1 without the written consent of such Lender; (C) reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release all or substantially all of the Subsidiary Guarantors from their obligations under the Guarantee and Collateral Agreement, in each case without the written consent of all Lenders; (D) (i) amend, modify or waive the requirements of Section 2.13 in a manner that adversely affects Revolving Lenders without the written consent of each Revolving Lender, (ii) amend, modify or waive the pro rata requirements of Section 2.13 in a manner that adversely affects the L/C Lenders without the written consent of all L/C Lenders, or (iii) amend, modify, or waive the provisions of Section 8.2 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of all Lenders; (E) amend the definition of Obligations to delete any obligation from the definition thereof without the written consent of all Lenders; (F) amend, modify or waive any provision of Section 9 without the written consent of the Administrative Agent; (G) amend, modify or waive any provision of Section 2.3 or 2.4 without the written consent of the Swingline Lender; (H) amend, modify or waive any provision of Section 3 without the written consent of each Issuing Lender; or (I) amend, modify or waive any provision of Section 8.2 without the written consent of all Lenders. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured during the period such

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waiver is effective; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon.
                (b)  Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent, the Borrower, (i) to add one or more additional credit facilities to this Agreement and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Revolving Extensions of Credit and the accrued interest and fees in respect thereof and (ii) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders.
           10.2 Notices . All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Borrower and the Administrative Agent, and as set forth in an administrative questionnaire delivered to the Administrative Agent in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto:
         
 
  Borrower:
  c/o EnerNOC, Inc.
101 Federal Street
Boston, Massachusetts 02110
Attention: Michael J. Berdik
Facsimile No.: (617) 224-9910

with a copy to:

Goodwin Procter LLP
53 State Street
Boston, Massachusetts 02109
Attention: Mark Smith, Esq.
Facsimile No.: (617)523-1231

 
  Administrative Agent:   Silicon Valley Bank
275 Grove Street
Suite 2-200
Newton, Massachusetts 02466
Attention: Mr. Dave Rodriguez
Facsimile No.: (617) 969-5478

with a copy to:

Riemer & Braunstein, LLP
3 Center Plaza
Boston, MA 02108
Attn.: Charles W. Stavros, Esq.
Facsimile No.: (617) 692-3441

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provided that any notice, request or demand to or upon the Administrative Agent or the Lenders shall not be effective until received.
     Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Section 2 unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. Unless the Administrative Agent otherwise prescribes, (a) notices and other communications sent to an email address 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); provided that , if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient; and (b) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its email address as d